Point: Create an internal venture fund to incubate revolutionary ideas.

Story: This week’s Innovation Summit at the Shell Technology Center Houston (STCH) highlighted the need for innovation and collaboration to solve society’s most pressing challenges. As the world’s problems become more complex, the best way to tackle them is with a cross-disciplinary approach.

What are some ways that companies can foster this multidisciplinary collaboration to achieve breakthrough innovation? One way is to create an open mechanism inside the company that solicits promising ideas regardless of where they come from — including outside the company — and offering seed funding that’s outside of the company’s traditional R&D programs to give them time to develop.

GameChanger

Shell is doing this with its GameChanger program, headed by Russ Conser.  GameChanger seeks out and invests in early-stage ideas that could potentially revolutionize the energy industry. GameChanger plays the role of an angel investor; a panel screens ideas and selects ones to fund. Idea submissions can come from any Shell employee as well as from outside the company.

Shell actively solicits ideas from academics and entrepreneurs alike through its web site www.shell.com/GameChanger.  Ideas that pass the initial screen receive seed money — $25,000 to develop a robust proposal and on up to $500,000- $1 million a year to actually test and develop ideas that graduate into projects.

Example

For example, Erik Cornelissen, a research scientist, was in a toy store looking for a gift for his nephews when he saw a science toy that many of us have seen before: a dinosaur that grows in size when placed in water. A nifty, fun gift. But Erik made a connection back to a perplexing problem that had plagued Shell and other oil companies for a long time. Specifically, oil wells contain water, not just oil. Over time, more and more water gets pumped up relative to oil.  Not only does that make the well less productive, but it pumps water that increasingly is becoming a scarce resource itself. The question is, how to detect that water and prevent it from mixing with the oil?

Erik realized that the same principle behind the dinosaur toy — a material that expands upon contact with water — could be applied at the oil well. Erik needed to identify a “swellable elastomer” that would seal off the pipe when water started to mix with the oil flowing through it. The idea was not difficult to articulate or explain, but finding this kind of material proved long and difficult. GameChanger provided Erik with the time and funding he needed to go through hundreds of experiments to find the elastomer that fit the demanding conditions at the oil well site.

Results

About 40% of Shell’s core Exploration & Development R&D portfolio has evolved from ideas submitted to GameChanger, and 70% of the GameChanger portfolio includes collaboration with people outside of Shell.

Since its inception in 1996, GameChanger has funded 3000 ideas, investing $350 million and resulting in 250 commercial projects, said Gerald Schotman, EVP, Innovation, R&D and Chief Technology Officer at Shell.

Action

• Publicize clear and explicit selection criteria, so external submitters know what you want and will fund.  For example, GameChanger uses 3 primary criteria:

1. Novelty: is the idea truly and fundamentally new and different? (There’s no point in funding ideas that would qualify as traditional R&D projects.)
2. Value: Could the idea create substantial new value if it works? (Wild ideas are welcome, but ultimately they need to deliver value if they come to fruition.)
3. Credible Plan: is there a plan to manage risks prudently? (New ideas are risky, but many risks can be identified up front and plans can be put in place to stay ahead of them.)

• Have an end game for how you’ll commercialize an idea that demonstrates feasibility. For example, GameChanger uses 3 commercialization strategies:

1. Move the idea into the company’s internal R&D portfolio.
2. License the idea externally.
3. Spin off a new company to bring the idea to market.

Point: Create new business models using a visual, collaborative tool like Alex Osterwalder’s Business Model Canvas.
Story:  Business models are complex, which makes them hard to talk about. A business has many interrelated moving pieces.  It’s easy for you and your team to miss something when creating one. And with so much complexity and so many possibilities, it’s easy misunderstand each other when we try to invent new business models.
Luckily, there’s a solution. Alex Osterwalder’s Business Model Canvas is a visual tool that helps structure our thinking about business models.

At Osterwalder’s Business Model workshop at BIF8 last week, I saw the power of his Business Model Canvas firsthand.  Osterwalder outlined the Canvas method and gave the group the assignment to generate a business model for a specific startup.  Small groups clustered around their canvas and the room buzzed with discussion and the squeak of markers as participants took turns sketching out ideas.  As we worked, I was struck by three key features of Osterwalder’s approach.

The first key feature was that Osterwalder encouraged sketching, not just making lists of words. “Any problem can be made clearer with a picture,” he said. The visual artifact lets people react to something concrete.  To encourage people who think they can’t draw, Osterwalder pointed out that people can interpret a stick figure more easily than an abstract concept. “Drawing something, however badly, makes an abstract concept concrete, giving people an opportunity to react to it,” Osterwalder said. Visual thinking helps with understanding, dialogue, exploration and communication.

The second key feature was that Alex had us make our sketches and notes on Post-It® notes.  We then stuck these to the Canvas.  The key part was that then we could move the notes around as we figured out where on the canvas they belonged. “Post-It® notes are like containers of ideas,” Osterwalder said, that can be easily picked up and moved around.  Thus, we could reconfigure our ideas as we refined them.

