Skip to Content

How Legacy Companies Can Mine Silicon Valley Gold

Utilities probably aren’t the first to come to mind when thinking about agile companies. But with digital startups pecking away at different parts of legacy utilities’ value chain, the asset-heavy industry – long considered immune to competitive pressures due to the high barriers to entry – has been forced to innovate. A recent article in McKinsey Quarterly underscored some agility lessons that other companies can learn from legacy utilities, one was the value of looking outside –namely to Silicon Valley – for new ideas.

“First-mover utilities have established outposts and venture-capital (VC) arms in Silicon Valley, where they systematically test their own tech innovations, search for new ideas, and tap information flows from energy start-ups—often through their VC partnerships,” reports McKinsey.

The utilities industry isn’t the first – and certainly won’t be the last – to look to Silicon Valley for the future of their sector, but for every successful initiative there have been countless duds. Another McKinsey article, from earlier this year, outlined “three proven ways” to tap the region’s spirit of innovation and entrepreneurship.

From least to most capital intensive:

  1. “The innovation boot camp,” where a company’s board or c-level executives visit the Valley for a few days to immerse themselves in the culture and get a sense of what technologies will disrupt their sector;
  2. A strategic partnership with a Silicon Valley outfit where the companies work together on new technology;
  3. And finally opening up shop in the Valley, either by opening a new office or by acquiring an existing operation.

But for any of these to work, the article says, leadership must see the need for innovation. McKinsey reports: “The applicability of any of these models depends on how well aligned a top-management team is about the challenges on the horizon, the time a company has before they become real, and their potential impact.”

A Wall Street Journal article spoke to some of the ways companies Silicon Valley efforts have been sidetracked.

“Companies that have had difficulty taking advantage of their westward treks— AOL Inc., Motorola and Lucent Technologies come to mind—often have had legacies of closed networks or proprietary technological standards, which can weigh on efforts to adapt,” the Journal reports.

The article stressed that a legacy company needed to be ready to adapt to take advantage of what the Valley has to offer: “The companies that achieved success learned to insinuate themselves into the region’s ecosystems, taking advantage of what others created but also adding innovations of their own. They figured out ways to successfully collaborate and strike partnerships, and, most critically, devised ways to transmit what they learned throughout their organizations.”