Dealing with the Innovation ‘Valley of Death’​ (Part 1)

Radical innovation in the 1800s

Imagine you are living in the 1880s and have a great technology to sell called the electric motor. Its capabilities to help make a factory of the industrial revolution quieter, cleaner and safer are significant but take up is desperately slow. The technology struggles to establish itself when pitted against the steam engines that factory owners have been using for years. Even when they are used, electric motors don’t yield a significant commercial return.

Fast forward to the 1920s and the average factory is transformed. Layouts have changed, electric motors abound, productivity gains are dramatic compared to the steam driven factories of before. An explanation for why it took 40 years can be found in this article. However, the key point to take from the story of electricity in manufacturing is that a new technology can be so radical and transformational that it takes users time to work out how to get the best from it.

 A personal experience

In 2004 I had a fantastic role leading BP’s Autonomous Underwater Vehicle (AUV) Programme. Derived from the Defence Sector’s Mine Counter Measure technologies, AUVs offered significant benefits over the technologies of the time (Remotely Operated Vehicles or divers). They would be quicker, cheaper and potentially safer for the inspection of thousands of miles of underwater oil and gas pipelines and infrastructure.

That year I secured funding for a demonstration of the Autotracker system in the relatively sheltered waters of Scapa Flow in the Orkney Islands. Over the previous years elements of the technology had been developed and thoroughly tested. By the time the team (comprising BP, Seebyte Ltd and Subsea 7) arrived in Orkney (see image) along with S7’s Geosub, there was high confidence in the outcome. A successful demonstration would show that the combined package could deliver what it promised and was ready for commercial use at scale.

The demonstration had challenges to overcome, but eventually the objectives were achieved. This success underpinned a subsequent full AUV inspection operation in the deep waters West of Shetland (2006) and in the shallow waters of the Caspian Sea (2009). Today however, the technology still isn’t established in the sector. In fact, despite recognising the benefits, one major operator indicated that it uses AUVs for less than 10% of its offshore inspection operations.

Why the technology struggled

Over recent years evolution of competing technologies has offset some advantages of AUV systems. Inspection campaigns have also been reduced in the low oil price environment. Technology risk aversion hasn’t helped either. However, ultimately AUV technology needs a different business model to achieve its full potential. Consider the following:

  • The companies best suited to deploy and operate the technology (as part of an integrated service) are the same companies that are most adversely impacted by it. These companies make returns by selling vessel days. An AUV operation simply doesn’t need as many of them;
  • An AUV inspection campaign, subsequent data processing and analysis requires a new approach. Current inspection service providers cannot achieve this using traditional technologies.

So, despite a product that was well proven, the technology’s value couldn’t be realised in the market at that time. It has the same challenges today and still needs a shift in industry mindset to realise its potential (and we may not see that for another 10 to 20 years). Oil and gas AUV technology is in the period between development and becoming widely established, a period often described as ‘the Valley of Death’.

What do these examples mean for innovation?

If BP’s AUV technology programme had been a start-up business, it surely wouldn’t exist today. The commercial returns would have been elusive, the required structural change wouldn’t have happened, the resistance to change too much to overcome. Happily, Seebyte (the developer of Autotracker software) went from strength to strength, pursuing its defence-based contracts and the spin off technologies sold to ROV companies. To its credit Subsea 7 has continued to invest in AUV technology, although its primary business model remains the same.

So if AUV technology is in the Valley of Death what lessons can be learned for use elsewhere? What does it mean for innovators, start-ups, developers and investors in this and other mature industries? There are two aspects to consider.

Firstly, an objective assessment on the need for product or service is vital. It’s so easy to spend good money after bad. To help with this, take a look at ‘The Mom Test‘ by Rob Fitzpatrick. The strap line for the book is ” How to talk to customers and learn if your business is a good idea when everyone is lying to you”. It’s based on the fact that most people won’t give objective feedback unless they are asked in the right way.

Secondly, assess the potential risks and barriers to uptake by asking the following questions to clarify the potential for the technology to become stuck:

  1. Will a ‘quick’ return on the technology or innovation be needed?
  2. Does the technology require structural change in the industry, different business models or even new service providers?
  3. If new providers are needed, do they need to be established quickly and with enough industry credibility to overcome risk aversion?

If the answer to any of these is ‘yes’, there will be challenges to manage. The risk of entering the Valley of Death is significant so here are three options to consider:

1. Avoidance. Stop or pause development/investment as the innovation is too difficult to bring to market at this point. Either look at developing spin-off products (as Seebyte did), put the whole idea on the shelf, analyse option 2 as an alternative or consider whether option 3 is viable. Avoidance will be a tough decision and route to take. With so much enthusiasm, emotional and financial capital invested in an idea or product, putting it on the shelf will feel like a failure. That said it may eventually feel like a relief as, rather than working harder and harder to realise value, those efforts can be directed elsewhere.

2. Expansion. Increase the investment, additional amounts would be used to develop both the product and (crucially) establish a new business model to shorten or eliminate the Valley of Death. Whilst building this new model would be possible, it could be sensibly executed by partnering with others to develop a larger, more holistic solution. To this end, assess the landscape and related products or services, are there any obvious and complimentary companies that can be approached for mutual gain?

3. Acceptance. Accept the inevitable and prepare to enter the valley with full awareness, knowing that the journey may be long. This will of course require careful analysis of the financial implications. This option is most suited to investors or developers that have the time and resources to wait, recognise industry change will come and want to be ready to reap the benefits when it does.

Be agile but focus on the goal

It is best to take the decision on strategy as soon as possible. Ideally it would be before any significant commitment is made, or perhaps as part of an overall investment plan. Once the strategy is chosen it will periodically need to be revisited as the commercial environment and other influential factors evolve. As an example, opportunities for expansion may arise as new actors and technologies appear in the sector (or outside it). It would be wise to explore these even if option 1 or 3 has been pursued initally.

Finally, whilst successful development of new products or innovations is of interest to any relevant stakeholder, the ultimate goal is likely to be making the best commercial returns within the business. Concentrating on achieving an optimum return will always focus the mind!