deal architect

Burning Platform: Global Grand Challenges

In the 33rd episode of the series is Jyoti Banerjee, co-founder of North Star Transition.

I first met Jyoti a quarter of a century ago and have always known him for focusing on better corporate reporting and finance. He has been globally influential in the Integrated Reporting movement. More importantly, he has also been an "impact investor" for two decades in various greentech/cleantech initiatives around the world. I heard him present on his work on the Wales Transition Lab and invited him to be part of this series. I like the systemic thinking he is bringing there by involving farmers, insurance companies, public health, environmental and other government agencies.

As background, in The New Polymath, I had written about the globe's "Grand Challenges". I have been frustrated at the progress over the last decade. Jyoti is similarly frustrated at how little progress we are making on the environment and other sustainable goals. My view of systemic thinking, however, is slightly different than his. As some of you know I have developed my "multiple locomotive" model from my travels to over 70 countries. In my view the biggest, most affluent countries need to all step up to power the global "freight train" when it comes to the environment, trade, immigration, policing of hot spots and many other challenges. It has been easy to expect the US and couple of other countries to carry most of the burden.

You can see both our points of view come out in the episode. I tell him he is expecting too much from corporations in the Western world when we should also be calling out China, India, Russia, Germany, Japan and many other countries. Why continue to criticize the US whose emissions have been going down for the last decade and not challenge China which is now the world's biggest polluter and just accept their 2060 Net Zero emissions horizon? If things are really dire, we cannot be giving concessions to India, Russia, China and others to continue to use coal. Offline, I told him after more than a decade EVs still have only 3% global market share. Part of the reason - even with 25% lighter bill of materials, EVs are priced 50% or more than internal combustion vehicles. In most countries, the utilities that power EV batteries still largely run coal and fossil fueled plants. Solar and wind are still not that competitive in spite of massive subsidies. In some ways, that makes your EV dirtier than your Humvee. We should have the courage to call out ALL the slackers.

Definitely watch starting at 14.00 what he describes of his work in Wales and what he describes around the systemic work in Finland around cardiac health  But please watch the whole episode. You may not agree with everything Jyoti or I say, but it will hopefully make you challenge simplistic mainstream, woke thinking and get impatient like the both of us with ALL the slackers.

 

New Normal: A conversation with Stephany Lapierre of TealBook

I have been doing video interviews with a number of C-level execs and practitioners about acrobatics they have been seeing in various vertical sectors during the COVID-19 crisis and the "New normal" they can expect as the economy wakes up. Here is the index to the growing list of interviews. 

This time it is Stephany Lapierre, Founder and CEO of TealBook. The Toronto based company is helping companies with what they call "Universal Supplier Profiles". Traditionally procurement has mostly relied on portals to collect information directly from suppliers and that gets stale quickly. With TealBook, the data layer is constantly maintained through AI and machine learning (harvesting data from 400 million websites), so customers don't have to spend so much time maintaining their data, relying mostly on supplier-provided data or searching for new vendors via their own web searches.

Matt Palackdharry, VP of Strategy had presented here in the Analyst Cam series about Discovery, Diversity, Sustainability and other use cases they help many of the Fortune 100 customers and many other organizations with.

Stephany has many examples of heroics. In the first few weeks of the pandemic she describes how the UK government, desperate for PPE supplies and looking for choices beyond China, leveraged TealBook for information on 60,000 ISO certified PPE makers. She describes 170 other requests in the first 3 weeks from around the world to help source N95 masks or their components (Matt shows that use case in the video above)

During the BLM crisis and the many diversity initiatives since customers have leveraged TealBook's 800,000 certificates for black and minority owned businesses. More impressively they have helped a number of smaller businesses self-certify (she says 95% of them find formal regulatory certification too cumbersome or too expensive) and become more visible to companies. As a result, companies have reported they found $30 to $100m in spend with minority businesses they had not identified from their existing records.

The focus is next switching to sustainability initiatives and similarly finding suppliers with appropriate focus and certification on green matters.

We also talk about shifting global chains - the "China +1 initiative" in many companies. She says it is "China +2 or 3" for some customers.

We next talk about trust in data. While in enterprise world, we routinely talk about "single source of truth", the reality is Mark Twain's comment today would be about 'Lies, Damn Lies and Big Data". The person on the street has little faith in data because so much of media has cherry picked data to suit its narrative. She has some thoughts about how to build trust.

Finally we talk about data science and careers for our young. She says "we are just beginning" and clearly is a role model and recruiter for a number of young data and ML graduates.  

She is a very impressive entrepreneur and we cover a lot of ground as you can see below.  

