Ge Ecoimagination Case Analysis

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SUSTAINIABILITY & BUSINESS

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TERM-1 

INDIVIDUAL ASSESSMENT REPORT

23rd AUGUST 2016

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PRATIK DAS

2016PGP168

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GE Ecomagination Case Analysis

1. The Client and the Case:

GE (General Electric) was a result of a merger between Thomas Edison’s business interests and Charles Coffin’s Thomson-Houston Electric Company. Formed in 1896, it became one of the original 12 companies in the Dow Jones Industrial Average. It is the only one of these first 12 companies which has survived in the index. Its offerings today are in the areas of Advanced technology, Services &. Finance. Innovation is central to the company’s culture, inspired by the ideas and teachings of Thomas Edison himself. Today, the company is considered a global leader in Energy, Health, Transportation, and Infrastructure. It has a workforce of 300,000 people, working in more than 100 countries across the world.

GE’s Energy business forms an integral part of GE’s business model, contributing 25% to its top-line and 36% to its bottom-line. It caters to wide variety of customers in power generation & distribution. Along with offerings in areas of conventional energy sources, it has products in non-conventional energy sources like nuclear, wind & solar. The customers of GE Energy are usually Industrial, Governments as well as others.

GE launched an Ecomagination Challenge in 2010 to accelerate the development and deployment of clean technology and transform the way energy is generated, distributed and used globally. This was essentially an Open Innovation process to identify new opportunities in the green energy space. This was “a $200 million innovation experiment where businesses, entrepreneurs, innovators, and students shared their best ideas on how to improve our energy future.” Applicants, essentially anyone above 18 years and all legally formed entities, could submit ideas to a panel of GE executives, leading academics, VCs and technologists to evaluate the ideas in terms of academic merit, viability, feasibility & potential. In 2010, GE and the VCs, in partnership, provided $71 million to the various start-ups identified through this challenge. For the version 2.0 in 2011, along with funding the start-ups, they wanted to confer Innovation Awards to the top 5 companies in the earlier phase of development and award a cash prize of $100,000 each. Also, the entry receiving the most user-submitted votes would receive $50,000.

As part of its overall ecomagination commitment, GE planned to invest $10 billion in R&D over a five-year period and “continue to increase operational efficiency, reduce the energy and water intensity of its operations, and grow ecomagination revenues.” As GE’s ecomagination Challenge engaged in an open innovation process within the company’s traditionally closed R&D model, many new ideas had been identified in the green energy market space. However, most of these ideas were uniformly early, extremely small in comparison to GE’s own massive energy business, and were 18 months or more away from being ready to engage in any effective way with GE’s energy business. The case tries to deal with certain questions. How were the newly created ventures going to create value for GE? Was this experiment something GE should do again in its energy business? Should it be done elsewhere in GE, or was this a noble failure that should not be repeated? It also tried to give an idea regarding what could be the way ahead for the GE’s Ecomagination Challenge.

1. Challenges faced by GE

GE’s energy business was dispersed and complex and it served a wide variety of customers. Although GE had an impressive in-house research and development capability, fresh ideas tended to develop from smaller, external organizations and individuals who were highly innovative in the sector. GE had to figure out a way to be a leader in the green energy sector by making the most of its vast internal R&D expertise while integrating its existing energy efforts with those outside the company.

The scale and complexity of GE’s energy business was a proud accomplishment that created new opportunities and challenges. The ecomagination initiative grew out of a desire to connect GE energy’s disparate activities together under a powerful brand. Because of the high level of interest in the green energy space, a significant amount of venture capital investment was flowing into the area. Estimates were that over $1 billion of venture capital was invested in cleantech in 2007, with more than $2 billion invested in 2008. A lot of other energy innovation activity was also underway in universities, research institutes, NGOs, and individuals. This rapid increase in activity was challenging for GE to cope with.

GE felt that its own development cycles were getting shorter and shorter, especially in areas like smart grid software technologies, making it hard to keep up with the market relying only on their own internal resources. As these concerns were being considered, the idea of creating a challenge in the green and renewable energy space for outsiders to offer their own ideas to GE began to take shape. In this challenge, GE would ask the world to offer solutions that fit with the ecomagination theme, and it would commit $100 million of its own money to launch companies for those responses that seemed the most promising.

1. Stakeholders- Interests & Concerns

1. General Electric

Interests

• GE had committed funds worth $200 million into this Open Innovation experiment, hoping to catch up with the market in terms of development of smart grid technologies and other opportunities in the green & renewable energy space
• GE planned to invest $10 billion in R&D over a five-year period and “continue to increase operational efficiency, reduce the energy and water intensity of its operations, and grow ecomagination revenues.”
• With the development cycles shrinking over time, GE found its internal resources highly stressed and was thus planning on using external sources to capitalize on new technology and leveraging on its expertise, scale and well-distributed supply-chain to make efficient and readily available products to modernize the electrical grid all over the world
• In order to turn this into a reality they realized they could not do it without creating an “ecosystem of companies” who would collectively benefit from this exercise. Hence they decided to rope in a few Venture Capitalists who have shown increasing interest in clean technology
• This partnership enabled them to identify and fund potential ideas which would change the way electricity is generated, distributed and used

Concerns

• A lot of GE insiders believed such a huge commitment of funds could instead be used to further fund internal research
• Working with the VCs meant GE could exercise less control on the external ideas they invest in and also included the risk of GE’s internal ideas being “out in the market”
• Most of the ideas identified did not belong to the core areas of GE’s business
• There was a risk of GE helping its own competition by funding certain ideas
• Most of the ideas were far away from realizing enough revenue to matter to GE in near future

1. Venture Capitalists

Interests

• Estimates suggested VCs invested over $1 billion in clean technology in 2007 and over $2 billion in 2008
• VCs also realize the importance of ‘strategics’ in the energy market. These are essentially the big companies that drive the development in energy markets and have the firepower to take the technology to market at scale and expedite revenue recognition

Concerns

• The VCs needed absolute discretion over the investment committee and take the final call regarding whether or not a deal needs to take place
• They were also firm regarding GE safeguarding their investments in companies by keeping a one-sided exit option for themselves

1. Participants

Interests

• They wanted to showcase their innovation and hence bring about a change in the energy market by introducing new practices
• Revenue recognition of their business ideas could be achieved by the ecoimagination challenge

Concerns

• There was not uniformity in judgement with no fixed criteria being used for evaluation of the ideas

1. Existing Customers

Interests

• They recognised the demands of the energy market would be changing over time and to cater to that they would have to eventually work on enhancing their offerings in renewable energy

Concerns

• Their existing technology platform would need to be overhauled
• In a way they felt GE was criticizing their practices by promoting renewable energy as the future of the energy market

1. GE’s Crisis: Root Issue to be resolved

The root issue that GE needs to address is the way they look at new investments and their adoption. They have internal budgetary processes in place to strike off investment considerations in areas that are not core to their business model. However when looking at new opportunities they find that some of them are actually offerings “between” their product offerings. Some of these ideas may have a lot of game-changing potential. They need to identify such ideas which can actually generate substantial revenue to make a difference to GE’s top-line and bottom-line.