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2012 Yearbook


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2012 Yearbook

  1. 1. 2012 YearbookOur 12 most read articles from 2012
  2. 2. X&Y Partners 2012 YearbookContacts:info@thisisxy.comAv. Duque de Ávila, 67, R/C E, 1000-139 LisboaUK: +44 (20) 3239 5245 | PT: +351 210 961 834Skype: xypartners 2
  3. 3. X&Y Partners 2012 YearbookForeword2012 has been a great year for us. Not what we have shared, putting us all onebecause we have grown considerably: step closer to a sustainable and equitableX&Y Partners is and will continue to be a future.small company. And not because there We hope you enjoy these 12 articles.were significant advances in the areas we Some of them cover a specific sector orwork on: renewable energies and clean issue, such as cannibalisation amongtechnologies continue along a fast but renewable energies, emerging windsomewhat rocky path; policies to address markets and alternatives to electricclimate change are still timid; and the bulk vehicles. Others cover more transversalof the work towards a more sustainable management challenges, such as makingdevelopment still lies ahead us. market forecasts, asking for feedback and2012 was a great year for us because we reducing product development time.took a decisive step towards sharing our We also hope that you will get in touchknowledge. The 12 articles we have with us after reading these articles: to hirecompiled in this yearbook are based on us, to work with us, to provide feedback, oryears of experience and many thousands simply to introduce yourself. Until then, weof hours of work. There is of course a wish you a fantastic rationale to this: our articles aremeant to illustrate the talent, enthusiasmand hard work we put into each of ourassignments, in the hopes that our readerscan someday become our clients. Weexpect that some of them will, others will Romeu Gaspar Cátia Cariasnot. All of them can however build upon 3
  4. 4. X&Y Partners 2012 YearbookContents Cannibalization in Renewable Energies (Part I: Solar Energy) 5 Cannibalization in Renewable Energies (Part II: Offshore) 9 Concrete wind towers: a low-tech innovation for a high-tech sector 14 Tackle climate change with tried and true persuasion techniques 21 Performance contracts make sense for more than just energy 26 Should you buy an electric car? 29 Lessons learned from market forecasting 33 Ask for feedback like you mean it 38 Going beyond "productization" 42 What do Boeing, Toyota and Resident Evil have in common? 46 An old recipe for an emerging issue 50 X & Y: saving the environment & the economy 55 Innovation in the cycling industry goes well beyond the bikes 59 4
  5. 5. X&Y Partners 2012 YearbookCannibalization in Renewable Energies(Part I: Solar Energy)M ore and m ore, renew ableenergies are com peting against Borrowing the nomenclature from oureach other, instead of against good friends at Insead, the renewableconventional energy sources energy sector is quickly moving from a blue to a red ocean. Solar and offshoreIf you read the reports from major energy are two striking examples of segmentsagencies and industry associations, you where different technologies compete formight be tempted to conclude there is a similar resources, investors and policybright future where all types of renewable makers. Let’s first look at the solar case:energies will flourish and coexistpeacefully. Well, they will not. Much like in In the 1980s, concentrated solar powerany other sector, some technologies will (CSP) seemed set to beat solartrump others. In this two-part article, we photovoltaic power (PV). While the latteranalyze how solar photovoltaic (PV) is relied on expensive solar modules morebeating concentrated solar power (CSP), often used in small consumer electronicsand how offshore wind is doing the same than in power plants (Exhibit 1), the formerto wave energy. used tried and true technology borrowed from coal plants in order to produce vapor Exhibit 1 - The 354MW SEGS CSP plant, built from 1984 to 1990 in California’s Mojave Desert. 5
  6. 6. X&Y Partners 2012 Yearbookand drive a turbine (Exhibit 2). countries), access to water (just like a coalExhibit 2 - The 1MW Arco Solar PV plant, built in 1984 in Sacramento, the largest at the timeTwenty-five years later, the face of solar plant) and large-scale deploymentsenergy has changed dramatically. In 2010 (typically more than 20 MW, compared with the few kW of a residential PVPV had a global installed capacity of system). This means that there are moreapproximately 35 GW, compared with tech companies, investors and policyCSP’s 1.5 GW (Exhibit 3). makers interested in PV than in CSP (Exhibit 4);Over the last years, we have had theprivilege of working in these two sectors Technological simplicity: a PV system isfrom multiple perspectives (supporting like a quartz watch, whereas a CSPinvestors in selecting technologies and system is like a mechanical watch. Theprojects to invest on, helping start-ups in former revolves around the solar cell,funding their ideas, and working with while the latter is a combination of equallypolicy makers in defining incentive critical components. This has allowed themechanisms) and believe that two factors PV industry to focus on solving one issuehave contributed the most for the – driving down the cost per Watt – whiledominance of PV over CSP: the CSP industry is spread across multiple challenges e.g. improving the opticalMarket size: PV can be installed almost efficiency of collectors, researching neweverywhere CSP can, but not the other heat transfer fluids or procuring higherway around. Current commercial CSP efficiency turbines (Exhibits 5 and 6).technology needs higher levels ofirradiance (typically those of the sunbelt 6
  7. 7. X&Y Partners 2012 Yearbook Exhibit 3 - Evolution of PV and CSP global installed capacity (MW). Exhibit 4 - Venture Capital and Private Equity investment in PV and CSP (2010/2011).Does this mean CSP will eventually feasible commercial energy storagedisappear, trampled by PV? Not system does not yet exist. Dispatchabilitynecessarily. CSP has one major will be increasingly important when andadvantage over PV: dispatchability. where renewable energies achieve highCurrent CSP plants can store thermal penetration rates, so two things canenergy for up to 16 hours, which means happen: CSP becomes a commerciallythat their production profile can match the viable solution before a commercial PVdemand profile (just like a conventional storage system is developed, carving itspower plant). PV is not dispatchable, as a own market segment; or the PV industry 7
  8. 8. X&Y Partners 2012 Yearbookquickly solves the storage issue and the offshore market to analyze how wavebecomes the solar technology of choice. In energy and offshore wind are alsothe second part of this article, we look at competing for the same resources. Exhibit 5 - Impact/Probability matrix for CSP technological developments. Exhibit 6 - Impact/Probability matrix for PV technological developments. 8