A scientific and spiritual conversation with Sridhar Vembu, CEO of Zoho

Zoho is a remarkably different enterprise software company. It has no VC investment, it has an inbound, web-centric sales model which allows it to reverse the industry spend on sales/marketing v. product , it runs its own data centers, it has very low employee turnover. It has taken strong positions on data privacy, it keeps delivering more and more value without raising prices, it has presence in many global markets many larger vendors don't even bother with. You can read much more about what I have written about them here, here, here and here.

It flows from the top. I have been a fan of Sridhar Vembu, the CEO since I first met him 15 years ago. He is humble, super smart, and I learn something new from every conversation with him. Here are some of my earlier notes about him here, here and here.

I had a chance to sit down with him recently after the Zoho analyst day. We covered plenty of ground around productivity in small teams, rural revival in India, the influence Japan has had in his life, data privacy and many other topics. Here are some extracts from the fascinating and long conversation. It is cerebral, and will likely be controversial to some. BTW, apologize for the long post but actually this is only a fraction of what we discussed.  

Small is beautiful

Sridhar, I heard you talk about small development teams, distributed R&D sites, not leveraging hyperscaler data centers. Sounds like you believe we have reached "Peak Economies of Scale"?

The tech industry has long benefited from Moore’s Law. It has now plateaued. It has been slowing down, for at least for ten years now. The fact that we are using our laptops longer and longer, even phones are lasting longer and longer, it's evidence of that

In my own field (Electrical Engineering), in terms of the bits per second per hertz that we can squeeze out of a  communication channel, there's a mathematical limit set by the Shannon Capacity Theorem. We have long been close to the limit. There isn't a lot more to squeeze out of bandwidth.

There's a great book called Lost in Math, written by Sabine Hossenfelder, a physicist in Germany. She says theoretical physicists for a generation, that is my generation, have not made any breakthroughs at all.

Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, recently said “I do think that my generation had the best of all this technological change,”. Munger, 96, noted medicine has improved dramatically during his lifetime while inventions such as air conditioning have increased the standard of living. “I don’t think we’re going to get as much improvement in the future because we’ve gotten so much already.”

In every field there are rapid advances and then you reach a knee of the curve and then it goes in a pretty stable configuration.

On the other hand there are, for example, fields like biology - especially molecular biology. They are making advances in labs and in medicine. That, actually, is one area where plenty of new things are being learned. But even that will not be forever – there is a cell biologist I listened to recently who said “the more you look at a cell, the more you realize the more there are things that we will never understand.” It's that complex. We are reaching the limits of our ability to understand.

We are also reaching certain limits in the economic realm. Let's compare the U.S. and Japan, two polar opposites. Both are advanced countries. Both have high GDP, however Japan has had 30 years of GDP stagnation.

Most leading economists would say Japan’s economy is in doldrums … that it is stuck. But as a subjective visitor, you can see that the Japanese live quite well. The standard of living is quite high. The quality of life is exceptional. They have not paid any price that we should visibly see from the nominal GDP stagnation.

I am questioning that notion of GDP growth itself: what we are measuring and how we are measuring it. This comes back to corporate value add. GDP is accumulated value addition in the entire economy and corporate value addition. We know, for the last several years, corporations have been playing financial engineering tricks, buying back their own stock to boost their earnings per share.

There's an analyst named Jeffrey Snider who points out, for four or five years now, the total profits of the U.S. corporations filed with the government, the government's statistic, shows a profound stagnation and, in fact, a mild decline.

Charlie Munger in that interview I mentioned earlier also said we are victims of "wretched excess" and too focused on metrics like EBITDA

I'm a technologist. I want to, of course, invent new things. But I look at these fundamental trends and ask what are the likely consequences?

To me, one consequence is that economies are available at lower and lower scales.  A number of people point to consolidation in industries as a direct consequence of technology and taking advantage of economies of scale. That's the traditional argument for concentration of industry. I have a contra-argument. In field after field, when technologies get mastered they actually become more accessible to more people..

Reverse engineering anything is always easier than inventing it in the first place. China caught up a lot faster than Japan's catch-up to the West, and Taiwan caught up a little bit faster. Korea caught up faster. I have a controversial opinion, but I will say it anyway. The West is underestimating Chinese technological prowess. No more jokes about “cheap, it is Made in China.” In just the blink of an eye, they've caught up. 5G is evidence. We can say that they cheated. This is not a commentary on their political system. But reality is, China is really, really, good in many, many fields. This is just about their technical prowess.

My claim is that that it is becoming, actually, easier to (scale down) in many fields, because of wider access to information. The U.K. tried to keep the cotton gin a closely guarded secret but after a while it became available in the US. Sitting in a remote Indian village, today, you now know how CNC machines work in Germany. 50 years ago, a village technician would not know that. He may have heard about something called a CNC machine in Germany. Now, not only do you know that, you know the principles behind it, you know how it works. We see a lot of diffusion of technology.

