1. Stuck! Doing New Things in Old Organizations & The Challenge of Climate Change November 6 th, 2008 Rebecca Henderson, MIT

2. Doing new things in old organizations is hard Performance Time Ferment Takeoff Maturity Discontinuity

3. Discontinuities are challenging because: They challenge the way the firm creates value: –New technologies –New customers & new markets They challenge the way the firm captures value: –New business models, new complementary assets They require the ability to balance the tension between “entrepreneurial energy” and “coordination”

4. Or: “I see”, he said, “you’re suggesting that we invest millions of dollars in a market that may or may not exist but that is certainly smaller than our existing market, to develop a product that customers may or may not want, using a business model that will almost certainly give us lower margins than our existing product lines. You’re warning us that we’ll run into serious organizational problems as we make this investment, and our current business is screaming for resources. Tell me again just why we should make this investment?” -Divisional Manager, Telecommunications Equipment Provider

5. But wait! It get’s worse!

6. Is this your life?

7. Overload Productivity falls Early stage work neglected No time for maintenance/ training No time for maintenance/ training Performance degrades Overload is much more toxic than we think…

8. Overload Productivity falls Early stage work neglected No time for maintenance/ training No time for maintenance/ training Performance degrades And the ways we typically respond usually make things worse… No time for strategy My people need help Add process, check points No decisions

9. Doing new things in old organizations is hard Performance Time Ferment Takeoff Maturity Discontinuity

10. What can be done?

11. Firms that successfully manage transitions: Get the strategy “right” –Create real value through linking great technologies to real customer & consumer needs –Capture the value through a deep understanding of potential business models and competitive realities Keep the organization from getting in the way –Build the “ambidextrous organization”: actively embrace both “entrepreneurial energy” and “coordination” Don’t tolerate overload –Manage capacity –Make real decisions

12. Or: Hold a common passion about the importance of making the transition Tell the truth Actively balance long and short term decisions Encourage “high conflict, high respect” conversation and decisions Manage with judgment and respect: motivate behavior through the use of “relational contracts” rather than a reliance on short term, quantitative metrics

13. For example: Dealing with “Worse Before Better” Time Performance

14. What does this have to do with climate change?

15. Since 1950 the economy has grown even faster than the population…

16. Fueled largely by fossil fuels

17. Renewables are still a small share of total energy supply…

18. In consequence, carbon emissions have greatly increased

19. Driving up CO2 concentrations in the atmosphere…

20. Global average temperatures have also increased

21. What will happen next?

22. Another 3 billion people will join us on the planet by 2050

23. Source: World energy outlook, 2006 They will want energy…

24. Really quite a lot of energy In 2002, the world used 13.5 TW –1 TW is 1 trillion watts –Or about 20,000 50 MW power plants By 2050, we will need: –Perhaps somewhere between 28-35 TW –45 TW @ European rates of energy use –102 TW @ US rates We need around 14.5-21.5 new TW

25. We could burn fossil fuels There’s lots and lots of coal But if we increase the CO2 in the atmosphere, the odds of our having very nasty effects on the climate increase quite dramatically At 450 ppm – the commonly accepted “aggressive target” for stabilization –There is a 50% chance of global average temperatures rising by more than 2° C, –And a 33% chance of their rising by more than 3° C. At 550 ppm – a more likely level – the odds go up even further This implies “rolling the dice” on a range of fronts…

27. We could: Dam all the remaining rivers –0.7-2.0 TW Saturate the planet with windmills –2.1 TW Use all the available land for biomass –7-10 TW Build a new nuclear plant every two days for the next 45 years –8 TW Source: Prof. Dan Nocera, Dadelus, 2007

28. In the short run we need: Everything we can feasibly get our hands on: –Biomass, Wind, Nuclear, Solar… Massive reductions in demand

29. In the long term we need: Aggressive research in solar power –More solar energy strikes the surface of the earth in one hour than humans use in a year A massive transformation of the economy –Very significant reductions in demand How do we take 80% of the carbon out of the economy within 50 years?

30. Can we do it? Performance Time Ferment Takeoff Maturity Discontinuity

31. We need to: Get the strategy “right” –Create real value through linking great technologies to real customer & consumer needs –Capture the value through a deep understanding of potential business models and competitive realities Keep the organization from getting in the way –Build the “ambidextrous organization”: actively embrace both “entrepreneurial energy” and “coordination” Don’t tolerate overload –Manage capacity –Make real decisions

32. Or: Hold a common passion about the importance of making the transition Tell the truth Actively balance long and short term decisions Encourage “high conflict, high respect” conversation and decisions Manage with judgment and respect: motivate behavior through the use of “relational contracts” rather than a reliance on short term, quantitative metrics

33. I look forward to working together!