  9. 9. X&Y Partners 2012 YearbookCannibalization in Renewable Energies(Part II: Offshore)M ore and m ore, renew able first part of this article we looked at theenergies are com peting against solar example, let’s now look at theeach other, instead of against offshore case: Not unlike fusionconventional energy sources energy, wave energy (which is the most significant source of marine orIf you read the reports from major ocean energy, a group which alsoenergy agencies and industry includes tidal & currents, salinity andassociations, you might be tempted to thermal energy) has been on the brinkconclude there is a bright future where of a breakthrough for many years.all types of renewable energies will While writing this article I revisited theflourish and coexist peacefully. Well, earlier work we have done in thisthey will not. Much like in any other sector, and realized that the adoptionsector, some technologies will trump of wave energy has significantly trailedothers. In this two-part article, we our 2008 estimates. At the time, weanalyze how solar photovoltaic (PV) is predicted a global installed capacity ofbeating concentrated solar power 50MW in 2011, significantly above the(CSP), and how offshore wind is doing 10MW that were actually installed. Ourthe same to wave energy. 2015 estimates now also seem overly bullish when compared with IEA’sBorrowing the nomenclature from our latest forecasts (Exhibit 1).good friends at Insead, the renewableenergy sector is quickly moving from a Apart from the typically wide errorblue to a red ocean. Solar and margins of this type of forecastsoffshore are two striking examples of (which we plan to discuss in a futuresegments where different technologies article), where have we (and most ofcompete for similar resources, the industry) gone wrong?investors and policy makers. In the 9
  10. 10. X&Y Partners 2012 Yearbook Exhibit 1 - Comparison of 2008 and 2010 global wave energy installed capacity forecasts (MW).The blame is usually put on the 2008 Acquisitions (a 149% increase overfinancial system meltdown and 2007), compared to only 0,3B$subsequent credit crunch, but the through Venture Capital and Privateproblem could actually have been too Equity (Exhibit 2). This provides anmuch money, or at least the wrong M&A to VC/PE ratio of 10:1, thekind of money. In 2008 close to 3B$ second highest in the renewablewere injected in the marine & small energy sector that year (the highesthydro sector through Mergers & was in the wind sector, where Exhibit 2 - Venture Capital, Private Equity and Merger & Acquisition investments in renewable energy (2008) 10
  11. 11. X&Y Partners 2012 Yearbookconsolidation of the onshore industry larger-scale deployments, hurting bothdrove record-high M&A transactions). investors and investees.VC/PE and M&A money serve The rise of offshore wind was also notdifferent purposes: the former is trouble-free. Its first installments usedpredominantly used to research & turbines originally designed fordevelop a technology, while the latter onshore applications, not for the muchis used to scale it up (Exhibit 3). harsher marine conditions. As a result, Exhibit 3 - Typical investor profiles for different renewable energy maturity stagesAt a time where wave energy was still and just as with wave energy, thesetrying to overcome important systems would often break down,technological and engineering resulting in downtime that could spanobstacles (Exhibit 4), having 10 times across several months, before seamore M&A money than VC/PE money conditions allowed for access to themight have rushed the technology into platform. 11
  12. 12. X&Y Partners 2012 Yearbook Exhibit 4 - Sample of reported issued in deployed wave energy devices.However, four years have passed, and sector is poised for strong growth,wave energy and offshore wind energy fueled by the shrinking availability ofare now at two very different stages suitable onshore sites, and by the(Exhibit 5). Offshore wind turbine development of technology thatmanufacturers have successfully broadens the range of suitabledeveloped models that can withstand offshore sites (such as floatingharsh marine conditions, and the platforms for deep-sea deployments). Exhibit 5 - Comparison of wave energy and offshore wind installed capacity forecasts (MW). 12
  13. 13. X&Y Partners 2012 YearbookDoes this mean wave energy will hybrid wave/wind park can share grideventually disappear, trampled by connections and other infrastructures,offshore wind? Not necessarily. These diluting capital and operational costs),technologies share the same space which could help wave energy to(water) but harness energy from piggyback on the success of offshoredifferent sources (wave vs. wind), wind.which means that wave energy can at Whether this happens or not willleast evolve to become a viable option largely depend on the wave energyfor locations where wave resources sector’s ability to: i) solve the currentare better than wind resources. There technological and engineeringis also a degree of complementarity obstacles; and ii) attract the right typebetween both technologies (e.g. a of investors to do so. 13
  14. 14. X&Y Partners 2012 YearbookConcrete wind towers: a low- tech innovation fora high- tech sectorInnovation does not need to be not contribute to the former, but cancutting edge, it only needs to contribute to the latter.solve a problem : three reasons A wind tower is not the first thing thatw hy w ind energy is borrow ing comes to mind when thinking aboutsolutions from the technological developments in windconstruction sector. energy, as its impact on systemThe global onshore wind sector is performance is very small. However,expected to grow 19% per year till wind towers can represent more than2015. Not as much as it has grown in 25% of the total WTG (Wind Turbinethe past (28% per year from 2006 to Generator) cost (Exhibit 2), which2011) but still very respectful for a makes them a relevant area for costsector that is rapidly approaching maturity (Exhibit 1). One of the The ubiquitous steel tower alreadykey drivers fueling this growth is LCoE benefits from a level of steel(Levelized Cost of Energy*) reduction, manipulation and optimization fareither by improving efficiency or by above those of most sectors, leavingdecreasing costs. Concrete towers do limited room for improvement. The use Exhibit 1 - 2006-2015 global wind power installed capacity (GW) 14
  15. 15. X&Y Partners 2012 Yearbook Exhibit 2 - Cost breakdown and impact on system performance for the main components of an illustrative Wind Turbine Generator (WTG).of alternative materials, particularly German turbine manufacturer andconcrete, seems to be a viable systems integrator) and Inneo (aalternative for cost optimization Spanish tower manufacturer); and(Exhibit 3). Two distinct designs are hybrid systems (which combine a steelcurrently commercially available: full tower with a concrete pedestal),concrete designs, developed by developed by companies such as ATScompanies such as Enercon (a (a Dutch tower manufacturer) and Exhibit 3 - Illustrative industry maturity curve for wind towers. 15
  16. 16. X&Y Partners 2012 Yearbook Exhibit 4 - 2011-2015 market share forecasts for steel, hybrid and concrete towers.Tindall (a US manufacturer of precast (Exhibit 4).concrete products). We believe there are threeOur forecasts suggest a slow but firm fundamental reasons for this tointroduction of hybrid and concrete happen:towers, resulting in a 2015 market Increasingly larger turbinesshare of 3 and 6%, respectively Exhibit 5 - 2005-2010 average new installed turbine capacity per country. 16
