GE’s ecomagination Challenge: An Experiment in Open

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B5672
Date: August 1, 2012

H ENRY C HE SBRO U GH

GE’s ecomagination Challenge: An Experiment in Open
Innovation
In 2010, Beth Comstock, chief marketing officer and senior vice president at General Electric, sat in
her office at GE’s corporate offices in Fairfield, CT and pondered her next move. She had just
reviewed the results of GE’s ecomagination Challenge, and was making a mental tally of the problems
and the accomplishments of that initiative. GE’s ecomagination Challenge was “a $200 million
innovation experiment where businesses, entrepreneurs, innovators, and students shared their best
ideas on how to improve our energy future.” 1 Entrants could submit ideas to a panel of GE
executives, leading academics, and technologists to evaluate the viability of ideas. In 2010, GE and
venture capitalists provided $71 million to various start-ups. During the upcoming second phase of
investments in 2011, GE and venture capitalists planned to invest a similar amount in start-ups, but
also wanted to select five $100,000 Innovation Award winners to companies in the earlier phase of
development. In addition, the entry receiving the most user-submitted votes would receive $50,000.
The ecomagination Challenge was launched in partnership with venture capital firms Kleiner Perkins,
RockPort Capital, KPCB, Foundation Capital, Emerald Technology Ventures, and Carbon Trust and
was a key part of GE’s business strategy to accelerate the development and deployment of clean
energy technology and drive a global energy transformation. As part of its overall ecomagination
commitment, GE planned to invest $10 billion in R&D over a five-year period and “continue to
increase operational efficiency, reduce the energy and water intensity of its operations, and grow
ecomagination revenues.”2
As GE’s ecomagination Challenge engaged in an open innovation process within the company’s
traditionally closed R&D model, many new ideas had been identified in the green energy market
space. But most of these ideas were uniformly early, extremely small in comparison to GE’s own
massive energy business, and were 18 months or more away from being ready to engage in any
effective way with GE’s energy business.

1
2

http://challenge.ecomagination.com/ct/a.bix?c=home.
http://greenorder.com/2011/01/18/20.html?section=BLOG.

Professor Henry Chesbrough prepared this case study with research assistance from Tania Dutta as the basis for class discussi on rather than to
illustrate either effective or ineffective handling of an administrative situation. While GE executives generously gave their time, GE did not
provide any funding support for the development of this case and bears no responsibility for the material in this case.
Copyright © 2001 by The Regents of the University of California. All rights reserved. No part of this publication may be reproduced, stored,
or transmitted in any form or by any means without the express written permission of the Berkeley-Haas Case Series.
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GE’S ECOMAGINATION CHALLENGE 2

The following Monday, Comstock’s boss, Jeffrey Immelt, the CEO of GE, expected a full report from
her on the ecomagination Challenge. While he would want to know the results achieved to date and
the lessons learned, Comstock knew that his real questions were going to be more practical. How
were the newly created ventures going to create value for GE? Was this experiment something GE
should do again in its energy business? Should it be done elsewhere in GE, or was this a noble failure
that should not be repeated?

General Electric
GE was founded in 1892 out of a merger between Thomas Edison’s business interests and Charles
Coffin’s Thomson-Houston Electric Company. It was one of the original 12 companies in the Dow
Jones Industrial Average (formed in 1896), and is the only one of the original 12 still in the index.
Today the company is an advanced technology, services, and finance provider, which tackles some of
the world’s toughest challenges. Built upon a culture of innovation that hearkens back to Edison, the
company is a leader in energy, health, transportation, and infrastructure. The company employs more
than 300,000 people in more than 100 countries around the world. 3
GE is also known for its leadership in management and the quality of its senior leaders. The company
has made extensive investments in its own management education facilities in Crotonville, NY.
Former CEO Jack Welch formulated a management process that focused GE on its best businesses,
forcing the company to divest businesses that were unable to grow or held a poor market share
position. Management reviews occupy much of the top managers’ time at GE, and these reviews are
closely connected to GE’s strategic objectives in its main businesses. GE’s skills in attracting and
retaining high quality staff mean that its top managers are actively sought by executive recruiters
around the world. When Immelt succeeded Welch as GE’s CEO, some of GE’s other top managers
were rapidly recruited away to lead other world-class companies.
GE’s revenues in 2010 amounted to just over $150 billion, with its Energy Infrastructure business
supplying $37 billion of those revenues, and more than $7 billion of GE’s $19.6 billion operating
profit (see Exhibit 1 for a Summary of GE’s Operating Segments).

