Description
New products, services even business models are emerging from companies working to modernize our vehicles, buildings, and electric grids. These companies are envisioning new ways to create value for their customers by looking at problems in a more aggregated way. In this report, they tell how they need to work differently with their customers, suppliers, and others to shape their futures as market conditions evolve.
April 2012
At a glance
Industry is radically
reframing how it can
increase productivity and
improve the effciency and
stability of our vehicles,
buildings, and electric grids.
Cities, campuses, and
corporations need to
manage energy use more
actively and in a more
aggregated way.
The frst step in navigating
the opportunities—for
both buyers and sellers of
products and services—is
to start from within.
Converging worlds
Five management principles from
companies modernizing our vehicles,
buildings, and electric grids
2 Converging worlds
Nearly half of CEOs who participated in
PwC’s 15th Annual Global CEO Survey
are concerned about rising energy
costs.
1
With good reason: Price forecasts
for all commodities are heading up,
and energy prices top the charts (see
Figure A). Energy—whether in the
form of electricity, gas, oil, or fuel—is
connected to a broad spectrum of other
business issues, too, including climate
change, natural resource constraints,
food prices, water availability, political
risk, and transportation challenges.
New products, services—even business models—are
emerging from companies working to modernize our
vehicles, buildings, and electric grids. These companies are
envisioning new ways to create value for their customers
by looking at problems in a more aggregated way. In this
report, they tell how they need to work differently with their
customers, suppliers, and others to shape their futures as
market conditions evolve.
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.
It’s no small task to save oil and
energy—for the most part it requires
making vehicles and buildings
far more effcient than what we
know today. Together, vehicles
and buildings are among the most
signifcant users of oil and energy
in the United States: Transportation
is responsible for 70% of petroleum
consumption,
2
and buildings account
for 75% of electricity consumption.
3
Growing concern about energy as a
long-term business risk is why most
companies want to take a more active
role in managing their own energy use.
Globally, about 70% of companies have
sustainability initiatives of varying
scopes in place, many with a conviction
that managing energy use is necessary
to remain competitive.
4
For companies,
the task of becoming more energy
effcient is also tied to productivity
and environmental benefts—but
the energy effciency is the easiest to
quantify. An income-producing offce
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
traffc 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 effcient but can
have other economic benefts too.
3 Converging worlds
Figure A. Key commodity prices are forecast to rise
Index, 2005 = 100
World commodity prices are forecast to ride
0
50
100
150
200
250
300
350
400
450
2
0
3
4
2
0
3
1
2
0
2
8
2
0
2
5
2
0
2
2
2
0
1
9
2
0
1
6
2
0
1
3
2
0
1
0
2
0
0
7
2
0
0
4
2
0
0
1
1
9
9
8
1
9
9
5
1
9
9
2
1
9
8
9
1
9
8
6
1
9
8
3
1
9
8
0
Source: Oxford Economics
Raw materials prices
Metals prices
Food prices
Energy prices
Progressive companies are looking for
gains by tackling their transportation
and building energy use as one
larger issue rather than separate
ones. They’re using technology
in a broad range of activities to
fnd the best ways to reduce cost,
improve productivity, and minimize
environmental impacts, including:
• Analyzing energy use for pricing and
sourcing options with the lowest cost
and the least environmental damage
• Identifying which facilities should
produce their own energy supply
or manage their own water use
• Tailoring logistics and feet
management to match the
needs of each type of route
and geographic region
• Examining use of offce space,
feets, and other assets to eliminate
waste and maximize utilization
4 Converging worlds
precision energy-management tools
that analyze the energy use of each
building system and notify a control
center when HVAC, lighting, and data
centers aren’t working optimally.
And it’s not just the technologies
that are changing; business models
are, too. Some solar companies, for
example, are challenging conventional
business models by leasing arrays
rather than selling them, as a way
to help customers manage up-front
capital requirements. Transportation
providers are investing in technologies
that promote car sharing—targeting
the market segments that can’t or
won’t buy cars or those who realize
their feets are sorely underutilized.
Such innovations reframe choices for
customers and, as a result, reframe
the competition, leading companies
to anticipate new types of threats.
While innovation means new
possibilities, it also means increased
complexity for building and vehicle feet
owners and operators who will fnd
themselves 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
modernizing the electric system and
making cars, trucks, and buildings
several times more effcient than
they are today—see the common
goal. They see far greater potential
for lower costs, greater productivity,
and greater environmental benefts
by completely redesigning solutions.
They’re reframing their partnership
networks and extending the roles
they’ve traditionally played. When
it makes sense, they’re partnering,
mashing up technologies, and forming
new business models. What’s emerging
is an entirely new ecosystem where
energy, information, building, and
transportation technologies converge.
Technological evolution is at the heart
of this change. For example, to work
optimally, smart grids need smart
buildings, but the legacy systems in
most buildings aren’t up for the task.
They simply weren’t designed for it.
Now, cheap sensors that are making
these building systems smarter can
also connect building systems to
each other and to other buildings—
somewhat like nodes in a network.
Tech-savvy providers are using
these sensors to create things like
While innovation means new possibilities, it also
means increased complexity for building and
vehicle feet owners and operators who will fnd
themselves faced with successive waves of innovation.
They will need to sort through products, services,
and business models they’ve never seen before.
5 Converging worlds
Energy
• Renewable energy
• Distributed energy
• Smart grid technologies
• Demand response and real-time
electricity pricing
Information
• Processors and sensors in meters,
cars, roads, and buildings
• Big Data storage, analytics, and
management
• Automation capabilities built on the
Internet of Things
There’s an entire ecosystem coming together around
the promise of lower costs, greater productivity,
and greater environmental benefts
What’s changing?
Market
conditions
Technological
evolution
3. Industry provides the tools
to manage complex systems
and link them together. When
synergies exist, companies
partner for greater benefts,
mash up technologies, and form
new business models.
2. Markets drive adoption, and
combinations of solutions are
tailored to unique settings.
4. Innovations add greater
benefts—but also far greater
complexity—to building and
feet energy management.
1. Cheap and ubiquitous computing and
communications enable convergences
across energy, IT, building, and
transportation systems.
Technology
and business
model
innovation
Deployment
and use
Building
• Certifed green buildings
• Building energy management
• Demand response and real-time
electricity pricing
• Space utilization and sharing
Transportation
• Intelligent transportation systems
• Congestion and road-charging
systems
• Smart and connected vehicles
• Alternative-fuel vehicles
• Car sharing
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.
6 Converging worlds
Technological evolution is changing the
very nature of how energy, information,
buildings, and transportation are
procured and managed. For example:
• Distributed energy generation is
becoming cheaper and cleaner.
Smart grids enable two-way
conversations with companies
and their utilities for real-time
pricing. And energy will become
easier to store, which may also
change how it’s bought and sold.
• Vehicles and buildings are
becoming part of a vast Internet of
Things, in which any device can be
addressed, monitored, controlled,
and optimized. Data can be opened
to third parties, allowing for
aggregation, analysis, and reuse.
• Building operators are able to
harness rich data streams that
help them optimize energy
and resource use, enhance
comfort and productivity, and
improve utilization rates.
• Smart and connected vehicles know
where they can park, avoid traffc
jams, or rent themselves out to other
drivers or riders. Electric vehicles
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.
As a result, both the nature of the
products and services companies
offer and how they operate and
interact with suppliers, customers,
and others will need to evolve.
How quickly will companies and
their customers see real implications
from these trends? “If you’re trying
to replace the volume of coal-fred
power plants and natural-gas-fred
power plants, you’re talking about long
time frames,” says Stephan Dolezalek,
managing director of CleanTech at
VantagePoint Capital Partners. “But
if you’re talking about using existing
systems to manage energy more
effciently, you may move much more
rapidly than people would think.”
As with previous convergences
enabled by technology, this one
will require making organizational
changes, bridging functional silos,
and adopting different ways of
thinking. “We need to think about
organizational structure if we’re really
going to embrace transformation,”
says David Bartlett, vice president of
industry solutions at IBM. “It’s never
just about the technology; it’s about
how we can step up to adopting it.”
“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
7 Converging worlds
“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, GE
Customers are
looking for a
new type of value
creation
To fnd out more about how
companies are working differently
to understand and shape their
futures, PwC and GreenBiz selected
a panel of leaders from 15 companies
with a stake in the four domains
showing the greatest potential for
convergences: energy, information,
buildings, and transportation.
