Converging Worlds

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Five management principles from companies modernizing our vehicles, buildings, and electric grids

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<ul><li> 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 opportunitiesforboth buyers and sellers ofproducts and servicesisto start from within.</li></ul><p> 2. New products, serviceseven business modelsareIts no small task to save oil and energyfor 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 mostNearly half of CEOs who participated in companies want to take a more activePwCs 15th Annual Global CEO Survey role in managing their own energy use.are concerned about rising energy Globally, about 70% of companies havecosts.1 With good reason: Price forecasts sustainability initiatives of varyingfor all commodities are heading up, scopes in place, many with a convictionand energy prices top the charts (see that managing energy use is necessaryFigure A). Energywhether in the to remain competitive.4 For companies,form of electricity, gas, oil, or fuelis the task of becoming more energyconnected to a broad spectrum of other efficient is also tied to productivitybusiness issues, too, including climate and environmental benefitsbutchange, natural resource constraints, the energy efficiency is the easiest tofood prices, water availability, political quantify. An income-producing officerisk, 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, its 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.1PwC, PwCs 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 transportationproduce their own energy supplyand building energy use as oneor manage their own water uselarger issue rather than separate Tailoring logistics and fleetones. Theyre using technologymanagement to match thein a broad range of activities toneeds 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 andwaste 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 5001980 19831986 19891992 19951998 20012004 20072010 20132016 20192022 20252028 20312034 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 theyve never seen before.Their providersthose who are precision energy-management toolsmodernizing the electric system and that analyze the energy use of eachmaking cars, trucks, and buildingsbuilding system and notify a controlseveral times more efficient than center when HVAC, lighting, and datathey are todaysee the common centers arent working optimally.goal. They see far greater potentialAnd its not just the technologiesfor lower costs, greater productivity,that are changing; business modelsand greater environmental benefitsare, too. Some solar companies, forby completely redesigning solutions.example, are challenging conventionalTheyre reframing their partnershipbusiness models by leasing arraysnetworks and extending the rolesrather than selling them, as a waytheyve traditionally played. Whento help customers manage up-frontit makes sense, theyre partnering,capital requirements. Transportationmashing up technologies, and formingproviders are investing in technologiesnew business models. Whats emergingthat promote car sharingtargetingis an entirely new ecosystem wherethe market segments that cant orenergy, information, building, andwont 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 workcustomers and, as a result, reframeoptimally, smart grids need smart the competition, leading companiesbuildings, but the legacy systems into anticipate new types of threats.most buildings arent up for the task.While innovation means newThey simply werent designed for it.possibilities, it also means increasedNow, cheap sensors that are makingcomplexity for building and vehicle fleetthese building systems smarter canowners and operators who will findalso connect building systems tothemselves faced with successive waveseach other and to other buildingsof innovation. They will need to sortsomewhat like nodes in a network.through products, services, and businessTech-savvy providers are usingmodels theyve never seen before.these sensors to create things like4 Converging worlds 5. Theres an entire ecosystem coming together aroundthe promise of lower costs, greater productivity,and greater environmental benefitsWhats changing? Technologicalevolution 1. Cheap and ubiquitous computing and communications enable convergences across energy, IT, building, and Deploymenttransportation systems.4.Innovations add greaterand use benefitsbut also far greater complexityto building and fleet energy management. Market conditions2.Markets drive adoption, andcombinations of solutions aretailored to unique settings.Technology3.Industry provides the tools and business t o manage complex systemsmodel and link them together. Wheninnovation 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. EnergyBuilding Renewable energyCertified green buildings Distributed energyBuilding energy management Smart grid technologies Demand response and real-time Demand response and real-timeelectricity pricing electricity pricingSpace utilization and sharing Information Transportation Processors and sensors in meters, Intelligent transportation systems cars, roads, and buildings Congestion and road-chargingBig Data storage, analytics, andsystems managementSmart 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 its kind of mind-boggling whats going to happen. The