GE’s Energy Business and ecomagination
GE’s Energy business serves a variety of customers in power generation, industrial, government and
other customers worldwide. The energy business offers both products and services related to energy
production, distribution and management. It includes wind turbines as part of GE’s renewable energy
portfolio, which also includes solar technology. The business also offers aircraft engine derivatives
for use as industrial power sources, along with gas turbines and generators that are used principally in
power plants for generation of electricity and for industrial co-generation. GE’s nuclear reactors, fuel
and support services for both new and installed boiling water reactors are offered through joint
ventures with Hitachi and Toshiba. The business also designs and manufactures motors and control
systems used in industrial applications primarily for oil and gas extraction and mining.
GE’s energy business also includes a wealth of service offerings that support its products. The
business offers customers total solutions to meet their needs through a complete portfolio of
aftermarket services, including equipment upgrades, long-term maintenance service agreements,
repairs, equipment installation, monitoring and diagnostics, asset management, and performance
optimization tools. The business is making new investments in areas of technology that complies with

3

Source: http://www.ge.com/.

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GE’S ECOMAGINATION CHALLENGE 3

more stringent environmental regulation, and water treatment solutions for industrial and municipal
water systems including wastewater, mobile treatment systems, and desalination processes.
The scale and complexity of GE’s energy business was a proud accomplishment that created new
opportunities and challenges. The ecomagination initiative grew out of a desire to connect GE
energy’s disparate activities together under a powerful brand. Mark Little, SVP of Global Research at
GE, spent many years in the Energy business. In his previous job, he helped to grow the power
generation business within GE Energy from $2 billion to $10 billion. He remarked:
We kicked off the ecomagination theme in 2005. Initially we got a bit of backlash,
since our customers were utilities and power generation companies. They thought
we were somehow criticizing them. But once we got to explain the program to them
they got excited. ecomagination gathered together many different things we were
already doing in GE. We were growing our sales in renewable energy; we doubled
our research spending in this area. We started getting even more traction once we
created a label to connect our disparate activities together.
Tore Land, Director of ecomagination at GE, added:
ecomagination is GE’s corporate strategy, built upon the idea of addressing unmet
customer needs in the sustainable and renewable energy sector. We offer products
and services that reduce our customers’ environmental footprint and increase our
customers’ competitiveness. As a provider, we can help our customers and make
ourselves more successful in the process. If you are looking for bracelet. There’s something to suit every look, from body-hugging to structured, from cuffs to chain and cuffs.

The Need to Open Up: The Birth of the ecomagination Challenge
While GE’s ecomagination initiative was well received, it forced GE to encounter some new and
different entities that it did not have to deal with in its traditional energy business. The interest in
renewable, “green energy” or “clean energy” was very high, and much of that interest came from
organizations and individuals that GE currently did not do business with. Comstock said:
We started the ecomagination initiative in 2005 as an innovation platform to provide
a focus for our capabilities in the clean tech space. Since that time, we have doubled
our investments and greatly increased our sales. But there is only so much a single
company can do. We ran into a very big problem: in order to really develop the
clean tech space, we needed to develop an ecosystem of companies. That meant we
needed ways to forge partnerships with a great many companies we didn’t ordinarily
come into contact with in our Energy business. To develop the technology for the
smartgrid4, for example, is a very wide focus.
Because of the high level of interest in the green energy space, a significant amount of venture capital
investment was flowing into the area. Estimates were that over $1 billion of venture capital was
invested in cleantech in 2007, with more than $2 billion invested in 2008. 5 Kevin Skillern, managing
director of GE’s Venture Capital group, commented: “Ten years ago, only 1 or 2 percent of VC
funding was going into the energy sector. Today, 15 or 20 percent of global VC funds are going into
energy. GE’s got great processes, but we can’t ignore all this external activity in one of our core

