In discussing freedom and opportunity within an organization, Nilofer Merchant wrote, in the forward of Dan Pontefract’s 2016 book The Purpose Effect:
“When people know the purpose of an organization, they don’t need to check in or get permission to take the next step; they can just do it. When the organization is demonstrating purpose, the likelihood of employees going above and beyond the call of duty greatly increases. When organizations stand for something, it brings coherence to everything and a real advantage to what they offer.”
The purpose of good business
If a good business has purpose, what is the purpose of a good business?
It’s not to make money. There has been enough work done on the poverty of the shareholder approach to management that we can accept that path as a dead end. Even the general idea of making money or generating wealth is insufficient to understanding purpose in general and the purpose of business in particular. We’ve had a clear view of this since Aristotle wrote the Nichomachean Ethics in the 4th Century BC:
“Wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.”
If wealth is not the good that the good business seeks, why does the “bottom line” remain the preeminent goal of business? People have advanced many explanations, but the simplest may be that the bottom line can be counted. What can be counted is easier to understand and therefore to manage.
Profit and purpose
It would be going too far to claim we can live on purpose alone. Money doesn’t serve as a proxy for purpose. Whenever we survey the wreckage of the business world, financial mismanagement is a common factor. This tells us that money is important… just not all-important. Peter Drucker touched on this in his 1973 book Management: Tasks, Responsibilities and Practices:
“To attain any of the [business] objectives entails high risks. It requires effort, and that means cost. Profit is, therefore, needed to pay for attainment of the objectives of the business. Profit is a condition of survival. It is the cost of the future, the cost of staying in business.”
So profit is a condition of staying in business, which means staying in pursuit of business’s purpose. What helps us make sense of the purpose of a good business? The people who take part in the organization’s activities and the society that provides a place for the business. In other words, a business doesn’t exist in isolation from society. The purpose of good business can only be found by trying to understand the role of people within a society.
“Responsible enterprise brings together people’s need for aspirational achievement and society’s need for productive contribution. Responsible business takes people’s and society’s needs and transforms them into opportunities.”
Our need for aspirational achievement is the thread that links our various experiences in life. Business management is no different. And we encounter this aspirational need the most when it comes to hiring. How we hire determines how well we are able to take society’s needs and transform them into individual opportunity. Which raises the question, how effective is our track record in hiring?
Hiring and opportunity
That’s an interesting question. Robert D. Hare wrote in his 2006 book, Snakes in Suits, how contemporary management culture provides the opportunity for psychopaths to find a niche. He noted that because the hiring process is subjective, psychopaths are able to bring their primary tools of lies and charm to good effect. And we shouldn’t for a minute think that defective hiring mechanisms will only be found in the likes of disgraced firms like Goldman Sachs. The Silicon Valley hero entrepreneur culture is equally open to abuse.
Both environments have in common our broader tendency to elevate the social status of certain roles, professions, or industries. We form an idea in our mind that these positions are of great value, and in an effort to be the best we can be, create competition for them. For some of us, competition provides an opportunity to show the best of who we can be. But for others, the race to the professional top becomes a race to the moral bottom. The way we view people, their places in organizations and the place of organizations in society contributes to many of the troubling outcomes we can observe.
But this article isn’t about the obvious challenges we create for ourselves in our hiring practices. If we should hire with aspiration and opportunity in mind, we should hire with the opportunities people have to bring their aspirations to bear in pursuit of purposeful business. This becomes an issue of deprivation. There is no more deprived group of people in the world than those with disabilities, mental, physical, and social.
I used the word psychopath earlier to make a point about culture, but psychopathy is not a psychiatric diagnosis. There is a “burn the witch” association to the word. Mental disability in general is widespread, nuanced, and easily stigmatized. We do ourselves a great disservice in our search for purposeful business to think only in terms of people with education, experience, and perfect teeth. If the task of purposeful business is to link the aspirations of people together, then we must also pay attention to relative deprivation of opportunity and its corollary, neglect. As Amartya Sen wrote in his 2009 book, The Idea of Justice,
“People with physical or mental disability are not only among the most deprived human beings in the world, they are also, frequently enough, the most neglected… The magnitude of the global problem of disability in the world is truly gigantic. More than 600 million people – about one in ten human beings – live with some form of significant disability… The impairment of income-earning ability, which can be called the ‘earning handicap,’ tends to be reinforced and much magnified in its effect by ‘the conversion handicap;’ the difficulty in converting incomes and resources into good living, precisely because of disability.”
The purpose of good business is to harness people’s aspirations and direct those aspirations toward meaningful opportunity. To those ends we owe it to ourselves to take a closer look at how we include or exclude people from our ranks. Not everyone can be made in image of the hero leader.