  17. 17. X&Y Partners 2012 Yearbook Exhibit 6 - Sample of current offering of turbine-tower combinations.The average turbine size of new wind Concrete advocates claim that steelparks has steadily increased over the towers are not cost-effective above 90-years (Exhibit 5), in an effort to reduce 100m, mainly due to its inherentLCoE. Larger turbines are heavier and limitation in tower diameter (towerhave larger rotors, requiring taller and sections need to be transported bymore robust towers. road, limiting its maximum diameter to road width), which creates stiffness Exhibit 7 - Historical evolution of US iron ore and precast concrete prices. 17
  18. 18. X&Y Partners 2012 Yearbookissues and requires deeper increasingly dominated by frameworkfoundations. Concrete does not have agreements and long-term contracts,this limitation, as larger diameter pressuring companies across thetowers can be built on-site or made up value-chain to favor stability overby smaller precast semi-circular volatility.sections. A sample of the current Emergent market growthoffering of turbine-tower combinationsseems to corroborate these claims While Europe and the US will retain an(Exhibit 6). important role in new wind capacity, emergent markets such as LatinSteel price volatility America, Africa and the Middle EastSteel prices have historically been are expected to grow at a faster ratemore volatile than concrete prices, (Exhibit 8), assuming an increasinglyparticularly in recent years (Exhibit 7), important role in the global windwhile sourcing in the wind sector is sector. Exhibit 8 - 2011-2015 new installed capacity breakdown per region. 18
  19. 19. X&Y Partners 2012 Yearbook Exhibit 9 - Enercon’s precast concrete mobile factory in Gujarat, India.Remote manufacturing of towers is On a final note, you might be askingtypically costly, due to high yourself why we predict that in thetransportation costs, particularly when short-term hybrid towers will have awind sites are remote or served by higher market share than concretepoor transportation networks. towers. After all, hybrid towers seemFurthermore, several emerging more complex to design, manufacturemarkets (e.g. South Africa, Brazil) and install. Currently they holdrequire a certain percentage of the however an important advantage overtotal wind park value to be full concrete designs: the existingmanufactured locally. Common overcapacity in steel towerpractice in the construction sector manufacturing (Exhibit 10). Hybridsuggests that good quality concrete is towers allow for the reuse of existingeasier to source locally than good steel tower designs and manufacturingquality steel, and requires less capacity, which will accelerate itsspecialized manufacturing labor. In short-term market penetration. In thefact, companies such as Enercon longer-term, once new turbine-towerregularly use precast concrete mobile combinations reach the market andfactories for remote wind parks the steel tower surplus is resolved, we(Exhibit 9). expect full concrete designs to be favored over hybrid designs. 19
  20. 20. X&Y Partners 2012 Yearbook Exhibit 10 - 2011 supply vs. demand capacity for major wind park components.(*) LCoE is the price at which electricity is a metric commonly used to compareneeds to be generated to achieve break- different projects and energy sources.even over the lifetime of the project. LCoE 20
  21. 21. X&Y Partners 2012 YearbookTackle climate change with tried and truepersuasion techniquesThe greater good is a w orthy changes in this area have provenm otive to address clim ate difficult.change, but it’s not a Our own studies corroborate theseparticularly effective findings. For instance, we havepersuasion technique. Routine, recently estimated potential carbonrew ard and social proof w ork savings purely based on behavioralfar better. changes to be 3% for a hospital andSimple actions like switching off the 10% for an entire region (Exhibit 1).lights or turning down the thermostat Materializing this potential requirescan lead to substantial savings: convincing the majority of thesestudies suggest that behavioral employees and citizens to changechange alone, without any technology multiple aspects of their daily lives.update, can result in 5 to 20% carbon The standard approach to achieve thisemissions savings. The human mind is is usually to i) appeal to our sense ofhowever far more complex than any altruism by showing that conservingmachine, and meaningful behavioral Exhibit 1 - Behavior and technology based carbon emissions savings potential for an illustrative hospital and region. 21
  22. 22. X&Y Partners 2012 Yearbookresources and reducing carbon allows us to plan ahead and providesemissions contributes to the greater comfort. Complying to existing routinesgood; and ii) provide passive or suggesting alternative ones can,information on how to implement the oddly enough, be a very effectiverequired changes. behavioral change mechanism.There is nothing fundamentally wrong Successful weight loss programs oftenwith this approach: long-lasting exploit this principle: a recent study bybehavioral changes should be based the US based National Weight Controlon sound values and informed Registry shows that 4.000 people thatdecisions. It can however take years maintained a weight loss of at least 30or even generations to implement pounds (approximately 13,6kg) forthese changes. In this article we more than one year shared a similarexplore three complementary time- daily routine (Exhibit 2).proven persuasion mechanisms that The application of this mechanism tocan lead to faster results: routine, resource conservation is lessreward and social proof. prevalent but can be equally effective.Routine Durham Water, an Ontario water utilities, conducted an innovativeMost of us are creatures of habits. awareness program: trained studentsSticking to a certain degree of routine approached lawn owners when they Exhibit 2 - Two examples of leveraging routine - weight loss programs and Durham Water’s social experiment. 22
  23. 23. X&Y Partners 2012 Yearbookwere not busy, explaining them how an effective persuasion mechanism.less frequent watering was beneficial Most salary packages, particularlyfor the lawn. The explanation was those for executives or salescomplemented by a reminder sign, to personnel, include some form of pay-be hung next to the water tap, and a for-performance mechanism. Thegauge, to measure the appropriate same principle can also be applied toamount of watering. Lawn owners savings, rewarding employees thatwere also asked to sign a pledge, find ways to save the company moneycommitting to less frequent watering. and resources.The program resulted in a 17% long- This mechanism, called gainsharing, isterm reduction in water consumption often used in the healthcare industry.for lawn irrigation (Exhibit 2). In This study describes how a 375-bedparallel, Durham Water ran a control community hospital achieved costgroup, where a separate group of lawn savings of 2.000.000$ after askingowners merely received an employees to find ways to increase theinformational brochure. Conversely, hospital’s productivity. Employeesthis group actually increased water were rewarded with an average bonusconsumption, instead of reducing it. of 5% of their annual salaries, and alsoReward reported improved levels of commitment and motivation (ExhibitReward, material or not, can also be 3). Exhibit 3 - Two examples of leveraging reward - Gainsharing and RecycleBank. 23
