Converging Worlds


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

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Converging Worlds

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 are encouraging internal cross- synergies, where a group of us together functional collaborations to find can cost-justify making a leap in fresh perspectives. Sometimes an investment or a technology.” it involves technological cross- Companies we spoke with identify pollination. General Electric, for three types of collaboration that example, leveraged aerospace are fostering their innovation. The engineering from its aviation collaborations could be to build or business, as well as materials manage electric grids, construct or science and mechanical engineering operate smart buildings, design or expertise from across the company manage cities’ infrastructures, provide to become the leading US wind integrated and adaptive transportation turbine manufacturer. But services, manage distributed and technology solutions alone aren’t diverse energy systems, or more. always sufficient, so companies are reaching into other parts of • Customers. First, companies are their businesses to find expertise working more closely than ever on such things as customer service with their customers to identify new or marketing. “What we’re doing, opportunities to address their needs of course, is expanding the circle over the short and medium terms. beyond the engineers to people While customers are looking for who are trained in other fields ways to succeed in an increasingly and who are also great sources of dynamic marketplace, they’re wary innovation,” says Cisco’s Feller. of companies that bring a one-size- fits-all, plug-and-play solution to the table. Forming close partnerships to seek innovative, flexible, yet12 Converging worlds
  13. 13. • External. Finally, they’re looking to other players in their industries or in adjacent industries to take Where have we seen a broader, multidisciplinary approach to specific customer convergences like this before? issues. At Microsoft, for example, this is creating new opportunities We have seen technology convergences before, and those that have preceded to work with utility and energy may be instructive to understanding the business implications of today’s industry partners. “All of these convergence. VantagePoint Capital Partners’ Stephan Dolezalek provides folks are really deep energy experts this perspective. who are now finding themselves In the development of information technologies, we started with a in the software solution business mainframe computer that pushed information to a dumb terminal. We then at a level they never have been migrated to ever-smaller, more-powerful microcomputing platforms that in before,” says Rob Bernard, distributed computing power, reducing the need for those mainframes. But chief environmental strategist at then we discovered that we wanted to reconnect things, which ultimately Microsoft. “And that’s where the led to the development of the Internet. Now, we’ve come full circle, with partnership and the synergy come massive numbers of devices talking to central computers in the cloud. in—because we’re not a solutions company in the energy space. So That piece, I think, represents the ultimate possibility for our physical it creates the opportunity and the infrastructure. As cities and companies start thinking about managing conditions for a partnership.” complex systems and acquire the tools that connect the systems together and manage distribution of power, they can do it on a building level or a community level and suddenly they’re efficiently managing electron flows, temperature, comfort levels, lighting—basically, the human experience. Information technology continues to get bound ever more deeply into the Internet of Things. Today we have one Internet where we want very active involvement, control, and constant interaction. There will be a second layered Internet, where we want to minimize our interaction, as systems handle things automatically and provide us with the best user experience but do so in the background. The management of lighting, transport, and energy will be background managed through business services. If it can do what I need it to, without my having to interfere, that’s ultimately how energy and transport will be delivered to us. As big incumbents try to move into that future, some of them will be able to capture the new technology and integrate it and others will be left behind. The only possible way that an incumbent can deal with this is to change from within by embracing it or just acknowledge that failure to change is, in almost every part of the global economy today, something that’s sure to lead to certain death. Converging worlds 13
