Akansha – thank you for this interesting post! Especially the story about power-balance between drilling contractors and equipment manufacturers was interesting. I have become curious to know how the industry’s value chain is absorbing the impact of oil price fluctuation (who is bearing the risk, operators, drilling contractors, or equipment manufacturers?), and how margin is distributed compared with such risk distribution. If the risk which drilling contractors are taking is between fluctuating CapEx by operators and their own fixed cost, service contracts with manufacturers looks very attractive if we can negotiate to make the fee for service contracts not fixed but variable to its actual usage (so that drilling contractors could reduce our cost in line with the CapEx by operators). Competing with giant manufacturers in the field of data analytics by in-housing such function sounds like an extremely tough game for drilling contractors. Perhaps, a couple of drilling contractors could tie-up and acquire a data-analytics company through joint-venture; this is just a rough idea, but anyhow a very bold measure might be necessary for this industry to protect its value to be extracted by giant manufacturers.
Your post is interesting and really timely after learning Anglo American’s case at LEAD the other day! To me, automation sounds to be the way which we should pursue, considering its safe nature. I am optimistic about economics; ROI/Cost-Benefit hurdle could be overcome in near future especially because technology will generally become cheaper, while labor cost tends to increase. So, the toughest challenge seems to be how to deal with unions and employees. I feel a little bit pessimistic about converting employees from mining operators to more generalist roles, which would require a very different skill set. However, considering the moral as a manager and potential adverse impact on its relationship with relevant government/communities, the change needs to be very gradual (for example, by not employing as many as they have been doing, we could expect natural attrition to reduce headcount), and emphasis should always be on safety, not efficiency in any kind. This could be a difficult journey for Rio Tinto, but considering the potential impact on long-lasting nature of safety issue in natural resource industry, I hope Rio Tinto keeps going to this direction.
Thank you for this interesting post. In an industry, where the short-term pressure from shareholders tends to be strong and competition among players is harsh, it seems to be likely that replace-able function will be digitized in the near future. A little bit of build-on your last part: even if Goldman doesn’t lead the trend of digitization and replacement of jobs with computers, other firms will do so, putting enormous pressure on Goldman to follow as well. I guess that investment banking job which is threatened for replacement will be functions which do not involve much client-interface element in nature (such as prop trading and middle/back office jobs; for middle/back office job, as long as there is human-interface element within the company, such function will be more difficult to be digitized). Because of digitization, I suppose that financial services will become more communication-oriented, and client service-focused industry. Also, digitization strategy would require more cross-border collaboration within a company (i.e. technological innovation will be led by not only the HQ but emerging markets offices). For example, considering the potential impact of digitization, in the near future, more value could be created not in the US, but in India (in addition to the recruiting channel you mentioned in the post, it would be also interesting to see the change in employees’ location going forward). These changes will impose an additional, but yet exciting challenge on the management in this industry.
Andrew – thank you for this interesting post. I felt that your ending sentence “the challenge now is to convince utilities to unlock this potential” captures the reality very well. In Japan, it has been more than a couple of decades already since the last innovation occurred in meter industry. As far as I know, meter industry is protected by its “industry standard,” which essentially prohibits an innovative new product or a cheaper version of overseas product to come in. Also, utility companies are often incentivized to protect their employment by not introducing innovative meters which could make metering labor force unnecessary. I believe that in smart meter industry, US (with some European) companies are leading the world (e.g. Itron, Sensus). Although US itself will be a huge smart meter market, if we think about expanding globally, dealing with local politics such as above will be critical in many countries. Before coming to HBS, I met a country manager of Sensus in Tokyo, a Japanese, who told me that one of his most important tasks is relationship management with relevant governmental agencies. In this regard, your idea about having a utility consulting arm will be effective, especially when equipped with local professionals.
Eugeniu – thank you for this interesting post. Asia unfortunately has a lot of corruption, too. So, I believe there are many learnings from this Estonian example. I would like to pick up one topic I felt that I wanted to further learn – how Estonia implemented efficiently the transition from its old system to the new system where almost all interactions with the government to be done online. While I was working in Indonesia (FYI, ranked 88th, with 36 CPI in the same data set as yours), one of the governmental agencies (Indonesia Investment Coordinating Board: the window agency to deal with foreign direct investment) introduced e-application system where all applications need to be conducted online. I was glad about this movement because I believed such effort would decrease corruption since, as you say, computer couldn’t be bribed; however, what happened then was that the process without any face-to-face interaction made the process significantly inefficient because of misunderstanding from distant communications, time-consuming nature of exchanging information through online platform. Especially in Indonesia, sometimes laws/regulations contradicted each other, which made junior level staffs at the agency, who dealt with these online application, totally stuck. I talked with my legal adviser about this issue, hearing from them that many foreign companies were facing similar problems after e-application was introduced. I suppose that this kind of phenomenon would be observed in other emerging economies, too. So, I wonder how Estonia overcame this hurdle of digitization.
Thank you for this very interesting article. Reading your article, I came to have an impression that Nestle is one of the companies that care about water issues most. Its efficient water use at factories, I guess through reusing water by treating it through multiple steps using membranes, ozone and so forth, is remarkable. I guess zero-water-technology has been implemented in partnership with leading water players such as Veolia (http://www.veolia.com/en/veolia-group/media/news/water-stress-water-used-effluent-milk-nestle). I am curious whether it would be an interesting strategic option for Nestle to “internalize” water treatment division, rather than outsourcing to the third party. Some beverage companies in Japan have had their own water treatment division, which is as competitive as or sometimes more capable than third party water contractors. When I was working at a water engineering company, we proposed to outsource water treatment function (including assets and labor) to our company, but that potential client chose to keep this function in-house. Like this example, there are some companies which choose to have water treatment function internally, so learning more about Nestle’s strategy in this regard would be interesting!