The revolution that happened in computing is happening in capital equipment.  Equipment is becoming cheaper and smaller businesses can afford to adopt it. In approximately a decade, I believe a small scale semiconductor fab won't be any more complex than an MRI machine. I hope it comes true because I would love to own a small fab. I don't want a massive fab.

The cost of tape-out on an older technology has been falling. The latest TSMC (Taiwan Semiconductor Manufacturing Company) fab is what they call seven-nanometer. Intel calls it ten nanometers.  Nanometer has become a marketing term not a dimension now, which itself tells you the problem.

But look at 45 or 16 nm, which is older technology but good enough for many applications. The cost of taping-out that technology is falling. This is something I know because there's a fabless company that we fund and they give me insights about what is happening in that corner of the industry.

For example, it used to be $1 million to $2 million to tape-out a chip. Now, I think it's about $200,000 - $250,000. Not the latest technology but the older technology, which was the latest version six to eight years ago. Still usable technology.

There are two dimensions in which we can make progress on: trying to squeeze in more  on the seven-nanometer to five-nanometer to three-nanometer, but the fabs are costing $25 billion, $30 billion, $40 billion in investment. Or take older 40 or 60-nanometer technology and keep lowering their cost.

Here is another example. The electric revolution — the electric car, electric scooter, electric tractor etc. — has an interesting implication. The electric machines are a lot simpler mechanically. (that means a simpler and cheaper bill of materials.)

We are talking about an order of magnitude, but this has an interesting implication for that industry. You could technically, for example, take the Indian auto-rickshaw, the tuk-tuk. You could imagine a marketplace of components that are then locally assembled. We could see a kind of reinvention of the rural craft, assembled locally in various configurations for the local needs where the motors and the parts are procured in the open market.

Rural revival

Sridhar, you have opened an office in Tenkasi in rural India. You are spending much of your time there. Tell our readers about your passion for rural revival, not just in India  

 I grew up as a country boy. My village was my heart and soul. I still long for that life. I never wanted to be in the city. I'm a reluctant migrant, so to speak, to cities.

It saddens me to see village life slowly deteriorate. It was a lot more healthy when I was a kid. My kid does not see the same village that I saw, a healthy village. You can see the steady deterioration.

Smart people leave. I'm one of the people who left, so I cannot complain about other smart people leaving. But slowly, the topsoil erodes. The economy deteriorates. Agriculture becomes even more precarious.  Alcoholism, suicide, depression, all of these issues have become a worldwide phenomenon. You see this in Wisconsin. In India. Everywhere.

I've been thinking about what we could help and the broadband revolution facilitated it.  So we opened this office in Tenkasi about six years ago and that office now has 450 people. Most of them were hired locally. In some cases, they would come with college degrees. In some cases, we trained them. But even in Chennai, our biggest office, a number of recruits came from rural areas. We used to previously encourage migration away from villages.  Now we are arresting it. Keeping employees a lot closer to their roots.

That experience in Tenkasi convinced me to expand our rural growth. Late last year, I decided to move myself there. I spent most of my time there last quarter. I went to the local temple. I began to understand local social issues.  Even in a small village, you find a lot of widows because men kill themselves from alcohol.

Then I realized we need to create a lot more jobs there. I've been thinking about what those jobs are and I am aware of these technological trends I talked about. Could we create easier to navigate technology on a smaller scale things with local production and still that can meet quality and economic objectives? I am still in the very infancy of these initiatives, but I'm definitely thinking about them.

Then there is our own software development. We are spreading out some of our R&D units. That is easier to do because our software has always been developed by small teams. It could be three, four people, but sometimes it gets bigger. When it gets larger, we break them up into smaller teams.  Amazon has a similar principle around smaller teams. Jeff Bezos calls it a two-pizza team. Every startup knows this, so its is not an unique observation. But … the breakthrough is you can actually put it in the small team in a village because of the broadband today. Our belief is we can work anywhere. Why don't I put our own claim to the test? I have very good connectivity in my rural location. The Jio (Reliance Jio Broadband network) has revolutionized the Indian telecom scene. We get data plans at unbelievably attractive prices.

India is densely populated, so it's very easy to put base stations everywhere. There's fiber running everywhere now. My remote village, which is the last village before the national forest, gets actually pretty good 4G connectivity now. That's what I use to tether my laptop and do work. The data plans are really cheap. You're talking sub $10 a month for a very generous data plan.

We couldn't have dreamed about this 5 years ago, without this broadband revolution. Now, 5G is coming and it is going to only make it even better. So what is the implication? What kind of knowledge work can we do remotely? Your own work, you could do it anywhere in the world today. Absolutely anywhere, in the remote Indian village, remote village in Costa Rica.  It's the age of the digital nomad.

