All eyes have been on the U.S. since Donald Trump won the election last November. So far, outcomes have been mixed: on one hand, the Dow Jones Index has witnessed a historical surge since his election win, rising from just below 18,000 to above 21,000. The U.S. Dollar Index has seen similar benefits, strengthening from just below 97 to nearly 102 in early April. While these factors play along with Trump’s campaign slogan to “Make America Great Again,” not all policy changes were welcomed and many have seen substantial criticism. Continue reading
Choosing to put resources toward innovation is hard even in the best of times. Innovation can take years to show a return on investment and therefore challenging to justify in today’s budgets. This challenge is particularly strong when external forces are putting pressure to not innovate. We see four major currents working against innovation:
- Pricing pressure. When costs shift out of your favor, as many in the O&G sector have been experiencing, it’s easy to circle the wagons around your core revenue-generating business and wait, or lay off a portion of your workforce to cut costs.
- Regulatory hurdles. Whether due to murky regulatory policies, geographic differences of opinion, or rapidly shifting rules of engagement, regulatory pressures can be enough to keep companies out of entire regions and markets.
- Consumer misinformation. Modern consumers are vocal and engaged, but often uninformed when it comes to science and technology forcing companies in areas like GMOs and vaccines to scramble.
- Supply chain uncertainty. Forming new supply chains around innovative solutions is hard enough, but the risk of a supply disruption can be too much to bear.
While innovating against these currents is so hard that many just look to cut innovation out altogether, solutions around these issues can be found in nearly every industry, from energy to food to electronics. Below we highlight examples of companies using new technology solutions to improve their bottom lines while swimming against these currents:
- Pioneer alleviates pricing pressure by cutting costs with innovative well completion technology. While most headlines read budget slashing and lay-offs as a primary source of pain-control during the current oil and gas price slump, Pioneer Resources has been testing completion strategies that optimize stage length, clusters per stage, fluid volumes and proppant concentration to drive down the cost per BOE.
- Reebok avoids regulatory hurdles with device claims. Rather than push directly against medical regulations, Reebok designed CheckLight (client registration required) to provide warnings about impacts that could cause concussions, but stops short of diagnosing a concussion, giving the company a toehold in a hot-button medical issue without needing any regulatory approval.
- General Mills develops the “best” product by avoiding consumer misinformation. Food companies like General Mills are learning to meet consumer demands like a desire for whole over fortified grains, using cooking and packaging innovations like vacuum and steam treatments for products that incorporate whole grains.
- Silver nanomaterials alleviate ITO supply chain instability. Foxconn, amongst others, has invested in indium tin oxide (ITO) replacement technologies (client registration required), creating legitimate alternatives that keep device production moving regardless of intermittent supply disruptions that occur when Samsung or Apple needs to scale up production on a new device and exhausts the industry’s supply of ITO temporarily.
These examples set a roadmap for innovating in challenging waters. Rather than considering all factors combined, focus on specific pressures you can mitigate. No single approach solves for every current pushing against an industry, but each offers a path forward in spite of the strongest current against them. Take a look at the sum of the pressures you face. Break them down into individual currents, and then develop an innovation strategy to match.
For more information contact Sara Olson at Sara.Olson@luxresearchinc.com or Colleen Kennedy at Colleen.Kennedy@luxresearchinc.com.
New technology is usually too expensive for the masses to afford. Take Tesla for example, which makes the world’s only truly compelling electric vehicles: With an average purchase price close to $100,000, these vehicles would break the budget for the average consumer. More broadly, even mainstream innovations like consumer electronics, renewable energy, and advanced healthcare remain out of reach for many, especially for cash-poor customers – both individuals and businesses. This is a serious problem, for a number of reasons. First, it denies life-enhancing innovations to a massive subset of the population. Second, it harms all, including the wealthy, as fast-growing economies will be leading contributors to global challenges like climate change where advanced technologies can help. But beyond these big-picture problems, a cash barrier to new technology adoption is simply bad for business, because it causes technology developers to miss a revenue growth opportunity.
But these issues can be solved. To show how, take energy, which presents a good case study for how to better target cash-poor customers. The energy industry is rich with such business models because energy decisions tend to be economically-motivated but may take several years to pay off. To explore this further, consider how energy developers use two broad strategies to sell technology upgrades to retail businesses:
- Transforming a capital expense into an operating expense, with immediate payback: Third-party ownership models have been tremendously successful with solar developers like SolarCity, which will offer our grocery store a no-money-down solar system paid back with a fixed or per-usage fee that immediately lowers its monthly energy bill. To avoid oversizing its solar system, a customer may also seek out an energy efficiency upgrade. These frequently employ a similar pay-for-performance model, in which the monthly fee is calculated as a portion of the cost savings it sees from the upgrade, creating an immediate payback and reducing the risk to the customer. SolarCity started with solar panels only, but it is now owned by Tesla – so expect batteries and other technologies to benefit from this business model soon.
- Sharing the upfront cost with another party, when both can benefit from the purchase: Cost-sharing models reduce the payback period of an investment by exploiting every possible value stream. Sharing the cost of an electric vehicle charging station with Tesla brings a better cost-benefit ratio than purchasing a station outright, and each party benefits: Tesla’s customers are happier since they have more places to recharge (addressing range anxiety), and the retailer boosts its revenue thanks to increased traffic as customers wait for their vehicle to charge. In a similar relationship, a store might work with a microgrid developer like Enchanted Rock (client registration required), sharing the upfront cost of a reliability-enhancing microgrid with the developer, which recovers its investment by selling the microgrid’s capacity when the store does not need it.
Cash-poor customers are not just an issue in energy, though, and these same structures can be found in other industries as well: For example, car-sharing programs like Zipcar and Car2Go have in effect transformed a capital expense into an operating expense in the automotive world, allowing customers to pay for each use of a vehicle – a model that Elon Musk has even alluded to as a way to improve consumer access to Tesla’s vehicles in the future. In consumer electronics, Amazon has famously engaged in cost-sharing by offering a discount on ad-laced electronics (such as smartphones and its Kindle e-reader), covering a portion of the upfront cost, and in exchange, getting value from the device as an advertising channel. In some cases, offering these pricing models requires a cash-rich (or debt-heavy) developer that can carry the upfront cost in place of the customer. However, when designed well, these business models can speed-up adoption of early stage technology and open up new customer segments.
For more information contact Katrina Westerhof at Katrina.Westerhof@luxresearchinc.com or Cosmin Laslau at Cosmin.Laslau@luxresearchinc.com.