The Ecosystem Model: How The “Old” Industrial World Can Catch Up With Silicon Valley

As published on Forbes.com

On June 1, 2009, The Motley Fool published “The Death of General Motors,” an article about the company’s bankruptcy and government bailout. “GM’s death,” wrote investor Joe Magyer, “…was brought on by natural causes, pure and simple.” He recommended selling all GM stock and concluded grimly, “I wish I had something happy to say here, but I don’t. This stinks.”

Nine years later, GM is anything but dead. Indeed, the 109-year-old company may be better positioned to win the self-driving car market than Uber, Google, or Tesla. A recent article in The Motley Fool asks, “Is General Motors’ Self-Driving Unit Already Worth $43 Billion?”

Might GM beat Silicon Valley at its own game?

Yes, and so can many industrial companies navigating the age of artificial intelligence (AI) and automation. That’s today’s topic: How do traditional, multigenerational industrials reinvent themselves to innovate on par with Silicon Valley?

The Lesson From GM

In 2012, says Forbes contributor Micheline Maynard, GM became the world’s top-selling automobile once again, adding to its more than 70-year record. A 2014 recall controversy set the brand back, but then GM did two unusual things.

First, in January 2016, GM invested $500 million in Lyft, announcing plans to co-develop an on-demand network of self-driving cars. No traditional automaker had ever invested that much in a startup.

Second, on March 11, 2016, GM announced the acquisition of Cruise Automation, an autonomous driving startup, for an undisclosed sum. GM gave Lyft and Cruise freedom to develop their technology independently, but with the resources and expertise of GM.

The market noticed. On May 31, 2018, SoftBank invested $2.25 billion in Cruise, and GM invested another $1.1 billion. Said the press release, “The GM and SoftBank Vision Fund investments are expected to provide the capital necessary to reach commercialization at scale beginning in 2019.”

GM recognized what Google (which acquired Waymo) already knew: that, henceforth, their most cutting-edge technologies would come from outside the company.

They don’t want the jobs

Doesn’t a company like GM have the capital to develop ride-sharing and autonomous driving internally? Yes, but it doesn’t have the talent.

In the past few years, I’ve interviewed 20- to 25-year-old engineers from all over North America. Consistently, the majority say they want to work in startups. The term “corporate life” conjures images of pointless meetings, rigid chains of command, and crushed dreams.

Startup life is sexier. The founders feel more in control of their destiny and can create personal wealth much faster in a startup.

Young people want to succeed, but they don’t want to accept ‘society’s’ norms. If they won’t take jobs at corporations, then GM and its peers can’t depend on the young employees who once drove innovation. They need a new model.

The Ecosystem Model

With young talent turning down jobs and launching companies, some industrials have adopted a new innovation model: an ecosystem of startups managed by venture capitalists (VCs).  Investments in companies like Lyft and Cruise come with high stakes though. So, how does a company like GM form an ecosystem that’s likely to succeed?

In the graph below, created by Chrysalix’s Advisor Mark Dudzinski, former CMO at GE Energy, the X- and Y-axes meet at the “Current” business – making cars in GM’s case. The Y-axis represents Technology Development, and the X-axis represents Market Development.

Close to the core business, innovations have a high success rate. It drops as the innovations shift from current technologies and markets to new ones. Low-risk technologies come from internal teams, while the risky innovations come from external startups. The highest returns and biggest disruptions come from the top right corner of the graph.

The ecosystem player attempts to maximize the core and periphery success rates. A stream of bottom-left innovations keeps the company’s flagship products profitable. GM, for instance, must develop and sell ever-better cars to fund innovation in self-driving technology.

To be competitive in five, ten, or 20 years, a company needs step-change innovations from the top right. Once a startup’s invention is mature and ready for the mass market, the big company that invested is first in line for an acquisition. GM could acquire Lyft. But there’s no rush. That periphery innovation is, for now, tangential to how GM makes money.

Next Up: Inside Industrial Innovation

Here, I discussed how companies like GM could play Silicon Valley’s game and win. GM once developed its own innovations (as did Google, Facebook, Amazon, etc.). Now, it sources its most disruptive technologies from young startups.

However, I didn’t reveal just how difficult the ecosystem model can be. Next, we’ll look at the cultural nuances of ecosystem innovation in industries that don’t get mainstream press. Mining, fossil fuels, timber and other ‘traditional’ industries continue to power daily life, but rarely do we acknowledge their efforts to innovate. GM is not alone in its mission to reinvent ‘old’ industries.