I am interested in applying those principles to relocate talent. Once you put that talent there, local problems automatically find better local solutions. In my village, having been there only a quarter, people ask me, "Can you take the leadership on this issue?" This is bringing technology to rural locations.

It is also reinvigorating farming. Today, the modern urban resident has no idea where their food comes from. This has serious spiritual and health consequences. Food is medicine -that is old Ayurvedic wisdom. Modern science is also telling us that our food is the most vital part of our health.

However, most of us are cut off from an understanding of our food supply. Rural living is not merely about just locating in the pretty place but also connecting back to the food supply chain. We have our own farm with cows and chicken.  I'm trying to get our office supplies from the farm. The goal is to be organic.

It also allows us to connect back to nature. We see rising depression among our young employees. It's happening in Chennai. In fact, one of the most requested things now is that we hire a counselor. This is a phenomena everywhere now, with young people. It's even more so in Silicon Valley. They'll say it's not work-related. We love our company. It's relationship breakdown, they are torn from their roots, its the atomization of society. People tell me, "I go home to nobody." Loneliness in young people. In India, these issues are unknown 20 years ago. We've been in business 25 years. I've never seen this before.

We are hiring a counselor, but I also launched an initiative that is seemingly off tangent. We'll do urban farming in Zoho. We will have our own small plots of land. They will grow grass or ornamental trees. We tell teams to take it over and farm something. Only rule is to be organic, but farm anything you want.  People are developing a taste for this. Many are doing it at home now in their own rooftops, their balconies.

This allows us to connect back. One thing that's known about depression, even in scientific literature - when you see greenery, your mood improves. If you go roaming in the hills, your mood improves.

Rethinking education

Sridhar, you are known to hire employees without college degrees, forget those from top tier schools. Tell us about your philosophy

We have to connect back to working with our hands. That is true even with software. Even for software jobs, there is this notion that people need to go to college and get a degree. Universities today are marketing devices collecting lots of money.  We run an internal Zoho University (Zoho’s alternative to college education that has been recently renamed Zoho School of Technology)

The cost to run Zoho University is tiny compared to the value it delivers. The question comes up - do the students not miss out on computer science abstraction. In my observation, most people are Concretists. In other words, if you talk abstractly, most people get bored. That doesn't mean they are stupid. That just means that they want measurable, concrete things, use cases, applications

Professors (at Universities) are Abstractionists for the most part because they love those concepts. Most of their students are sitting there bored. I question how much they are learning. We are teaching people about the theory of bicycles before we ever let them ride one. We believe that actually doing stuff promotes knowledge gathering.

Data Privacy

Zoho has taken a strong stand on data privacy with statements like "We are not going to let surveillance companies track users on our properties". I have known you a long time and believe you when you  say you are "intensely moderate". Explain the unusually strong stance about privacy.

Remember how prevalent smoking was 30 – 40 years ago, on buses, and planes, it was very common to be seated next to a smoker and their smoke – everywhere in the world.

Today, it's gone. It's both social awareness, personal awareness about what damage smokers were inflicting on others and related legislation.

Privacy to me is that today's (cigarette) smoke. We live in a world where privacy violations are pervasive, like that smoke issue. We were (earlier) exposed to smoke whether we liked it or not. Today we are now exposed to privacy violations by merely going to a website just like being seated next to a smoker.

See, we are in a world where our technologies have enabled something that our social, biological instincts never knew. For example, if I'm in my street, I'm walking around, and I'm sneezing, I'm doing something maybe embarrassing, maybe a couple of people saw it. Today, that thing could be broadcast to the entire world. This capability did not ever exist. This is new. This is like an atomic bomb of personal privacy. That you could have the ability now to transmit any thought, anything from a moment to the whole world, and that is new.

The full ramification of these technology has not been understood and, once it's understood, I believe that we as citizens – I'm not talking about consumers, producers, or all of that – citizens are going to demand action. Human civil societies evolve to a point where we want control over our governance. So, we passed something called the Constitution. Then we passed laws to protect ourselves. Same with the concept of religious freedom. In very ancient societies, there was no question of religion. People did whatever they wanted. Why did a code of religious freedom have to arise? Privacy is the same issue. The concept didn't exist in the past. The technology today cannot be wished away and we want that technology because it's convenient. We all love it, which means that we need to protect ourselves from our own worst instincts.

It's the same reason why law enforcement exists. If every one of us are law-abiding citizens, why would we need the police? It has to exist because to protect ourselves from our worst instincts. It's the same thing with privacy, I believe.