We found common insights from
our panel that we believe are useful
to all companies as they work to
understand their opportunities.
The panel told us how today’s
circumstances are accelerating
change and requiring them to work
differently. These companies
1. Think systemically to capture
technology and market shifts
2. Set a clear vision but prepare
for multiple futures
3. Widen the circle of innovation
and speed up the cycles
4. Look for opportunity in
underutilized assets
5. Harness the value of Big Data
Their goal is to build organizational
capabilities that bring returns to
the business no matter how (or how
quickly) technologies evolve.
We believe their insights should be of
interest to any business leader who
wants to reduce costs, mitigate risks,
or contribute to overall proftability
of the business—all while improving
environmental outcomes. For those
focused on mitigating risks or reducing
costs in company operations, we
hope you’ll see new ways of thinking
about your business, assets, and
partnerships. For those seeking to
create new revenue opportunities, we
hope you’ll be inspired as you envision
your future and the capabilities you’ll
need to achieve your objectives.
The sections that follow summarize
our panels’ insights.
8 Converging worlds
Whether your company is building
a new city, creating a transportation
network, or changing your operations
to reduce energy and waste, an
integrative view can help you ensure
you’re actually solving a problem,
not creating a new or bigger one.
All of our panelists are working on
innovative technologies, such as
electric-vehicle charging systems,
building analytics systems, or
intelligent energy metering devices. But
they’re also working on large cross-
sector issues like modernizing the
electric grid, tackling traffc gridlock,
or building sustainable megacities,
thinking that is supported by a market
demand for smarter infrastructures
(see Figure C). Taking an integrative
approach allows them to move beyond
individual products and services
and to examine how a system’s parts
infuence one another and the whole.
Cisco explains how this way of thinking
led to a co-creation process in the
development of a Korean greenfeld city,
New Songdo City. One of the project’s
requirements was that the city produce
one-third less greenhouse gas emissions
than a typical city its size. “The idea
was to engage new actors in the city
planning process from the get-go,”
says Gordon Feller, Internet Business
Solutions Group at Cisco. “This included
national government, local government,
citizen organizations, technology
companies, private developers, and
public agencies that were established
in the economic free zone. So we
expanded the circle of partners and,
in the process, were able to identify
some breakthrough innovations.”
Cisco has staked its role in this
ecosystem on owning the “urban
operating system.” This assumes the
growing viability of a cities-as-a-
service approach, which is maturing
alongside mobility-as-a-service and
other business models that monetize
service delivery alongside product
sales. It also depends on integrating the
products and services and know-how
of a wide range of partners. It’s a
radically new model for city managers
and the companies (like Cisco) that
sell to them. But it also forms the
basis of Cisco’s strategy; it’s this kind
of repositioning that is helping Cisco
understand its role and defne it further.
1.
Think systemically to
capture technology
and market shifts
9 Converging worlds
“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, Cisco
Figure B. A market shift toward smart infrastructure development
Smart city smart infrastructure investment by industry, world markets: 2010-2020,
in $ Billions
Source: Pike Research
Smart Cities
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
Source: Pike Research
Smart building
Smart transport
Smart utilities
Smart government
U
S
$
B
i
l
l
i
o
n
s
10 Converging worlds
In addition to thinking more
systemically, companies are taking
a longer-term view, creating one or
more scenarios about where and how
markets will change and about the
opportunities. “Without a long-term
view of where things are going and
where you want them to go, I think
it’s going to be very hard to end up
really playing a central role in any
of this,” says Bill Weihl, manager of
energy effciency and sustainability at
Facebook. The social media company
has been a leader in data center energy
effciency as well as in encouraging
collaboration and transparency around
solutions for data center energy use.
Once companies have a vision in
mind, the business case for taking
innovations to scale or to maturity
becomes clearer. Boeing, for example,
sees an opportunity to play a role in
the utility space by working with the
US Department of Defense to address
its growing energy concerns both in
fxed military bases and in the feld.
“We crafted a strategy focused on
leveraging things we do and things
we own—particularly approaches
that provide command and control
to lots of objects inside a large
network, like a smart grid,” says Tim
Noonan of Phantom Works Ventures
and Boeing Energy at Boeing.
Through a series of grants from the
American Recovery and Reinvestment
Act of 2009 (ARRA), as well as related
projects and company investment,
Boeing slowly began to develop an
energy strategy that it is working to
implement today. “We’ve explored a
number of areas that we think have
a lot of potential,” Noonan says. “Not
all of them are going to pay off, but
I think we placed some good bets
across generation, transmission,
distribution, storage, and carbon
capture that have strong upside for us
both strategically and fnancially.”
2.
Set a clear vision
but prepare for
multiple futures
11 Converging worlds
Facilities and ?eets
Whether it’s residential or
commercial, there’s a
constellation of new
technologies for energy
ef?ciency, generation, and
demand response ready to
connect systems like HVAC
and lighting to the energy grid
and communications network.
The second piece is connecting
grid appliances, like the
electric vehicle to the facility.
Command & control center
Business customers, partners,
and suppliers along the value
chain
Large corporations and their
network of suppliers already
manage ?eets and facilities in a
range of operating
environments. What’s new here
is learning how data can
accelerate innovation cycles.
Institutional and
commercial campuses
Corporate campuses, colleges
and military bases will gain
more by taking a holistic view
of possible technologies to
connect and control critical
systems. While a facility-
by-facility approach could
make sense, portfolio
management can present more
options for successive waves of
innovation.
Cities and public works
Cities and regions are forming
public-private organizations to
manage entire portfolios of
projects, many of which tackle
traf?c congestion, reliable and
affordable electricity, and a
smarter, greener urban living
experience.
What’s your company’s role and the vision
for your future?
“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, Ford
12 Converging worlds
As part of their growth strategies,
companies are identifying new
opportunities to take advantage of
their existing assets and expertise for
innovation; but they’re also looking
to nontraditional and unexpected
sources to enhance what they already
have to offer. “You’ve got to make
money at the end of the day,” says Mark
Vann of the Advanced Technology
Government Business Development
group at General Motors. “You need
to fnd partners where there are
synergies, where a group of us together
can cost-justify making a leap in
an investment or a technology.”
Companies we spoke with identify
three types of collaboration that
are fostering their innovation. The
collaborations could be to build or
manage electric grids, construct or
operate smart buildings, design or
manage cities’ infrastructures, provide
integrated and adaptive transportation
services, manage distributed and
diverse energy systems, or more.
• Customers. First, companies are
working more closely than ever
with their customers to identify new
opportunities to address their needs
over the short and medium terms.
While customers are looking for
ways to succeed in an increasingly
dynamic marketplace, they’re wary
of companies that bring a one-size-
fts-all, plug-and-play solution to the
table. Forming close partnerships
to seek innovative, fexible, yet
tailored solutions can overcome
such obstacles. “I think there’s
nothing that our clients distrust
more than someone coming to them
with ‘the solution,’ because we don’t
know what the solution is going
to be,” says David Pogue, national
director of sustainability at CBRE.
“We need to work with them on the
opportunities, and together we need
to determine the best solutions.”
• Internal. Second, they’re
encouraging internal cross-
functional collaborations to fnd
fresh perspectives. Sometimes
it involves technological cross-
pollination. General Electric, for
example, leveraged aerospace
engineering from its aviation
business, as well as materials
science and mechanical engineering
expertise from across the company
to become the leading US wind
turbine manufacturer. But
technology solutions alone aren’t
always suffcient, so companies
are reaching into other parts of
their businesses to fnd expertise
on such things as customer service
or marketing. “What we’re doing,
of course, is expanding the circle
beyond the engineers to people
who are trained in other felds
and who are also great sources of
innovation,” says Cisco’s Feller.
3.
Widen the circle
of innovation and
speed up the cycles
13 Converging worlds
• External. Finally, they’re looking
to other players in their industries
or in adjacent industries to take
a broader, multidisciplinary
approach to specifc customer
issues. At Microsoft, for example,
this is creating new opportunities
to work with utility and energy
industry partners. “All of these
folks are really deep energy experts
who are now fnding themselves
in the software solution business
at a level they never have been
in before,” says Rob Bernard,
chief environmental strategist at
Microsoft. “And that’s where the
partnership and the synergy come
in—because we’re not a solutions
company in the energy space. So
it creates the opportunity and the
conditions for a partnership.”
