There’s no doubt that energy companies today are facing an incredible challenge with energy demand soaring while the supply of easy-to-access energy decreases. The pressure to innovate and find new solutions and energy sources is greater now more than ever, requiring energy companies to accelerate and reinforce their innovation processes.
A rising problem
The Annual Energy Outlook 2012 report by the U.S. Energy Information Administration predicts that from 2010 – 2035, global energy consumption will increase 47%, as demonstrated in the chart below.
To cope with this sudden increase in demand, energy companies must develop new processes and technologies for providing more energy that’s both cheaper and cleaner. Complicating matters, some markets are becoming increasingly competitive, forcing prices to drop and causing even the most successful companies to stumble. Just take a look at the charts below from Ernst & Young’s Renewable Energy Country Attractiveness Indices, which demonstrates the falling sector indices and share prices during the last two years, putting companies in these sectors under pressure to innovate while reducing costs.
But it’s not only relatively new energy sources that are under pressure. As IBM’s Smarter Oil and Gas Energy Excellence study declares, “The oil and gas industry is risky, highly political and wildly expensive. It’s also critical to every person on the planet.” The study further argues that there is little margin of error in this industry because, “Mistakes and waste can quickly lead to bad publicity, speculative swings, legislative action and competitive disadvantage. It is an industry that should and must operate as efficiently and cleanly as possible.” All companies in the energy industry must seriously consider what steps they can take to protect themselves in an increasingly difficult and volatile market.
Innovating for the future
These challenging market conditions require energy companies to move agilely and rapidly – a feat best accomplished by opening and reshaping their innovation models through partnering, M&A, licensing, technology scouting and open collaboration.
Developing an arsenal of technology – Technology Scouting
In IBM’s Global CEO Study 2012 Energy and Utility (E & U) CEOs identified technology as the second most important external factor on their industry, just after the environment. While both the environment and technology can be unpredictable, companies can actively scout technology and stay one step ahead.
By developing a repository of ready-to-deploy technology, even big companies can be agile and responsive whenever the need arises. In particular, by having a better understanding of what technology currently exists and its stage of development, organizations can more effectively determine if they should make, buy or license a needed technology, greatly reducing the time to market and reducing waste.
There’s no doubt that the industry is changing rapidly, just take a look at recent and developing innovations such as spray-on solar cells, which can be cheaply applied to glass, energy islands capable of drawing thermal energy from the ocean or new technologies for extracting oil in greater amounts. There are thousands more innovations like these that have the potential to significantly shake up the energy industry and disrupt its players.
Find ideas wherever they are – Open Collaboration
Even in the most high tech industries, innovation can from anyone, which is why opening the innovation process across departments, to external partners or to end users can be extremely beneficial. By implementing a system that collects ideas and connects experts from across domains, not only are more ideas accessible, but ideas can be thoroughly vetted, discussed and enhanced. For large organizations especially, this process is best completed with ideation software.
The IBM Global CEO Study 2012 concludes similarly, arguing that “Employees are becoming more collaborative and E&U companies are recognizing that internal collaboration is a key to future business success. The new environment requires increased organizational openness and flexibility from employees at all levels. New data and information technologies are facilitating collaboration and enabling the exchange of insights among employees and consumers alike.”
Take for example solar panels, which thanks to a business model innovation have gotten a big boost in adoption. As this Wall Street Journal article explains, up until 2008 the burden for purchasing rooftop solar panels for homes was placed fully on the shoulders of homeowners, who were expected to pay $15,000 – $60,000 upfront for an installation, significantly limiting the market size and energy producing potential of residential solar panels. This all changed, however, with the development of solar panel leases. Thanks to decreasing costs in creating solar panels and the creation of leases, homeowners can lease solar panels for as little as $100/month with no upfront costs, dramatically expanding the market potential. Innovations such as this can come from anyone with a bright idea, which is why organizations that open their innovative processes stand to win big.
Joining forces – Partnering
Finally, organizations cannot neglect the vital role partnering plays in innovation. Indeed, according to the IBM Oil & Gas 2030 Study, strategic partnering for R&D is expected to increase in importance – the interviewed c-level executives expect that by 2030 they will strategically partner for R&D twice as much and conduct 38 percent less research in-house and 44 percent less through outsourcing as they do today. The study concludes that the most competitive companies in 2030 will not be those with access to the greatest amount of natural resources, but rather those that have concentrated their efforts on deploying strategic technologies that enhance both production and information management.
Gaining a competitive advantage in this area requires that organizations lay a strong framework now, structuring the processes and procedures needed to efficiently evaluate and manage complex partnerships. This framework should include mechanisms for thoroughly conducting technology due diligence, systematically tracking relationships and carefully noting necessary contractual agreements.
Rising to the challenge
Energy companies are facing, and will continue to face, some difficult challenges as a result of increased demand, reduced supply and volatile market conditions. However, by opening their innovation and collaboration processes, energy companies increase their access to cutting-edge technology, expert knowledge and profitable partnerships, helping make their organizations more agile and capable of successfully responding to market needs and external challenges.
For more information on the IBM Global CEO Study 2012, visit here.
For more information on the IBM Oil & Gas 2030 Study, check out the IBM Centre of Excellence Stavanger.
Check out the complete Ernst & Young report “Renewable Energy Country Attractiveness,” here.