Nonlinear Thinking

The Slow Road to A Smarter Grid

The advent of the smart grid has been announced numerous times during the past 15 years.  It has been simultaneously encouraging and discouraging to witness the progress towards an environment of intelligent energy management during that period.  Few great advances arrive without serious headwinds.  Particularly in such a “smokestack”-affiliated industry as electric utilities, change can be glacial.

The “science” surrounding innovative technologies has always held far less interest for me than the practical application of those technologies.  It is not what it is, but what it can do, that intrigues me and feeds into my constantly evolving view of the world and the industries and markets that comprise the global marketplace.

A dozen years ago, I participated in sketching out an early architecture for the concept of the Smart Home as part of the broader smart energy initiative and have a continuing interest in the advancement of the technologies that comprise what is now referred to as the Smart Grid.  A simple graphic of the smart grid environment is represented below.

 

Managing energy demand and optimizing energy usage are fundamental to any strategy/philosophy/approach to arriving at a sustainable and clean energy economy.  To that end, electric utilities are being encouraged to utilize smart-grid technology -- network-connected devices to help intelligently monitor and manage power usage -- whether on their dime or through funding from the U.S. government's 2009 stimulus package. Smart energy systems are designed to save energy via intelligent management of energy usage in homes and businesses. Beyond that activity at the point of consumption, the smart grid seeks to promote improved optimization at every point between generation and consumption to actively manage the grid.

As this proposed build out of the smart grid is, for the most part, a digital network solution, the question/concern of hacking the system necessarily arises.  However real and mature the threat, it does create new challenges for utilities to meet to ensure safety, reliability, etc. for their residential and commercial customer bases.  The threat may be most acute at those interfaces where smart grid platforms are required to integrate with older control equipment such as SCADA ( Supervisory Control and Data Acquisition) systems as well as the first generation of smart meters.

As more and more processes in every industry become digitally-driven, we will face these same kinds of challenges.  In many cases, such as with the smart grid effort, they will be met and overcome because their is simply no alternative.

Telling A Great Story = $$$

Stumbled across this interesting graphic from Market Matters in the United Kingdom.  They offer strategy workshops as part of their service portfolio to assist companies in improving their capital market valuations by successfully identifying, crafting and telling their story to their key constituencies.  In their words,

"A compelling strategy that creates a vivid picture of where you will stand in five and ten year's time is vital. With so much attention focusing on an uncertain short term, developing a corporate strategy capable of creating long-term shareholder value is increasingly important.  A clear, convincing and credible strategy appeals to investors and inspires employees."

This represents yet one more data point in the rapidly expanding universe supporting the necessity for organizations, of whatever persuasion - profit/non-profit, etc -- to craft their story and tell it to every one of their key stakeholders.

The Only Constant is Change: Addendum

When it rains, it pours, or so it seems.  On the heels of a recent Forrester report on the future of IT services which I wrote about here, management consultant A.T. Kearney weighs in with their own, very similar view on that future.  This recent op-ed in Businessweek by Arjun Sethi and Olivier Aries sees most of the same external drivers highlighted in the Forrester report  but offers a different and altogether more interesting futurescape for IT services.

“ In the next five years outsourcing as we know it will disappear.  The legion of Indian service providers will be sidelined or absorbed. U.S. and European companies that pioneered this corner of the high tech industry will suffer similar fates if they don't wake up.  Who will emerge as the new leaders?  Google and Amazon.com , brands that we associate with search and retail, will become better known for outsourcing."

Longtime readers of this blog will know that I have been harping on the threat that Amazon and Google, in particular, present to the old guard of IT service providers as I have written about it here, here and here. SaaS/cloud technologies, under any name, have been a game changing disruptive force for the past 10 years. When IBM acquired Corio five years ago, that should have, de facto, been some kind of canary in the coal mine.

In their commentary Sethi and Aries also conjure up a vision of what the new outsourcing model will look like.

“In the new model, outsourcers provide standard, off-the-shelf software on a "pay-per-drink" basis. For that, they will leverage so-called cloud technology, which lets users tap into computing power available via the Internet, rather than on a desktop or computer server housed locally. The appeal is scale, flexibility, and efficiency: Thousands of server computers can attack a task more quickly—and cheaply—or handle a patchwork quilt of different technologies that companies use to run their businesses. This approach will let businesses outsource entire tasks such as the tracking of inventory, paying only for the information accessed or used.”

The commentary also mentions who might be the losers in this new model (mid-tier Indian outsourcers), possible winners (SAP, Oracle, Microsoft, Salesforce), and a several major players that are not moving fast enough (Accenture, Xerox, Dell, HP).  

I am guessing that this commentary and the Forrester report will be far from the last discussions regarding the changing IT services landscape.  I would also imagine that we will see more and more discussion of the death of the internal IT department beyond the many books and reports already written.  Fasten your seatbelts.