  24. 24. X&Y Partners 2012 YearbookRecycleBank applies the same perceive as being moreprinciple to communities. The knowledgeable about a certain rewards citizens that recycle This conformity trait is one of themore: individual and/or neighborhood cornerstones of social media, thebins are regularly weighted, and higher digital version of the venerable word-recycling rates are rewarded with of-mouth.points that can be redeemed in local A recent study from U.C. Berkeleybusinesses. In Hollywood, Florida, shows the influence of Yelp, an online66% of the citizens adhered to the consumer review website, on theRecycleBank program, improving success of local restaurants: A steprecycling tonnages by 130% in the first change of half-star in a restaurant’syear. The municipality saved 500.000$ overall rating (the website rounds offin waste disposal fees and earned ratings to the nearest half-star, so a250.000$ in recycling revenue. restaurant that has improved slightlyRecycleBank is currently testing the from an average rating of 3.24 to ansame mechanism for walking and average rating of 3.26 will becycling rewards. promoted from 3 stars to 3.5 stars)Social Proof results in a decrease of 8 to 25% in table availability (Exhibit 4). A parallelPeople tend to mimic the actions of study from Harvard Business Schoolothers, particularly of those they Exhibit 4 - Two examples of leveraging social proof - Yelp and Opower. 24
  25. 25. X&Y Partners 2012 Yearbookconcluded that a one-star increase in addition it offers a tangible reward:Yelp rating leads to a 5 to 9% increase reduced energy costs. RecycleBank’sin the restaurant’s revenue. service likewise does not require any substantial change in routines, asOpower brings the technique of social customers continue to use existingproofing to energy savings. The recycle bins. It has also added a socialcompany partners with electric utilities proofing aspect to its business model,to offer customers additional insight prompting neighborhoods to workabout their energy bills, including a together and leveraging social mediacomparison with more efficiency for word-of-mouth.households from the sameneighborhood, complete with In conclusion, routine, rewarded andpersonalized tips on how to achieve social proof have proven to besimilar results. Opower reports effective behavioral changeaverage savings of 1.5 to 3.5%, with a mechanisms in a variety of areas.better cost-effectiveness than some of Applying them to areas such asthe more traditional energy efficiency climate change and sustainableinitiatives (Exhibit 4). development, which traditionally rely on an appeal to the greater good andYou will notice that most of these on passively providing information, canexamples leverage more than one of help to provide more immediatethese persuasion techniques. Opower, results.for instance, complies with customerroutines by coupling its service toexisting monthly energy bills. In 25
  26. 26. X&Y Partners 2012 YearbookPerformance contracts make sense for more thanjust energyPerform ance contracts are same ESCO model to these areas canpopular am ong ESCOs (Energy thus make a lot of sense.Service Com panies), but they The Portuguese NHS (National Healthshould also be used in other System) recently asked us to assistareas them in preparing the 2020 CarbonIf you want to reduce energy costs but Reduction Strategy for their publiccannot afford the required equipment healthcare network. The objective ofupgrades, you’ll likely find an ESCO this work was twofold: on the one(Energy Service Company) willing to hand, it should address the sectoralinstall everything for free, in exchange carbon emissions legislations that arefor part of the future savings. But if being put in place across Europe; onyour company is services based, most the other hand, it should contribute tolikely the bulk of the costs are in reduce the 8.000+ Million Euro budgethuman resources and in the supply required to run this network of morechain, not in energy. Applying the than 70 hospitals and 340 primary care centers. Exhibit 1 - Considered carbon and cost reduction initiatives. 26
  27. 27. X&Y Partners 2012 Yearbook Exhibit 2 - Correlation between environmental and economical benefits, for an illustrative hospital.The two objectives are closer than one The other interesting conclusion is thatmight think. Of the 26 initiatives most of the carbon and cost savingsanalyzed (Exhibit 1), half of them potential is not in energy, but in supplyresult in carbon reductions and are chain management and operations. Ineconomically feasible (Exhibit 2). the two hospitals and one primary care center that we analyzed, energy Exhibit 3 - Cost and carbon footprint breakdown. 27
  28. 28. X&Y Partners 2012 Yearbookrepresented only 26% of the total Installing a Kanban stock managementcarbon footprint and 1% of the total system in a 600 bed hospital willbudget, while supply chain activities require an initial investment ofand human resources took more than approximately 2.2M€. These systems50% of the carbon footprint and 85% typically lead to a measurableof the budget (Exhibit 3). decrease in purchasing of at least 10%, or 1.75M€/year for this example.Most of the carbon/cost saving An investor that takes 25% of theseinitiatives that can be applied to these savings for 10 years will thus make aareas are based on lean practices that ROI (Return on Investment) of 35%are already common in manufacturing (7% discount rate), which is in line withbut less so in services, such as smart what ESCOs typically make.procurement, Kanban stockmanagement and just-in-time Besides healthcare, the same modelworkflows. And, similarly to what can be applied to other sectors withalready happens with energy efficiency high procurement and/or humaninitiatives, the investment required to resources costs, such as retail,implement these practices could be tourism & travel, telecommunicationsfinanced through a performance or the public sector.contract. Let’s take an example: 28
  29. 29. X&Y Partners 2012 YearbookShould you buy an electric car?Yes, but probably not just yet. 66.000 units (Exhibit 1). It is not yet anThe latest iterations of the immense difference, but it does raisevenerable internal com bustion some questions about the feasibility ofengine are still com petitive, the 2020 goal. In this scenario, shouldboth from an environm ental you, as a consumer or someoneand an econom ical standpoint. responsible for a company car fleet, buy an electric car?The forecasts for global electricvehicle (eV) sales are undoubtedly Most industry analysts agree that, withambitious – 2 million vehicles sold by the advent of cheaper and more2020 – which reflects the high hopes reliable batteries (currently the mainthat both manufacturers and issue for this type of vehicles), thegovernments are placing on this market will take off. It is however nottechnology. So far, actual sales have clear when this will happen, as thebeen somewhat lackluster: in 2011 technological roadmap for the next fewapproximately 44.000 electric vehicles years is still relatively uncertain.were sold, instead of the expected Exhibit 1 - Global electric vehicle sales forecast for 2010 – 2025 (excludes electric scooters and bicycles). 29
