Building from my post about intelligence being a well-informed “opinion”, this item in the Wall Street Journal last week reminded me of another story of good intelligence informing smart decisions…highly opinionated intelligence, I might add!
The crux of the story is no amount of wishful thinking changes the laws of thermodynamics.
We are often told that the “promise” of the new age will be storing energy. Well, this promise isn’t new. In fact, it is very old.
Volta invented the first battery around 1800, and it is believed Persians may have had batteries in the early centuries AD (the “Baghdad Battery”). Unlike our ability to manipulate silica to double computing capacity every 18 months, advances in battery technology are SLOW moving.
Which brings us to our story.
Not long after Procter & Gamble purchased Gillette in 2005, my technical competitive intelligence team was asked to look into a potential investment the company was considering in a firm called A123 Systems.
A123 was a spin-out from the Massachussetts Institute of Technology (MIT) that claimed to have a breakthrough in lithium iron phosphate battery technology that could revolutionize electric cars.
The Duracell brand, which had only a weak position in the lithium ion space, saw big potential: Get in on the ground floor of the mass production of “good & cheap” electric car batteries and stick the Duracell brand on them. Tie the brand to environmental friendliness and innovation. Be a key part of the electric automobile future. Management appetites were whetted, to say the least. Plus, A123’s technology came out of MIT, so it must be great, right?
A certain consulting firm was hired to vet A123 and they pronounced the plan to be good.
Luckily, an old gray hair P&G engineer sent the package to my team to have a look.
We came to a very different conclusion. Our “opinion” was that A123 was mostly promises and not much property.
First, the “technology” A123 promised didn’t diverge far from existing lithium ion processes. Its promise of industrial scalability, uniform quality and long life didn’t seem very convincing.
We determined this by looking at lithium ion battery intellectual property (i.e., patents). The consultants hired to do due diligence looked only at US intellectual property. They did not look at the massive record emanating from Japan.
Japan was the pioneer and leader in lithium ion technologies. The Japanese IP record was rich and included many “inventions” that led to commercial dead ends, most especially in the area of fabricating large, stable power cells. These lines of development in the Japanese IP record were exactly the same pathways A123 intended to pursue if they could find a deep pocket investor.
Further, we asked the strategic question: If the promise of A123’s technology was so convincing, why were they coming to P&G? Wouldn’t a firm in the automobile industry or in power and controls be a more logical and enthusiastic audience?
We presented our findings to key finance and R&D leaders. Needless to say, we were not very popular. In fact, we were surprised by much of the vehement blow-back from executives in the battery business. It was angry and accusatory … potentially career impacting.
People trusted A123 because of their legacy and position. They wanted to believe that very smart technologists given enough resources could coax a rapid breakthrough into existence.
We stuck to our opinion. Our assessment was fact based, and historically and intellectually sound.
Management listened. They compared our analysis to the opinion of internal advocates and the third party due diligence effort. We won on the merits and P&G avoided making a huge financial mistake.
Years later, of course, A123 Systems filed for bankruptcy after they attempted to scale up manufacturing for Detroit.
They were purchased out of bankruptcy and have indeed created novel and interesting batteries for automotive and industrial applications. The power quality produced by the A123 process is impressive. But the promise of scaled up, mass produced “good & cheap” electric car batteries continues to be elusive. (We’ll have to wait and see if Elon Musk can deliver on the promise.)
In business, well informed opinions -what we call “intelligence”- need to drive decision making. Wishful thinking and conventional wisdom, not so much!