Converging Worlds

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  1. Converging worlds Five management principles from companies modernizing our vehicles, buildings, and electric gridsApril 2012At a glanceIndustry is radicallyreframing…
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  • 1. Converging worlds Five management principles from companies modernizing our vehicles, buildings, and electric gridsApril 2012At a glanceIndustry is radicallyreframing how it canincrease productivity andimprove the efficiency andstability of our vehicles,buildings, and electric grids.Cities, campuses, andcorporations need tomanage energy use moreactively and in a moreaggregated way.The first step in navigatingthe opportunities—forboth buyers and sellers ofproducts and services—isto start from within.
  • 2. New products, services—even business models—are It’s no small task to save oil and energy—for the most part it requiresemerging from companies working to modernize our making vehicles and buildingsvehicles, buildings, and electric grids. These companies are far more efficient than what weenvisioning new ways to create value for their customers know today. Together, vehicles and buildings are among the mostby looking at problems in a more aggregated way. In this significant users of oil and energyreport, they tell how they need to work differently with their in the United States: Transportationcustomers, suppliers, and others to shape their futures as is responsible for 70% of petroleum consumption,2 and buildings accountmarket conditions evolve. for 75% of electricity consumption.3 Growing concern about energy as a long-term business risk is why most Nearly half of CEOs who participated in companies want to take a more active PwC’s 15th Annual Global CEO Survey role in managing their own energy use. are concerned about rising energy Globally, about 70% of companies have costs.1 With good reason: Price forecasts sustainability initiatives of varying for all commodities are heading up, scopes in place, many with a conviction and energy prices top the charts (see that managing energy use is necessary Figure A). Energy—whether in the to remain competitive.4 For companies, form of electricity, gas, oil, or fuel—is the task of becoming more energy connected to a broad spectrum of other efficient is also tied to productivity business issues, too, including climate and environmental benefits—but change, natural resource constraints, the energy efficiency is the easiest to food prices, water availability, political quantify. An income-producing office risk, and transportation challenges. for an average company, for example, spends about 30% of its operating costs on energy, but a third of that cost could be trimmed with commercially available technologies and active management. If that same company delivers goods in an urban area, it’s wasting an average of 22 days a year in traffic congestion, part of a total of $2.3 billion a year in unwanted congestion costs for US trucks.5 Technologies that help avoid congestion, then, not only make employees more efficient but can have other economic benefits too.1 PwC, PwC’s 15th Annual Global CEO Survey, January 2012.2 US Department of Energy, Transportation Energy Data Book 2011, June 2011.3 US Department of Energy, Buildings Energy Data Book 2010, March 2011.4 MIT Sloan Management Review and Boston Consulting Group, Sustainability Nears a Tipping Point, January 2012.5 Texas Transportation Institute, Urban Mobility Report 2011, September 2011. 2 Converging worlds
  • 3. Progressive companies are looking for • Identifying which facilities shouldgains by tackling their transportation produce their own energy supplyand building energy use as one or manage their own water uselarger issue rather than separate • Tailoring logistics and fleetones. They’re using technology management to match thein a broad range of activities to needs of each type of routefind the best ways to reduce cost, and geographic regionimprove productivity, and minimizeenvironmental impacts, including: • Examining use of office space, fleets, and other assets to eliminate• Analyzing energy use for pricing and waste and maximize utilization sourcing options with the lowest cost and the least environmental damageWorld commodity prices are forecast to rideFigure A. Key commodity prices are forecast to riseIndex, 2005 = 100450400350300250200150100 50 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 Energy prices Food prices Metals prices Raw materials pricesSource: Oxford Economics Converging worlds 3