  30. 30. X&Y Partners 2012 Yearbook Exhibit 2 - Comparison between the carbon footprint of a Volkswagen Golf 2.0 Diesel and a Nissan Leaf, for several countries.So, given time, most of us will conventional car, an electric car willprobably be driving electric cars. But emit less in a country that gets most ofwhat about right now? When is an its electricity from renewable orelectric vehicle an immediate viable nuclear sources – e.g. France – andoption? That was exactly the question will emit more in a country that is morethat one of our clients, a leading dependent on fossil fuels – e.g. UnitedEuropean fleet management company, Kingdom).asked us. From an economical standpointFrom an environmental standpoint, the however, the answer is not as clear.electric car seems hard to beat: Exhibit The evolution of the internal2 shows how the carbon footprint of a combustion engine is far from over, asNissan Leaf (currently the most sold illustrated by the 21% fueleV in Europe) compares with that of a consumption difference between theVolkswagen Golf 2.0 Diesel (currently Volkswagen Golf and the BMW Seriesthe most sold car in Europe). Although 1, a competing offer for the samethat may not be true for all vehicles segment (Exhibit 3).and all countries, in this particular Besides fuel and maintenance costs,example the electric vehicle is always there are two other important factorsthe greenest option, irrespectively of that influence Total Ownership Coststhe country’s electricity mix (unlike a (TCO): retail price and residual value 30
  31. 31. X&Y Partners 2012 Yearbook Exhibit 3 - Fuel consumption for eight vehicles in the same segment as the Volkswagen Golf.(i.e. by how much you can buy the car plans for the deployment of a broadat the end of the leasing period). network of eV charging points.These costs can vary significantly from In both countries, the electric vehicle iscountry to country, so Exhibit 4 shows the most expensive option, mainlythe TCO calculation for two different because of its low residual value: theEuropean countries: Germany, which Nissan Leaf’s batteries are warrantedexpects strong short-term eV sales, for a period of 5 years, which meansand Portugal, which has ambitious that the second-hand market value of Exhibit 4 - Environmental and economical cost comparison for the Nissan Leaf, Volkswagen Golf and BWM Series 1, for Portugal and Germany. 31
  32. 32. X&Y Partners 2012 Yearbook Exhibit 5 - Savings/costs of choosing a Nissan Leaf or a BMW Series 1 over Volkswagen Golf.these vehicles will likely be severely But buying a BMW Series 1 instead ofimpacted by the risk of facing battery a Volkswagen Golf actually saves 7-issues beyond that warranty period. 11€ per kCO2 avoided.Another interesting conclusion is that, Does this mean that buying a morefor these countries, the BMW Series 1 efficient conventional vehicle is alwaysis a more affordable option that the a better option than buying an electricVolkswagen Golf, the current sales car? Certainly not, as results will varyleader. This is both true from an from country to country and segmenteconomical standpoint (TCO is 20% to segment. It does however hint at alower in Portugal and 35% lower in conclusion that is both valuable for ourGermany) and from an environmental fleet management client andstandpoint (carbon emissions are 9% consumers in general: electric carslower). may be the best option from a purely environmental standpoint, but the newExhibit 5 summarizes these generation of highly efficientconclusions: for these countries, conventional cars are probably abuying a Nissan Leaf instead of a better compromise betweenVolkswagen Golf means paying a environmental impact and costpremium a 2-3€ per kCO2 avoided. savings. 32
  33. 33. X&Y Partners 2012 YearbookLessons learned from market forecastingForecasting is about the 5% margin. In any case, the real valuejourney, not the destination: of forecasting is what you learn in thew hat you learn in the process process, as it forces you to understandw ill be m ore useful than the and quantify the forces that shape aforecast itself. particular market. In this article we share four lessons learned whileWe are often asked to make market making market predictions andforecasts, so we decided to go back to forecasts.some of our older forecasts and seehow well we fared. We found that most 1. Do not average forecastsforecasts had a fair 15-20% deviation It is tempting to take forecasts fromfrom the actual figures (Exhibit 1). different sources and average theThere were however outliers: on the results. It is also risky, because: i)one hand, we overestimated the global different forecasts will likely be basedinstalled capacity of wave energy by on different premises; and ii) forecastsan order of magnitude (a case we are often biased (for instance, andiscussed previously here), while on industry association promoting athe other hand we predicted the particular renewable energy will likelyevolution of wind energy costs inside a be optimistic about installed capacity Exhibit 1 - Comparison of several 5-year forecasts with actual market data. 33
  34. 34. X&Y Partners 2012 Yearbook Exhibit 2 - Example of a Delphi method applied to estimating the LCoE of several PV, CSP and wind energy specific plant configurations.forecasts and potential cost to leverage the new information hereductions). gained from the other experts. The process is iterative and usually runsA better alternative is to use a Delphi until the moderator is satisfied that themethod, a process that shares roots answers share the same premises andwith prediction markets and other are bias-free.crowd wisdom techniques. In a Delphi,a group of experts is asked to Exhibit 2 illustrates the results of aindividually answer a question (e.g. Delphi method we recently used towhat will be the cost of solar energy in gather the inputs necessary to2015?). The answers and assumptions calculate the evolution of the LCoEof the experts are then discussed and (Levelized Cost of Energy) in thecompared, and each of the experts Middle East for several renewablemakes a second prediction. This energy configurations.second prediction is also made 2. Make a sanity checkindividually, but now the expert is able 34
  35. 35. X&Y Partners 2012 Yearbook Exhibit 3 - Example of using the historical early wind energy deployment as a sanity check for a bottom-up forecast for wave energy deployment.History is a poor indicator of what will coherent. This will not guaranteehappen in the future, so forecasts are better results (only a crystal ball wouldinherently inaccurate. They can do that) but will help to identify flaws inhowever be made more precise by logic, unrealistic assumptions andcombining different estimation inaccurate data.methods, or by running a sanity check As an example, Exhibit 3 compares ato confirm that the final figure is Exhibit 4 - Comparison of three scenarios for the evolution of carbon credit prices with the actual market prices. 35