Where have we seen
convergences like this before?
We have seen technology convergences before, and those that have preceded
may be instructive to understanding the business implications of today’s
convergence. VantagePoint Capital Partners’ Stephan Dolezalek provides
this perspective.
In the development of information technologies, we started with a
mainframe computer that pushed information to a dumb terminal. We then
migrated to ever-smaller, more-powerful microcomputing platforms that
distributed computing power, reducing the need for those mainframes. But
then we discovered that we wanted to reconnect things, which ultimately
led to the development of the Internet. Now, we’ve come full circle, with
massive numbers of devices talking to central computers in the cloud.
That piece, I think, represents the ultimate possibility for our physical
infrastructure. As cities and companies start thinking about managing
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 effciently managing electron fows,
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.
14 Converging worlds
“We see this process of opening the system as actually
accelerating the path to innovation.”
—Gordon Feller, Cisco
6 PwC, PwC’s 14th Annual Global CEO Survey, January 2011.
Across the board, companies are
seeing their need for partnerships
swell. “The larger the scale of these
kinds of projects, the greater the
number of players,” says Clay Nesler,
vice president of Global Energy &
Sustainability at Johnson Controls.
But a larger network of partners doesn’t
have to mean the process slows down.
In fact, many companies say they’re able
to accelerate the process of innovation
through collaborations that leverage
partners’ expertise effciently.
“I would say the velocity of work
has increased quite a bit,” says Mary
Beth Stanek, director of Federal
Environmental & Energy Regulatory
Affairs at General Motors. “You
have more groups working faster on
advanced-technology collaboration
so we can get to the market quickly.
If you look at the Chevy Volt timing
from inception to launch, it was
probably one of the fastest vehicle
launches we’ve ever done.”
Conditions are driving companies
to look for opportunities to join
together—to go to market with arms
linked. It’s about companies’ using
their combined capabilities to provide
greater benefts for their customers
than if each went it alone. This is a
broad trend seen across all industries
and echoed in other research. Forty
percent of global CEOs now expect the
majority of innovation in the future
will be co-developed in collaborative
networks outside their organizations.
6
Our panelists said that both internal
and external stakeholders are
important partners in designing new
strategies and ensuring their success.
“You have to be fexible with regard to
these types of partnership structures,”
says Mark Vachon, vice president of
ecomagination at GE. “We’ve focused
not only on expanding the sources of
innovation and technology but also
on how we scale and commercialize
the ideas we’ve partnered on.”
40%
of global CEOs now expect the
majority of innovation in the
future will be co-developed
in collaborative networks
outside their organizations.
15 Converging worlds
Market acceleration led
by governments
Business expects governments
to be among the largest
customers for clean,
smart, and green solutions
because of the need for
infrastructure improvements.
The world’s infrastructure
investment needs for energy,
road and rail transport,
telecommunications,
and water are likely to
average 3.5% of world
gross domestic product
through 2030, or about US$71 trillion, OECD says.
7
In some cases, the
private sector will lead infrastructure projects, through public and
private partnerships, as it has in the buildout of telecommunications
networks in both developed and developing countries.
Around the world, government-supported drives are laying the
groundwork for smart infrastructures, with investments in the
modernization of electricity grids. Smart-grid investment in
China will reach at least US$96 billion by 2020, as part of that
country’s long-term stimulus plan.
8
In the United States, US$4.5
billion was allocated to smart-grid initiatives under ARRA.
Large stimulus efforts have been accompanied by an array of
federal and subnational government programs providing incentives
designed 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 effciency 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 data
To accelerate change, industry working groups are working closely
with government agencies on a wide range of industry standards
that defne 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.
$71T
Investment needed to
improve basic infrastructure
through 2030
16 Converging worlds
Entrepreneurs in both incumbent
and start-up companies are looking
for opportunities to identify and
manage underutilized assets or to
create products and services that
optimize others’ underutilized assets.
Over the past few decades,
information technology companies
have turned to utilization to boost
data center effciency, create faster
processors, and more. Today’s
innovators look for opportunities
where utilization can either reduce
cost, increase revenue or both.
For example, in 2010, unused capacity
on Amazon’s servers led the company
to introduce its popular EC2 cloud
offering, turning underutilized
assets into a new revenue stream.
Since EC2’s release, revenue jumped
from $240 million in the third
quarter of 2010 to $470 million
in the third quarter of 2011.
9
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.
In another example, the city of
Amsterdam reduced the physical
amount of offce space it leases by 40%
through a partnership with Cisco. The
city now boasts modern and up-to-date
work solutions, such as encouraging
and enabling telecommuting, and
creating fexible, shared workspaces.
All told, the initiative is saving
the city €10 million annually.
10
Vehicle-sharing models take asset
utilization to another level. Fleets
of cars, bicycles, trucks, and other
vehicles are available by the hour for
individual use and are conveniently
located throughout a community,
campus, or city. While car sharing
started with community member-
based services, the concept has broad
potential to change how cities, colleges,
and corporations manage and maintain
feets. Vehicle owners see radically
higher utilization and potential
revenue, and users have new choices
for how they use transportation.
4.
Look for opportunity
in underutilized
assets
17 Converging worlds
Market barriers mean no easy entry
Finding the right economic model has been elusive in
many smart, clean, and green ventures. Even when the
economics make sense on paper, there is a mentality
that needs to change, and it’s often hard to convince
buyers that they should be the ones to go frst.
Existing public policies and market structures can act as
disincentives for change: most policies were designed for
systems to work as they do now, not how they could in the
future. We found broad recognition among our panelists
that the right market incentives are
critical to reducing commercial risk
so they can take new ideas to scale.
For example, US commercial
buildings waste about a third of
the energy they consume, but there
are few incentives for building
owners to improve them. Typically,
leases are written so that tenants
are responsible for utility costs,
while landlords are responsible
for capital costs related to energy
systems, such as HVAC maintenance or on-site generation.
Because, in effect, the landlord pays for the project but the
tenants receive the benefts, the landlord has no fnancial
incentive for making effciency improvements. “That’s
one of the countertrends right now to buildings becoming
smarter and more energy effcient—the investment
realities in the marketplace aren’t supporting it,” says Bob
Best, executive vice president of Jones Lang LaSalle.
The commercial building market isn’t the only place these
problems exist. In the utility business, existing policies
and rate structures typically discourage power providers
from supporting energy-effciency efforts—at least
on any meaningful scale. In other cases—e.g., vehicle
effciency standards or pricing and policies for on-site
solar—technology has also changed faster than policy.
The picture is slowly changing, as companies seek
opportunities to work with regulators and competitors
to craft policies that support innovation and incentivize
effciency industrywide. For example, when FedEx wanted
to spur the development of
electric-vehicle technologies for
the tens of thousands of trucks
it runs every day, it lobbied
to raise federal fuel economy
standards. By doing so, it gave
technology and manufacturing
companies a stronger incentive
to develop and deploy effcient,
electric-vehicle technologies.
And when FedEx worked with
Environmental Defense Fund
on hybrid-electric vehicle
development for commercial trucks, it made the
project non-proprietary to promote innovation and
collaboration among manufacturers and operators to
encourage widespread adoption. Using hybrid-electric
and all-electric vehicles for light delivery is just one
component of FedEx’s corporate strategy to reduce the
use of petroleum; there’s another strategy for its heavy
trucks and a third for its 700 planes. The company
has improved energy effciency every year since 2005,
with a 15.1% improvement through fscal year 2010.
Existing public
policies and market
structures can
act as disincentives
for change.
18 Converging worlds
One of the natural consequences of
placing sensors throughout buildings,
in vehicles, and within energy systems
is the very large amounts of detailed
data theses sensors generate. But
we’re only beginning to see how this
tsunami of data fosters new innovation.
Saul Zambrano of Pacifc Gas and
Electric Company’s Customer Energy
Solutions group sees potential. “The
enhanced capability and the data sets
that underlie it really are creating this
new innovation cycle around smarter
grids and smarter buildings,” he says.
This explosion of information,
commonly referred to as “Big Data,”
is ushering in a new type of analytics
that enables management to make
decisions with a precision comparable
to scientifc insight. The newest
analytic methods use rigorous scientifc
techniques, including hypothesis
formation and testing, statistical
sampling, and visualization tools.