We can’t all tick the boxes that indicate a good fit. We can’t all grow a good hipster beard, write witty Twitterisms, or make sagacious points in front of a giant screen. But we do all have aspirations and we do all have something to contribute. We deserve the opportunity to do so. Some of us, by a twist of fate, have had less opportunity to contribute and have come further in our quest to do so.
As ASEAN celebrates 50 years of its establishment this year, one of its key achievements has been the formation of the ASEAN Economic Community (AEC)—a platform that enables the economic integration of its ten member states. It is already making an impact on the economy of the region, which would be far greater in the years to come.
The potential for ASEAN is huge: With 630 million people (more than half of whom are under 30) and a US$1.5 trillion consumer market, it is poised to be the shining star of foreign investors. Southeast Asia is the fourth-largest exporting region in the world, accounting for 7% of global exports. As a single economic entity, ASEAN would be the world’s seventh-largest economy. The region has seen economic growth average a healthy 4-5% per annum since its formation.
Member countries in ASEAN are fully cognizant of this huge potential, and their goals of accelerating the economic growth, social progress, and cultural development in the region through joint endeavors and promoting regional peace and stability underline that. The ASEAN goals are aligned with the United Nation’s Sustainable Development Goals: to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. From a development and governance point of view, it also includes goals such as sustainable cities and communities, and responsible production and consumption.
Key challenges before ASEAN
However, in a fast-changing and volatile world where digital transformation is impacting businesses, governments, and even individual lives, ASEAN faces some key challenges that will test the resilience of governments: the increasing pace of business and tech life cycles, the rise of the disruptive platforms and their impact on services, use of data analytics to engage citizens, the rise of technologies such as artificial intelligence (AI), machine learning (ML), and robotics and how they have upped the ante for governments, and the constant threats of cybersecurity.
The larger impact of these challenges faced by ASEAN nations today have implications for the economic conditions of their citizens, loss and automation of jobs, and the overall quality of life. These problems will only grow in complexity in the coming years.
Solving society’s problems through digitization
While digitization has been a disrupter, it also has the potential to solve some of ASEAN’s key problems. It will touch upon businesses, people, and governments to bring growth, jobs, and service delivery.
For this to happen, governments in ASEAN should go for smart, connected, ubiquitous, and disruptive “intelligentization.” The World Bank recommends that digitization must be “a whole of government agenda” and cannot just be done in siloes.
Digitization can accelerate growth for countries as it enables organizations to reach new markets, improves service delivery for citizens, and strengthens institutions. For example, World Bank studies show that Vietnamese firms that are using e-commerce have high total factor productivity growth. Similarly, in the space of service delivery to citizens, digitization increases the capacity to resolve complaints quickly and creates transparency in e-government systems. Similarly, digitization strengthens institutions through population registers, payment platforms, and information delivery mechanisms.
To increase the pace of digitization, ASEAN governments will have to invest in making the Internet more affordable and sorting out the legal and regulatory issues to make digitization ubiquitous. Currently, Singapore and Thailand lead the region in terms of both broadband and mobile Internet speed. The good news is that countries like Indonesia, Thailand, Malaysia, and the Philippines are also investing heavily in developing their national broadband networks and smart city projects.
The move towards smart nations and cities
The best way governments can deal with the challenge of digital transformation is to endeavour to convert the whole nation into a smart nation, composed of numerous smart cities.
While Singapore took the lead in this direction, all major countries in ASEAN are focusing on building their model smart cities. In its neighbourhood, countries like India, Japan, and Korea are pushing for smart cities in a big way. India has announced an ambitious project to build 100 smart cities.
Smart cities and smart nations are built on data, engagement, and collaboration, and by meshing up these three principles/approaches, governments can take a 360-degree approach to serve their citizens. For example, the Singapore government has created SingPass as a ubiquitous product with 3.3 million accounts. It helps in extending digital identity of users for 220 services across 80 agencies. Contrast this with Indonesia, the biggest economy in the block. It does not even have a common ID but it wants to harness technologies such as Big Data and AI in tax fraud detection. In the Jakarta Smart City, the Indonesian government is using community data for startups, which are building apps to solve problems such as garbage collection from municipal areas.
Harnessing digitization to build better citizen services in ASEAN
While connectivity remains a big issue for ASEAN countries and skills gaps still need to be tackled, Big Data, analytics, and AI will be the biggest game-changers for ASEAN economies. By bringing together both transactional processes and analytical intelligence – and combining all agency knowledge sources in one platform – organizations can turn data into actionable information. That will allow decisions based on facts and provides predictive insights. As issues arise, agencies can be more agile and responsive, incrementally adding connected solutions to address new problems – without disrupting operations.