  36. 36. X&Y Partners 2012 Yearbookbottom-up forecast for wave energy Exhibit 4 illustrates three scenarios fordeployment (made by summing up the forecast of EUA (European Unionindividual regional forecasts) with the Allowance) carbon credits prices. Thehistorical early wind energy ‘High’ scenario assumed that thedeployment. Benchmarking forecasts Kyoto Protocol was followed by aagainst historical data from other global agreement, the ‘Medium’sectors is a good way to quickly spot scenario was based on an extensionunrealistic assumptions, and to keep in of the Kyoto Protocol, and the ‘Low’check compounded errors that often scenario assumed no significantaffect bottom-up estimates. agreement between the parties was reached.3. Build scenarios 4. Run a sensitivity analysisForecasts should not be a single datapoint or curve, but rather a collection Even in the absence of foreseeableof scenarios. Building scenarios will do events that can dramatically changelittle against black swan events (a term the direction of a forecast, there arecoined by Nassim Taleb to describe usually a few key parameters that canrare and unpredictable events with cause sizeable variations in theextreme impacts), but will help you predictions. Running a sensitivityunderstand the impact of foreseeable analysis on these parameters is thus aevents with several distinct outcomes. sound idea. Pool power prices, for Exhibit 5 - Example of a Monte-Carlo simulation applied to the valuation of a CSP plant. 36
  37. 37. X&Y Partners 2012 Yearbookinstance, depend on the prices of the inputs. Exhibit 5 illustrates thevarious power sources, and on factors application of a Monte-Carlosuch as rainfall and wind (since more simulation to the valuation of a CSPrain means more hydroelectric power (Concentrated Solar Power) plant. Theand more wind means more wind simulation showed that thepower). compounded effect of small changes in key parameters (such as energyFor forecasts that depend on several yield, pool price, capital expenditurekey parameters, it may be worthwhile and interest rate swap rates) couldto run a Monte-Carlo simulation, a have a meaningful impact on investormethod that tests the impact of returns.simultaneous changes in multiple 37
  38. 38. X&Y Partners 2012 YearbookAsk for feedback like you mean itFeedback has been coined as a article from Harvard Business Reviewbuzzw ord. It is undeserved: recommends to “think carefully andasking for help and actually consciously about whether we reallylistening to the resulting want feedback, and why” and “whenopinions is uncom fortable but we do ask for feedback, be preparedvery useful. to seriously consider it”.There are sentences that stick to your With this is mind, a few months agomind, like gum. In my case, one of we decided to ask for feedback aboutthese is about feedback. It all goes X&Y’s rebranding. This is what weback to the days of my MBA. At the learned in the process:end of a group project that had gone 1.Get the timing rightwrong from the start, we decided toorganize a round of feedback to Ask for feedback too early in theunderstand what had happened. One process and you’ll have nothingof my colleagues didn’t hold anything concrete to ask feedback about. Waitback: she told the rest of us, eyes in too long and you will not be able toeyes, where we had failed and how we take feedback into account. In ourshould improve. She finalized by case, we decided to have twosaying that “feedback is a gift that I feedback rounds: a first one, small andgive you, you can decide to accept or limited to discussing a few keyreject it”. objectives and ideas, and a broader session, once we had a draft versionFeedback is a tricky thing. We know of our new positioning, brand, websitethat we should ask for it, but and content.sometimes we don’t. We know that weshould take it into consideration, but 2.Leverage your networkwe rarely do. Taking feedback into Chances are that you know a lot ofaccount usually means putting more smart people: friends, colleagues,work into something we already clients, suppliers, business partners.dedicated a lot of time, effort and care These people care about you and areto. It forces us to reopen a task we had likely familiar with the issue at hands.assumed was already closed. This 38
  39. 39. X&Y Partners 2012 YearbookFeedback is an opportunity to get free Nevertheless, a follow-up call or aadvice from talented individuals. gentle reminder is always a good idea (Exhibit 2), as it can greatly improve3.Don’t mix feedback with response rates.promotion 5.Discard the compliments andYou are asking for advice, not pitching discuss the criticismsan idea. Only ask feedback frompeople that you realistically think can It is great to hear compliments, buthelp you with the issue at hands, and that is not what you are looking it in a clear, concise and neutral You are looking for what needs to betone (Exhibit 1). improved, and how it can be improved. Exhibit 1 - Excerpt of the email sent asking for feedback on X&Y’s rebranding.4.Don’t be discouraged by the lack Hernan, a Professor at Insead, likedof responses the website but had doubts about the whole positioning. We got back to himChances are that most of the people to further discuss his concerns andyou contact will not respond. In our possible solutions (Exhibit 3).case, we asked feedback to 178persons, and got back 20 responses. 6.Don’t be defensiveDon’t take it personally: smart people Criticisms are hard to hear, and youare usually very busy, and you’re will feel an urge to defend your ideas.asking them for a favor that requires Don’t do it: you should be looking fortime and does not bring them any refreshing perspectives and alternativeimmediate benefit. solutions, not trying to convince everybody that you are right. 39
  40. 40. X&Y Partners 2012 Yearbook Exhibit 2 - Excerpt of the “Gentle reminder” email sent, following the first email, asking for feedback on X&Y’s rebranding.Kevin, an alumnus from Insead, and Michael, a Principal at Arthur D. Little,Rui, an Associate at Deutsche Bank, noted that we were refreshingly openthought that we were not adequately about being a small company, but alsoleveraging our experience. They were claimed to be able to quickly deploy aright: our original idea of forgoing a team anywhere in the world. Michaeltraditional reference list in favor of put the finger in an issue that affectsarticles that showcased our knowhow many small management consultingwas not working, and the addition of a firms: the effort to show enthusiasmreference list and more detailed often ends in overly bold claims. As aprofiles proved to be very beneficial. result, we rewrote the “About us” Exhibit 3 - Excerpt of a series of emails exchanged with a Professor from Insead regarding some of the issues he raised on his feedback. 40