Data analytics can turn the invisible
into the visible when partners come
together to make sense of the data.
IBM talks about an early facilities
management implementation, which
made use of 10,000 data sources to
provide a robust picture of a facility’s
operations. The value, however,
came from applying the customer’s
knowledge about priorities and needs
alongside IBM’s analysis tools to provide
actionable information about how to
optimize the facility’s operations.
“We provided the IT constructs, but
the facilities team was key in providing
the experience and what type of rules
made sense,” says IBM’s Bartlett. “I
guess what they didn’t realize was
the capability of IT to give them a
command view, to give them visibility
and automation that they hadn’t had
before. So, they’re seeing the potential
for new energy savings as a result.”
Data analytics can also provide
insight into new products and services
customers need. For CBRE, the
opportunity lies in tapping into large
data sets across its customers. “If I
have all of the data for one client who
owns 30 buildings in a portfolio, maybe
then I can do a commodity buy for the
energy for those buildings,” says Pogue
of CBRE. “Right now, owners think of
individual buildings, but what we want
to do is begin to view the management
and benefts in a more aggregated way.”
The potential for companies to use
data more effectively can transform
not only the products and services
companies provide, but also how those
companies organize to respond to
business goals and customer need. As
Zambrano says, “Historically, utilities
were very silo structured. Analysis of
the data that’s coming in is effectively
going to require a shift in capability
around horizontal management, and
so, it’s part of the business change.”
5.
Harness the
value of Big Data
19 Converging worlds
11 Marc Gunther, “Why GM is working with car-sharing ?rm RelayRides,” GreenBiz.com, March 2012.
Is your strategy
ft for the future?
At the heart of convergences among
energy, information, building, and
transportation technologies is the
potential for far greater economic and
environmental benefts than we’ve
seen before. Convergence represents
an opportunity to defne the direction
of industry by harnessing the power of
both technology change and business
model innovation. In fact, innovation
does not focus exclusively on new
technology. Developing new business
models and new strategies is every
bit as important—sometimes more.
GM is just one company embracing
the idea that both technology change
and business model innovation must
work side by side to create the future
of the organization. Today, GM is—
frst and foremost—in the business of
selling as many cars as it can. But it is
also testing a car-sharing model that
leverages its existing OnStar system;
GM vehicle owners will soon be able
to use OnStar to rent out their cars.
11
Figure C. Radical ideas rely on a combination of technology
change and business model innovation
Source: Davila, Epstein, and Shelton, Making Innovation Work: How to Manage It,
Measure It, and Pro?t from It, August 2005.
Breakthrough ideas
Game changers
Breakthrough ideas
Game changers
Radical ideas
New businesses
Incremental ideas
Protect/improve
existing
New
C
l
o
s
e
t
o
e
x
i
s
t
i
n
g
Close to existing
N
e
w
T
e
c
h
n
o
l
o
g
y
c
h
a
n
g
e
Business model change
“If I have all of the data for one client who owns 30 buildings in a portfolio, maybe
then 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 the
management and benefts in a more aggregated way.”
—David Pogue, CBRE
20 Converging worlds
For companies that buy, own, or
operate buildings and feets
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 offces, if not also to deliver products
and services to the market. Therefore, companies’
ability to function—and to do so proftably—depends
on these systems and how effciently they run.
What should you do now?
Determine the level of signifcance energy spending is to
your business and whether your organization is prepared
to see the larger potential benefts for your specifc needs
and circumstances. Buyers, owners, and operators of
buildings and feets 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
effciency 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?
Taking action
We see very different opportunities for buyers and sellers
of energy, building, transportation, and information
technology solutions. Here are some things to think about,
based on where you think your biggest opportunities are.
21 Converging worlds
For providers, incumbents,
and new market players
Customers will help drive your new view of value creation,
if you’re prepared to listen. Mark Vachon of GE put it this
way: “It’s about listening to what trends are out there,
and reverse engineering that capability back into the
business. And so if you’re really listening these days,
you’re hearing a lot more around ‘I need a solution. I
need you to be part of solving my broader problem.’”
Meeting customer demands to solve broader problems
and bring innovative solutions to the table requires
companies to engage simultaneously in collaboration
and competition—what some call “co-opetition.”
12
In highly fragmented or immature markets, innovation
skills and entry points will sort out who does what best—not
unlike what we’ve seen in other sectors where digital and
mobile technologies have initiated structural change.
What should you do now?
A structured approach to identifying and capturing value
for your company begins with a few simple questions:
• What is your corporate view of this landscape—how
energy, information, buildings, and transportation services
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 come
to understand and then shape their futures. Yet as Cisco’s
12 Eric Bloom, “In Smart Buildings, Co-opetition Is on the Rise,” Pike Research Blog, February 2012.
Get more in person
and online
GreenBiz Group is engaging the business
community on ways to accelerate convergence
and reduce commercial risk for both users
and providers of clean, smart, and green
technologies. Join us in a series of GreenBiz
VERGE events and online discussions.
To participate, see: www.greenbiz.com/verge
Feller, puts it: “Simply because you see the convergence
doesn’t mean you’re equipped and capable to deal with it.”
Indeed, every company—no matter the motivation to
act—should be looking beyond the technology changes
and preparing itself organizationally to stay ft for
the future, ready to adapt as conditions change.
22 Converging worlds
David Bartlett
Vice President of Industry Solutions
IBM
Carl Bass
President and CEO
Autodesk
Rob Bernard
Chief Environmental Strategist
Microsoft Corporation
Bob Best
Executive Vice President, Energy
& Sustainability Services
Jones Lang LaSalle
Stephan Dolezalek
Managing Director, CleanTech
VantagePoint Capital Partners
Gordon Feller
Internet Business Solutions Group
Public Sector Practice
Cisco Systems
Dave Gralnik
Senior Vice President, Renewable
Energy Services
Jones Lang LaSalle
Mitch Jackson
Vice President
Environmental Affairs & Sustainability
FedEx
Joe Mercurio
Manager of Government & Military Fuel
Cells & Electric Vehicle Programs
General Motors
Clay Nesler
Vice President, Global Energy
& Sustainability
Johnson Controls
Tim Noonan
Vice President, Phantom Works
Ventures and Boeing Energy
Boeing
David Pogue
National Director of Sustainability
CBRE
Mary Beth Stanek
Director of Federal Environmental
& Energy Regulatory Affairs
General Motors
Mark Vachon
Vice President, ecomagination
General Electric
PwC and GreenBiz Group
Advisory
Joel Makower, Chairman and Executive Editor, GreenBiz Group
Clinton Moloney, US Sustainable Business Solutions, PwC
Don Reed, US Sustainable Business Solutions, PwC
Rob Shelton, US Growth & Innovation, PwC
Editorial, writing, design, and production
Eric Faurot, President and Chief Strategist, GreenBiz Group
Peggy Fresenburg and Judy Traveny, US Studio, PwC
Dee Hildy, US Thought Leadership, PwC
Celeste LeCompte, Contributor
Derek Top, Senior Editor and Program Director for VERGE, GreenBiz Group
Acknowledgments
During the preparation of this publication, we benefted greatly from
interviews and conversations with the following executives.
Mark Vann
Manager of Advanced Technology
Government Business Development
General Motors
John Viera
Global Director, Sustainability and
Vehicle Environmental Matters
Ford Motor Company
Bill Weihl*
Manager of Energy Effciency
and Sustainability
Facebook
Saul Zambrano
Senior Director, Products, Customer
Energy Solutions
Pacifc Gas and Electric Company
*This interview was conducted in December 2011, before Bill joined Facebook.
23 Converging worlds
www.pwc.com/us/sustainability
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Please see www.pwc.com/structure for further details.
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us at www.pwc.com/US
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. MW-12-0285
Kathy Nieland
Sustainable Business Solutions,
Practice Leader
(504) 558 8228
[email protected]
Brian Carey
US Advisory Cleantech Leader
(408) 817 7807
[email protected]
Clinton Moloney
US Sustainable Business Solutions
(415) 498 8442
[email protected]
Don Reed
US Sustainable Business Solutions
(617) 530 4403
[email protected]
Rob Shelton
US Growth & Innovation
(408) 817 4251
[email protected]
To have a conversation
about how we can help your
company increase revenue,
reduce cost, or manage risk
through effective sustainability
strategies, contact:
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doc_394443914.pdf
New products, services even business models are emerging from companies working to modernize our vehicles, buildings, and electric grids. These companies are envisioning new ways to create value for their customers by looking at problems in a more aggregated way. In this report, they tell how they need to work differently with their customers, suppliers, and others to shape their futures as market conditions evolve.
