Steps for Accepting New Innovation

Steps for Accepting New Innovation

When advancing and testing the boundaries of innovation, one must begin by looking back at the history to avoid the same mistakes and implement the fundamental basics. In reviewing Everett Roger’s 1962 book, “Diffusion of Innovation,” I came across his five stages of accepting a new innovation: knowledge, persuasion, decision, implementation, and confirmation. Upon adoption of the innovation, communication is spread in regards to the innovation. This communication is centralized around subjective perceptions of the innovation. The final communication is through the diffusion of the social system which sets the norms, change agents and the decisions of opinion leaders. Today’s innovation seeking acceptance is natural gas engines, which are just beginning the communications stage of its journey.

Innovation – Natural Gas Engines:

Natural gas engines have been in existence since the early 2000’s, but alternative gases (ex. methane) have been used since the 1930’s. Natural gas engines have applications in passenger cars, light machinery, trucking, and locomotives with over 17.5 million natural gas vehicles currently in existence worldwide. There are six countries that have over 1.5 million vehicles in service: Iran, Pakistan, Argentina, Brazil, India and China. Looking at the complete list of countries accepting this technology it tends to be developing countries where economics are the highest importance. In these developing countries around 10-15% of the vehicles in those countries have natural gas engines, led by municipalities having taxis, waste collection vehicles and buses.

Natural gas engines use compressed natural gas (CNG) or liquid natural gas (LNG) as the fuel source in the engine. Cummins stated that between diesel engines and the natural gas engines, 80% of the parts are the same. The main differences between the engines involve fueling, fuel storage and the transportation of the fuel to the combustion chamber. Cummins Westport released their first commercial natural gas engine for trucking application and GE recently got EPA approval to begin building their heavy equipment natural gas engines. Manufacturers, Caterpillar and International have already released vehicles containing with natural gas engines with other manufacturers following closely. The general interest of natural gas is increasing largely due to increased efficiencies and as it is really the only alternative to the diesel fuel source.

Analyzing the Natural Gas Engine Market:

Right now we are in the communication stage for the innovation. There is much being said for and against the innovation. Navistar executive Kevin Keene stated “It is not a matter of 'if' this technology will become main stream, but 'when' it will." Currently there are many natural engines being produced by Cummins, GE, and others and many manufacturers with natural gas models including: International, Fiat, Ford, Honda, Volkswagen, and Opel for commercial and personal use. Many executives, businesses and consumers are tepid in accepting this technology. Transportation and economic analysts believing that the technology will technology will eventually capture 20% of the total Class 8 market, but much higher for municipality transportation market. Additionally, a variety of analysts believe that by 2020 there is expectations that 30-65 million vehicles or 4-9% of the world’s vehicles will be natural gas powered, which does not include the locomotive and marine applications for natural gas.

Supporters of Natural Gas Engines:

Natural gas engines are a very good alternative to petroleum-based fuel as it is abundant, has low emissions, cheaper fuel, and more efficient. Starting in the most macroeconomic sense, the conversion to natural gas engines has large upside, for consumers, businesses, the environment and of course the owners of natural gas reserves. Natural gas is currently a burning opportunity for the United States and Russia (pun intended), each with about 20% of the world’s natural gas production. Natural gas is currently an underutilized and huge opportunity in North America and Russia, where large natural gas reserves lie. The utilization of this natural resource would remove much of the reliance on Middle East petrol providers and create many jobs in the transportation and mining industries. The largest opportunity and demographic for natural gas engine consumers are those whom can create their own infrastructure for refueling its fleet. This would include UPS, Ryder, municipalities and other which do not travel extremely long distances and return to a centralized location frequently.

Looking at the technology itself, there are many advantages that natural gas engines have over existing diesel engines. First, natural gas is the cleanest fossil fuel by producing 30% less carbon dioxide per unit of heat than petrol and 45% less than coal. Natural gas also costs significantly less, with the current rate at $2.10/diesel gallon equivalent (DGE), compared to the national diesel fuel price average of $3.95/gallon, with the expectation the natural gas prices will drop more if natural gas becomes taxed on par with diesel and gasoline. There is also a very high efficiency gain with natural gas engines with currently released engines being 30-40% more efficient than their equivalent diesel models, creating a typical ROI within 24-30 months based on current fuel prices. There will be virtually no drop-off in performance between diesel and natural gas engines. If capital equipment does not need to be replaced, natural gas conversion kits are available which reap about 60% of the benefit of new natural gas systems.