  • 4. While innovation means new possibilities, it alsomeans increased complexity for building andvehicle fleet owners and operators who will findthemselves faced with successive waves of innovation.They will need to sort through products, services,and business models they’ve never seen before.Their providers—those who are precision energy-management toolsmodernizing the electric system and that analyze the energy use of eachmaking cars, trucks, and buildings building system and notify a controlseveral times more efficient than center when HVAC, lighting, and datathey are today—see the common centers aren’t working optimally.goal. They see far greater potential And it’s not just the technologiesfor lower costs, greater productivity, that are changing; business modelsand greater environmental benefits are, too. Some solar companies, forby completely redesigning solutions. example, are challenging conventionalThey’re reframing their partnership business models by leasing arraysnetworks and extending the roles rather than selling them, as a waythey’ve traditionally played. When to help customers manage up-frontit makes sense, they’re partnering, capital requirements. Transportationmashing up technologies, and forming providers are investing in technologiesnew business models. What’s emerging that promote car sharing—targetingis an entirely new ecosystem where the market segments that can’t orenergy, information, building, and won’t buy cars or those who realizetransportation technologies converge. their fleets are sorely underutilized.Technological evolution is at the heart Such innovations reframe choices forof this change. For example, to work customers and, as a result, reframeoptimally, smart grids need smart the competition, leading companiesbuildings, but the legacy systems in to anticipate new types of threats.most buildings aren’t up for the task. While innovation means newThey simply weren’t designed for it. possibilities, it also means increasedNow, cheap sensors that are making complexity for building and vehicle fleetthese building systems smarter can owners and operators who will findalso connect building systems to themselves faced with successive waveseach other and to other buildings— of innovation. They will need to sortsomewhat like nodes in a network. through products, services, and businessTech-savvy providers are using models they’ve never seen before.these sensors to create things like4 Converging worlds
  • 5. There’s an entire ecosystem coming together aroundthe promise of lower costs, greater productivity,and greater environmental benefitsWhat’s changing? Technological evolution 1. Cheap and ubiquitous computing and communications enable convergences across energy, IT, building, and Deployment transportation systems.4. Innovations add greater and use benefits—but also far greater complexity—to building and fleet energy management. Market conditions 2. Markets drive adoption, and combinations of solutions are tailored to unique settings. Technology 3. Industry provides the tools and business t o manage complex systems model and link them together. When innovation synergies exist, companies partner for greater benefits, mash up technologies, and form new business models. What are customers looking for? Customers are looking for a new type of value creation where solutions can be customized, linked together, or combined for greater results. Energy Building • Renewable energy • Certified green buildings • Distributed energy • Building energy management • Smart grid technologies • Demand response and real-time • Demand response and real-time electricity pricing electricity pricing • Space utilization and sharing Information Transportation • Processors and sensors in meters, • Intelligent transportation systems cars, roads, and buildings • Congestion and road-charging • Big Data storage, analytics, and systems management • Smart and connected vehicles • Automation capabilities built on the • Alternative-fuel vehicles Internet of Things • Car sharing Converging worlds 5
  • 6. “I look at some of the innovations out there, and I just think it’s kind of mind-boggling what’s going to happen. The possibilities are vast, and the combinations, exponential.” —Carl Bass, Autodesk Technological evolution is changing the As a result, both the nature of the very nature of how energy, information, products and services companies buildings, and transportation are offer and how they operate and procured and managed. For example: interact with suppliers, customers, and others will need to evolve. • Distributed energy generation is becoming cheaper and cleaner. How quickly will companies and Smart grids enable two-way their customers see real implications conversations with companies from these trends? “If you’re trying and their utilities for real-time to replace the volume of coal-fired pricing. And energy will become power plants and natural-gas-fired easier to store, which may also power plants, you’re talking about long change how it’s bought and sold. time frames,” says Stephan Dolezalek, managing director of CleanTech at • Vehicles and buildings are VantagePoint Capital Partners. “But becoming part of a vast Internet of if you’re talking about using existing Things, in which any device can be systems to manage energy more addressed, monitored, controlled, efficiently, you may move much more and optimized. Data can be opened rapidly than people would think.” to third parties, allowing for aggregation, analysis, and