Navigant Research Blog

Where Is the Growth in the Buildings Market?

— June 14, 2018

Compared to many new technology markets, buildings technology can be boring, stuffy, and slow. After all, construction is a mature market that just barely outperforms overall economic expansion (see chart below). Buildings are long-lived assets, designed to be built over years and last over decades. Moreover, for most of the world, the amount of space needed in the built environment is stagnant. Buildings can be viewed as a mature, slow-growth market, and that poses a problem for the industry. Shareholders care about two things: growth and cash. In a market without growth, only returning cash will keep them happy.

Value of Construction Put in Place, Real GDP, and Population, US: 2002-2017

(Source: Navigant Research)

Indeed, many of the incumbent giants in buildings technology are caught in this dichotomy. United Technologies, owner of Carrier air conditioner and Otis elevator businesses, is under pressure from Activist investor Dan Loeb to split into three standalone business: elevators, air conditioners, and aerospace. Similarly, John Flannery, chief executive with General Electric (GE), announced that any GE asset could be spun off into independent entities. The conglomerate has already sold parts of its overseas lighting business and is shopping around the remaining pieces of GE Lighting and Current. The message from investors is clear: sell slow-growth business and focus on core assets.

Follow the Growth

There is still opportunity in a mature market, however. The first for-hire coach service was 400 years ago, yet Uber created a new market in this context. Retail is even older, yet Amazon erupted into the second most valuable company in the world over a short 2.5 decades. Technology can unlock growth potential in mature markets, even in buildings. In Navigant Research’s recent report, Intelligent Buildings Market Overview, a global compound annual growth rate of 18.1% was forecast over the next decade. If more buildings are not being built, where is this growth coming from?

The short answer is digital transformation. The IT infrastructure, data, and analytics that are redefining building operations are creating new value. But they are also removing the need for existing technology. As Internet of Things permeates buildings technology, the functionality previously performed by dedicated hardware will be performed in the cloud by software.

Several building incumbents are charging full-steam into this transition, aspiring to capture the technology growth in this mature market.

 

Make Sure You Have a Strategy before Asking Whether You Need a CDO

— March 1, 2018

Before recruiting high level staff to drive digital transformation, it is worth remembering that staff alone—regardless of their skills—are not a guarantee of success. Digitization is an enabler for business transformation. Business transformation requires a solid strategy roadmap backed by C-suite executives.

Late last year, Strategy+Business published an article that asked whether utilities need a chief digital officer (CDO). It discussed how the industry is undergoing a rapid transition that is underpinned by the digitization of previously analogue processes. The value of a utility’s enterprise data is soaring. Data is central to the energy transition. All the new business models currently being discussed—such as smart EV charging, automated demand response, advanced distribution management, and many more—rely on connected devices spitting out ever-increasing volumes of data. Data is also central to the efforts to improve the efficiency of business processes across the entire value chain. The old maxim “you can’t manage what you can’t monitor” still rings true.

Are CIOs Poorly Suited for Digital Innovation?

Strategy+Business correctly discussed how the traditional CIO role is unsuited to adopt the mantle of a CDO. CIOs have historically been in charge of large-scale IT deployments and an organization’s digital transformation can often be, somewhat naively, regarded as a simple extension to a CIO’s current job description. However, digitization is far from a standard IT project.

Digitization is the fundamental enabler of strategic change. It dramatically changes a utility’s go-to-market and relies on the convergence of business units with IT. Unfortunately, CIOs can be too heavily invested in the old ways of doing things. In my experience, a CIO’s intransigence is one of the most often cited barriers to analytics and digitization projects. The article states, “The reality is that leading digitization will require an executive—regardless of the title he or she holds—with skills and roles that depart from those of the CIO.” It goes on to list a bunch of skills that set a CDO apart from CIOs.

Job Descriptions Are All Well and Good; Just Don’t Forget the Underlying Strategy

While there is no arguing with the piece’s sentiment, I believe that the article missed the most fundamental requirement: the need for an enterprisewide analytics strategy. I am not alone in writing extensively on the gaping chasm between the executive board’s proclamations regarding a digitization strategy, and what is being done on the shop floor to effect the digital transformation. Teradata’s David Socha’s blog from 2017 is another great resource.

A CDO is a pivotal role within a company’s digitization, bringing skills—Strategy+Business lists skills including strategic thought, experience of transformation, execution, and experience with data—that many CIOs will lack. However, these will come to naught if there is no CEO-backed, companywide strategy that drives the digitization project. Who leads the digital transformation is a side issue. No one will lead it if they lack the ammunition to effect change.

Enterprisewide Strategy Must Define a Utility’s Digitization

Utilities first and foremost need a plan to guide themselves through the digital transformation. Digitization is just an enabler for wider strategic objectives. Therefore, utility executives must identify the products and services they could (not should or will) deliver in the future. They must then identify what technologies will be required to support these services, how these services will evolve over time, and the changing requirements in underlying technology.