4

“A smartgrid is an electricity network that can intelligently integrate the actions of all users connected to it —generators, consumers, and those
that do both—in order to efficiently deliver sustainable, economic, and secure electricity supplies.”
http://www.globalsmartgridfederation.org/smartgriddef.html.
5
Venture Capital Investment in Clean Technology Grows Despite Decline in Overall Activity. Climate Change and Sustainable Busi ness
Solutions Update. Advisory Bulletin, 2008.

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GE’S ECOMAGINATION CHALLENGE 4

business areas.” A lot of other energy innovation activity was also underway in universities, research
institutes, NGOs, and individuals.
This rapid increase in activity was challenging for GE to cope with. Land commented: “GE felt that
its own development cycles were getting shorter and shorter, especially in areas like smartgrid
software technologies, making it hard to keep up with the market relying only on our own internal
resources.” Little also saw real challenges for GE’s business, noting: “This space is in its early stages,
so you need a portfolio approach in starting projects. You don’t know which will prove to be the
winning approach, so having multiple bets helps you cover the space better. And we don’t have all
the good ideas inside GE; we cannot cover all the opportunities ourselves.” Land’s and Little’s
perspectives were strongly consistent with those of a recent book on innovation called Open
Innovation, written by the author of this case study.6
As these concerns were being considered, the idea of creating a challenge in the green and renewable
energy space for outsiders to offer their own ideas to GE began to take shape. In this challenge, GE
would ask the world to offer solutions that fit with the ecomagination theme, and commit $100 million
of its own money to launch companies for those responses that seemed the most promising.

Engaging the VCs
But the ecomagination Challenge was not limited to GE’s own support. GE executives also felt that
there was an opportunity to do more by working with VCs already active in the energy space. Land
said:
An ecomagination Challenge would harness the energy of entrepreneurs and VCs in
service of the ecomagination strategy, and connect the individual solutions into a
larger value proposition for our large customers. We felt that our Challenge would
be more effective if we brought in outside partners, like VCs, to invest alongside us
in these initiatives. The VCs look at the market with a different perspective than we
do here at GE. Our GE commercial people have a deep understanding of the market,
but it is from a GE perspective, conditioned by our own business model and previous
experience. External VCs bring a different viewpoint, and might spot opportunities
that our internal commercial people might miss.
There were concerns inside GE about this approach. Some managers in GE Research felt that the
$100 million to be spent on a Challenge by GE could be better used to support additional internal
research. Some inside GE’s energy business felt that working closely with VCs would risk GE losing
control over not only the external ideas being supported, but also potentially internal GE ideas that
leaked out during the evaluation and due diligence process. Another suggestion was to listen to the
startups looking for support, but not to disclose GE’s activities or business needs to them.
Still another potential issue was whether external VCs would even agree to participate in such a
process with GE, which actually turned out to be a non-issue. “We found great interest when we
approached VC firms,” said Land. “After we had four VCs agree (after some considerable discussion
with them), I stopped asking for more VC participation to keep the process manageable.” Kleiner
Perkins, Foundation Capital, Rockport Capital and Emerald Capital all agreed to join the
ecomagination Challenge.