The Only Constant is Change

"To improve is to change.  To be perfect is to change often." - Winston Churchill

Forrester has a new report out discussing the dynamic evolution that traditional IT services providers are going to experience over the next several years.  This analysis is very timely and it addresses a combination of external drivers that I have been writing and speaking about for the past several years.  The authors, John C. McCarthy and Pascal Matzke have done a masterful job in codifying the thinking around these externalities and their impact to the existing IT service provider business model. This excerpt from the executive summary delivers the high-level on the emerging metamorphosis.  

“The tech services market is about to undergo a massive transformation that will call traditional provider business models into question. Four factors will combine to dramatically change the dynamics, economics, and competitive landscape of IT services over the next three to four years: 1) the “restructuring economy”; 2) innovation moving to the edge of the enterprise; 3) the redefining of buying and governance dynamics in accounts; and 4) “as-a-service” becoming the norm.”

For those that have been engaged in surveying the technology market landscape over the past decade, the conclusions McCarthy/Matzke draw from their analysis is no surprise.  Unfortunately, few of those individuals appear to actually work for the major players in global tech services because those firms have made few, if any, alterations to the business model they have employed for the past 15 years.  As innovation in IT moved from the data center to the business units, on-demand/as-a-service and other cloud-based solutions gained traction, and social/mobile activity emerged as integral parts of the technology platform, Nero fiddled.

And the hits just keep coming.  The Forrester report offers a forecast of why and how the IT services model of today will cease to exist by 2020.  

• Forrester sees at least nine new services entering the market as cloud/SaaS redefine the services business.
• Selective sourcing and utility pricing models broaden their footprints.
• Digital natives and the advance of business (unit) buyers push traditional IT into the background.
• Standardization in cloud/SaaS solutions create pricing transparency and profound pricing pressure on traditional service models.
• Cloud/SaaS drive increasing standardization and process industrialization of services leading to delivery models based on solution partner ecosystems.

From my perspective, the most provocative item in the report is the following table that contrasts the top ten service providers in 2010 with a forecast of what the top 10 will look like in 2020.

 

Looks like a whole lotta growth, death and consolidation in the sector.  Ten years may seem like a lot of time for the current top ten to embrace and adapt to this new environment, but the truth is that this evolution has been ongoing for at least five years.  Too many of the incumbents lack the cultural and operational survival instincts to revolutionize their business models.  Some of the logos we have come to recognize in the global tech services space have already vanished.  It will be interesting to watch how this all plays out over the next decade.

Business Models for Sustainable Consumption

Discovered an interesting report from the World Economic Forum published earlier this year discussing the need for new business models that are constructed on a platform of sustainable consumption.  The report offers a  “Business Case for Sustainability”  that provides “a cogent argument for sustainability as an issue that should be incorporated into the strategy and operations of business, not just as a matter of stakeholder responsibility but as a matter of business survival and value creation.”

 

Key elements of the business case include:

• Managing resource risks: Sustainability matters to business because it reduces exposure to volatile and rising resource prices, to the risk of increased scarcity of resources and to the risk that these (carbon, water, waste) are radically re-priced in the near future. Embracing models of sustainable consumption across the value chain will provide stronger resilience against external shocks.
• Shaping the regulatory environment: Principles of sustainability are increasingly being incorporated into the regulatory environment. If businesses wish to flourish in this environment, they must make themselves active participants in its construction.
• Engaging consumers as citizens: The biggest drivers of corporate sustainability investments are consumer concerns, employee interest and government legislation.8 For business, driving sustainable consumption can be an effective long-term strategy for deepening authentic engagement with consumers and employees.
• Engaging consumers as customers: Consumers increasingly want to be treated as customers, demanding not only more sustainable products and services, but also greater transparency over sourcing and content of existing ones. At the same time, the speed, spread and changing patterns of use of the media are forcing businesses to adopt pre-emptive strategies to manage their reputational risk on sustainability issues. Engaging proactively with the sustainable consumption is one way of managing these challenges in depth.
• Driving innovation: Businesses are the chief engines of value creation and innovation in society. The challenge of sustainable consumption presents an opportunity to enhance both, particularly when new partnerships and collaborations are opened along the value chain.
• Capturing opportunity: In the end, sustainable consumption matters to business because there will be winners and losers in the new economy, and those that move most swiftly are likely to reap the greatest benefits. Embracing sustainable consumption now offers a pathway to future markets and profitability.

What is made clear in the report is that continuing along a path of incremental adoption of today’s sustainability efforts will be insufficient as they are based on improvements to our existing model of consumption.  That model is, itself, unsustainable.  The graphic below illustrates the required shift from the traditional value chain to a closed loop value chain that incorporates reuse of consumed materials into the overall business model.

 

“The new normal for the global economy is one in which consumption is decoupled from negative environmental and social impacts, driven by a combination of innovation, evolving consumer values and more accurate product costs. In the end, it is not a world defined so much by scarcity and sacrifice, as a world defined by innovation and a new abundance.”

The “new normal” is an economy in which:     

• Consumers are the driving force 
• Consumption is about loops, not lines 
• Collaboration is a key
• Core business practices are sustainable    
• Public policy frameworks support sustainable consumption

Reports such as this support an emerging recognition, by early adopters at least, that those companies that are proactive in embracing sustainability will find themselves at a distinct operational, cost and branding advantage in the near future.