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About Claus Andresen
Claus Andresen is President and Managing Director for SAP Southeast Asia (SEA). He is responsible for business strategy, operations, profit and loss, and sustainable growth for SAP across SEA, building on SAP’s success in its 28-year establishment in the region. Claus leads high-performing teams across Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam, and other emerging markets in SEA.
When you think about office supplies, you probably think about things like the reams of paper it takes to get business done. But to Indigenous communities in Australia, that paper is a pathway to equality and a brighter future through an Indigenous-owned company called Muru Office Supplies.
Muru means pathway
Muru CEO Mitchell Ross explains that in the language of his people, Muru means “pathway”: “I’m an Indigenous man myself, and going into business… there was a huge drive for me to give back to other Indigenous people, so part of our vision as an organization is to create a pathway for the next generation of Indigenous people.” Ross explains that Muru gives part of its profits back to Indigenous community programs and has strong Indigenous employment goals.
Challenging history, new opportunities
This is a moment of opportunity for businesses like Muru. Challenged by a history that has often left First Australians behind, the Australian government a year ago created an Indigenous Procurement Policy. In its first year, the government awarded A$284.2 million in contracts to 493 Indigenous businesses. At the same time, many large Australian businesses are finding both purpose and profit in partnering with and buying from Indigenous suppliers. This policy is potentially even more powerful when combined with innovative, cloud-based procurement technology. The opportunity is ripe for smaller, Indigenous businesses like Muru to partner with other suppliers and also to get on the radar of larger buyers.
The power of the business network
Muru has found an expert partner in Complete Office Supplies or COS, Australia’s largest family-owned office products supplier, which has 41 years of experience. At SAP Ariba Live in Sydney in August, COS’s Sarah Trueman explained: “Over the years, we’ve helped Indigenous-owned small businesses, whether distributing their product or helping with logistics and services.” And a partnership with COS can help small Indigenous companies compete with larger organizations: “We support Muru Office Supplies with logistics, with supply chain, customer service, and IT, to make sure that they have the same service level as a company the size of COS.”
This effort is putting Muru in a position to work with Fortescue, the world’s fourth-largest iron ore producer. Chelsea Gray, Fortescue’s procurement systems and services manager explains: “Ending Aboriginal disparity has always been a core part of Fortescue.” Beginning in 2011, Fortescue’s Billion Opportunities program has awarded nearly A$2 billion in contracts to over 100 Aboriginal-owned businesses and joint ventures, including Muru.
COS has been a vendor of Fortescue for many years and saw an opportunity to build Muru’s capability by forming the joint venture Muru Office Supplies (MOS). MOS was successful in an open tender to provide Fortescue’s stationery requirements a few years back. COS’s Sarah Trueman says “the joint venture with Muru has been very successful and has resulted in MOS winning further business.”
The digital pathway
Muru, COS, and Fortescue are linked through technology that automates the procurement process and keeps business moving on the pathway between the three companies. Ross says that helps Muru fulfill its purpose in several ways: “It really comes down to streamlining processes for our customers and our buyers, so it reduces the administration costs, particularly in the high-transaction environment that we’re in. It reduces the human error rate because of the integration and automation that’s involved; it’s extremely helpful.” That helps Muru stay competitive, build its credibility, and grow so it can help more people.
SAP Ariba president Alex Atzberger notes: “Across procurement, we see people trying to tackle issues that impact the global supply chain such as slavery, poverty, and diversity. But they are struggling because they lack visibility and data on their suppliers. We can help deliver the intelligence and transparency they need to manage these challenges and effect change.”
The value of purpose
Including Indigenous businesses in procurement benefits companies around the globe. Atzberger points out: “Procurement is in a unique position to address these issues and, beyond saving money and creating efficiencies, improve lives.” Ariba vice president, products and innovation, Padmini Ranganathan points out: “Companies have seen value, cost efficiencies, and have enhanced their brand reputation.” Trueman agrees, saying it brings COS and its employees: “a sense of pride that we are helping Indigenous communities and giving back. As Muru talks about providing education to small children in these communities it’s really touching, it really makes you want to do more.”
Muru’s Ross adds: “As an Indigenous person, it’s easy to think about doing business with a purpose. It’s who we are as a people, so for other organizations and other buyers and suppliers out there, think about the bigger picture and about the world you want to live in, and come up with a purpose that you’re happy to strive towards.”
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Businesses share something important with lions. When a lion captures and consumes its prey, only about 10% to 20% of the prey’s energy is directly transferred into the lion’s metabolism. The rest evaporates away, mostly as heat loss, according to research done in the 1940s by ecologist Raymond Lindeman.
