The New Efficiency: Sustainability + Tech = Profitability
The New Efficiency: Sustainability + Tech = Profitability
Industry Week April 2022
By W. David Stephenson
The key to major reductions in global warming may lie in a simple, profitable, two—prong industrial strategy.
1. Abandon the worn-out Industrial Age paradigm that reducing environmental impacts is a barrier to profits. Instead, we must realize that reducing environmental impacts is in fact the secret to higher profits.
2. Accelerate companies’ adoption of cutting-edge, transformative technologies such as IoT, 3D printing and nanotech—innovations they already beginning to buy because they cut costs and improve profits and also have major environmental benefits
Let’s hope so, because the environmental situation is more catastrophic than ever and demands dramatic corporate action now.
If the UN’s dire warning that we face “Code Red” conditions on global warming wasn’t enough—or the follow-up report warning that at the current emissions rates, the 2030 goal of keeping warming to 2.7 degrees F will be unattainable—most companies are probably encountering the effects directly. These direct effects include the collapse of the Texas power grid, labor shortages and supply-chain disruption due to increasing wildfires and the devastating flooding in New York City due to Superstorm Sandy.
However, aside from a few leaders, I haven’t seen much evidence of substantive action 0n global warming from manufacturers to show that sustainability (a term that goes beyond reducing environmental impacts to include economic and social factors) is now a top corporate priority. In fact, a late 2021 survey by specialty insurer Beazley showed that environmental issues were last among concerns of 1,000 U.S. and U.K. business leaders—and predicted to be even less of a concern this year because of the effects of the Ukraine War. Ceres’ Change the Conversation report cites an Accenture CEO Survey showing that more than 40% of CEOs could not accurately quantify the business value of their sustainability initiatives.
The New Efficiency
So what will it take to get the majority of manufacturers to make reducing environmental impacts a key strategic consideration?
I suspect that dealing with leftover hostility to the early years of environmental regulation, which tended to be prescriptive and therefore were a barrier to innovation, is one factor. A 2014 McKinsey report on sustainable business practices came to the same conclusion: “It’s a perception issue,” one executive [said] “We need to show that it makes good business sense to get over the hurdle.”
I believe this perception issue boils down to a simple fact that we seem to have forgotten: waste equals inefficiency. (What profit-focused CEO could tolerate systemic inefficiency?). I call the needed paradigm shift “The New Efficiency,” and its simultaneous economic and environmental benefits result from a wide range of cutting-edge technologies bringing about previously unthinkable precision. Frequently, several of these technologies are implemented simultaneously, increasing the benefits.
For businesses, the benefits include:
Increased efficiency, stemming from factors such as less need to extract raw materials because of more targeted extraction processes and transport them for long distances
Less assembly-line inefficiency and down-time due to automatic adjustments and “predictive maintenance” made possible by real-time data on processes’ status
Products’ greater dependability and optimum performance once they’re in the field
Significant product refinements based on objective knowledge of products’ performance (or lack thereof).
For the environment: the benefits are equally important but were hard to quantify in the past due to imprecise monitoring:
Less waste because of reduced mining, lower use of fossil fuels, decreased use of water, more use of recycled materials instead of disposing of them
Dematerializing of some products that can now be replaced by services.
Politician turned eco-entrepreneur Al Gore makes the point about the New Efficiency’s benefits most forcefully:
“The sustainability revolution is the single biggest business opportunity in the history of the world. It has the scale of the industrial revolution coupled with the speed of the digital revolution … we have to seize this opportunity.”
The best argument for this attitudinal shift was made in a 2014 report by McKinsey, the global consulting firm. The report included an extensive review of the literature on profitable sustainability, plus interviews with the CEOs of 40 corporations in a variety of sectors that had outperformed their industry average across both financial and sustainability-performance metrics. It concluded that “Sustainability programs are not only strongly correlated with good financial performance but also play a role in creating it.”
Julie Sweet, CEO of Accenture, cites research that companies making sustainability part of their strategy are 2.5 more successful than those who have not.
IoT: Real-Time Data Changes Everything
So how can emerging technologies—combined with the New Efficiency perspective—simultaneously improve the bottom line and the environment?