The recent story about Practice Fusion is a wake up call.  Here's a cloud software company which "admitted that it solicited and received kickbacks from a major opioid company in exchange for utilizing its EHR software to influence physician prescribing of opioid pain medications". The company  was fined seriously - $145 million. This is not a small amount of money, so this could have bankrupted the company if they had not sold themselves in time.

We saw social pressure which said smoking is not okay. We will see similar social pressure around privacy violations. I do believe legislation is coming. GDPR is a classic example. California has passed a law now and it's going to spread.

Morality of causes

Sridhar, I see too many tech vendors publicly supporting causes. Many industry events have become more like political conventions. Are you concerned about customers reacting negatively to some of your positions?

Definitely, I don't mean to moralize to our customers or others. There is a little bit of a cultural perspective here. The Indian way is, like Mahatma Gandhi put it, "Be the change you want to see in the world." I'm not going to preach to anyone, "You move to the rural area." I'm going to move myself. I'm going to try experiments and publish the results.

For example, I take issue with campaigns like “we'll boycott North Carolina or we will boycott Indiana”. This is not because I agree or disagree with their position. It's because that style of discourse, this cancel culture, I take strong issue with that.

We are not in the business in moralizing to others. In fact, morality does not arise by moralizing. It comes by living the example.

Denis Pombriant: Green New Deal is a tipping point

Many of you may know Denis Pombriant as a CRM analyst. He is way deeper than that as his bio says "Denis Pombriant lives in the Boston area and writes about the enterprise software market. Denis specializes in disruptive innovation and its effects on business and markets. He has been researching and writing about climate change for a decade."

He has recently finished another book, this time on sustainability and I invited him to write a guest column about it.

I consider Denis a friend - besides analyzing technology vendors, we share a love for history and good food. On this topic, I am ambivalent - I catalog many renewable innovations on the New Florence blog, but renewable energy has repeatedly disappointed, and so we need to show it tough love not continue to write blank checks as I wrote here. However, he makes many points that merit healthy discussion   

With the Green New Deal, the national discussion about pollution and global warming has taken on the cast of an economic challenge and this should be seen as a watershed. But what kind?

As I write in my book, “The Age of Sustainability: The Space Race, Disruptive Innovation, and Ecosystem Services,” the science and technology aspects of solving climate change are already well in view. What’s missing is a discussion of economics.

Solving climate change is like solving a Rubik’s Cube. You have to solve all sides at once else you could end up with one perfect side while the others still look like a dog’s breakfast. Solving “the cube” requires minute tradeoffs and negotiations in one’s mind while iterating towards a solution and much the same can be said of climate change. To solve climate change, we need interlocking solutions for carbon abatement, energy provision, and economics.

Up to the present moment a discussion of climate change might likely include controlling emissions and the tacit assumption that our energy paradigm, our reliance on fossil fuels, can somehow remain intact. But both are flawed assumptions. There’s already too much carbon in the atmosphere and oceans, enough to cause severe weather conditions that are getting worse. So, controlling emissions will, at best, slow down the rate of increase but that’s not a solution.

Also, our reliance on fossil fuels is nearing an end, something few want to discuss. But we haven’t found net new oil anywhere on earth since 2003 and the current boom in hydraulic fracking may help extract oil from existing fields, but it’s not a discovery tool. Experts tell different but related stories about oil. For instance,

A 2013 article in The Guardian states, “Official data from the International Energy Agency (IEA), US Energy Information Administration (EIA), International Monetary Fund (IMF), among other sources, showed that conventional oil [production] had most likely peaked around 2008.”¹⁹ The article quotes Dr. Richard G. Miller, who worked for BP from 1985 until retiring in 2008, saying, “We need new production equal to a new Saudi Arabia every 3 to 4 years to maintain and grow supply. . . .New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover—but production is still falling at 4.1% p.a. [per annum].”²⁰

–The Age of Sustainability

In addition, the 2014 BP Annual Report stated that the Earth had a 53-year supply of oil remaining in the ground (proven reserves) if extracted at current rates. At some point soon, we’ll need to face the reality that we need an energy plan B because it will take time–probably all of those remaining years–to convert to renewable energy sources. So, we’re faced with the unpleasant reality that the current energy paradigm is doing significant harm to the ecosystem we live in, and it’s running out. Humanity is cornered but there are ways out of this maze.

Also keep in mind that we only burn about 60 percent of the fossil fuels we extract the rest goes into products. For instance, there are 500 pharmaceuticals based on coal and it’s an important part of steelmaking. Natural gas is used extensively in making polymers like plastics and other materials, and most carbon sources can be used in making fertilizers, rubber, paints, varnishes, glass, cement, and much more. Petroleum is also the raw material for making jet fuel, something we’ll always need for air travel and defense. So, the fossil fuels that are left are rapidly becoming too valuable to burn in most applications.