These strategic goals will help define the roadmap that a CDO—or anyone else, for that matter—will implement. Simply recruiting someone with an impressive CV backed up with vague pronouncements from on high will take a company exactly nowhere.

 

Utilities Will Rely on Vendor Ecosystems to Support the Energy Transition

— November 10, 2017

Until recently, I often introduced presentations or blog posts with a warning that the utility industry was about to enter the most disruptive decade in its century-long existence. That is no longer true, because I believe the industry has now entered that decade. Okay, the timing for different countries may vary, as will the length of the period of disruption. In fact, some countries—Germany and Denmark in particular—have experienced significant disruption already. But for most markets, the rumblings, threats, omens, and rumors have only recently turned into action.

Navigant Research has a significant volume of commentary on future energy markets, all based around its concept of the Energy Cloud—where energy becomes more distributed, clean, intelligent, and mobile. The old business model of centralized generation will shift to a decentralized, customer-centric value chain, where energy services become far more important than energy supply. Navigant Research also identified an additional $1 trillion of new value created in the Energy Cloud by 2030.

There Will Be No Energy Transition without a Digital Transformation

It is important to note that the energy transition is as much a digital revolution as it is an energy revolution. The $1 trillion of new value identified by Navigant Research will likely be created through the provision of digital energy services, from automated demand response to transactive energy. None of this value will be delivered without access to vast quantities of data from an enormous and heterogeneous array of devices. None of this value can be delivered without a robust IT infrastructure to support digital energy services.

As part of thought leadership, Navigant Research has identified seven platforms that are critical to the delivery of digital services within the Energy Cloud. Additional white papers are on the roadmap to discuss these platforms in further detail. Next up is a white paper on the neural grid platform, which describes—among other things—the devices, communications, and analytics that will underpin all other digital services in the Energy Cloud.

Vendor Ecosystems Will Help Manage the Complexity of the Energy Cloud

Navigant Research’s upcoming Neural Grid white paper will shine a light on the sheer complexity of the IT infrastructure required. There will not be any plug and play platform for the foreseeable future. The market is new, moving rapidly, and different utilities have different requirements. As a result, over the next decades individual utilities will deploy many platforms that rely on many datasets created by many devices communicated over many networks using many protocols stored in many locations supplied by many, many different vendors.

It is critical for the success of the Energy Cloud that vendors cooperate within official and unofficial partnerships and work toward their customers’ common goals. Join us on November 14 at 2:00 p.m. EST for an Intel-sponsored Navigant Research webinar. We’ll explore in more detail how the energy transition and associated digital transformation requires strong vendor ecosystems and gain some insights from Intel, which sits at the heart of one of the largest smart grid ecosystems.

 

IoT Gains Ground among Corporate Executives

— September 28, 2017

Recent studies point to growing acceptance of Internet of Things (IoT) technologies among businesses. These studies provide more evidence that the concept has moved beyond hype and into a gray area of early stage acceptance, experimentation, and uncertainty.

Verizon’s latest report on the topic finds 73% of executive survey respondents are either deploying IoT solutions or researching the technology. The report also highlights compelling economics, citing that among business-to-business applications, there is the possibility to generate nearly 70% of the potential value enabled by IoT technologies.

Another study from enterprise software vendor IFS found that 30% of respondents from industrial companies say they use IoT data to support field service management, while 16% say their firms use IoT data in enterprise resource planning software. While this response did not come from the majority of respondents, the data shows a significant level of early adoption. The study also suggests the effects of IoT are likely to be greater in the industrial sector than among consumer products and services. And I concur; the drive to cut costs, improve operational efficiencies, and seek tangible ROI is more compelling among businesses. Consumers care about such things to be sure, but they seldom act with the same verve as corporations.

SAP had a similar study earlier this year that found 3% of corporate executive respondents saying their companies had completed companywide digital transformation projects, many of which involved IoT technologies. This is still a low level of adoption in view of previous industry expectations. Nonetheless, 55% of the same respondents say their firms are conducting pilot programs, which is a positive sign.

Case Studies Proving Necessary

What is lacking in the marketplace for IoT, or industrial IoT (IIoT), is a persuasive set of case studies that show how a company can move from where it is pre-IoT to a valuable deployment involving the latest tools. Business leaders tend to be skeptical about new technology and want to make sure the benefits are clear before moving ahead, especially with the complexities and new costs involved in IIoT projects. There are examples of companies making strides in this direction. One is Alpiq, a leading Swiss utility, which has adopted an IoT data strategy to transform its operations and now expects to see lower total costs. But more examples across many industrial sectors are needed before one can say the trend has truly taken hold. Until then, we shall be in an uncertain period as many firms test the waters and gradually learn what works best. Once more of the leaders set the stage, others will follow.

 

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