The third key feature was that the Canvas with its Post-It® notes ensures you don’t miss an important area. Because business models are so complex, with many interlocking pieces, it’s hard to hold all the pieces in memory and see their interactions and dependencies. The Canvas helps everyone see all the pieces and confirm that they work together and make sense. People can use different colors of Post-It notes for different business models, which lets them compare alternate models on the same Canvas. This side-by-side comparison can help to then pick the most promising model to test.

Action:

• If you’re working in a group, print the Canvas in large format (we used 3′ x 4′ at the workshop).
• Most people start on the righthand side of the Canvas, which is the customer side of your business model. It has the “Customer Segments,” “Channels,” and “Customer Relationships” areas. The lefthand side defines the infrastructure of the business with “Key Activities,” “Key Resources,” and “Partner Networks.” A central “Value Proposition” sits between the infrastructure areas that deliver on the proposition and the customer areas that receive the value. Finally, the “Cost Structure” and “Revenue Streams” areas on the bottom sit respectively under the infrastructure and customer sides of the canvas to define the financial side of the model.
• Play with different kinds of models. For example, Nestlé (in its Nespresso business) tested a model in which Nestlé sold its espresso machine through retail but sold the individual “pods” of coffee directly to consumers. Going direct was new to Nestlé but proved to be very lucrative because Nestle didn’t have to share revenue with the retailer.
• Keep interdependencies in mind. Every revenue stream, for example, must have a customer segment with an accompanying value proposition that makes it clear why they would pay.  And every activity, resource, or partner might incur costs.

Sources:
Alex Osterwalder’s bestselling Business Model Generation book is a must!

Alex Osterwalder’s Business Model workshop at BIF8.  See his calendar of upcoming speeches and workshops.
Alex Osterwalder’s slides on SlideShare, such as

Point: Exponential trends in technology make the future more —  not less — predictable.

Story: At the World Innovation Forum in June, Ray Kurzweil, inventor of the first CCD scanner and author of The Singularity is Near, talked about the ease of predicting the future by spotting and extrapolating exponential trends.  Although Gordon Moore uttered his famous Law around 1970, Kurzweil found that the exponential trends in computation and data transmission predate Moore’s Law by many decades.  Moore spoke of the rate of evolution of semiconductor chips, but the trend started in earlier generations of computing and communications technologies including mechanical relays, vacuum tubes, and the first transistorized devices.  Even wars and depressions failed to halt the exponential progress in performance.  Trends in miniaturization and mass production meant information technologies improved at a steady pace across the decades.

Kurzweil noted that many people don’t understand the basic math of exponential trends.  When the Human Genome project had sequenced only 1% of the genome after seven years of costly labor, many cited the lack of progress as evidence that the project was doomed.  Yet the sequencing project was riding an exponential trend in the performance DNA sequencing methods.  Instead of taking another seven years to sequence a second 1%, they reached it after only one year. Then they reached 4% in about another year, then 8%, 16%, and so on.  It took about as much time to sequence the last 99% as it took to sequence the first 1%.  That’s the nature of exponential trends — they seem to start glacially slowly but finish lightening fast.

This trend continues unabated.  Along with exponential performance improvement comes an exponential drop in cost and an exponential rise in use.  What once took a billion dollars per genome is now costing a few thousand dollars per genome. Soon, scientists expect to have one million human genomes sequenced.  If genome sequencing is cheap enough, it can be used on every person, every cancer cell, every agricultural product, every bacteria, every virus, and even every pet. As performance hits key thresholds or cost drops below key thresholds, new applications can arise at predictable times.

What makes the future predictable with exponential trends is that we can estimate the crossing points when something becomes good enough, cheap enough, or valued enough for widespread use and new applications. Search engines arose from both the growing demand for finding websites in the exponentially growing World Wide Web and the declining costs of computer servers needed to offer a “free” search engine. Likewise, social networking arose as connectivity costs dropped, connectivity increased, and computer prices dropped.  Kurzweil said we may not be able to predict which company will rise like Google or Facebook to dominate some new application, but we can predict that such an application will become feasible and then widespread due to the confluence of exponential trends.

Action:

• Watch for exponential trends in underlying technologies, in which performance steadily doubles every few years or so or prices continually drop every few years or so.
• Look for crossing points where the speed or cost of doing some task — that’s outrageously expensive or abysmally slow today —  becomes affordable and timely.
• Think about new applications that might be possible if something is cheap, fast, and widely available. What happens when everyone is online via a mobile device 24×7? What happens when everyone knows their DNA sequence?
• Convert problems that don’t seem to have exponential performance improvement trends (i.e., healthcare) into ones that do (i.e., genome sequencing, patient databases, mobile app-enabled health sensors, self-care social networking, virtual models of diseases, etc.)