reuse. As with previous convergences enabled by technology, this one • Building operators are able to will require making organizational harness rich data streams that changes, bridging functional silos, help them optimize energy and adopting different ways of and resource use, enhance thinking. “We need to think about comfort and productivity, and organizational structure if we’re really improve utilization rates. going to embrace transformation,” • Smart and connected vehicles know says David Bartlett, vice president of where they can park, avoid traffic industry solutions at IBM. “It’s never jams, or rent themselves out to other just about the technology; it’s about drivers or riders. Electric vehicles how we can step up to adopting it.” connect to the grid or to buildings— either of which could be designed to draw on a vehicle’s battery in ways that improve distribution and management of power.6 Converging worlds
  • 7. “Increasingly, the marketplace and the customers are looking for a new type of value creation, which is ‘I’d prefer not to deal with the complications of all those elements of the ecosystem. Help me string it together. Optimize it for me, and make it easier for me to access that value.’” —Mark Vachon, GECustomers are 3. Widen the circle of innovation and speed up the cycleslooking for a 4. Look for opportunity innew type of value underutilized assetscreation 5. Harness the value of Big DataTo find out more about how Their goal is to build organizationalcompanies are working differently capabilities that bring returns toto understand and shape their the business no matter how (or howfutures, PwC and GreenBiz selected quickly) technologies evolve.a panel of leaders from 15 companieswith a stake in the four domains We believe their insights should be ofshowing the greatest potential for interest to any business leader whoconvergences: energy, information, wants to reduce costs, mitigate risks,buildings, and transportation. or contribute to overall profitability of the business—all while improvingWe found common insights from environmental outcomes. For thoseour panel that we believe are useful focused on mitigating risks or reducingto all companies as they work to costs in company operations, weunderstand their opportunities. hope you’ll see new ways of thinkingThe panel told us how today’s about your business, assets, andcircumstances are accelerating partnerships. For those seeking tochange and requiring them to work create new revenue opportunities, wedifferently. These companies hope you’ll be inspired as you envision your future and the capabilities you’ll1. Think systemically to capture need to achieve your objectives. technology and market shifts The sections that follow summarize2. Set a clear vision but prepare our panels’ insights. for multiple futures Converging worlds 7
  • 8. 1. Think systemically to Whether your company is building was to engage new actors in the city capture technology a new city, creating a transportation planning process from the get-go,” and market shifts network, or changing your operations says Gordon Feller, Internet Business to reduce energy and waste, an Solutions Group at Cisco. “This included integrative view can help you ensure national government, local government, you’re actually solving a problem, citizen organizations, technology not creating a new or bigger one. companies, private developers, and public agencies that were established All of our panelists are working on in the economic free zone. So we innovative technologies, such as expanded the circle of partners and, electric-vehicle charging systems, in the process, were able to identify building analytics systems, or some breakthrough innovations.” intelligent energy metering devices. But they’re also working on large cross- Cisco has staked its role in this sector issues like modernizing the ecosystem on owning the “urban electric grid, tackling traffic gridlock, operating system.” This assumes the or building sustainable megacities, growing viability of a cities-as-a- thinking that is supported by a market service approach, which is maturing demand for smarter infrastructures alongside mobility-as-a-service and (see Figure C). Taking an integrative other business models that monetize approach allows them to move beyond service delivery alongside product individual products and services sales. It also depends on integrating the and to examine how a system’s parts products and services and know-how influence one another and the whole. of a wide range of partners. It’s a radically new model for city managers Cisco explains how this way of thinking and the companies (like Cisco) that led to a co-creation process in the sell to them. But it also forms the development of a Korean greenfield city, basis of Cisco’s strategy; it’s this kind New Songdo City. One of the project’s of repositioning that is helping Cisco requirements was that the city produce understand its role and define it further. one-third less greenhouse gas emissions than a typical city its size. “The idea8 Converging worlds