Skeptics of Natural Gas Engines:

The largest constraint for the expansion of natural gas engines is infrastructure. In order for natural gas engines to expand into trucking or consumer industries infrastructure across the transportation area is required. Although the infrastructure is being built, the frequency of the build is limited, capital intensive (expected $60 billion for critical mass for LNG filling stations), and tepid – leading supporters to build its own refueling station. For example, in the United States there are currently 118,000 petrol stations, but only 1,800 natural gas stations exist with expected growth of only about 18%. It may be more appropriate for the natural gas market to favor the marine or locomotive markets, as there are far fewer ports and limited refueling stations, but capital expenditures are very high and the payback for refueling stations is far less than for transportation operations. Operational efficiency is also a point of major concern as high-mileage use (80,000+ miles/year) is necessary to receive the high ROI of 24-36 months. Also, with the longer distances traveled, fuel must be carried in order to extend the fuel range of the vehicle, which add about 2,000 additional pounds in fuel and storage when filled with CNG to maintain the same distance per tank as diesel engines. Also, the cost of the natural gas semi truck (or similar) tend to be about $80,000 more than similar diesel vehicles  and the cost of a natural gas consumer vehicle (truck or car) tend to be 10-20% higher than similar gas vehicles. Also, one of the big concerns with natural gas engines, which engineers are working hard at fixing, is the fact that if an LNG vehicle is parked for 4-5 days the fuel will warm and vent and in 8-10 days will dissipate. Essentially, if a LNG engine is not used on a daily (or multiple times per week), the fuel escapes from the vehicle and vents into the atmosphere. There are also items, like government regulations and taxation, which are unknown and considered risks due as it is in the introductory stage yet.

Next Steps for Natural Gas:

In the Diffusion of Innovation framework, we are still in the introductory stages of the communication stage for innovations. There is yet to be any large drivers for this innovation, especially from key opinion leaders which could spark the acceptance of the public and of the innovation altogether. Also, in the acceptance of an innovation, Everett Roger states that the consequences of adoption depend on public vs. private acceptance and cost vs. benefits of the innovation. Currently, natural gas engines have been adopted in smaller applications by cities and limited municipal uses, largely limited by the infrastructure aspect of the innovation. Looking at the basic economics of the innovation, the supply and demand for the innovation of the product is very low, which creates a very high cost structure. Also, there are no economies of scale for the innovation. As the innovation grows in demand, the supply will be increase accordingly, theoretically creating better economies of scale and lowering the price. With the added revenue, engine efficiencies and effectiveness should also change, mitigating some of the negative aspects. Increasing demand will continue to grow from a small scale in the private sector and municipalities, but the critical mass will be with infrastructure.

There are a lot of items which need to be aligned and enhanced to get to critical mass, for natural gas engines to become main stream. In order to bridge the gap and gain wider acceptance, companies are introducing bi-fuel vehicles, CNG-petroleum hybrids, which can run on both fuel sources. The largest target markets are in Asia and Europe, due to infrastructure, economics, and preferences in fuel source and vehicles. As these are still first generation engines, there is much refining and optimizing that needs to be done in creating the best (and most viable) design for market acceptance. They will be finding ways to shed weight, reduce/eliminate LNG venting, improve operational costs, and create even more fuel efficient engines. Also, with Shell and private interest parties leading the way, fueling stations will have to invest in infrastructure and sourcing for this technology to truly expand internationally. With other options being compared (including methane, methanol, and ethanol), natural gas is going to be tested to see if it is the best option as a petroleum substitute.

Are You Searching for the Next Innovation?

The natural gas engine is a great example of the Diffusion of Innovation, as described by Rogers. Seeing and experiencing the structure laid out and going through the steps of innovation, communication, channel, time and social system are personal very intriguing. To me it adds to the meaning in my position and the impact that one can have in business. In today’s business, it is paramount to be in front of the curve, know what is coming next and making the best predictions. Whether it is speculating the next engine innovation for transportation or determining consumer preferences for deli meat, a constant evaluation of the market is important in staying relevant. As new technologies and innovations role out and new ideas are explored, where will you be? Will you be with the innovators and entering now, will you wait for initial acceptance and be with the early adopters and early majority, or will you wait for the innovation to gain a strong foothold and be in the late majority and laggards? How can you move your business forward with new innovations? Look up the innovations for the future and see if you can be part of the change, if not during the acceptance stage of the innovation, at least the communication part. Learning on how your market and industry is evolving may not help you win and be the innovation leader, but at least you will be moving forward with an innovation mindset of trying to bridge the gap from where your company and products are to where they could be. Are there innovations in your industry which you are seeing?

-thePonderingNick