  14. 14. “We see this process of opening the system as actually accelerating the path to innovation.” —Gordon Feller, Cisco Across the board, companies are have more groups working faster on seeing their need for partnerships advanced-technology collaboration swell. “The larger the scale of these so we can get to the market quickly. kinds of projects, the greater the If you look at the Chevy Volt timing number of players,” says Clay Nesler, from inception to launch, it was vice president of Global Energy probably one of the fastest vehicle Sustainability at Johnson Controls. launches we’ve ever done.” But a larger network of partners doesn’t Conditions are driving companies have to mean the process slows down. to look for opportunities to join In fact, many companies say they’re able together—to go to market with arms to accelerate the process of innovation linked. It’s about companies’ using through collaborations that leverage their combined capabilities to provide partners’ expertise efficiently. greater benefits for their customers than if each went it alone. This is a “I would say the velocity of work broad trend seen across all industries has increased quite a bit,” says Mary and echoed in other research. Forty Beth Stanek, director of Federal percent of global CEOs now expect the Environmental Energy Regulatory majority of innovation in the future Affairs at General Motors. “You will be co-developed in collaborative networks outside their organizations.6 40% Our panelists said that both internal and external stakeholders are important partners in designing new strategies and ensuring their success. “You have to be flexible with regard to these types of partnership structures,” of global CEOs now expect the says Mark Vachon, vice president of majority of innovation in the ecomagination at GE. “We’ve focused future will be co-developed not only on expanding the sources of in collaborative networks innovation and technology but also outside their organizations. on how we scale and commercialize the ideas we’ve partnered on.”6 PwC, PwC’s 14th Annual Global CEO Survey, January 2011.14 Converging worlds
  15. 15. Market acceleration ledby governmentsBusiness expects governments $71Tto be among the largestcustomers for clean,smart, and green solutionsbecause of the need forinfrastructure improvements.The world’s infrastructure Investment needed toinvestment needs for energy, improve basic infrastructureroad and rail transport, through 2030telecommunications,and water are likely toaverage 3.5% of worldgross domestic productthrough 2030, or about US$71 trillion, OECD says.7 In some cases, theprivate sector will lead infrastructure projects, through public andprivate partnerships, as it has in the buildout of telecommunicationsnetworks in both developed and developing countries.Around the world, government-supported drives are laying thegroundwork for smart infrastructures, with investments in themodernization of electricity grids. Smart-grid investment inChina will reach at least US$96 billion by 2020, as part of thatcountry’s long-term stimulus plan.8 In the United States, US$4.5billion was allocated to smart-grid initiatives under ARRA.Large stimulus efforts have been accompanied by an array offederal and subnational government programs providing incentivesdesigned to promote market acceleration, including:• Production tax credits• Cash grants and loans in lieu of tax credits• Renewable-energy standards• Regional cap-and-trade programs• Feed-in tariffs• Fuel efficiency standards• Commercial benchmarking laws for energy use• Guidelines that allow interval data from utilities to be open source and available to third parties• Guidelines for privacy and data security of interval dataTo accelerate change, industry working groups are working closelywith government agencies on a wide range of industry standardsthat define the boundaries for collaboration and competition.7 OECD, Infrastructure To 2030: Telecom, Land Transport, Water and Electricity, Volume 2, August 2007 and PwC, 10Minutes on Global Infrastructure, March 2010.8 International Energy Agency, Technology Roadmap: Smart Grids, 2011. Converging worlds 15
  16. 16. 4. Look for opportunity Entrepreneurs in both incumbent In another example, the city of in underutilized and start-up companies are looking Amsterdam reduced the physical assets for opportunities to identify and amount of office space it leases by 40% manage underutilized assets or to through a partnership with Cisco. The create products and services that city now boasts modern and up-to-date optimize others’ underutilized assets. work solutions, such as encouraging and enabling telecommuting, and Over the past few decades, creating flexible, shared workspaces. information technology companies All told, the initiative is saving have turned to utilization to boost the city €10 million annually.10 data center efficiency, create faster processors, and more. Today’s Vehicle-sharing models take asset innovators look for opportunities utilization to another level. Fleets where utilization can either reduce of cars, bicycles, trucks, and other cost, increase revenue or both. vehicles are available by the hour for individual use and are conveniently For example, in 2010, unused capacity located throughout a community, on Amazon’s servers led the company campus, or city. While car sharing to introduce its popular EC2 cloud started with community member- offering, turning underutilized based services, the concept has broad assets into a new revenue stream. potential to change how cities, colleges, Since EC2’s release, revenue jumped and corporations manage and maintain from $240 million in the third fleets. Vehicle owners see radically quarter of 2010 to $470 million higher utilization and potential in the third quarter of 2011.9 revenue, and users have new choices for how they use transportation.9 Andrew Hickey, “Amazon’s Q3 Cloud Revenue Skyrockets,” CNN, October 2011.10 Cisco, European City Connects Citizens and Businesses for Economic Growth, October 2011.16 Converging worlds