Enter economics

The question of economics is becoming important for two reasons. First, it is the gateway to a discussion of writing down the significant investments in the fossil fuel paradigm. This amounts to many trillions of dollars in global ventures supporting oilfields, ocean-going drilling platforms, pipelines, refineries, mines, tankers and more. Most of them will become worthless over the next half century as our energy diet inevitably shifts. There are also storage facilities, liquified natural gas terminals, and distribution channels that we are barely thinking about.

Just consider pipelines. In the US alone there are more than 185,000 miles of liquid petroleum pipelines; 320,000 miles of gas transmission pipelines and more than 2 million miles of gas distribution pipelines bringing natural gas to homes and businesses.

We need a serious discussion about how to write down all of this sunk investment without causing a global recession.

The second economic question worth considering is the so-called Green New Deal, a call for government involvement in all of this. Certainly, there’s a role for government in this massive transition. For example, supporting road construction to both repair the existing infrastructure and to prepare us for electric driving makes sense and is a traditional government responsibility. But there doesn’t appear to be a good reason for government nudging, or investment in, such things as electric vehicle manufacture for instance.

Most major car companies have already announced plans to deliver electric vehicles to the market as soon as this year. It’s a long list including the usual suspects like Ford and GM and most Japanese and German manufacturers including Porsche and BMW. But also, smaller companies like Volvo and the super luxury maker Aston Martin have all made commitments to building electric vehicles.

K-waves

So the Green New Deal exists in a very different economic time and space than its namesake, New Deal from the Great Depression and some contrarians are already griping about the significant costs that could be involved, perhaps rightly so. The original New Deal formed a Keynesian economic stimulus, an approach that put money into the pockets of working people to get a stalled economy moving again. But that’s not the case today.

To understand this economic moment, you need to understand the normal ebbs and flows of modern capitalism that began in the Industrial Revolution. Research shows that on a schedule of 50 to 60 years, the capitalist economy goes through a cycle of invention, distribution, consolidation and decline based on one or more significant disruptive innovations.

For instance, there was an age of steam and steel in which steel-making and steam engines powered the economy. When we developed steam engines small enough to fit in boats and on rails, we ignited a huge transportation disruption and we learned to build those engines out of steel while laying down steel railroads that spanned the continent. That age, as all ages do, eventually commoditized. We still rely on steam to generate electricity and we still build skyscrapers and bridges from steel, but neither drives the economy as they once did.

Today we live at the tail end of the age of information and telecommunications. From the time the silicon chip was patented in 1959 until the present, that innovation has changed or inspired such industries as computers, software, cloud computing, handheld devices, and social media, to name a few. Communications is digitized and from POTS (Plain Old Telephone Service) grew the Internet and communications satellites and much more.

The next age

K-waves take shape because a technological disruption ideally fits the demands of an age. Steam power served the power needs of an industrializing society, railroads and the telegraphy system they brought along, knitted together a continent-girding republic. Computers and modern telephony enabled the information management needs of modern business and finance.

The next K-wave will focus on the energy needs of a world population that will reach 10 billion by mid-century. Some of those needs are well established such as transportation but others are only now emerging. Consider fresh water for example. Many countries are experiencing the early climate-linked effects of desertification when insufficient rainfall and irrigation make farming difficult or impossible. Other regions are experiencing too much rain and flooding during critical planting seasons. Historically, we’ve regarded fresh water as an ecosystem service, something that nature provided and that we didn’t need to think very hard about but that’s changing.

Syria provides an important lesson. Drought hampered wheat farming in Syria, forcing agricultural people to migrate to cities where crowding and resource scarcity contributed to widespread dissatisfaction with their government. The resulting civil war is ongoing, but the diaspora of millions of Syrians has destabilized governments throughout Europe and beyond. The planet cannot afford for this to normalize.

So, some of the new energy inputs will need to be dedicated to things we've taken for granted like provisioning fresh water and providing better irrigation support for dry farming regions. We’ll also need to manage water where it is hyper abundant. There will be other resource needs that we traditionally got from nature that we will need energy to satisfy too.

Final thoughts

The great thing about K-waves is that the seeds of the next one are planted in the present though we might not immediately realize their significance. The first computers were developed in secret near the end of WWII or just after. They were room-filling things made of vacuum tubes and they were hand soldered together. The tubes gave off enormous amounts of heat too. They were the impractical playthings of geeky scientists and few people thought they would lead to pocket size devices that are tens of thousands of times more powerful today.

Our handheld devices represent what could be the ultimate commoditization of computing. There may be a lot of life left in the information technology sector but, like steel-making, it is becoming simply part of the economy and not its driver.