possibilities are vast, and the combinations, exponential.Carl Bass, Autodesk Technological evolution is changing theAs a result, both the nature of the very nature of how energy, information,products and services companies buildings, and transportation areoffer and how they operate and procured and managed. For example: interact with suppliers, customers,and others will need to evolve. Distributed energy generation isbecoming cheaper and cleaner. How quickly will companies andSmart grids enable two-waytheir customers see real implicationsconversations with companiesfrom these trends? If youre tryingand their utilities for real-time to replace the volume of coal-firedpricing. And energy will become power plants and natural-gas-firedeasier to store, which may also power plants, youre talking about longchange how its bought and sold.time frames, says Stephan Dolezalek,managing director of CleanTech at Vehicles and buildings areVantagePoint Capital Partners. Butbecoming part of a vast Internet ofif youre talking about using existingThings, in which any device can besystems to manage energy moreaddressed, monitored, controlled,efficiently, you may move much moreand optimized. Data can be openedrapidly than people would think.to third parties, allowing foraggregation, analysis, and reuse. As with previous convergencesenabled by technology, this one Building operators are able towill require making organizationalharness rich data streams thatchanges, bridging functional silos,help them optimize energyand adopting different ways ofand resource use, enhancethinking. We need to think aboutcomfort and productivity, andorganizational structure if were reallyimprove utilization rates.going to embrace transformation, Smart and connected vehicles know says David Bartlett, vice president ofwhere they can park, avoid trafficindustry solutions at IBM. Its neverjams, or rent themselves out to other just about the technology; its aboutdrivers or riders. Electric vehicleshow we can step up to adopting it.connect to the grid or to buildingseither of which could be designedto draw on a vehicles battery inways that improve distributionand management of power.6 Converging worlds 7. Increasingly, the marketplace and the customers are looking for a new type of value creation, which is Id 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 are3. Widen the circle of innovation and speed up the cycleslooking for a4. Look for opportunity innew type of valueunderutilized 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 businessall 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 youll see new ways of thinkingThe panel told us how todaysabout your business, assets, andcircumstances are accelerating partnerships. For those seeking tochange and requiring them to workcreate new revenue opportunities, wedifferently. These companies hope youll be inspired as you envision your future and the capabilities youll1. Think systemically to captureneed to achieve your objectives.technology and market shifts The sections that follow summarize2. Set a clear vision but prepare our panels insights.for multiple futuresConverging worlds 7 8. 1.Think systemically to Whether your company is buildingwas to engage new actors in the citycapture technologya new city, creating a transportation planning process from the get-go,and market shifts network, or changing your operationssays Gordon Feller, Internet Businessto reduce energy and waste, anSolutions Group at Cisco. This includedintegrative view can help you ensurenational government, local government,youre actually solving a problem,citizen organizations, technologynot creating a new or bigger one. companies, private developers, andpublic agencies that were establishedAll of our panelists are working onin the economic free zone. So weinnovative technologies, such asexpanded the circle of partners and,electric-vehicle charging systems,in the process, were able to identifybuilding analytics systems, orsome breakthrough innovations.intelligent energy metering devices. Buttheyre also working on large cross-Cisco has staked its role in thissector issues like modernizing theecosystem on owning the urbanelectric grid, tackling traffic gridlock, operating system. This assumes theor building sustainable megacities, growing viability of a cities-as-a-thinking that is supported by a marketservice approach, which is maturingdemand for smarter infrastructuresalongside mobility-as-a-service and(see Figure C). Taking an integrative other business models that monetizeapproach allows them to move beyond service delivery alongside productindividual products and servicessales. It also depends on integrating theand to examine how a systems parts products and services and know-howinfluence one another and the whole.of a wide range of partners. Its aradically new model for city managersCisco explains how this way of thinkingand the companies (like Cisco) thatled to a co-creation process in thesell to them. But it also forms thedevelopment of a Korean greenfield city,basis of Ciscos strategy; its this kindNew Songdo City. One of the projectsof repositioning that is helping Ciscorequirements was that the city produceunderstand its role and define it further.one-third less greenhouse gas emissionsthan 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 thats 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 s...</p>