  17. 17. Market barriers mean no easy entryFinding the right economic model has been elusive in and rate structures typically discourage power providersmany smart, clean, and green ventures. Even when the from supporting energy-efficiency efforts—at leasteconomics make sense on paper, there is a mentality on any meaningful scale. In other cases—e.g., vehiclethat needs to change, and it’s often hard to convince efficiency standards or pricing and policies for on-sitebuyers that they should be the ones to go first. solar—technology has also changed faster than policy.Existing public policies and market structures can act as The picture is slowly changing, as companies seekdisincentives for change: most policies were designed for opportunities to work with regulators and competitorssystems to work as they do now, not how they could in the to craft policies that support innovation and incentivizefuture. We found broad recognition among our panelists efficiency industrywide. For example, when FedEx wantedthat the right market incentives are to spur the development ofcritical to reducing commercial risk electric-vehicle technologies forso they can take new ideas to scale. Existing public the tens of thousands of trucks it runs every day, it lobbiedFor example, US commercial policies and market to raise federal fuel economybuildings waste about a third of structures can standards. By doing so, it gavethe energy they consume, but there technology and manufacturingare few incentives for building act as disincentives companies a stronger incentiveowners to improve them. Typically, for change. to develop and deploy efficient,leases are written so that tenants electric-vehicle technologies.are responsible for utility costs, And when FedEx worked withwhile landlords are responsible Environmental Defense Fundfor capital costs related to energy on hybrid-electric vehiclesystems, such as HVAC maintenance or on-site generation. development for commercial trucks, it made theBecause, in effect, the landlord pays for the project but the project non-proprietary to promote innovation andtenants receive the benefits, the landlord has no financial collaboration among manufacturers and operators toincentive for making efficiency improvements. “That’s encourage widespread adoption. Using hybrid-electricone of the countertrends right now to buildings becoming and all-electric vehicles for light delivery is just onesmarter and more energy efficient—the investment component of FedEx’s corporate strategy to reduce therealities in the marketplace aren’t supporting it,” says Bob use of petroleum; there’s another strategy for its heavyBest, executive vice president of Jones Lang LaSalle. trucks and a third for its 700 planes. The company has improved energy efficiency every year since 2005,The commercial building market isn’t the only place these with a 15.1% improvement through fiscal year 2010.problems exist. In the utility business, existing policies Converging worlds 17
  18. 18. 5. Harness the One of the natural consequences of “We provided the IT constructs, but value of Big Data placing sensors throughout buildings, the facilities team was key in providing in vehicles, and within energy systems the experience and what type of rules is the very large amounts of detailed made sense,” says IBM’s Bartlett. “I data theses sensors generate. But guess what they didn’t realize was we’re only beginning to see how this the capability of IT to give them a tsunami of data fosters new innovation. command view, to give them visibility Saul Zambrano of Pacific Gas and and automation that they hadn’t had Electric Company’s Customer Energy before. So, they’re seeing the potential Solutions group sees potential. “The for new energy savings as a result.” enhanced capability and the data sets Data analytics can also provide that underlie it really are creating this insight into new products and services new innovation cycle around smarter customers need. For CBRE, the grids and smarter buildings,” he says. opportunity lies in tapping into large This explosion of information, data sets across its customers. “If I commonly referred to as “Big Data,” have all of the data for one client who is ushering in a new type of analytics owns 30 buildings in a portfolio, maybe that enables management to make then I can do a commodity buy for the decisions with a precision comparable energy for those buildings,” says Pogue to scientific insight. The