April 2012
At a glance
Industry is radically
reframing how it can
increase productivity and
improve the effciency and
stability of our vehicles,
buildings, and electric grids.
Cities, campuses, and
corporations need to
manage energy use more
actively and in a more
aggregated way.
The frst step in navigating
the opportunities—for
both buyers and sellers of
products and services—is
to start from within.
Converging worlds
Five management principles from
companies modernizing our vehicles,
buildings, and electric grids
2 Converging worlds
Nearly half of CEOs who participated in
PwC’s 15th Annual Global CEO Survey
are concerned about rising energy
costs.
1
With good reason: Price forecasts
for all commodities are heading up,
and energy prices top the charts (see
Figure A). Energy—whether in the
form of electricity, gas, oil, or fuel—is
connected to a broad spectrum of other
business issues, too, including climate
change, natural resource constraints,
food prices, water availability, political
risk, and transportation challenges.
New products, services—even business models—are
emerging from companies working to modernize our
vehicles, buildings, and electric grids. These companies are
envisioning new ways to create value for their customers
by looking at problems in a more aggregated way. In this
report, they tell how they need to work differently with their
customers, suppliers, and others to shape their futures as
market conditions evolve.
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.
It’s no small task to save oil and
energy—for the most part it requires
making vehicles and buildings
far more effcient than what we
know today. Together, vehicles
and buildings are among the most
signifcant users of oil and energy
in the United States: Transportation
is responsible for 70% of petroleum
consumption,
2
and buildings account
for 75% of electricity consumption.
3
Growing concern about energy as a
long-term business risk is why most
companies want to take a more active
role in managing their own energy use.
Globally, about 70% of companies have
sustainability initiatives of varying
scopes in place, many with a conviction
that managing energy use is necessary
to remain competitive.
4
For companies,
the task of becoming more energy
effcient is also tied to productivity
and environmental benefts—but
the energy effciency is the easiest to
quantify. An income-producing offce
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
traffc 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 effcient but can
have other economic benefts too.
3 Converging worlds
Figure A. Key commodity prices are forecast to rise
Index, 2005 = 100
World commodity prices are forecast to ride
0
50
100
150
200
250
300
350
400
450
2
0
3
4
2
0
3
1
2
0
2
8
2
0
2
5
2
0
2
2
2
0
1
9
2
0
1
6
2
0
1
3
2
0
1
0
2
0
0
7
2
0
0
4
2
0
0
1
1
9
9
8
1
9
9
5
1
9
9
2
1
9
8
9
1
9
8
6
1
9
8
3
1
9
8
0
Source: Oxford Economics
Raw materials prices
Metals prices
Food prices
Energy prices
Progressive companies are looking for
gains by tackling their transportation
and building energy use as one
larger issue rather than separate
ones. They’re using technology
in a broad range of activities to
fnd the best ways to reduce cost,
improve productivity, and minimize
environmental impacts, including:
• Analyzing energy use for pricing and
sourcing options with the lowest cost
and the least environmental damage
• Identifying which facilities should
produce their own energy supply
or manage their own water use
• Tailoring logistics and feet
management to match the
needs of each type of route
and geographic region
• Examining use of offce space,
feets, and other assets to eliminate
waste and maximize utilization
4 Converging worlds
precision energy-management tools
that analyze the energy use of each
building system and notify a control
center when HVAC, lighting, and data
centers aren’t working optimally.
And it’s not just the technologies
that are changing; business models
are, too. Some solar companies, for
example, are challenging conventional
business models by leasing arrays
rather than selling them, as a way
to help customers manage up-front
capital requirements. Transportation
providers are investing in technologies
that promote car sharing—targeting
the market segments that can’t or
won’t buy cars or those who realize
their feets are sorely underutilized.
Such innovations reframe choices for
customers and, as a result, reframe
the competition, leading companies
to anticipate new types of threats.
While innovation means new
possibilities, it also means increased
complexity for building and vehicle feet
owners and operators who will fnd
themselves 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
modernizing the electric system and
making cars, trucks, and buildings
several times more effcient than
they are today—see the common
goal. They see far greater potential
for lower costs, greater productivity,
and greater environmental benefts
by completely redesigning solutions.
They’re reframing their partnership
networks and extending the roles
they’ve traditionally played. When
it makes sense, they’re partnering,
mashing up technologies, and forming
new business models. What’s emerging
is an entirely new ecosystem where
energy, information, building, and
transportation technologies converge.
Technological evolution is at the heart
of this change. For example, to work
optimally, smart grids need smart
buildings, but the legacy systems in
most buildings aren’t up for the task.
They simply weren’t designed for it.
Now, cheap sensors that are making
these building systems smarter can
also connect building systems to
each other and to other buildings—
somewhat like nodes in a network.
Tech-savvy providers are using
these sensors to create things like
While innovation means new possibilities, it also
means increased complexity for building and
vehicle feet owners and operators who will fnd
themselves faced with successive waves of innovation.
They will need to sort through products, services,
and business models they’ve never seen before.
5 Converging worlds
Energy
• Renewable energy
• Distributed energy
• Smart grid technologies
• Demand response and real-time
electricity pricing
Information
• Processors and sensors in meters,
cars, roads, and buildings
• Big Data storage, analytics, and
management
• Automation capabilities built on the
Internet of Things
There’s an entire ecosystem coming together around
the promise of lower costs, greater productivity,
and greater environmental benefts
What’s changing?
Market
conditions
Technological
evolution
3. Industry provides the tools
to manage complex systems
and link them together. When
synergies exist, companies
partner for greater benefts,
mash up technologies, and form
new business models.
2. Markets drive adoption, and
combinations of solutions are
tailored to unique settings.
4. Innovations add greater
benefts—but also far greater
complexity—to building and
feet energy management.
1. Cheap and ubiquitous computing and
communications enable convergences
across energy, IT, building, and
transportation systems.
Technology
and business
model
innovation
Deployment
and use
Building
• Certifed green buildings
• Building energy management
• Demand response and real-time
electricity pricing
• Space utilization and sharing
Transportation
• Intelligent transportation systems
• Congestion and road-charging
systems
• Smart and connected vehicles
• Alternative-fuel vehicles
• Car sharing
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.
6 Converging worlds
Technological evolution is changing the
very nature of how energy, information,
buildings, and transportation are
procured and managed. For example:
• Distributed energy generation is
becoming cheaper and cleaner.
Smart grids enable two-way
conversations with companies
and their utilities for real-time
pricing. And energy will become
easier to store, which may also
change how it’s bought and sold.
• Vehicles and buildings are
becoming part of a vast Internet of
Things, in which any device can be
addressed, monitored, controlled,
and optimized. Data can be opened
to third parties, allowing for
aggregation, analysis, and reuse.
• Building operators are able to
harness rich data streams that
help them optimize energy
and resource use, enhance
comfort and productivity, and
improve utilization rates.
• Smart and connected vehicles know
where they can park, avoid traffc
jams, or rent themselves out to other
drivers or riders. Electric vehicles
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.
As a result, both the nature of the
products and services companies
offer and how they operate and
interact with suppliers, customers,
and others will need to evolve.
How quickly will companies and
their customers see real implications
from these trends? “If you’re trying
to replace the volume of coal-fred
power plants and natural-gas-fred
power plants, you’re talking about long
time frames,” says Stephan Dolezalek,
managing director of CleanTech at
VantagePoint Capital Partners. “But
if you’re talking about using existing
systems to manage energy more
effciently, you may move much more
rapidly than people would think.”
As with previous convergences
enabled by technology, this one
will require making organizational
changes, bridging functional silos,
and adopting different ways of
thinking. “We need to think about
organizational structure if we’re really
going to embrace transformation,”
says David Bartlett, vice president of
industry solutions at IBM. “It’s never
just about the technology; it’s about
how we can step up to adopting it.”