6

Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology, HBS Press, 2003

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GE’S ECOMAGINATION CHALLENGE 5

However, the VCs themselves had some concerns and ground rules that had to be established upfront
in order to attract them into the initiative. Chuck McDermott, a general partner at Rockport Capital
recalled:
I told GE that we would be very interested in this idea. We could be your pilot fish,
swimming ahead of you in the energy market, able to do stuff with startups that GE
is too big to do. But there were some things we needed in place for this to work well.
First, we had to have absolute discretion at our investment committee over whether
or not we invest in any deal. And second, GE can’t lock in companies that receive its
investment in ways that hardwire their exit options to GE. Things like right of first
refusal for GE couldn’t be built into the investments.
Despite their concerns, VCs also viewed the opportunity to work with GE as an overall positive.
McDermott noted: “We have come to realize the growing importance of “strategics” in the energy
market. These are the large companies that really drive the development of the energy markets, and
have the clout to take new technologies to market at scale…. This could accelerate our time to
revenue recognition for our portfolio companies.” Trae Vassello of Kleiner Perkins echoed this
sentiment: “GE is a large, well-known brand, and is involved in complex energy sales to utilities.
Building a better relationship with them was a prime reason for our involvement. We already have
good relations with GE at the top, but less so in the business units.” Exhibit 2 depicts the partnership
between GE and the VCs involved in the ecomagination Challenge.

The Launch of the ecomagination Challenge
On July 14, 2010, GE publicly announced its ecomagination Challenge (see Exhibit 3 for the
announcement). Jeff Immelt, CEO of GE, came in person and made the announcement. Since
nothing like this had been done before, the GE executives did not know how many submissions to
expect. Steve Liguori who worked for Comstock in GE Marketing, recalled their thinking: “We
knew going in that we were not in the same league as Pepsi Refresh, or finding the next flavor for
Mountain Dew. Or Doritos’ deciding which commercial to run at the Super Bowl. We were a B2B
situation. So we expected perhaps a few hundred entries.” GE had assigned 12 people to review the
initial submissions, including people from GE, from its VC collaborators, and independent experts
such as Chris Anderson of Wired magazine and Olaf Groth of Monitor consulting.
However, GE began receiving ideas from people even before the announcement event itself had
concluded. At the event, nearly 4,000 entries were received, with 1,600 companies and institutions
participating, from 160 countries around the world. Many of these were not the “usual suspects”.
Liguori said: “The submissions came from a wide range of innovation sources—startup entrepreneurs,
research institutes, universities, governments—an incredible source of diversity in ideas for us.” (See
Exhibit 6 for some examples of ideas that were awarded). Skillern concurred: “Ecomagination gave
us a wider aperture to invite and consider a much wider variety of possibilities, and committed us to a
larger, more ambitious scale of investment activity. We were already investing in startups, but not at
this aperture, with this level of ambition.”
GE and its VC partners were unprepared for this level of response. Each reviewer had to deal with 10
times more submissions than initially expected. And some of the ideas received were unconventional,
to say the least. Liguori said: “The judges were overwhelmed by the quantity of projects. This made
it hard to get the right ideas to the right judges to evaluate them. We had one crazy idea, where
someone suggested stocking ponds with electric eels, and putting a cord into the lake to get the
electricity out. Yet this got just as much attention as some very serious, interesting ideas.”
In addition, no single set of criteria was used to evaluate each submission. Each judge made his or her
own judgment. In part, this was a consequence of the ground rules set up with the VCs in advance.

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GE’S ECOMAGINATION CHALLENGE 6

Daniel Hullah of Rockport explained: “I asked Tore, what is the scoring rubric that you want me to
use? How can you be sure that my evaluation will be consistent with that of another judge? He said
to me, ‘just judge them as you would any potential venture investment for your fund’”. Also, GE and
the VCs looked at each potential venture from a different perspective. “GE’s metrics for success were
different than ours. Every year, we develop a few theses for where we want to invest, and unless it is
highly unusual, we say ‘no’ to everything else. Some parts of GE just were interested in seeing the
ideas, even if there was no entrepreneur behind the idea,” Vassello remembered.