newest of CBRE. “Right now, owners think of analytic methods use rigorous scientific individual buildings, but what we want techniques, including hypothesis to do is begin to view the management formation and testing, statistical and benefits in a more aggregated way.” sampling, and visualization tools. The potential for companies to use Data analytics can turn the invisible data more effectively can transform into the visible when partners come not only the products and services together to make sense of the data. companies provide, but also how those IBM talks about an early facilities companies organize to respond to management implementation, which business goals and customer need. As made use of 10,000 data sources to Zambrano says, “Historically, utilities provide a robust picture of a facility’s were very silo structured. Analysis of operations. The value, however, the data that’s coming in is effectively came from applying the customer’s going to require a shift in capability knowledge about priorities and needs around horizontal management, and alongside IBM’s analysis tools to provide so, it’s part of the business change.” actionable information about how to optimize the facility’s operations.18 Converging worlds
  19. 19. “If I have all of the data for one client who owns 30 buildings in a portfolio, maybethen I can do a commodity buy for the energy for those buildings. Right now,owners think of individual buildings, but what we want to do is begin to view themanagement and benefits in a more aggregated way.” —David Pogue, CBREIs your strategy Figure C. Radical ideas rely on a combination of technology change and business model innovationfit for the future?At the heart of convergences amongenergy, information, building, andtransportation technologies is thepotential for far greater economic and Breakthrough ideas Radical ideas Newenvironmental benefits than we’ve Game changers New businessesseen before. Convergence represents Technology changean opportunity to define the directionof industry by harnessing the power ofboth technology change and businessmodel innovation. In fact, innovationdoes not focus exclusively on new Close to existingtechnology. Developing new business Incremental ideas Breakthrough ideasmodels and new strategies is every Protect/improve Game changersbit as important—sometimes more. existingGM is just one company embracingthe idea that both technology changeand business model innovation mustwork side by side to create the future Close to existing Newof the organization. Today, GM is—first and foremost—in the business of Business model changeselling as many cars as it can. But it isalso testing a car-sharing model that Source: Davila, Epstein, and Shelton, Making Innovation Work: How to Manage It,leverages its existing OnStar system; Measure It, and Profit from It, August 2005.GM vehicle owners will soon be ableto use OnStar to rent out their cars.1111 Marc Gunther, “Why GM is working with car-sharing firm RelayRides,”, March 2012. Converging worlds 19
  20. 20. Taking actionWe see very different opportunities for buyers and sellersof energy, building, transportation, and informationtechnology solutions. Here are some things to think about,based on where you think your biggest opportunities are. For companies that buy, own, or operate buildings and fleets Nearly every company has at least one facility, with its attendant energy, water, and resource needs. And most depend on transportation networks to deliver employees to their offices, if not also to deliver products and services to the market. Therefore, companies’ ability to function—and to do so profitably—depends on these systems and how efficiently they run. What should you do now? Determine the level of significance energy spending is to your business and whether your organization is prepared to see the larger potential benefits for your specific needs and circumstances. Buyers, owners, and operators of buildings and fleets can consider the following questions: • Are the people who perform transportation, IT, and facilities management functions at your company up-to-date on these trends? What opportunities do they have to reduce business costs or improve efficiency in light of new developments? • Have you considered what types of new skills your company will need? Are you supporting growth for your people in roles (such as building engineers or energy managers) that need to evolve or expand? • How well do space planning and utilization metrics match your talent strategies? You might be sitting on space you don’t really need. • Have you evaluated options to buy energy in different ways? Are you talking to current and potential new service providers about those options?20 Converging worlds