“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
7 Converging worlds
“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, GE
Customers are
looking for a
new type of value
creation
To fnd out more about how
companies are working differently
to understand and shape their
futures, PwC and GreenBiz selected
a panel of leaders from 15 companies
with a stake in the four domains
showing the greatest potential for
convergences: energy, information,
buildings, and transportation.
We found common insights from
our panel that we believe are useful
to all companies as they work to
understand their opportunities.
The panel told us how today’s
circumstances are accelerating
change and requiring them to work
differently. These companies
1. Think systemically to capture
technology and market shifts
2. Set a clear vision but prepare
for multiple futures
3. Widen the circle of innovation
and speed up the cycles
4. Look for opportunity in
underutilized assets
5. Harness the value of Big Data
Their goal is to build organizational
capabilities that bring returns to
the business no matter how (or how
quickly) technologies evolve.
We believe their insights should be of
interest to any business leader who
wants to reduce costs, mitigate risks,
or contribute to overall proftability
of the business—all while improving
environmental outcomes. For those
focused on mitigating risks or reducing
costs in company operations, we
hope you’ll see new ways of thinking
about your business, assets, and
partnerships. For those seeking to
create new revenue opportunities, we
hope you’ll be inspired as you envision
your future and the capabilities you’ll
need to achieve your objectives.
The sections that follow summarize
our panels’ insights.
8 Converging worlds
Whether your company is building
a new city, creating a transportation
network, or changing your operations
to reduce energy and waste, an
integrative view can help you ensure
you’re actually solving a problem,
not creating a new or bigger one.
All of our panelists are working on
innovative technologies, such as
electric-vehicle charging systems,
building analytics systems, or
intelligent energy metering devices. But
they’re also working on large cross-
sector issues like modernizing the
electric grid, tackling traffc gridlock,
or building sustainable megacities,
thinking that is supported by a market
demand for smarter infrastructures
(see Figure C). Taking an integrative
approach allows them to move beyond
individual products and services
and to examine how a system’s parts
infuence one another and the whole.
Cisco explains how this way of thinking
led to a co-creation process in the
development of a Korean greenfeld city,
New Songdo City. One of the project’s
requirements was that the city produce
one-third less greenhouse gas emissions
than a typical city its size. “The idea
was to engage new actors in the city
planning process from the get-go,”
says Gordon Feller, Internet Business
Solutions Group at Cisco. “This included
national government, local government,
citizen organizations, technology
companies, private developers, and
public agencies that were established
in the economic free zone. So we
expanded the circle of partners and,
in the process, were able to identify
some breakthrough innovations.”
Cisco has staked its role in this
ecosystem on owning the “urban
operating system.” This assumes the
growing viability of a cities-as-a-
service approach, which is maturing
alongside mobility-as-a-service and
other business models that monetize
service delivery alongside product
sales. It also depends on integrating the
products and services and know-how
of a wide range of partners. It’s a
radically new model for city managers
and the companies (like Cisco) that
sell to them. But it also forms the
basis of Cisco’s strategy; it’s this kind
of repositioning that is helping Cisco
understand its role and defne it further.
1.
Think systemically to
capture technology
and market shifts
9 Converging worlds
“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, Cisco
Figure B. A market shift toward smart infrastructure development
Smart city smart infrastructure investment by industry, world markets: 2010-2020,
in $ Billions
Source: Pike Research
Smart Cities
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
Source: Pike Research
Smart building
Smart transport
Smart utilities
Smart government
U
S
$
B
i
l
l
i
o
n
s
10 Converging worlds
In addition to thinking more
systemically, companies are taking
a longer-term view, creating one or
more scenarios about where and how
markets will change and about the
opportunities. “Without a long-term
view of where things are going and
where you want them to go, I think
it’s going to be very hard to end up
really playing a central role in any
of this,” says Bill Weihl, manager of
energy effciency and sustainability at
Facebook. The social media company
has been a leader in data center energy
effciency as well as in encouraging
collaboration and transparency around
solutions for data center energy use.
Once companies have a vision in
mind, the business case for taking
innovations to scale or to maturity
becomes clearer. Boeing, for example,
sees an opportunity to play a role in
the utility space by working with the
US Department of Defense to address
its growing energy concerns both in
fxed military bases and in the feld.
“We crafted a strategy focused on
leveraging things we do and things
we own—particularly approaches
that provide command and control
to lots of objects inside a large
network, like a smart grid,” says Tim
Noonan of Phantom Works Ventures
and Boeing Energy at Boeing.
Through a series of grants from the
American Recovery and Reinvestment
Act of 2009 (ARRA), as well as related
projects and company investment,
Boeing slowly began to develop an
energy strategy that it is working to
implement today. “We’ve explored a
number of areas that we think have
a lot of potential,” Noonan says. “Not
all of them are going to pay off, but
I think we placed some good bets
across generation, transmission,
distribution, storage, and carbon
capture that have strong upside for us
both strategically and fnancially.”
2.
Set a clear vision
but prepare for
multiple futures
11 Converging worlds
Facilities and ?eets
Whether it’s residential or
commercial, there’s a
constellation of new
technologies for energy
ef?ciency, generation, and
demand response ready to
connect systems like HVAC
and lighting to the energy grid
and communications network.
The second piece is connecting
grid appliances, like the
electric vehicle to the facility.
Command & control center
Business customers, partners,
and suppliers along the value
chain
Large corporations and their
network of suppliers already
manage ?eets and facilities in a
range of operating
environments. What’s new here
is learning how data can
accelerate innovation cycles.
Institutional and
commercial campuses
Corporate campuses, colleges
and military bases will gain
more by taking a holistic view
of possible technologies to
connect and control critical
systems. While a facility-
by-facility approach could
make sense, portfolio
management can present more
options for successive waves of
innovation.
Cities and public works
Cities and regions are forming
public-private organizations to
manage entire portfolios of
projects, many of which tackle
traf?c congestion, reliable and
affordable electricity, and a
smarter, greener urban living
experience.
What’s your company’s role and the vision
for your future?
“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, Ford
12 Converging worlds
As part of their growth strategies,
companies are identifying new
opportunities to take advantage of
their existing assets and expertise for
innovation; but they’re also looking
to nontraditional and unexpected
sources to enhance what they already
have to offer. “You’ve got to make
money at the end of the day,” says Mark
Vann of the Advanced Technology
Government Business Development
group at General Motors. “You need
to fnd partners where there are
synergies, where a group of us together
can cost-justify making a leap in
an investment or a technology.”
Companies we spoke with identify
three types of collaboration that
are fostering their innovation. The
collaborations could be to build or
manage electric grids, construct or
operate smart buildings, design or
manage cities’ infrastructures, provide
integrated and adaptive transportation
services, manage distributed and
diverse energy systems, or more.
• Customers. First, companies are
working more closely than ever
with their customers to identify new
opportunities to address their needs
over the short and medium terms.
While customers are looking for
ways to succeed in an increasingly
dynamic marketplace, they’re wary
of companies that bring a one-size-
fts-all, plug-and-play solution to the
table. Forming close partnerships
to seek innovative, fexible, yet
tailored solutions can overcome
such obstacles. “I think there’s
nothing that our clients distrust
more than someone coming to them
with ‘the solution,’ because we don’t
know what the solution is going
to be,” says David Pogue, national
director of sustainability at CBRE.
“We need to work with them on the
opportunities, and together we need
to determine the best solutions.”
• Internal. Second, they’re
encouraging internal cross-
functional collaborations to fnd
fresh perspectives. Sometimes
it involves technological cross-
pollination. General Electric, for
example, leveraged aerospace
engineering from its aviation
business, as well as materials
science and mechanical engineering
expertise from across the company
to become the leading US wind
turbine manufacturer. But
technology solutions alone aren’t
always suffcient, so companies
are reaching into other parts of
their businesses to fnd expertise
on such things as customer service
or marketing. “What we’re doing,
of course, is expanding the circle
beyond the engineers to people
who are trained in other felds
and who are also great sources of
innovation,” says Cisco’s Feller.
3.