  • 9. “We see convergence as being literally the starting point and the end point, primarily because we think that’s where our customers are headed, and we want to be as responsive as possible to their demands. And one of their demands is: Break down the silos; bust the barriers.” —Gordon Feller, CiscoFigure B. A market shift toward smart infrastructure developmentSmart city smart infrastructure investment by industry, world markets: 2010-2020,in $ BillionsSmart Cities $18 $16 $14 $12US $ Billions $10 $8 $6 $4 $2 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Smart utilities Smart transport Smart building Smart government Source: Pike ResearchSource: Pike Research Converging worlds 9
  • 10. 2. Set a clear vision In addition to thinking more fixed military bases and in the field. but prepare for systemically, companies are taking “We crafted a strategy focused on multiple futures a longer-term view, creating one or leveraging things we do and things more scenarios about where and how we own—particularly approaches markets will change and about the that provide command and control opportunities. “Without a long-term to lots of objects inside a large view of where things are going and network, like a smart grid,” says Tim where you want them to go, I think Noonan of Phantom Works Ventures it’s going to be very hard to end up and Boeing Energy at Boeing. really playing a central role in any Through a series of grants from the of this,” says Bill Weihl, manager of American Recovery and Reinvestment energy efficiency and sustainability at Act of 2009 (ARRA), as well as related Facebook. The social media company projects and company investment, has been a leader in data center energy Boeing slowly began to develop an efficiency as well as in encouraging energy strategy that it is working to collaboration and transparency around implement today. “We’ve explored a solutions for data center energy use. number of areas that we think have Once companies have a vision in a lot of potential,” Noonan says. “Not mind, the business case for taking all of them are going to pay off, but innovations to scale or to maturity I think we placed some good bets becomes clearer. Boeing, for example, across generation, transmission, sees an opportunity to play a role in distribution, storage, and carbon the utility space by working with the capture that have strong upside for us US Department of Defense to address both strategically and financially.” its growing energy concerns both in10 Converging worlds
  • 11. “When you look at what Henry Ford did with the Model T, it opened up the highways for people. But our new model has to be a different model, and that different model has to address mobility challenges.” —John Viera, FordWhat’s your company’s role and the visionfor your future?Facilities and fleets Institutional and Cities and public works Business customers, partners, commercial campuses and suppliers along the value chain Command control centerWhether it’s residential or Corporate campuses, colleges Cities and regions are forming Large corporations and theircommercial, there’s a and military bases will gain public-private organizations to network of suppliers alreadyconstellation of new more by taking a holistic view manage entire portfolios of manage fleets and facilities in atechnologies for energy of possible technologies to projects, many of which tackle range of operatingefficiency, generation, and connect and control critical traffic congestion, reliable and environments. What’s new heredemand response ready to systems. While a facility- affordable electricity, and a is learning how data canconnect systems like HVAC by-facility approach could smarter, greener urban living accelerate innovation cycles.and lighting to the energy grid make sense, portfolio experience.and communications network. management can present moreThe second piece is connecting options for successive waves ofgrid appliances, like the innovation.electric vehicle to the facility. Converging worlds 11
  • 12. 3. Widen the circle As part of their growth strategies, tailored solutions can overcome of innovation and companies are identifying new such obstacles. “I think there’s opportunities to take advantage of nothing that our clients distrust speed up the cycles their existing assets and expertise for more than someone coming to them innovation; but they’re also looking with ‘the solution,’ because we don’t to nontraditional and unexpected know what the solution is going sources to enhance what they already to be,” says David Pogue, national have to offer. “You’ve got to make director of sustainability at CBRE. money at the end of the day,” says Mark “We need to work with them on the Vann of the Advanced Technology opportunities, and together we need Government Business Development to determine the best solutions.” group at General Motors. “You need • Internal. Second, they’re to find partners where there
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