Open Innovation and Managing Change

Probably the biggest change that any one of us will go through in our lives is when we become a parent. And in the lead up to that change, we all react in different ways. Some of us create lists, read books, make plans. Others, we bury our heads in the sand and we pretend that that change is not going to happen. In my case, when my wife was expecting our first child, I did everything I thought I was never going to be able to do again. I joined a rock and roll band. I started playing gigs, going to nightclubs. I don't even like nightclubs. I resisted change. And then I adapted and I embraced that change. And as human beings, while we like the idea of innovation, we are at best lukewarm when it comes to change. A little change is good, disruptive change is bad. And yet there's nothing more certain in business than change. And if we resist that change, then it becomes a threat. If we open up to that change, there's an opportunity there. And my job is to work with water technology companies, investors, research groups, to try and anticipate, predict and manage that change and see the opportunity that's there. And to do that, I have to be convinced that the water system is going to change. So let me share with you a few reasons why I believe this is the case. In one word, necessity. Because it has to. There is no choice. And much of human progress follows this pattern. They say people behave perfectly, reasonably once we've exhausted all other alternatives. At Bluetech, we've looked at the water system and we've looked at the drivers for change. Many of these are familiar to you. Urbanization, water scarcity, climate change, population growth, aging, infrastructure. We've looked at what this is likely to affect the current water system. In parallel, we've analyzed the current system. And any of you who do this will quickly come to the conclusion. Our current water system is inefficient and wasteful. We have one type of water, potable water. We use it for everything. We put various things into it. Human wastes, food, wastes, detergents, nutrients. We bring it all to one facility and we take everything back out again. We try and take out the solids, take out the organics, take out the nutrients. And it turns out this system is inefficient, capital intensive, energy intensive. And this is not surprising, because the system was not designed with efficiency in mind. In fact, it wasn't really designed at all. It evolved. It's an example of evolution, not intelligent design. It evolved in cities like Paris, where we are today in the 1850s, where we had potable water available. It was a way to transport wastes out of cities and into the sea, which is where the word sewer comes from, seaward. To paraphrase Glenn Dyger, this evolved in a world of 2 billion people at the time who were mostly rural, living in the countryside, lacking in modern technology. Now we have 7 billion people, mostly urban, experiencing energy and resource constraints. So we have mounting drivers affecting an inefficient, wasteful system. The question is, what is it going to change to one futuristic scenario I like to describe, I call Brave Blue World, and to imagine this picture for a moment, A world where we drill into sewers and we mine those sewers for water, where in our coastal cities, which is where most of us live, we use sea water, not fresh water, for flushing toilets. Even our industries have largely moved away from using water in their processes. And in terms of food production, which is really the elephant in the room when it comes to water problems, we can grow food crops using salty water or brackish water. A common thread that runs through much of this is how we can provide water services without using water. And this challenges the myth that water is essential for human life. Yes, we need water to live, but we've taken that idea and we've extrapolated it out to mean that we need water for everything that we use water for, and that is not the case. Much of what we use fresh water for is a service. And one good example of this is something that many of you encountered on the way to this conference. A toilet on board an airplane. It has one distinguishing feature. It uses little or no water, but it achieves the same service, which is that human waste disappears as quickly as possible. So we have drivers affecting an inefficient system, and we have solutions. Now, if I asked you, how many years out is that system or that vision, is it five years out? 10 years? Is it science fiction? Many of the elements that I described are happening already today. In Sydney, Australia, a company asked the city who owns the water in the sewer, and the city said, we're not sure. I think it's public property. And the company applied for a license to extract, treat, and sell that water. And it turns out they have a profitable business doing that in Sydney, Australia. In Hong Kong, they have been using salt water to flush toilets for many years. If we look at the industrial sector, companies like Nike and Patagonia have invested in and are using technology based on supercritical carbon dioxide to carry out textile dyeing without using any water. They're eliminating water from their process. And there are trials ongoing with species of plants such as potatoes and quinoa, which can grow on salt water or brackish water. Again, challenging that myth that we need fresh water for everything that we use fresh water for. Okay, you say, but how quickly is this likely to become mainstream and impact the market? Well, to answer this question, at bluetech, we have built models based on market segmentation theory developed by Geoffrey Moore. Innovation theory as outlined by Clayton Christensen. We've taken this used data for the water sector and case studies and we've adapted these models for the water sector. And one thing that we can see is that historically it has taken between 12 and 14 years to introduce a new technology to the water space. That's from the point of first sale when you take a purchase order to the point where the technology is commercial. This pattern plays out in many industries. This theory is also used in it. So you could take iPhones. It starts when nobody has an iPhone. Then the first people queue up overnight, the die hard techies, to be the first to have one. These are the innovators. Then it moves through early adopters, the people who like new things. And it moves into the early majority and the late majority section of the market until everyone has a touchscreen phone. Other competitors have moved in like Samsung. The market's become commoditized and profits have been eroded. And even in my career, I've seen technologies moving through this exact cycle. When I graduated from university in 1996, membrane bioreactors were still being talked about as something new. If you knew what one was, you were somehow at the leading edge. Over the next 10 years, that technology went from being used by innovators to being commercial. Now today it's a commodity technology widely used with many players in the market. One of our roles at bluetech is to work with water technology companies, strategic investors, research groups, to identify what technologies are needed to future proof technology portfolios and critically, when is the right time to jump in. Because much of the profits in technology are made in that middle section of the S curve when you have first mover advantage before the market becomes commoditized. So we work with companies to help them by looking at the drivers, the current system using these models to anticipate that next wave, Be ready for it, ride it up that middle section of that S curve as opposed to being caught off guard or worse still, being knocked over by it. So where is the innovation likely to come from? Well, it's important to think that there are two types of innovation. There is Sustaining innovation, which is improvement in what we have. So consider for a moment using a chainsaw to cut a pound of butter. Now, that's a very inefficient way to cut butter. A butter knife would be far better. However, if you're in the business of selling chainsaws, all of your effort goes into how can you make that chainsaw more efficient, better. That's sustaining innovation. Continual improvement in what we have. Now, much of what's needed in water is systems level change, changes in thinking, disruptive innovation. And one way that can be achieved is through open innovation. Now, history tells us that disruptive change tends to come from the outside, the new entrant, they have no bias towards the current system and in fact, they have every reason to want to change it. It's their way in. And open innovation is a way that people can embrace this change. And my favorite example of open innovation is spaghetti. Spaghetti was an innovation in Italian cuisine brought about when Marco Polo went to China. He discovered a long, stringy food called noodles. He brought them back to show his friends. The Italians loved this and hence spaghetti was born. And I think many of the new ideas that we're likely to see in water are going to come from different sectors. From biotechnology, which can lead to advances in bioelectrochemical systems, from advanced material science, where we may find better materials for membranes, or from the IT sector, bringing sensors. And if we resist that change, then that becomes a threat. And if we open ourselves up to that change, there's an opportunity there. So I wish you well in your quest for open innovation, and I hope that you do find many butter knives where previously we have used chainsaws. Thank you very much.