Widen the circle
of innovation and
speed up the cycles
13 Converging worlds
• External. Finally, they’re looking
to other players in their industries
or in adjacent industries to take
a broader, multidisciplinary
approach to specifc customer
issues. At Microsoft, for example,
this is creating new opportunities
to work with utility and energy
industry partners. “All of these
folks are really deep energy experts
who are now fnding themselves
in the software solution business
at a level they never have been
in before,” says Rob Bernard,
chief environmental strategist at
Microsoft. “And that’s where the
partnership and the synergy come
in—because we’re not a solutions
company in the energy space. So
it creates the opportunity and the
conditions for a partnership.”
Where have we seen
convergences like this before?
We have seen technology convergences before, and those that have preceded
may be instructive to understanding the business implications of today’s
convergence. VantagePoint Capital Partners’ Stephan Dolezalek provides
this perspective.
In the development of information technologies, we started with a
mainframe computer that pushed information to a dumb terminal. We then
migrated to ever-smaller, more-powerful microcomputing platforms that
distributed computing power, reducing the need for those mainframes. But
then we discovered that we wanted to reconnect things, which ultimately
led to the development of the Internet. Now, we’ve come full circle, with
massive numbers of devices talking to central computers in the cloud.
That piece, I think, represents the ultimate possibility for our physical
infrastructure. As cities and companies start thinking about managing
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 effciently managing electron fows,
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.
14 Converging worlds
“We see this process of opening the system as actually
accelerating the path to innovation.”
—Gordon Feller, Cisco
6 PwC, PwC’s 14th Annual Global CEO Survey, January 2011.
Across the board, companies are
seeing their need for partnerships
swell. “The larger the scale of these
kinds of projects, the greater the
number of players,” says Clay Nesler,
vice president of Global Energy &
Sustainability at Johnson Controls.
But a larger network of partners doesn’t
have to mean the process slows down.
In fact, many companies say they’re able
to accelerate the process of innovation
through collaborations that leverage
partners’ expertise effciently.
“I would say the velocity of work
has increased quite a bit,” says Mary
Beth Stanek, director of Federal
Environmental & Energy Regulatory
Affairs at General Motors. “You
have more groups working faster on
advanced-technology collaboration
so we can get to the market quickly.
If you look at the Chevy Volt timing
from inception to launch, it was
probably one of the fastest vehicle
launches we’ve ever done.”
Conditions are driving companies
to look for opportunities to join
together—to go to market with arms
linked. It’s about companies’ using
their combined capabilities to provide
greater benefts for their customers
than if each went it alone. This is a
broad trend seen across all industries
and echoed in other research. Forty
percent of global CEOs now expect the
majority of innovation in the future
will be co-developed in collaborative
networks outside their organizations.
6
Our panelists said that both internal
and external stakeholders are
important partners in designing new
strategies and ensuring their success.
“You have to be fexible with regard to
these types of partnership structures,”
says Mark Vachon, vice president of
ecomagination at GE. “We’ve focused
not only on expanding the sources of
innovation and technology but also
on how we scale and commercialize
the ideas we’ve partnered on.”
40%
of global CEOs now expect the
majority of innovation in the
future will be co-developed
in collaborative networks
outside their organizations.
15 Converging worlds
Market acceleration led
by governments
Business expects governments
to be among the largest
customers for clean,
smart, and green solutions
because of the need for
infrastructure improvements.
The world’s infrastructure
investment needs for energy,
road and rail transport,
telecommunications,
and water are likely to
average 3.5% of world
gross domestic product
through 2030, or about US$71 trillion, OECD says.
7
In some cases, the
private sector will lead infrastructure projects, through public and
private partnerships, as it has in the buildout of telecommunications
networks in both developed and developing countries.
Around the world, government-supported drives are laying the
groundwork for smart infrastructures, with investments in the
modernization of electricity grids. Smart-grid investment in
China will reach at least US$96 billion by 2020, as part of that
country’s long-term stimulus plan.
8
In the United States, US$4.5
billion was allocated to smart-grid initiatives under ARRA.
Large stimulus efforts have been accompanied by an array of
federal and subnational government programs providing incentives
designed 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 effciency 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 data
To accelerate change, industry working groups are working closely
with government agencies on a wide range of industry standards
that defne 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.
$71T
Investment needed to
improve basic infrastructure
through 2030
16 Converging worlds
Entrepreneurs in both incumbent
and start-up companies are looking
for opportunities to identify and
manage underutilized assets or to
create products and services that
optimize others’ underutilized assets.
Over the past few decades,
information technology companies
have turned to utilization to boost
data center effciency, create faster
processors, and more. Today’s
innovators look for opportunities
where utilization can either reduce
cost, increase revenue or both.
For example, in 2010, unused capacity
on Amazon’s servers led the company
to introduce its popular EC2 cloud
offering, turning underutilized
assets into a new revenue stream.
Since EC2’s release, revenue jumped
from $240 million in the third
quarter of 2010 to $470 million
in the third quarter of 2011.
9
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.
In another example, the city of
Amsterdam reduced the physical
amount of offce space it leases by 40%
through a partnership with Cisco. The
city now boasts modern and up-to-date
work solutions, such as encouraging
and enabling telecommuting, and
creating fexible, shared workspaces.
All told, the initiative is saving
the city €10 million annually.
10
Vehicle-sharing models take asset
utilization to another level. Fleets
of cars, bicycles, trucks, and other
vehicles are available by the hour for
individual use and are conveniently
located throughout a community,
campus, or city. While car sharing
started with community member-
based services, the concept has broad
potential to change how cities, colleges,
and corporations manage and maintain
feets. Vehicle owners see radically
higher utilization and potential
revenue, and users have new choices
for how they use transportation.
4.
Look for opportunity
in underutilized
assets
17 Converging worlds
Market barriers mean no easy entry
Finding the right economic model has been elusive in
many smart, clean, and green ventures. Even when the
economics make sense on paper, there is a mentality
that needs to change, and it’s often hard to convince
buyers that they should be the ones to go frst.
Existing public policies and market structures can act as
disincentives for change: most policies were designed for
systems to work as they do now, not how they could in the
future. We found broad recognition among our panelists
that the right market incentives are
critical to reducing commercial risk
so they can take new ideas to scale.
For example, US commercial
buildings waste about a third of
the energy they consume, but there
are few incentives for building
owners to improve them. Typically,
leases are written so that tenants
are responsible for utility costs,
while landlords are responsible
for capital costs related to energy
systems, such as HVAC maintenance or on-site generation.
Because, in effect, the landlord pays for the project but the
tenants receive the benefts, the landlord has no fnancial
incentive for making effciency improvements. “That’s
one of the countertrends right now to buildings becoming
smarter and more energy effcient—the investment
realities in the marketplace aren’t supporting it,” says Bob
Best, executive vice president of Jones Lang LaSalle.
The commercial building market isn’t the only place these
problems exist. In the utility business, existing policies
and rate structures typically discourage power providers
from supporting energy-effciency efforts—at least
on any meaningful scale. In other cases—e.g., vehicle
effciency standards or pricing and policies for on-site
solar—technology has also changed faster than policy.
The picture is slowly changing, as companies seek
opportunities to work with regulators and competitors
to craft policies that support innovation and incentivize
effciency industrywide. For example, when FedEx wanted
to spur the development of
electric-vehicle technologies for
the tens of thousands of trucks
it runs every day, it lobbied
to raise federal fuel economy
standards. By doing so, it gave
technology and manufacturing
companies a stronger incentive
to develop and deploy effcient,
electric-vehicle technologies.
And when FedEx worked with
Environmental Defense Fund
on hybrid-electric vehicle
development for commercial trucks, it made the
project non-proprietary to promote innovation and
collaboration among manufacturers and operators to
encourage widespread adoption. Using hybrid-electric
and all-electric vehicles for light delivery is just one
component of FedEx’s corporate strategy to reduce the
use of petroleum; there’s another strategy for its heavy
trucks and a third for its 700 planes. The company
has improved energy effciency every year since 2005,
with a 15.1% improvement through fscal year 2010.
Existing public
policies and market
structures can
act as disincentives
for change.
18 Converging worlds
One of the natural consequences of
placing sensors throughout buildings,
in vehicles, and within energy systems
is the very large amounts of detailed
data theses sensors generate. But
we’re only beginning to see how this
tsunami of data fosters new innovation.
Saul Zambrano of Pacifc Gas and
Electric Company’s Customer Energy
Solutions group sees potential. “The
enhanced capability and the data sets
that underlie it really are creating this
new innovation cycle around smarter
grids and smarter buildings,” he says.