Today, businesses do only about as well as the big cats. When you consider the energy required to manage, power, and move products and services, less than 20% goes directly into the typical product or service—what economists call aggregate efficiency (the ratio of potential work to the actual useful work that gets embedded into a product or service at the expense of the energy lost in moving products and services through all of the steps of their value chains). Aggregate efficiency is a key factor in determining productivity.
After making steady gains during much of the 20th century, businesses’ aggregate energy efficiency peaked in the 1980s and then stalled. Japan, home of the world’s most energy-efficient economy, has been skating along at or near 20% ever since. The U.S. economy, meanwhile, topped out at about 13% aggregate efficiency in the 1990s, according to research.
Why does this matter? Jeremy Rifkin says he knows why. Rifkin is an economic and social theorist, author, consultant, and lecturer at the Wharton School’s Executive Education program who believes that economies experience major increases in growth and productivity only when big shifts occur in three integrated infrastructure segments around the same time: communications, energy, and transportation.
But it’s only a matter of time before information technology blows all three wide open, says Rifkin. He envisions a new economic infrastructure based on digital integration of communications, energy, and transportation, riding atop an Internet of Things (IoT) platform that incorporates Big Data, analytics, and artificial intelligence. This platform will disrupt the world economy and bring dramatic levels of efficiency and productivity to businesses that take advantage of it,
Some economists consider Rifkin’s ideas controversial. And his vision of a new economic platform may be problematic—at least globally. It will require massive investments and unusually high levels of government, community, and private sector cooperation, all of which seem to be at depressingly low levels these days.
However, Rifkin has some influential adherents to his philosophy. He has advised three presidents of the European Commission—Romano Prodi, José Manuel Barroso, and the current president, Jean-Claude Juncker—as well as the European Parliament and numerous European Union (EU) heads of state, including Angela Merkel, on the ushering in of what he calls “a smart, green Third Industrial Revolution.” Rifkin is also advising the leadership of the People’s Republic of China on the build out and scale up of the “Internet Plus” Third Industrial Revolution infrastructure to usher in a sustainable low-carbon economy.
The internet has already shaken up one of the three major economic sectors: communications. Today it takes little more than a cell phone, an internet connection, and social media to publish a book or music video for free—what Rifkin calls zero marginal cost. The result has been a hollowing out of once-mighty media empires in just over 10 years. Much of what remains of their business models and revenues has been converted from physical (remember CDs and video stores?) to digital.
But we haven’t hit the trifecta yet. Transportation and energy have changed little since the middle of the last century, says Rifkin. That’s when superhighways reached their saturation point across the developed world and the internal-combustion engine came close to the limits of its potential on the roads, in the air, and at sea. “We have all these killer new technology products, but they’re being plugged into the same old infrastructure, and it’s not creating enough new business opportunities,” he says.
All that may be about to undergo a big shake-up, however. The digitalization of information on the IoT at near-zero marginal cost generates Big Data that can be mined with analytics to create algorithms and apps enabling ubiquitous networking. This digital transformation is beginning to have a big impact on the energy and transportation sectors. If that trend continues, we could see a metamorphosis in the economy and society not unlike previous industrial revolutions in history. And given the pace of technology change today, the shift could happen much faster than ever before.
The speed of change is dictated by the increase in digitalization of these three main sectors; expensive physical assets and processes are partially replaced by low-cost virtual ones. The cost efficiencies brought on by digitalization drive disruption in existing business models toward zero marginal cost, as we’ve already seen in entertainment and publishing. According to research company Gartner, when an industry gets to the point where digital drives at least 20% of revenues, you reach the tipping point.
“A clear pattern has emerged,” says Peter Sondergaard, executive vice president and head of research and advisory for Gartner. “Once digital revenues for a sector hit 20% of total revenue, the digital bloodbath begins,” he told the audience at Gartner’s annual 2017 IT Symposium/ITxpo, according to The Wall Street Journal. “No matter what industry you are in, 20% will be the point of no return.”
Communications is already there, and energy and transportation are heading down that path. If they hit the magic 20% mark, the impact will be felt not just within those industries but across all industries. After all, who doesn’t rely on energy and transportation to power their value chains?
The eye of the technology disruption hurricane has moved beyond communications and is heading toward … the rest of the economy.
That’s why businesses need to factor potentially massive business model disruptions into their plans for digital transformation today if they want to remain competitive with organizations in early adopter countries like China and Germany. China, for example, is already halfway through an US$88 billion upgrade to its state electricity grid that will enable renewable energy transmission around the country—all managed and moved digitally, according to an article in The Economist magazine. And it is competing with the United States for leadership in self-driving vehicles, which will shift the transportation process and revenue streams heavily to digital, according to an article in Wired magazine.
