Comment

How to Invent Old Technologies

Player Piano at the  Musee Mecanique  in San Francisco

Player Piano at the Musee Mecanique in San Francisco

We innately understand that our society has benefited from readily available energy. What we seem to have forgotten is whether energy is actually needed to achieve a specific societal benefit. We should clearly define the outcome then build the best energy system to deliver that benefit.

Once I was approached by an entrepreneur with a great idea. She was trying to convince a large manufacturer of consumer products to change the way they sold liquid detergent. Rather than selling a new container each time, she wanted them to sell a reusable container that the consumer could refill with the liquid. Her financial model predicted many millions of dollars in savings with reduced consumption of plastics. She was very excited by her new business model and the large consumer product company was interested in her idea.

I thought this was a great idea too and that, if successful, it could have a large and meaningful impact. What struck me was that it is, in fact, a very old idea. Before the advent of cheap plastic buckets, say 200 years ago, it was very standard to bring one’s own containers to a store and buy goods in bulk. Without realizing it, she was advocating for an old consumer behavior as if it was new.

Here is a good rule of thumb: if a new technology promotes a common behavior from 200 years ago then it will probably result in reduced energy consumption. Energy consumption rises when a new technology fundamentally depends on readily available energy in order to function.

Comment

Comment

Filling the Energy Vacuum

Leadership.jpg

Climate has been in the news recently with the announcement of the United States’ withdrawal from the Paris Treaty. Although the Trump administration has opted to forego leadership on the climate issue, there are signs for optimism.

Business executives can and are seizing the opportunity to show leadership in this confusing and uncertain time. It’s not only for the common good, it just makes good financial sense.

Problem & Opportunity

Nearly 30% of all energy consumed in the USA is wasted. That’s $50 billion a year in the commercial sector alone—every single year. That is:

  • $50 billion lost in value creation

  • $50 billion less in cash flow

  • $50 billion removed from shareholders

Eliminating this waste is equivalent to:

  • Reducing carbon output to 1997 levels

  • Removing 22 million cars from the roads

  • Planting 618 million trees, an area the size of Yosemite National Park

My passion is to help small and medium-sized companies identify and eliminate wasted expenditures. In 2016, my team helped CFOs and COOs reduce utility consumption by 11% across our portfolio. This revealed hidden pockets of waste across the organization, unveiling operational risks and vulnerabilities previously unknown. Our clients stepped up their efforts to root out waste and led to our development of decision-support strategies that not only reduce costs but also improve profitability, mitigate risk, and increase operational resiliency.

Investors and big businesses have been attuned to environmental, social, and governance (ESG) issues for many years. Investors have realized that corporate investments in ESG is a leading indicator of good governance and value creation. There are over $8.1 trillion in assets under management that utilize ESG factors, a threefold increase since 2010. Microsoft, Apple, and a host of large companies have achieved (or committed to) sourcing 100% renewable energy. The supply chain is listening: consumers are demanding low-carbon products and producers are vying for a bigger piece of the pie.

What You Can Do

Experience is a wise teacher. De-carbonizing a business reduces costs, mitigates long-term risk, improves productivity, and creates long-term value. In treating energy as a strategic asset, executives better control the allocation and usage of their resources to support organizational goals. Here are four of the best practices we’ve observed from our clients:

  1. Quantify utility line-items: Include all monthly bills (electric, water, trash, etc.) and projected capital costs (capital reserve funds, retrofits, maintenance, etc.). This represents the capital allocation between consuming resources and capital investments. This line-item typically ranges between 3-10% of a company’s operating expenses.

  2. Centralize leadership, responsibility, and accountability for the utility line-item: Reducing the utility line-item requires a committed leader with the budget, time, and authority to make changes. This leadership capacity can be tapped or developed in a variety of corporate roles, from the Executive Director to the COO, SVP, Board Chair, or a host of other leaders within the company.

  3. Mobilize company-wide tiger teams for ideation and implementation: Energy-saving ideas are much more than just a better lightbulb or a more efficient heater – it’s a mindset. Something as trivial as a plate of cookies to remind staff to turn off the lights saves money. Checking thermostat set-points, strategically placing recycling bins, and making sure that hauling away a half-full dumpster is priced less than hauling a full one are examples of simple, no-cost and money-saving initiatives.

  4. Instill a culture of continuous improvement: Savings can compound year-over-year. One best practice is to create a revolving fund that allows leaders to invest achieved savings into projects. This has two main benefits:  first, the company improves their capital allocation by shifting utility payments to equipment investments, and second, the savings are invested into projects identified by staff, incentivizing them to identify more opportunities.