This explosion of information,
commonly referred to as “Big Data,”
is ushering in a new type of analytics
that enables management to make
decisions with a precision comparable
to scientifc insight. The newest
analytic methods use rigorous scientifc
techniques, including hypothesis
formation and testing, statistical
sampling, and visualization tools.
Data analytics can turn the invisible
into the visible when partners come
together to make sense of the data.
IBM talks about an early facilities
management implementation, which
made use of 10,000 data sources to
provide a robust picture of a facility’s
operations. The value, however,
came from applying the customer’s
knowledge about priorities and needs
alongside IBM’s analysis tools to provide
actionable information about how to
optimize the facility’s operations.
“We provided the IT constructs, but
the facilities team was key in providing
the experience and what type of rules
made sense,” says IBM’s Bartlett. “I
guess what they didn’t realize was
the capability of IT to give them a
command view, to give them visibility
and automation that they hadn’t had
before. So, they’re seeing the potential
for new energy savings as a result.”
Data analytics can also provide
insight into new products and services
customers need. For CBRE, the
opportunity lies in tapping into large
data sets across its customers. “If I
have all of the data for one client who
owns 30 buildings in a portfolio, maybe
then I can do a commodity buy for the
energy for those buildings,” says Pogue
of CBRE. “Right now, owners think of
individual buildings, but what we want
to do is begin to view the management
and benefts in a more aggregated way.”
The potential for companies to use
data more effectively can transform
not only the products and services
companies provide, but also how those
companies organize to respond to
business goals and customer need. As
Zambrano says, “Historically, utilities
were very silo structured. Analysis of
the data that’s coming in is effectively
going to require a shift in capability
around horizontal management, and
so, it’s part of the business change.”
5.
Harness the
value of Big Data
19 Converging worlds
11 Marc Gunther, “Why GM is working with car-sharing ?rm RelayRides,” GreenBiz.com, March 2012.
Is your strategy
ft for the future?
At the heart of convergences among
energy, information, building, and
transportation technologies is the
potential for far greater economic and
environmental benefts than we’ve
seen before. Convergence represents
an opportunity to defne the direction
of industry by harnessing the power of
both technology change and business
model innovation. In fact, innovation
does not focus exclusively on new
technology. Developing new business
models and new strategies is every
bit as important—sometimes more.
GM is just one company embracing
the idea that both technology change
and business model innovation must
work side by side to create the future
of the organization. Today, GM is—
frst and foremost—in the business of
selling as many cars as it can. But it is
also testing a car-sharing model that
leverages its existing OnStar system;
GM vehicle owners will soon be able
to use OnStar to rent out their cars.
11
Figure C. Radical ideas rely on a combination of technology
change and business model innovation
Source: Davila, Epstein, and Shelton, Making Innovation Work: How to Manage It,
Measure It, and Pro?t from It, August 2005.
Breakthrough ideas
Game changers
Breakthrough ideas
Game changers
Radical ideas
New businesses
Incremental ideas
Protect/improve
existing
New
C
l
o
s
e
t
o
e
x
i
s
t
i
n
g
Close to existing
N
e
w
T
e
c
h
n
o
l
o
g
y
c
h
a
n
g
e
Business model change
“If I have all of the data for one client who owns 30 buildings in a portfolio, maybe
then 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 the
management and benefts in a more aggregated way.”
—David Pogue, CBRE
20 Converging worlds
For companies that buy, own, or
operate buildings and feets
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 offces, if not also to deliver products
and services to the market. Therefore, companies’
ability to function—and to do so proftably—depends
on these systems and how effciently they run.
What should you do now?
Determine the level of signifcance energy spending is to
your business and whether your organization is prepared
to see the larger potential benefts for your specifc needs
and circumstances. Buyers, owners, and operators of
buildings and feets 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
effciency 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?
Taking action
We see very different opportunities for buyers and sellers
of energy, building, transportation, and information
technology solutions. Here are some things to think about,
based on where you think your biggest opportunities are.
21 Converging worlds
For providers, incumbents,
and new market players
Customers will help drive your new view of value creation,
if you’re prepared to listen. Mark Vachon of GE put it this
way: “It’s about listening to what trends are out there,
and reverse engineering that capability back into the
business. And so if you’re really listening these days,
you’re hearing a lot more around ‘I need a solution. I
need you to be part of solving my broader problem.’”
Meeting customer demands to solve broader problems
and bring innovative solutions to the table requires
companies to engage simultaneously in collaboration
and competition—what some call “co-opetition.”
12
In highly fragmented or immature markets, innovation
skills and entry points will sort out who does what best—not
unlike what we’ve seen in other sectors where digital and
mobile technologies have initiated structural change.
What should you do now?
A structured approach to identifying and capturing value
for your company begins with a few simple questions:
• What is your corporate view of this landscape—how
energy, information, buildings, and transportation services
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 come
to understand and then shape their futures. Yet as Cisco’s
12 Eric Bloom, “In Smart Buildings, Co-opetition Is on the Rise,” Pike Research Blog, February 2012.
Get more in person
and online
GreenBiz Group is engaging the business
community on ways to accelerate convergence
and reduce commercial risk for both users
and providers of clean, smart, and green
technologies. Join us in a series of GreenBiz
VERGE events and online discussions.
To participate, see: www.greenbiz.com/verge
Feller, puts it: “Simply because you see the convergence
doesn’t mean you’re equipped and capable to deal with it.”
Indeed, every company—no matter the motivation to
act—should be looking beyond the technology changes
and preparing itself organizationally to stay ft for
the future, ready to adapt as conditions change.
22 Converging worlds
David Bartlett
Vice President of Industry Solutions
IBM
Carl Bass
President and CEO
Autodesk
Rob Bernard
Chief Environmental Strategist
Microsoft Corporation
Bob Best
Executive Vice President, Energy
& Sustainability Services
Jones Lang LaSalle
Stephan Dolezalek
Managing Director, CleanTech
VantagePoint Capital Partners
Gordon Feller
Internet Business Solutions Group
Public Sector Practice
Cisco Systems
Dave Gralnik
Senior Vice President, Renewable
Energy Services
Jones Lang LaSalle
Mitch Jackson
Vice President
Environmental Affairs & Sustainability
FedEx
Joe Mercurio
Manager of Government & Military Fuel
Cells & Electric Vehicle Programs
General Motors
Clay Nesler
Vice President, Global Energy
& Sustainability
Johnson Controls
Tim Noonan
Vice President, Phantom Works
Ventures and Boeing Energy
Boeing
David Pogue
National Director of Sustainability
CBRE
Mary Beth Stanek
Director of Federal Environmental
& Energy Regulatory Affairs
General Motors
Mark Vachon
Vice President, ecomagination
General Electric
PwC and GreenBiz Group
Advisory
Joel Makower, Chairman and Executive Editor, GreenBiz Group
Clinton Moloney, US Sustainable Business Solutions, PwC
Don Reed, US Sustainable Business Solutions, PwC
Rob Shelton, US Growth & Innovation, PwC
Editorial, writing, design, and production
Eric Faurot, President and Chief Strategist, GreenBiz Group
Peggy Fresenburg and Judy Traveny, US Studio, PwC
Dee Hildy, US Thought Leadership, PwC
Celeste LeCompte, Contributor
Derek Top, Senior Editor and Program Director for VERGE, GreenBiz Group
Acknowledgments
During the preparation of this publication, we benefted greatly from
interviews and conversations with the following executives.
Mark Vann
Manager of Advanced Technology
Government Business Development
General Motors
John Viera
Global Director, Sustainability and
Vehicle Environmental Matters
Ford Motor Company
Bill Weihl*
Manager of Energy Effciency
and Sustainability
Saul Zambrano
Senior Director, Products, Customer
Energy Solutions
Pacifc Gas and Electric Company
*This interview was conducted in December 2011, before Bill joined Facebook.
23 Converging worlds
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Kathy Nieland
Sustainable Business Solutions,
Practice Leader
(504) 558 8228
[email protected]
Brian Carey
US Advisory Cleantech Leader
(408) 817 7807
[email protected]
Clinton Moloney
US Sustainable Business Solutions
(415) 498 8442
[email protected]
Don Reed
US Sustainable Business Solutions
(617) 530 4403
[email protected]
Rob Shelton
US Growth & Innovation
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