Once China’s and Germany’s renewables and driverless infrastructures are in place, the only additional costs are management and maintenance. That could bring businesses in these countries dramatic cost savings over those that still rely on fossil fuels and nuclear energy to power their supply chains and logistics. “Once you pay the fixed costs of renewables, the marginal costs are near zero,” says Rifkin. “The sun and wind haven’t sent us invoices yet.”
In other words, zero marginal cost has become a zero-sum game.
To understand why that is, consider the major industrial revolutions in history, writes Rifkin in his books, The Zero Marginal Cost Society and The Third Industrial Revolution. The first major shift occurred in the 19th century when cheap, abundant coal provided an efficient new source of power (steam) for manufacturing and enabled the creation of a vast railway transportation network. Meanwhile, the telegraph gave the world near-instant communication over a globally connected network.
The second big change occurred at the beginning of the 20th century, when inexpensive oil began to displace coal and gave rise to a much more flexible new transportation network of cars and trucks. Telephones, radios, and televisions had a similar impact on communications.
Breaking Down the Walls Between Sectors
Now, according to Rifkin, we’re poised for the third big shift. The eye of the technology disruption hurricane has moved beyond communications and is heading toward—or as publishing and entertainment executives might warn, coming for—the rest of the economy. With its assemblage of global internet and cellular network connectivity and ever-smaller and more powerful sensors, the IoT, along with Big Data analytics and artificial intelligence, is breaking down the economic walls that have protected the energy and transportation sectors for the past 50 years.
Daimler is now among the first movers in transitioning into a digitalized mobility internet. The company has equipped nearly 400,000 of its trucks with external sensors, transforming the vehicles into mobile Big Data centers. The sensors are picking up real-time Big Data on weather conditions, traffic flows, and warehouse availability. Daimler plans to establish collaborations with thousands of companies, providing them with Big Data and analytics that can help dramatically increase their aggregate efficiency and productivity in shipping goods across their value chains. The Daimler trucks are autonomous and capable of establishing platoons of multiple trucks driving across highways.
It won’t be long before vehicles that navigate the more complex transportation infrastructures around the world begin to think for themselves. Autonomous vehicles will bring massive economic disruption to transportation and logistics thanks to new aggregate efficiencies. Without the cost of having a human at the wheel, autonomous cars could achieve a shared cost per mile below that of owned vehicles by as early as 2030, according to research from financial services company Morgan Stanley.
The transition is getting a push from governments pledging to give up their addiction to cars powered by combustion engines. Great Britain, France, India, and Norway are seeking to go all electric as early as 2025 and by 2040 at the latest.
The Final Piece of the Transition
Considering that automobiles account for 47% of petroleum consumption in the United States alone—more than twice the amount used for generators and heating for homes and businesses, according to the U.S. Energy Information Administration—Rifkin argues that the shift to autonomous electric vehicles could provide the momentum needed to upend the final pillar of the economic platform: energy. Though energy has gone through three major disruptions over the past 150 years, from coal to oil to natural gas—each causing massive teardowns and rebuilds of infrastructure—the underlying economic model has remained constant: highly concentrated and easily accessible fossil fuels and highly centralized, vertically integrated, and enormous (and enormously powerful) energy and utility companies.
Now, according to Rifkin, the “Third Industrial Revolution Internet of Things infrastructure” is on course to disrupt all of it. It’s neither centralized nor vertically integrated; instead, it’s distributed and networked. And that fits perfectly with the commercial evolution of two energy sources that, until the efficiencies of the IoT came along, made no sense for large-scale energy production: the sun and the wind.
But the IoT gives power utilities the means to harness these batches together and to account for variable energy flows. Sensors on solar panels and wind turbines, along with intelligent meters and a smart grid based on the internet, manage a new, two-way flow of energy to and from the grid.
Today, fossil fuel–based power plants need to kick in extra energy if insufficient energy is collected from the sun and wind. But industrial-strength batteries and hydrogen fuel cells are beginning to take their place by storing large reservoirs of reserve power for rainy or windless days. In addition, electric vehicles will be able to send some of their stored energy to the digitalized energy internet during peak use. Demand for ever-more efficient cell phone and vehicle batteries is helping push the evolution of batteries along, but batteries will need to get a lot better if renewables are to completely replace fossil fuel energy generation.
Meanwhile, silicon-based solar cells have not yet approached their limits of efficiency. They have their own version of computing’s Moore’s Law called Swanson’s Law. According to data from research company Bloomberg New Energy Finance (BNEF), Swanson’s Law means that for each doubling of global solar panel manufacturing capacity, the price falls by 28%, from $76 per watt in 1977 to $0.41 in 2016. (Wind power is on a similar plunging exponential cost curve, according to data from the U.S. Department of Energy.)