This post is very, very interesting. It reminded me that once the “brown” IPP players start to involve financial investors as shareholders, such players face the shareholders’ expectation of the company to be a “brown” player, thus not to transform itself to a “green” player. From investors’ perspective, this argument is logical since diversification could be done not in a company level but investors’ portfolio level. This reality keeps me wondering how a “brown” player which wants to gradually shift to a “green” player could do so in a harmonious manner with shareholders. Totally separating business entities and having different shareholder bases could be an option. Operationally, a newly started “green” company would be benefited if it could enjoy business know-how accumulated in the “brown” company (although business risk/return etc will be different between brown and green, I believe there are elements in common too such as how to negotiate Power-Purchase-Agreement, related project contracts, etc.). Possibly, cost-center entity could be setup to work for indirect function of these two companies (brown and green co). HR strategy could also be considered on cross-companies basis. These measures could make it possible to create the structure where shareholder bases are sufficiently separated, but two companies are more or less integrated in terms of business operational aspects. This topic is worth further exploring. Thanks again for this invaluable post!!
Bruna, this article gave me a tremendous learning about waste management industry in the US. In Japan, methane-fermentation power generation became popular among local municipalities just a few years ago. However, the business model there has been heavily relying on subsidy from the central government. As you know, establishing power generator incurs investment, which is to be recouped through sale of power to the customer. Problem lies in that efficiency of power generation from methane-fermentation was often too low to stand economically viable by itself (in this regard, I am curious how the business model is economically viable in the US; combining recycle as an additional business was an interesting idea). Having said that, I have witnessed tons of demand for methane-fermentation not only in my country but in many other Asian countries (such as Indonesia, Philippines, Thailand, Singapore) when I was engaged in sales activity in environmental products there. So especially with further technological improvement, I am optimistic that this business model will become more and more popular in emerging economies too in the coming years.
Francisco, this article was interesting to me because the challenge which Colbun is facing now, which I understood includes the challenge in conducting a gradual shift of power plant portfolio to more renewables, is quite similar to the challenge which Japanese power producers are facing (which I wrote an article about). I am curious to know how Colbun is implementing this change. For example, are they using same investment evaluation methodology between fossil fuel power plant and renewables? Organizationally, how are they evaluating the performance of employees working at (perhaps) less profitable renewables division? Also, the strategy of Colbun seemed to be interesting; you mentioned in the post that Colbun is acquiring wind farm and solar power plant. Is the strategy of Colbun entering to renewable market by acquiring brown-field assets, with a long-term aim to take more development risk of the projects (i.e. green-field projects)? If so, in terms of the time horizon, how long do they envisage in implementing such strategy? I have witnessed some Japanese firms which managed to justify lower-risk/lower-return brown-field strategy as a tool to enter the new market; however, they got trapped there and still cannot move to higher-risk/higher-return green-field space.
Your suggestion of retaining / replanting other rain forest trees sounds innovative. I like this idea because it will be intuitively less complicated to understand, potentially helping earning buy-in from a broad range of producers (in reality, intuition could work as a stronger persuader than logic). Also, you raised an important point: the changes in climate sustainability are expected to happen in a long period of time. I believe that this nature creates a leadership challenge – how to keep stakeholders motivated and delivering the results when there is relatively low time pressure. Especially because Mars will, at a certain point, face a decision of involving raw material producers (whom I assume are a large number of stakeholders) to tackle with the large chunk of emission, making organizational momentum regarding this topic “sustainable” would be essential for Mars to keep leading the industry for sustainability issues.
It is interesting to know that BHP is conducting sensitivity analysis under different climate change scenarios to prepare for climate change as an external factor. Such preparation as upgrading technologies would incur investment but I assume doing cost-benefit analysis wouldn’t be too complicated; perhaps decision-making could be done based on quantitative rationale. On the other hand, I guess that investment in REDD+ or Great Barrier Reef, for instance, would require a different methodology of justification since “return” from these investments would not appear as clear. Organizations which I witnessed in the past frequently struggled at this point: how to measure and screen investment opportunities which have less clear financial impact but could potentially generate significant sustainability benefit. I wondered how the world’s leading company like BHP is making decisions in these areas.
Your viewpoint to link Tsunami and Tokyo Olympic to Tokyo’s motivation toward sustainability is unique and interesting. In fact, residents like me in areas which had been provided nuclear power needed to save energy so that we could avoid facing electricity shortage in (very humid) coming summer. I remember that both central and local governments utilized “earned” media effectively – every day we were warned by TV media about the potential electricity shortage, which generated strong public buy-in to sacrifice some convenience in daily lives to save energy. One aspect which would be interesting to keep eye on toward the Olympic is the leadership of current Tokyo mayor (Ms. Yuriko Koike). She is the person who led the most influential change in Japanese sustainability scene – “cool biz”, which allows office workers not to wear jacket / tie. Organizations which adopt cool biz policy set their air conditioner (AC) temperature at 82.4 F (or 28.0 C) to save energy. If Koike can reproduce her leadership success in the area of sustainability, as she did for cool biz 10 years ago, for the Olympic 2020, Tokyo could contribute to the rest of world by being “A Model Sustainable City” (your post title).