  41. 41. X&Y Partners 2012 Yearbooksection, which now favors Despite understanding were theseunpretentiousness over boldness. arguments come from, and even agreeing with them to some extent, we7.Don’t try to please everybody still believed that this catchphraseNot trying to please everybody is as accurately summarized what weimportant as not being defensive. wanted to achieve with the rebranding,Taking every piece of feedback into so we decided to keep it.account will likely distort your original 8.Say thank you and return theidea into something that is no longer favoryour idea. Feedback can indeed be an amazingFor instance, we received several gift. It goes without saying that,criticisms regarding our “Straight besides thanking your contributors foranswers for emerging issues” motto. the time and effort they dedicated toHernan, a Professor at Insead, said help you, you should be attentive tothat the word “emerging” was vague opportunities to return the favor.and over-used. Theo, a Director fromDSM, added that “it did not ring a bell”. Exhibit 4 - Excerpts of feedback received.. 41
  42. 42. X&Y Partners 2012 YearbookGoing beyond "productization"A personal exam ple of how itself. While these solutions pack morecreating an actual product, than just our time (e.g. proprietaryinstead of m erely packaging tools and data) the output is usuallyservices into a product, can the same as a service. With onem ake a lot of sense. exception: Carbon Analytics is an actual material product.Productization, or turning services intoproducts, has been a big trend among Carbon Analytics is a real-time carbonprofessional services companies, and emissions monitoring and analysisfor good reason: clients get a more system. It uses measuring hardwaretangible offer and companies get to (e.g. energy consumption meters,systematize and reuse their previous GPS tracking devices) and businesswork. But what about making an intelligence software to measure andactual, physical product? We did it, analyze in real-time the carbonand maybe you should too. footprint of an entire company, automatically reporting the results andWe at X&Y often productize our suggesting ways to improve themservices. In fact, we call them (Exhibit 1).“solutions” to emphasize the results ofthe service, instead of the service Carbon Analytics was born out of Exhibit 1 - Flowchart for Carbon Analytics, a real-time carbon footprint monitoring tool. 42
  43. 43. X&Y Partners 2012 Yearbooknecessity. One of our clients asked us metering hardware and businessfor help in selecting a carbon intelligence software. These days,footprinting tool. In our opinion, the however, most likely somebody hasexisting offer was either powerful but already solved any given problem forexpensive or inexpensive but limited, you. On the software side, forso we proposed to create something in instance, we opted to partner withbetween. We were very happy with the CGI, which has a broad track record infinal result, so we decided to make it software integration and businessinto a commercial product. Here is intelligence. Integrating & partneringwhat we learned in the process: with market experts not only saves you time and money, but also ensures thatBe your first client your solution keeps up with times.Most professional services companies Do not overlook designhave at some point developed internaltools to support their day-to-day Professional services companies areactivities, or have done so in response not used to investing much in the requirements of a particular After all, services are mostly soldassignment. Your product should not based on knowhow and references,only be based on what you already do not user interfaces and looks.and know, but it should also be Products are different, as you need tosomething you can use yourself. If it’s woo your clients with the best possiblenot good enough for you, it will not be customer experience. For Carbongood enough for your clients. Analytics, we hired a professionalMcKinsey Solutions, for instance, are design firm to help us with all aspectsboth used by their consultants and of the product’s look and feel (Exhibit 2offered to their clients as a stand-alone and 3), and we looked fortool. differentiating ways to market it. Here is an example of a productIntegrate & Partner presentation we did at Microsoft’sIn our case, Carbon Analytics bridged Tech Days.two areas we knew little about: smart Keep your pricing simple 43
  44. 44. X&Y Partners 2012 Yearbook Exhibit 2 - Example of the Carbon Analytics interface. Exhibit 3 - Example of the Carbon Analytics interface.Pricing services is usually very simple: identifying the single factor that mostyou set an hourly rate and figure out influences your product costs, andhow much time you need to complete building your pricing structure arounda given assignment. Pricing a product it. Carbon Analytics’ cost, for instance,is more complex, but it is important to is particularly sensitive to the numberkeep it simple by, for instance, of system interfaces (e.g. smart 44
  45. 45. X&Y Partners 2012 Yearbookmeters, GPS devices, inputs and base configuration, plus an extra foroutputs to proprietary IT systems), so each additional interface.we built the pricing scheme around a 45
  46. 46. X&Y Partners 2012 YearbookWhat do Boeing, Toyota and Resident Evil have incommon?The tim e it takes to develop towers are no longer technically andand m arket a new product is economically im portant as the product Developing an innovative productitself typically means building a solutionThese three companies share a from scratch: starting from the designcommon feature: they have created development, prototyping andinnovative strategies to reduce the intellectual property, through definingtime-to-market of their new products, prospective clients and up to thesurprising the competition and industrialization andstrengthening their market positioning. commercialization. Quite a lengthy process, especially considering thatIn a recent assignment we worked with several companies had alreadya large European construction launched competing products. Thus,company in the identification of new the key question to answer was: Howmarket opportunities outside of their can we shorten the time it will take tocore activity. This company is an bring this technology to market?expert in precast concretetechnologies, and expects to leverage The solution is not straightforward:this expertise into new emerging time-to-market has to be short enoughareas. One of the most interesting not to loose market opportunities, butoptions that came up was in the wind long enough to minimize errors andsector, where our client would be able rework, which lead to additional coststo provide a differentiating product to a and the loss of market credibility.growing market segment: concrete We looked across different sectors towind towers for larger turbines find examples of companies that had(2,5MW+, placed at a height of 100+ successfully shortened their productmeters), for which conventional steel development cycles (Exhibit 1). 46