Thanks to the plummeting solar price, by 2028, the cost of building and operating new sun-based generation capacity will drop below the cost of running existing fossil power plants, according to BNEF. “One of the surprising things in this year’s forecast,” says Seb Henbest, lead author of BNEF’s annual long-term forecast, the New Energy Outlook, “is that the crossover points in the economics of new and old technologies are happening much sooner than we thought last year … and those were all happening a bit sooner than we thought the year before. There’s this sense that it’s not some distant risk or distant opportunity. A lot of these realities are rushing toward us.”
The conclusion, he says, is irrefutable. “We can see the data and when we map that forward with conservative assumptions, these technologies just get cheaper than everything else.”
The smart money, then—72% of total new power generation capacity investment worldwide by 2040—will go to renewable energy, according to BNEF. The firm’s research also suggests that there’s more room in Swanson’s Law along the way, with solar prices expected to drop another 66% by 2040.
Another factor could push the economic shift to renewables even faster. Just as computers transitioned from being strictly corporate infrastructure to becoming consumer products with the invention of the PC in the 1980s, ultimately causing a dramatic increase in corporate IT investments, energy generation has also made the transition to the consumer side.
Thanks to future tech media star Elon Musk, consumers can go to his Tesla Energy company website and order tempered glass solar panels that look like chic, designer versions of old-fashioned roof shingles. Models that look like slate or a curved, terracotta-colored, ceramic-style glass that will make roofs look like those of Tuscan country villas, are promised soon. Consumers can also buy a sleek-looking battery called a Powerwall to store energy from the roof.
The combination of solar panels, batteries, and smart meters transforms homeowners from passive consumers of energy into active producers and traders who can choose to take energy from the grid during off-peak hours, when some utilities offer discounts, and sell energy back to the grid during periods when prices are higher. And new blockchain applications promise to accelerate the shift to an energy market that is laterally integrated rather than vertically integrated as it is now. Consumers like their newfound sense of control, according to Henbest. “Energy’s never been an interesting consumer decision before and suddenly it is,” he says.
As the price of solar equipment continues to drop, homes, offices, and factories will become like nodes on a computer network. And if promising new solar cell technologies, such as organic polymers, small molecules, and inorganic compounds, supplant silicon, which is not nearly as efficient with sunlight as it is with ones and zeroes, solar receivers could become embedded into windows and building compounds. Solar production could move off the roof and become integrated into the external facades of homes and office buildings, making nearly every edifice in town a node.
The big question, of course, is how quickly those nodes will become linked together—if, say doubters, they become linked at all. As we learned from Metcalfe’s Law, the value of a network is proportional to its number of connected users.
The Will Determines the Way
Right now, the network is limited. Wind and solar account for just 5% of global energy production today, according to Bloomberg.
But, says Rifkin, technology exists that could enable the network to grow exponentially. We are seeing the beginnings of a digital energy network, which uses a combination of the IoT, Big Data, analytics, and artificial intelligence to manage distributed energy sources, such as solar and wind power from homes and businesses.
As nodes on this network, consumers and businesses could take a more active role in energy production, management, and efficiency, according to Rifkin. Utilities, in turn, could transition from simply transmitting power and maintaining power plants and lines to managing the flow to and from many different energy nodes; selling and maintaining smart home energy management products; and monitoring and maintaining solar panels and wind turbines. By analyzing energy use in the network, utilities could create algorithms that automatically smooth the flow of renewables. Consumers and businesses, meanwhile, would not have to worry about connecting their wind and solar assets to the grid and keeping them up and running; utilities could take on those tasks more efficiently.
Already in Germany, two utility companies, E.ON and RWE, have each split their businesses into legacy fossil and nuclear fuel companies and new services companies based on distributed generation from renewables, new technologies, and digitalization.
The reason is simple: it’s about survival. As fossil fuel generation winds down, the utilities need a new business model to make up for lost revenue. Due to Germany’s population density, “the utilities realize that they won’t ever have access to enough land to scale renewables themselves,” says Rifkin. “So they are starting service companies to link together all the different communities that are building solar and wind and are managing energy flows for them and for their customers, doing their analytics, and managing their Big Data. That’s how they will make more money while selling less energy in the future.”
The digital energy internet is already starting out in pockets and at different levels of intensity around the world, depending on a combination of citizen support, utility company investments, governmental power, and economic incentives.
China and some countries within the EU, such as Germany and France, are the most likely leaders in the transition toward a renewable, energy-based infrastructure because they have been able to align the government and private sectors in long-term energy planning. In the EU for example, wind has already overtaken coal as the second largest form of power capacity behind natural gas, according to an article in TheGuardian newspaper. Indeed, Rifkin has been working with China, the EU, and governments, communities, and utilities in Northern France, the Netherlands, and Luxembourg to begin building these new internets.