  21. 21. For providers, incumbents, Feller, puts it: “Simply because you see the convergenceand new market players doesn’t mean you’re equipped and capable to deal with it.”Customers will help drive your new view of value creation, Indeed, every company—no matter the motivation toif you’re prepared to listen. Mark Vachon of GE put it this act—should be looking beyond the technology changesway: “It’s about listening to what trends are out there, and preparing itself organizationally to stay fit forand reverse engineering that capability back into the the future, ready to adapt as conditions And so if you’re really listening these days,you’re hearing a lot more around ‘I need a solution. Ineed you to be part of solving my broader problem.’”Meeting customer demands to solve broader problemsand bring innovative solutions to the table requirescompanies to engage simultaneously in collaborationand competition—what some call “co-opetition.”12In highly fragmented or immature markets, innovation Get more in personskills and entry points will sort out who does what best—not and onlineunlike what we’ve seen in other sectors where digital andmobile technologies have initiated structural change. GreenBiz Group is engaging the businessWhat should you do now? community on ways to accelerate convergence and reduce commercial risk for both usersA structured approach to identifying and capturing value and providers of clean, smart, and greenfor your company begins with a few simple questions: technologies. Join us in a series of GreenBiz• What is your corporate view of this landscape—how VERGE events and online discussions. energy, information, buildings, and transportation services To participate, see: are meshing together? What’s your company’s role in it all?• Do you feel your organization’s innovation capabilities are a match for the nature of change in this space?• Do you feel your marketing and sales approach is succeeding where smart, clean or green attributes should be part of the sales process?• Are you comfortable that you are collaborating with the right network and identifying the right future partners?Providers have phenomenal opportunities ahead as they cometo understand and then shape their futures. Yet as Cisco’s12 Eric Bloom, “In Smart Buildings, Co-opetition Is on the Rise,” Pike Research Blog, February 2012. Converging worlds 21
  22. 22. AcknowledgmentsDuring the preparation of this publication, we benefited greatly frominterviews and conversations with the following executives.David Bartlett Clay Nesler Mark VannVice President of Industry Solutions Vice President, Global Energy Manager of Advanced TechnologyIBM Sustainability Government Business Development Johnson Controls General MotorsCarl BassPresident and CEO Tim Noonan John VieraAutodesk Vice President, Phantom Works Global Director, Sustainability and Ventures and Boeing Energy Vehicle Environmental MattersRob Bernard Boeing Ford Motor CompanyChief Environmental StrategistMicrosoft Corporation David Pogue Bill Weihl* National Director of Sustainability Manager of Energy EfficiencyBob Best CBRE and SustainabilityExecutive Vice President, Energy Facebook Sustainability Services Mary Beth StanekJones Lang LaSalle Director of Federal Environmental Saul Zambrano Energy Regulatory Affairs Senior Director, Products, CustomerStephan Dolezalek General Motors Energy SolutionsManaging Director, CleanTech Pacific Gas and Electric CompanyVantagePoint Capital Partners Mark Vachon Vice President, ecomaginationGordon Feller General ElectricInternet Business Solutions GroupPublic Sector PracticeCisco SystemsDave Gralnik PwC and GreenBiz GroupSenior Vice President, RenewableEnergy Services AdvisoryJones Lang LaSalle Joel Makower, Chairman and Executive Editor, GreenBiz GroupMitch Jackson Clinton Moloney, US Sustainable Business Solutions, PwCVice President Don Reed, US Sustainable Business Solutions, PwCEnvironmental Affairs Sustainability Rob Shelton, US Growth Innovation, PwCFedEx Editorial, writing, design, and productionJoe MercurioManager of Government Military Fuel Eric Faurot, President and Chief Strategist, GreenBiz GroupCells Electric Vehicle Programs Peggy Fresenburg and Judy Traveny, US Studio, PwCGeneral Motors Dee Hildy, US Thought Leadership, PwC Celeste LeCompte, Contributor Derek Top, Senior Editor and Program Director for VERGE, GreenBiz Group*This interview was conducted in December 2011, before Bill joined Facebook.22 Converging worlds
  23. 23. Converging worlds 23
  24. 24. have a conversationabout how we can help yourcompany increase revenue,reduce cost, or manage riskthrough effective sustainabilitystrategies, contact:Kathy NielandSustainable Business Solutions,Practice Leader(504) 558 CareyUS Advisory Cleantech Leader(408) 817 MoloneyUS Sustainable Business Solutions(415) 498 ReedUS Sustainable Business Solutions(617) 530 SheltonUS Growth Innovation(408) 817 publication is printed on Mohawk Options100PC. It is a Forest Stewardship Council™(FSC®) certified stock using 100% postconsumer waste (PCW) fiber and manufacturedwith renewable, non-polluting, wind-generatedelectricity.©2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity.Please see for further details.PwC United States helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms in 158 countries withclose to 169,000 people. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visitingus at content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. MW-12-0285