The new economic driver is likely sustainability. The term sums up the most important needs humanity faces in this century. That need translates into demand and with the global population trend this demand will likely translate into the greatest jobs creating, industry producing, and wealth generating opportunity in human history. Failing to take advantage of this opportunity could also spell doom for our species. But history shows we’ve always made the right decisions in similar situations. The opportunities only come around every 50 to 60 years and

Renewables: The “great dual challenge,”

The new General Electric  is a shell of its former self as it sheds most of its business units and its industrial coverage is down to its aircraft engine, renewable, and power plant businesses. GE CEO John Flannery has called the three “highly complementary businesses poised for future growth”. Yes, each is based on turbine technologies, but I can see how green zealots cringe when they see the association between fuel guzzling planes, coal and natural gas-driven utilities and wind turbines. It is, however, the reality as GE sees it.

The Washington Post has an article on BP and how the oil giant was “forced to shrink to greatness”. It shows how the US government almost put the company out of business after the Deepwater Horizon explosion and how the rest of Big Oil shunned it. It has trimmed down and is starting to invest again.  Renewable investments may reach $500 million a year, a tiny fraction of BP’s $15 billion or more in capital spending. Its big bet is on natural gas and that utilities will increasingly move from coal to gas.  CEO Robert Dudley says “This is not a race to renewables. It has to be a race to reduce emissions,”The “great dual challenge,” is to do that while generating enough energy to lift people out of poverty and absorb population growth.

You could argue that GE and BP are not ardent supporters of renewables, but how do you explain the situation in Germany? Foreign Policy says

For years, Germany’s Energiewende, or renewable energy transition, was held up as a best practice for other nations to follow. After all, in just 15 years Europe’s biggest economy turned a third of its electricity generation green by subsidizing investments in solar energy and wind power. In doing so, it added 300,000 jobs to the economy. Even while it was in the process of phasing out nuclear power, Germany managed the transition while its factories hummed along, the economy posting record growth and trade surpluses. In the late aughts, Merkel was dubbed “the climate chancellor” for her engagement on behalf of the climate.

Yet, in spite of spending hundreds of billions of euros on subsidizing renewables, Germany will struggle to meet its 18% renewables target for 2020. The country continues to rely heavily on its coal and lignite, and more recently on natural gas from Russia.

Progress is more visible in smaller countries like Denmark (especially with wind), Kenya (especially with solar) and Iceland (with geothermal).  If you include hydro power in the renewables bucket (many hard-core green fans argue that dams cause ecological damage so aren't as as sustainable) Norway, Canada and Costa Rica are shining examples. The little island of Palau has announced plans to move completely to solar power in the next few years.

There is also good news from the state of California. Assembly Bill 32 pushed the state to reduce emissions by 2020; California did it in 2016, dropping from 1990’s 431 million metric tons to 429 million metric tons.

The next big hope is China which is said to be investing $ 360 billion (mostly in wind and solar energy) during the five-year 2016 to 2020 period.

Renewables are making nice gains in the utility sector, but that is not being matched in transportation (tankers, trucks etc.) and heating – which together account for 3/4 of global energy consumption.

A number of fan boys keep arguing otherwise, but the disappointing German experiment in particular tells us the BP comment about “the dual challenge” will be our reality for the foreseeable future.

Renewables are a bit like Artificial Intelligence. Every few years we get excited with progress but you look a few years later and the adoption progress is uneven.

“Make Renewables so Cheap that they KILL Fossil Fuels”

Peter Diamandis, of Abundance fame, put out this rallying cry in a recent post. Renewables definitely need a kick in the behind. A recent conversation with my lawn guy, Bruce told me how far they still have to go.

I asked him if he had considered one of the new robotic, electric lawnmowers for a couple of thousand before he invested in his $ 16,000, gas-fueled 35 hp Gravely. He smiled and said “I can cut your front yard in less than 3 minutes. The robots are much slower and often run out of battery, and then you have to restart the cycle. Also lawn in Florida grows taller than what the robots can tackle ”. The conversation then turned to his set of DeWalt tools. He has a whole collection which run on lithium-ion batteries. Even there he said “I only use the battery powered blower at night to not bother the neighbors with the noise of a gas powered one”. On and on he went on why gas fueled appliances are still so much more efficient.

Bruce is smart enough but he uses simple phrases. He was saying energy density matters as much as economics. Renewables need to scale up.

The opportunity has been around for decades to kill Fossil Fuels, but renewables continue to rely too much on hope and fear

Country after country is announcing plans to ban gas or diesel fueled cars in the next couple of decades. Reason to celebrate, right? Yes, if you are blessed to live in countries like Norway and Canada where utilities get the bulk of their fuel from hydro. In most other countries, EVs are only marginally greener than cars in Brazil where 25% of fuel is cane-sourced ethanol. This chart from Our World in Data ( a project at U. of Oxford) shows how far renewables have to go just to replace coal usage in utilities. Add nuclear to that, given skittishness around that, and the opportunity for renewables is almost intimidating.