Results of the First ecomagination Challenge
As shown in Exhibit 4, nearly 4,000 responses were received to the ecomagination Challenge in July.
A second round (or Phase) of responses was invited in January of 2011, though this second round was
focused on ways to connect the smart grid to the home. Immelt also attended the second round, where
this follow-on challenge was announced. That received roughly another 1,000 responses. About
75,000 people participated in the process, either through submitting an idea themselves, or
commenting on the submissions of others.
Forty of the responses received became “finalists”, in the sense that the proposals were judged to be
thoughtful, addressed an important need, and often (but not always) were backed by a promising team
of entrepreneurs. As GE and its VC teammates sifted through these ideas, GE decided to make some
additions to the ecomagination Challenge after the initial launch. Hullah of Rockport Capital
remarked that:
GE also identified early on a second category of awards, where the ideas were good
but too early to be investible ventures. These became the ecomagination Challenge
award winners. I think they set aside five $100,000 prizes for these ideas. Most of
the submissions at the beginning were just ideas, not even close to a venture…. Even
when GE didn’t invest, or give an award, those who submitted still got some value
out of the process. In this way, GE really built a community around the
ecomagination Challenge. They improvised well, and made many adjustments
during the process.
Comstock had a similar perspective from inside of GE:
We also paid some challenge awards to winners where we didn’t invest. I came to view these
as the equivalent of early stage investments. We also had some challenges ourselves. Our
equity guys were used to participating in Series B and later investments. How do you model
some of these very early stage ideas? A good example of this was an idea for a solar
refrigerator in Africa. It didn’t get the temperature very cold, but it really helped reduce food
spoilage. We didn’t invest in it, but the idea had real promise.
Boff of GE added that GE also improvised a third category of awards. She said that “it was a
‘people’s choice’ award, though we called it something different. That idea received $50,000 from us
as well. This last category of awards involved the least amount of time and money from us, but got a
huge amount of coverage.”
Immelt attended the event during which the initial round of VC investment and the $100,000
Challenge Awards were announced. Comstock also was enthusiastic about the process that led to
these results. “I loved how the VCs challenged our research people, and vice versa. This productive
friction created great new perspectives for us. Initially an idea might be dismissed by one or the other,
but then they would discuss it. And slowly, sometimes a possibility would emerge out of the
discussions, and the idea might be viewed much more positively than before.”

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GE’S ECOMAGINATION CHALLENGE 7

Out of the finalists, 23 ventures have been funded so far, with roughly $140 million committed of the
$200 million pledged. Exhibits 5 and 6 list those ventures where this funding has been publicly
announced, as well as the other award winners.

The Road Ahead
The ecomagination Challenge has led to a number of new startups being funded, but from GE’s
perspective, the hard work was just starting. “It’s not easy for entrepreneurs to work with a very large
company like GE,” stated Land. ecomagination has become an interface between GE and the
startups. When we receive a new proposal from a start-up, we try to translate that into something that
will be relevant to one or more of GE’s commercial managers. When GE makes an announcement,
we try to figure out how to translate that into something that might be relevant for some of our
startups.”
Mark Little of GE Research found many of the proposals technically interesting. “Many of the
submissions we received were in smaller wind turbines, with generating capacities in the kilowatt
range. These have different customers and different distribution channels, in comparison with our
own business. Much of the smaller stuff is installed ‘behind the meter’, generating power locally, so
you don’t need to pay for the distribution of power from a central generation source. These are not
natural markets for us.”
Vachon put the results to date into perspective. “There’s a mismatch with our own established
businesses. GE needs to generate a Fortune 500 company every year in order to grow at an acceptable
rate. So these small firms’ ideas are years away from the market, and many more years from enough
revenue to matter to a GE business.” Boff noted: “It is still the early days. We’re one year in, with 23
investments. We estimated that it would take 12 to 18 months to get traction, and to get to know the
companies. We have already made one acquisition that we would not have made as a result of the
ecomagination program. That was definitely not on our radar prior to doing this. But this is
something for the long haul, and we know we will need lots of bets.”
In order for the ecomagination Challenge to pay off for GE, some of the nascent ventures would need
to gain scale or accelerate the growth of an existing…