When scientists need to think like businessmen.

Fuel Fashion

Google offers a tool called “Trends” that lets you graph the number of searches on a keyword over time. For the word “biofuel”, searches peak on April 30, 2008, coincidentally the date an article entitled “Scientists want to stop using food to make biofuel” was in the news. And if Google Trends are any indicator of general sentiment, interest in biofuel has been cut by well more than half since spring 2008, dropping precipitously even prior to the global financial crisis. Whatever politics, preferences or conspiracy theories might underlie, the fact remains that despite any historical correlation between biofuel production and food prices, first generation biofuels based on corn, soy and rape seed have lost public appeal and will likely not expand beyond today’s production levels to provide the cure to our energy woes.

Technology Energy

End of the story? Not for Per Falholt, Chief Scientific Officer at Novozymes. Today, biofuel is made by physically grinding corn, breaking down the starch into sugar with enzymes, converting the sugar into ethanol with microorganisms and distilling the ethanol. Per’s research team of 150 scientists in 7 different locations around the world designed the enzymes at the center of the process. From their expertise they know that other vegetation also offers the sugars necessary to make energy and have been working on a second generation of enzymes capable of converting waste corn stalks or wood chips into clean fuel. Technically, Novozymes is successful. Novozymes can produce “cellulosic”u biofuel (based on refuse or crops such as switchgrass, grown on marginal land) today. But there is a cost. Corn, rich in sugar, converts easily into fuel, at around US$1.88 per gallon. Corn stalks require more effort and consequently more cost to convert, around US$2.35 per gallon. With fossil-based fuel less than $120/barrel, the economics don’t work. (Note: the United States government, anxious to enjoy the 85% reduction in CO2 emission from burning biofuel instead of gasoline and reduce foreign dependence on oil, subsidises biofuel at $0.50 per gallon, making second generation US biofuel competitive with $80/barrel oil).

Entrepreneurial Energy

Must Per and his team wait patiently until the price of oil goes up for the next chapter of the story? Not necessarily. While scientists invent, entrepreneurs innovate. Entrepreneurs shape, package and deliver an invention to make it useful and valuable. For Per and his scientific team at Novozymes, this means changing from white lab coat to white dress shirt to transform second generation biofuel technology into a business. Their new tasks:

Re-Engineer Partnerships

First generation biofuel production involves a long ‘value chain’ of partners; farmers, grain processors, processing plants, financiers and oil companies. But second generation biofuel can start with waste. That long chain of partners might now include organizations ranging from paper companies and municipalities (pay to dispose of corn stalks and wood chips), to owners of marginal land (acreage not profitably cultivated today). Any of these partners could benefit by working with Novozymes to design a new business model around second generation biofuel.

Reconsider the Customer

If you buy corn to make fuel, you build large factories to drive down processing costs with volume production. If you help cities or companies save money disposing of waste, smaller distributed facilities located near that waste might be desirable. And while input is a cost in the first generation, it is a may be free or even a source of income in the second. Partners also may buy the finished product, as activities like paper processing have significant energy demands.

Rethink Involvement

Today, Novozymes is a technology supplier to only a single step in the process. The firm counts on external entrepreneurs to turn its inventions into innovations. Though this limits risk, it also limits the company’s ability to shape the market. In the second generation, Novozymes may go beyond existing partnerships with grain processors and oil companies to build business models for cities or even design processing plants for industry in order to ensure its invention becomes the catalyst of a genuine innovation.

Market Energy

Biofuel illustrates the power entrepreneurs can have over markets. Fate of the second generation, a big potential answer to the energy crisis and to greenhouse gas emissions, lies in the hands of the entrepreneur, not the technologist. As with everything technical from Internet search engines to hybrid car engines, the real innovation lies in creating the opportunity.

Stuart Read is professor of marketing, IMD, Lausanne, Switzerland. Robert Wiltbank is associate professor of strategic management, Willamette University, Oregon. Art is credited to Herman Brinkman, through stock.exchng.

Publication:  British Airways Business Life
Stuart Read
Robert Wiltbank

Relevant Principles:
Crazy Quilt (Partnerships)
Pilot-in-the-Plane (Control vs. Predict)