  47. 47. X&Y Partners 2012 Yearbook Exhibit 1 - Accelerate time-to-market for different business and companies.One of the best examples of the decrease development times across aimportance of time-to-market is the variety of projects.Boeing 777, which took 6 years to Another way to reduce time-to-marketdevelop, instead of the typical 8 to 10 is to joint-developed products. Foryears. This allowed Boeing to beat instance, Ford and Toyota haveAirbus to the punch, launching one of partnered for the joint development ofthe most successful airplanes in the a hybrid-electric system for light truckshistory of commercial aviation. To and SUVs, which will then be used bymake this possible Boeing used each manufacturer in their ownconcurrent production, a methodology models. Both companies feel that thein which design, manufacturing and risk that these models will laterother functions are integrated and run compete for the same marketin parallel. Boeing also created a segments is offset by a shorter andworking group with eight airlines to less expensive product developmentgather their contributions for the cycle. Ford also has similar jointairplane design. This allowed them to development agreements with Generalweave customer needs directly into Motors and PSA-Peugeot-Citroën forthe final design. Today organizations other NASA regularly use this method to 47
  48. 48. X&Y Partners 2012 Yearbook Exhibit 2 - Examples of products developed in a record time compared with average.In a very different business line, by more than 30%. They will alsoCAPCOM, the Japanese game continue to form alliances withdeveloper responsible for Resident software development companies inEvil and other major titles, has a other countries to secure resourcesgrowth strategy for the next years that and expand sales, something theyis based on accelerating the time-to- have already done in the past withmarket of their products. The Resident Evil, and which proved to bedevelopment of a major title, like very effective.Resident Evil, can require 3 to 4 years Can our client use any of theseper platform. With the advent of mobile strategies to shorten the developmentgaming platforms (e.g. iOS, Android, of concrete wind towers? Yes, all ofPSP) on top of an already fragmented them:traditional gaming market (e.g. PC,PS3, XBOX, Wii), CAPCOM feels that Boeing’s concurrent productionconsolidation is in order, and thus has methodology can be used to parallelcreated a new framework where 80% process many of the design,of the development time is shared engineering, financial, legal andbetween all platforms. This commercial tasks. This is particularlyoptimization is expected to reduce true given that developing a precastcosts and shorten the time-to-market concrete wind tower is not that 48
  49. 49. X&Y Partners 2012 Yearbookdifferent from developing a precast CAPCOM’s multi-platformconcrete bridge, so each business unit development strategy can also helpalready knows what it needs to deliver our client to overcome one of theto the other business units; biggest obstacles in wind tower design: developing products forJoint product development might also multiple combinations of height andbe a very interesting option, turbine model. A modular tower designparticularly with a partner which can be used as a basis for allalready operates in the wind sector variations, with only a small amount of(e.g. a steel tower manufacturer or a additional development required forturbine manufacturer); each variation. 49
  50. 50. X&Y Partners 2012 YearbookAn old recipe for an emerging issueW hy it is im portant to give and trying to avoid demotivation. Itstrategy a real life dim ension, took me some time to get the grasp offor instance, through the it, but now I’m a total PowerPointim plem entation of quick w ins obsessive freak. The structure andpilot projects flow needs to be perfectly Minto, the boxes need to be perfectly aligned, theI really enjoy that moment, when you colors have to match and have afinish an assignment and you look reasoning behind, the storylines needback at your deliverable - that handful to be crisp and clear.of slides that kept you up and running -and feel that everything you put in I would say that almost everythere makes perfect sense. It’s like management consultant has beenbringing order to chaos. Fighting criticized, at least once, for being inentropy. the “paper business” i.e, for delivering reams of paper that end up at theBut, is that all? Is this handful of slides bottom end of drawers and never seethe final stage? The result of a work the sunlight again.well done? We don’t think so. To reachthe final stage, you need to bring your It is not always the consultant’s faultslides to life, you need to make sure though. A lot of stellar strategies don’tthat all your ideas and conclusions are ever get to be implemented becauseimplemented (or at least they are not convincingly sold to seniorimplementable), even in challenging management or, as is often the caseconditions (economic downturn, lack of during economic downturns, becauseliquidity, etc...). And one of the best the investment and effort required toways to do so is by running a pilot: an implement it are not readily available.old recipe for an emerging issue. In our opinion, that handful of slidesMy first “management consulting” should thus just be the halfway-mark,PowerPoint slide was miserable. I a compass that guides the remainingremember the look in my manager’s steps of the project.face, torn between telling me the truth 50
  51. 51. X&Y Partners 2012 Yearbook Exhibit 1 - Methodological approach for the Eco-Efficiency Strategy for Nisa.We see every project as a three stage budget for these initiatives. For thisprocess: an initial phase, where you project we created a long list ofstructure the approach and choose the initiatives in the areas of energy,best options (Strategy); a second transports, waste, water, forest andphase where you discuss and build biodiversity, and used a proprietaryawareness around your plan methodology to select a short list of(Awareness); and a third phase, where approximately 50 initiatives, allyou must prove that it all makes sense financially viable on its own. The(Pilot). implementation of the full pack of initiatives represents, for the entireOur recent Eco-Efficiency Strategy for municipality, a decrease of 26% in theNisa, is a great example of this carbon emissions, an investment ofapproach (Exhibit 1). 0,9 M€/year and a revenue of someNisa is a Portuguese rural municipality 2,2 M€/year. If the available financingin Alentejo (one of the poorest regions mechanisms (e.g. public funding,in Portugal) that despite the ESCO models, carbon creditremarkable interest in energy generation) are leveraged, thisefficiency, sustainability and low investment may decrease down tocarbon economy, has a very tight some 0,32 M€/year. 51
  52. 52. X&Y Partners 2012 Yearbook Exhibit 2 - Comparison among the different scenarios considered.There’s a catch however: numbers our efforts there, to help buildand charts will do very little to awareness and momentum.convince a Mayor or its citizens of the In a couple of months, and with abona-fide nature of your plan; you will small budget, we implemented theseneed actions for that. Thus, from the quick wins in the Pilot Community.50 initiatives, we selected 10 of the so- Most of the results were verycalled quick wins: actions that could promising, and their expansion to theeasily be implemented with a residual entire municipality is now beinginitial investment but with a significant equated. However others had to beimpact (Exhibit 3). We also selected a adapted to the reality that we found inPilot Community, and concentrated all the terrain (Exhibit 4). 52