Another hope of the renewable sector is we will soon run out of fossil fuels. Tell that to bankers who plan to take Saudi Aramco public next year at a valuation between $ 1 and 2 trillion. Yes, it will be the world’s largest ever IPO. M. King Hubbert came close on his projections of decline in US oil reserves in graph below. But he did not factor the stubbornness of George Mitchell and other energy entrepreneurs and their fracking and horizontal drilling innovations. Yes, some day we will run out of oil. For now, renewables need to quit hoping that day is anytime soon.

Then there is the fear mongering. 2017 was a torrid hurricane season (it officially ended November 30) and all the boo-birds are out saying if we had moved to renewables we would not had such a ferocious time. Hello – since records were kept, 2017 was only the seventh most intense season in the Atlantic basin. And here’s another contrarian data point “Harvey ended the record-smashing 4,324-day-long “major hurricane drought” in the United States when it crashed ashore near Corpus Christi, Tex. And then it stalled, maintaining tropical storm status for 117 hours after landfall, a record for a Texas landfalling hurricane.”

It’s uncanny that for a decade after the documentary The Inconvenient Truth was released, we had that hurricane drought. Now that its sequel has been released, hopefully we will see another long respite

So, yes I hope the renewables industry steps up to Peter’s rallying cry. Start executing relentlessly and quit hoping and spreading fear.

SAP and Sustainability

SAP’s annual sustainability report is out. As usual it is prodigious and professional. In the past i have commented that it was too focused on internal SAP efforts and what its customers were doing broadly, not how SAP’s software contributes to their efforts. This year it does better.

In the meantime, it is pretty impressive how the market definition of sustainability keeps expanding. I have attached below the entire chapter on sustainability from my new book. It includes an interview with Jeremiah Stone of SAP. You may enjoy reading about how other tech vendors like HP, Apple, Google etc are also doing.

Download Sustainability Chapter

The disruption from Global Warming

A blog which focuses on disruption should highlight what Discover considers the 9 industries which will be most disrupted by climate change…

• Wine making
• Fishing
• Ski resorts
• Other tourism
• Insurance
• Forestry
• Mining
• Meat
• Energy

I am surprised they did not include real estate – guess my Florida property will do fine :)

There is capital and then there is capital

In the 90s when George Shaheen was CEO at Accenture I was at a dinner speech where he said “Like Bechtel, I want my firm to go in to obscure parts of the world and raise cities where they were none. Digital cities in our case”. I could relate. 10 years prior as a young auditor I had spent time in the city of Jubail, Saudi Arabia where Bechtel had been the master program director. I was impressed with the thousands of blueprints and program plans which showed the complexity of coordinating massive shipments from Japanese, Korean and other suppliers. And labor from at least 20 countries that turned that piece of arid desert into a modern township.

Like Accenture, Bechtel is a darned good integrator. Like Accenture which is good at managing staff ebbs and flows, Bechtel is good at managing cashflow ebbs and flows.

But today, I see a Bechtel rep say about VC investment in Greentech “Capital needs will be far greater than what venture capitalists experienced with high tech.” Actually infotech has seen much bigger investments than the construction industry. It’s just that VCs were selective which segments of the industry they chose to invest in like chips and software. They kept away from those that required massive armies or oodles of long-term capital like systems integration, outsourcing and telecom services. 

I suspect something similar will happen in Greentech. VCs will leave those segments which need armies and long-term capital to the Bechtels, and increasingly the Accentures of the world (as smart infrastructure projects require blending knowledge of sensors, fuel cells and cements).  The VCs will happily be funding startups which make better sensors, better yielding cells and newer cements.

Sustainability: The Pig and the Chicken

Remember the old story about the chicken and the pig at breakfast?

The chicken brags his kind “was involved” in breakfast because they laid the eggs. To which the pig responds his kind “was committed” to delivering the bacon.

I see a number of ERP companies brag about “being involved” in sustainability efforts as they help account for carbon or help in compliance with regulations.

So I am pleased to see NetSuite report it was “committed” in not just reporting, but actually helping customers reduce carbon emissions.

• With more than 6,000 customer companies sharing datacenter resources, NetSuite's platform saved more than $61 million in energy bills per year
• These savings amount to nearly 595 million kilowatt-hours (kWh) annually, the equivalent of nearly 423,000 metric tons of carbon dioxide per year
• This is equivalent to nearly 1 million barrels of oil or the average electricity consumption of 56,000 homes per year.