Hauts-de-France, a region that borders the English Channel and Belgium and has one of the highest poverty rates in France, enlisted Rifkin to develop a plan to lift it out of its downward spiral of shuttered factories and abandoned coal mines. In collaboration with a diverse group of CEOs, politicians, teachers, scientists, and others, it developed Rev3, a plan to put people to work building a renewable energy network, according to an article in Vice.
Today, more than 1,000 Rev3 projects are underway, encompassing everything from residential windmills made from local linen to a fully electric car–sharing system. Rev3 has received financial support from the European Investment Bank and a handful of private investment funds, and startups have benefited from crowdfunding mechanisms sponsored by Rev3. Today, 90% of new energy in the region is renewable and 1,500 new jobs have been created in the wind energy sector alone.
Meanwhile, thanks in part to generous government financial support, Germany is already producing 35% of its energy from renewables, according to an article in TheIndependent, and there is near unanimous citizen support (95%, according to a recent government poll) for its expansion.
If renewables are to move forward …, it must come from the ability to make green, not act green.
If renewable energy is to move forward in other areas of the world that don’t enjoy such strong economic and political support, however, it must come from the ability to make green, not act green.
Not everyone agrees that renewables will produce cost savings sufficient to cause widespread cost disruption anytime soon. A recent forecast by the U.S. Energy Information Administration predicts that in 2040, oil, natural gas, and coal will still be the planet’s major electricity producers, powering 77% of worldwide production, while renewables such as wind, solar, and biofuels will account for just 15%.
Skeptics also say that renewables’ complex management needs, combined with the need to store reserve power, will make them less economical than fossil fuels through at least 2035. “All advanced economies demand full-time electricity,” Benjamin Sporton, chief executive officer of the World Coal Association told Bloomberg. “Wind and solar can only generate part-time, intermittent electricity. While some renewable technologies have achieved significant cost reductions in recent years, it’s important to look at total system costs.”
On the other hand, there are many areas of the world where distributed, decentralized, renewable power generation already makes more sense than a centralized fossil fuel–powered grid. More than 20% of Indians in far flung areas of the country have no access to power today, according to an article in TheGuardian. Locally owned and managed solar and wind farms are the most economical way forward. The same is true in other developing countries, such as Afghanistan, where rugged terrain, war, and tribal territorialism make a centralized grid an easy target, and mountainous Costa Rica, where strong winds and rivers have pushed the country to near 100% renewable energy, according to TheGuardian.
The Light and the Darknet
Even if all the different IoT-enabled economic platforms become financially advantageous, there is another concern that could disrupt progress and potentially cause widespread disaster once the new platforms are up and running: hacking. Poorly secured IoT sensors have allowed hackers to take over everything from Wi-Fi enabled Barbie dolls to Jeep Cherokees, according to an article in Wired magazine.
Humans may be lousy drivers, but at least we can’t be hacked (yet). And while the grid may be prone to outages, it is tightly controlled, has few access points for hackers, and is physically separated from the Wild West of the internet.
If our transportation and energy networks join the fray, however, every sensor, from those in the steering system on vehicles to grid-connected toasters, becomes as vulnerable as a credit card number. Fake news and election hacking are bad enough, but what about fake drivers or fake energy? Now we’re talking dangerous disruptions and putting millions of people in harm’s way.
The only answer, according to Rifkin, is for businesses and governments to start taking the hacking threat much more seriously than they do today and to begin pouring money into research and technologies for making the internet less vulnerable. That means establishing “a fully distributed, redundant, and resilient digital infrastructure less vulnerable to the kind of disruptions experienced by Second Industrial Revolution–centralized communication systems and power grids that are increasingly subject to climate change, disasters, cybercrime, and cyberterrorism,” he says. “The ability of neighborhoods and communities to go off centralized grids during crises and re-aggregate in locally decentralized networks is the key to advancing societal security in the digital era,” he adds.
Start Looking Ahead
Until today, digital transformation has come mainly through the networking and communications efficiencies made possible by the internet. Airbnb thrives because web communications make it possible to create virtual trust markets that allow people to feel safe about swapping their most private spaces with one another.
But now these same efficiencies are coming to two other areas that have never been considered core to business strategy. That’s why businesses need to begin managing energy and transportation as key elements of their digital transformation portfolios.
Microsoft, for example, formed a senior energy team to develop an energy strategy to mitigate risk from fluctuating energy prices and increasing demands from customers to reduce carbon emissions, according to an article in Harvard Business Review. “Energy has become a C-suite issue,” Rob Bernard, Microsoft’s top environmental and sustainability executive told the magazine. “The CFO and president are now actively involved in our energy road map.”