The IoT is perhaps the best example, both in its own right and because of a critical additional benefit: IoT-connected sensors allow companies—for the first time—to measure their costs and consumption on a real-time basis and then automatically adjust processes to optimize precision and eliminate waste.
In the past, absence of that real-time data always left regulating processes as speculative. Equally important from an environmental standpoint, with countries increasingly adopting specific quantitative goals to reduce global warming, it is likely that government agencies will mandate specific emissions reductions in the near future. Quantifiable, specific reductions, not approximate improvements, will be a requirement.
Nowhere are the IoT’s dual economic and environmental benefits more dramatic than on the biggest environmental need: reducing fossil fuel use, which accounts for 65% of all CO2 emissions.
Digiteum, a custom software development company that designs and develops digital systems for SMB and enterprise clients, summarizes the case neatly in its publication, “10 Benefits of Smart Energy Management Using IoT.”
The economic benefits begin with the obvious, even more important given the current energy price surge because of the Ukraine war: reduced energy costs. According to the report, the industrial sector accounts for 54% of global electricity usage. “Smart metering, real-time power usage monitoring and data-driven predictions help everyone in the supply chain better control spending and investment and eliminate waste.”
Energy-monitoring sensors placed on motors and HVAC systems can
According to the Digiteum report, “the industrial sector is one of the highest energy users, accounting for 54% of global delivered electricity. Smart metering, real-time power usage monitoring and data-driven predictions can predict energy demands and optimize future energy consumption. Motors and Heating, Ventilation and Air Conditioning (HVAC) systems, for instance, are major sources of energy usage:
“When the sensors are placed onto each of these machines it will be able to identify when and where you are losing energy,” the report states. “Continuously monitoring energy output will allow a business to determine when power should be on and operating and when they can potentially power down and conserve energy. For example, excess heat is just one indicator of wastage. If a machine is operating at a higher temperature than the optimal baseline, it can be rectified immediately before excessive energy wastage occurs. In addition, the excess heat can also be an indicator to a fault within one of the machines and means maintenance can be conducted before the machine breaks down.
Another example of IoT-monitoring producing both economic and environmental benefits is in district steam systems. There are more than 50,000 in the U.S. alone, accounting for nearly 15% of the nation’s energy usage. Embedded Energy Technology (EET) uses PTC’s ThinkWorks to radically reduce the systems’ energy use through removable pipe insulating jackets that are installed with sensors that measure four temperatures. The sensors boost EET’s sales by proving their claims of savings, while also reducing energy use.
Another ThingWorks application allowed Carlsberg, the Danish beer giant, to cut equipment downtime at 28 breweries through predictive maintenance, which alerts them to possible equipment failure in the earliest stages through sensor data, so it can be serviced quickly and cheaply. At the same time “ThingWorks helps Carling meet its environmental goals, by reducing the amount of waste generated, which translates into lower carbon emissions and higher sustainability.” The system allows production managers both on the plant and corporate levels to analyze operations on a near-real-time basis, a key tool to increasing efficiency.
Jet engines are another leading fossil fuel consumer and emissions source, accounting for 3-4% of US emissions. Airbus claims that its IoT-based smart meters can reduce energy consumption by up to 20%.
We Can’t Afford to Wait — and Why Should We?
I can’t emphasize it enough: we find ourselves in a life-altering environmental disaster in large part because the Industrial Revolution has been built on brute force, using unsustainable amounts of raw materials and fossil fuels. Saving ourselves and the planet will require a drastic shift both in technology and attitudes toward this “New Efficiency,” in which we will simultaneously build profits and reduce our global impact by previously impossible precision in every aspect of production and distribution. We don’t have a minute to lose, and why should we, if technology such as the IoT can reduce costs and environmental impacts?
W. David Stephenson s CEO of Stephenson Strategies (Millis, Mass.), a consultancy specializing in applying the Internet of Things (IoT) to sustainability and creative approaches to aging. An IoT thought leader, he wrote The Future Is Smart (HarperCollins), one of the first guides to IoT strategy.