We all have a responsibility to eliminate wasted energy. Since the withdrawal from the treaty, cities, states, universities, and businesses have announced their continued commitment to climate leadership. Companies should lead by setting an example of practices and behaviors. Whether a business has invested heavily in de-carbonization and is down to less than 10% waste or whether the recent news is inspiring action for the first time, demonstrate leadership by doing what’s best for the environment and for the company.

Here’s a challenge:  take your 2016 utility bill and multiply that by 30%. That’s your opportunity cost to creating value for your business AND lowering your carbon footprint.

What’s preventing you from committing to eliminating energy waste today?

Comment

The Business of Planting Trees

Comment

The Business of Planting Trees

IMG_6686.JPG

A business sustains its operations by making money. Revenues must be greater than expenses, and a successful business is able to repeat this year over year. To do so, they must manage risks to both sustain and grow revenue while controlling and lowering expenses. Businesses manage revenue-side risks by erecting competitive barriers to entry, investing in marketing and training a sales force. They manage expense-side risks by creating rules around fiscal discipline, developing risk-management policies and buying business continuity insurance.

An ecosystem sustains itself with a constant influx of resources. Moss needs moist soil and fallen biomass to grow, herbivores need a steady supply of fauna to forage and omnivores need a large supply of prey for the hunt. Large ecosystems have also learned to manage the risks of natural disasters and biology has developed innovative means to ensure resiliency. Wildfires in redwood forests clear out low-level brush, removing resource competition for the more mature trees. Monarch butterflies poison the birds that eat them, protecting themselves from harm. Fish swim in schools to confuse their prey.

A sustainable business is therefore the logical merger of these two concepts. It is a business that makes money while giving back to the environment more than it takes away. This might seem strange but the concept is, in fact, many hundreds of years old. The medieval colleges of Oxford and Cambridge built their buildings out of stone and trimmed the inside of the rooms with wood. The architects immediately realized they faced a sustainability risk. The stone walls would last for many centuries but wood trims had a lifespan of a mere 150 years. To solve this issue, the colleges bought land and planted forests. By the time the trees matured, the wood within the colleges would be in need of replacing and new trees would be planted, continuing the cycle.

Some of the challenges we face today exist because the risks faced by the environment do not match the deliverable-driven risks of the business world. After all, the environment works on a generational timescale while business care about hitting next quarter’s targets. But if businesses planned for longer cycles, they would be better matched to environmental needs as well. There are several century-old companies that plan many decades into the future, and it is no surprise that each of their plans calls for planting trees today. Perhaps if all businesses operated on a 50-year plan, they’d all be planting trees too.

Comment

Comment

Energy and the Perception of Time

Marine Chronometer in the Science Museum, London

Marine Chronometer in the Science Museum, London

Strange as it might sound, the evolution of energy has greatly affected our perception of time. Transportation technologies improved with bigger and stronger means of propulsion meant we traveled faster. The faster we traveled, the need to measure time accurately increased. Many time-keeping technologies were developed to better quantify the passage of time during trips. Along with more accurate clocks came more advanced things we could do.

In the middle ages, the passage of time was measured by seasons. Clocks took advantage of the regularity of a swinging pendulum to measure the passage of time. However, a swinging pendulum did not work on ships, as the rocking motion of the ocean would disrupt the motion. Christopher Columbus sailed the Atlantic Ocean using a 30-minute long hourglass. The cabin boy’s duties included watching the glass and reversing it every 30 minutes for the entire duration of the trip.

The invention of the spring-powered clock revolutionized maritime travel. Ships could know exactly how long they have traveled and their onboard clock would be synched with both the departure and arrival port. Ports would know if a ship was on-time or late. With better timekeeping, the ship trade blossomed.

The arrival of the railroad made the accuracy of clocks even more pressing. Passengers needed accurate clocks (pocket watches) to let them know when a train would leave. Likewise, train stations across the UK had to be synchronized so that train departures and arrivals could be standardized. It was during this era that Greenwich became the global standard of time.

The global network of GPS satellites all carry highly accurate atomic clocks. They work by recording the time elapsed between pings and triangulating positions. Since the GPS satellites are in orbit, the satellites need to know how far they’ve traveled in order to calculate how far a person has traveled. This requires highly accurate atomic clocks that even take into account Einstein’s theory of relativity. That’s quite a bit of advanced physics just so your smartphone knows where you are!

Comment