As Daimler’s experience shows, driverless vehicles will push autonomous transportation and automated logistics up the strategic agenda within the next few years. Boston Consulting Group predicts that the driverless vehicle market will hit $42 billion by 2025. If that happens, it could have a lateral impact across many industries, from insurance to healthcare to the military.
Businesses must start planning now. “There’s always a period when businesses have to live in the new and the old worlds at the same time,” says Rifkin. “So businesses need to be considering new business models and structures now while continuing to operate their existing models.”
He worries that many businesses will be left behind if their communications, energy, and transportation infrastructures don’t evolve. Companies that still rely on fossil fuels for powering traditional transportation and logistics could be at a major competitive disadvantage to those that have moved to the new, IoT-based energy and transportation infrastructures.
Germany, for example, has set a target of 80% renewables for gross power consumption by 2050, according to TheIndependent. If the cost advantages of renewables bear out, German businesses, which are already the world’s third-largest exporters behind China and the United States, could have a major competitive advantage.
“How would a second industrial revolution society or country compete with one that has energy at zero marginal cost and driverless vehicles?” asks Rifkin. “It can’t be done.” D!
About the Authors
Maurizio Cattaneo is Director, Delivery Execution, Energy and Natural Resources, at SAP.
Joerg Ferchow is Senior Utilities Expert and Design Thinking Coach, Digital Transformation, at SAP.
Daniel Wellers is Digital Futures Lead, Global Marketing, at SAP.
Christopher Koch is Editorial Director, SAP Center for Business Insight, at SAP.
IDC Research just released its top ten 2018 predictions, outlining why every company must operate like a digital-native enterprise. Frank Gens, IDC senior vice president and chief analyst, shared an expansive to-do list for CEOs, line-of-business and IT organizations during a webinar entitled, “IDC FutureScape: Worldwide IT Industry 2018 Predictions.” His central message was that business is rapidly entering the Cloud 2.0 phase where public cloud is the best and increasingly only platform that every company’s ecosystem will use to hyper-connect industries for accelerated digital transformation journeys with technologies like AI, machine learning, IoT, augmented reality (AR), virtual reality (VR), and blockchain.
“Companies must re-architect operations around large-scale digital innovation networks, in effect becoming a new corporate species. We’re going to see a massive jump in the number of digital services and the pace of innovation. This is the ticking clock running inside the heads of CEOs in every industry, driving them quickly along digital transformation journeys,” said Gens. “Cloud everywhere for everything is what we’re likely to see over the next several years. Companies need to assess their cloud supplier’s ability to support an expanding range of use cases. If you’re not in the cloud, you’re isolated from innovation.”
These are IDC’s top ten 2018 IT predictions:
By 2021, at least 50 percent of global GDP will be digitized, with growth driven by digitally-enhanced offerings, operations and relationships. By 2020, investors will use platform/ecosystem, data value, and customer engagement metrics as valuation factors for all enterprises.
By 2020, 60 percent of all enterprises will have fully articulated an organization-wide digital transformation strategy, and will be in the process of implementing that strategy as the new IT core for competing in the digital economy.
By 2021, spend on cloud services and cloud enabling hardware, software and services doubles to over $530 billion, leveraging the diversifying cloud environment that is 20 percent at the edge, over 15 percent specialized compute, and over 90 percent multi-cloud.
By 2019, 40 percent of digital transformation initiatives will use AI services; by 2021, 75 percent of commercial enterprise apps will use AI, over 90 percent consumers interact with customer support bots, and over 50 percent of new industrial robots will leverage AI.
By 2021, enterprise apps will shift toward hyper-agile architectures, with 80 percent of application development on cloud platforms using microservices and functions, and over 95 percent of new microservices deployed in containers.
By 2020, human-digital (HD) interfaces will diversify, as 25 percent of field-service techs and over 25 percent of info-workers use AR, nearly 50 percent of new mobile apps use voice as a primary interface, and 50 percent of consumer-facing Global 2000 companies use biometric sensors to personalize experiences.
By 2021, at least 25 percent of Global 2000 companies will use blockchain services as a foundation for digital trust at scale; by 2020, 25 percent of top global transaction banks, nearly 30 percent manufacturers and retailers, and 20 percent of healthcare organizations will use blockchain networks in production.
By 2020, 90 percent of large enterprises will generate revenue from data-as-a-service, selling raw data, derived metrics, insights, and recommendations — up from nearly 50 percent in 2017.
Improvements in simple (“low-/no-code”) development tools will dramatically expand the number of non-tech developers over the next 36 months; by 2021, these non-traditional tech developers will build 20 percent of business applications and 30 percent new application features (60 percent by 2027).
By 2021, more than half of Global 2000 companies will see an average one-third of their digital services interactions come through their open API ecosystems, up from virtually zero percent in 2017, amplifying their digital reach far beyond own customer interactions.