July 2005
  
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What Next - Part II The Shareholders

  Anto Budiardjo
President & CEO,
Clasma Events Inc.

Contributing Editor

In this four part article on the future of Building-IT Convergence, I will cover the driving forces, trends and predictions on how our lives will change as convergence will take root globally. In part 1, we look at the true impact of the Internet, in part 2 this month we will look at the change Convergence will bring to the stakeholders of our industry. Part 3 will explore what needs to change in the route to market of building system solutions and part 4 will tie it all together with some predictions and suggested action for those interested in playing a role in the future of buildings.

The route to market of building systems has predominantly remained the same for decades. Most people that truly understand what it takes to design an intelligent building know that the system is broken, or at least very inappropriate for the technologies and demands of today.

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If we are to stand a chance of kick starting the mass adoption of convergence, we have to be prepared to throw away the practices of our past similar to the way that successful businesses adopted new business practices with the advent of the Internet (as previously demonstrated).

The changes for industry stakeholders appear in three very significant areas: supply side, route to market, and most importantly, with building owners.

Supply side: Consolidation is the key word driving the supply side, especially with the larger and more established organizations. The major corporations have been on an acquisition binge with one goal: to establish a broad base of offerings applicable to all the different buildings-centric disciplines (HVAC, security, electrical, life-safety and IT) with a distribution channel offering a consolidated integrated solution to the market.

In the future, there will not be a major controls company, or a major security company, or a major fire company since these disciplines will be combined into a major building systems company that will provide everything a building needs. The smart ones will reorganize themselves to sell at a very high level, selling a financial proposition to the enterprise that has an interest in the building, and not selling technology, products or specific solutions to the building owner. At the end of the day there will be three or four tier-one majors that can do it all and a bunch of tier-two also-rans, who incidentally are still likely to be billion dollar global companies!

Smaller and more nimble companies will undoubtedly continue to prosper in all the building systems disciplines, it’s just the way commerce and the free market works. But their behavior will change; they will have to be very good at some specific thing (product, service or skill set) or focus on a niche (geographic or by market segment).

For many of us, the most interesting group of suppliers will be the innovative technology and start-up companies. This is where the action is for the future of Internet-centric building systems. Just think of the start-ups that are now giants in the general Internet such as eBay and Google--both started life as a garage shop operation and now command equal or arguably more attention than the IT majors like IBM.

Today as I write this, there are groups of entrepreneurs in garage shops somewhere in the world dreaming up new ways to look at buildings. My expectation is that some of these will be well known industry names in 3-5 years and may well be more important than the existing and mature billion dollar companies that are slow to adopt—only time will tell!

The big question is where to find these innovative companies. I have to say that it is one of our missions with BuilConn and the M2M Expo & Conference to provide a platform for innovation, since there are no other venues where such companies can present themselves.

Control Solutions, Inc Route to market: It’s really quite simple. Solutions (technology, products and services) flow one way and money flows the opposite direction. The key word here is flow. Where there is no flow, there is no progress, no business, no solution, no profit, and no better-buildings—just a lot of frustrations. As an industry, we have to focus on getting the flow going, and then increase the flow into a rapid torrent the likes of the Colorado in spring time.

The challenge here is that everyone in the route to market has an agenda, normally a commercial agenda to be successful in their business—not unreasonable at all. I learned in high-school why rivers bend and curve; this is strange behavior for rivers as water wants to take the shortest route to its destination (the sea), and curves provide anything but the shortest route. I learned that these rivers typically started off straight, then something got in the way of the flow, typically on one side of the river (a tree falls, a mud-slide or some man/animal made blockage).

The mission of the river is to meet with the sea, and it will find a way around the blockage in this pursuit no matter what. So the river focuses its efforts on the other side and with years of flow will start to create a curve in its path. As the blockage gets rooted, it also grows, and as it grows, the river focuses even more on the other side. Before long, we have a curve in the river.

The point of this is that the flow of the route to market is fundamental and the market will navigate away from any agendas that do not support the flow. Players in the route to market need to understand the purpose of the flow, the commitment and inevitability of the flow, and ensure that their agendas are in sync with the flow and not blocking the flow. Any agendas not in line with the flow will eventually be bypassed.

I see a big dam in the building systems route to market and a bunch of blockages.

So, what are we to do in the route to market?

The first thing to do—a most fundamental action—is to accept that things are going to be different. If you cannot accept this it will be difficult to participate in tomorrow’s smart building; you will be a blockage to the flow and it will go around you however big you are. It may take a while for the market to circumnavigate a deeply rooted enterprise, but it will. Acceptance is a wonderfully liberating thing because once you realize that sticking to the status quo is as dangerous as assuming something different, you can channel your efforts toward increasing the market.

Think of this as creating a new tributary to the river, to increase the flow and not get in its way. I see a number of channel companies (contractors, integrators and consultants) that have done this, have accepted that they need to do things differently, and in all cases, are very busy with a very profitable flow of business.

Once you accept change, it becomes critical to educate. I’m talking about educating yourself, your team, your suppliers, and of course your customers. This is probably the most difficult task in this process. As in most cases education is unlikely to be a natural thing you want to do. You would typically want to sell, engineer, specify, project manage, or do any of the other myriad activities that a contractor, integrator or consultant does on a daily basis. Unless you can train those around you that the old, deep-rooted behavior is not the way to go, your acceptance has little impact on the market and your business.

The successful companies I know of that have accepted this change and who are very successful in business spend a significant amount of time educating. They immerse themselves and their organization in a new view of buildings, they develop new ways to sell, they use new products and technologies, and they allocate a significant amount of time and budget to actively participate in industry events and organizations promoting intelligent buildings. This is an investment that these successful organizations justify easily; they see the results in their growth and profitability.

Once you have accepted change and made a commitment to a new way of doing things, you have to do your number one job: provide some form of value or solution to your customers. But, beware. If you have come this far you have made an enormous commitment to a new world, and you have to understand that the way you provide your solution now is also very different. Not only are the technologies, products and tools different, but your customers should also be different (If they are not, you are doing something wrong.). So what is the fundamental difference here? How does one provide a value in the new world?

The answer to this lies in the next section, the building owner.

Building owners

Reliable Controls First, the term building owner is a misnomer. Although the building owner may be a single legal entity, the building owner that the buildings industry works with is very rarely a single entity. There are in fact numerous individuals that exist in that group we commonly call the owner. In the new world of intelligent buildings, the number of individuals you will need to deal with increases dramatically.

As a vendor of a single system (HVAC, lighting, or even a smaller component such as a non-integrated product) you would typically be talking with one or two individuals who have a need for that particular service or product. This could be an energy manager, a security manager or a facility person. In the old world, the needs of the owner are broken up into smaller needs that are typically satisfied separately, with purchase responsibility handed down accordingly.

If you, for example, are selling sensors, you would be dealing with the engineer who has the responsibility of purchasing sensors. The engineer would have a specification for the sensors needed, a budget, and some other parameters on how they will eventually select a sensor supplier. This business is extremely cost conscious which is understandable since the budget is probably a significant buying motivation for that engineer. To make the sale, you have to convince the engineer your sensor is better (performance, quality, etc.) and at a cost that is acceptable (better than alternatives source for it). Service and relationship may also come into the equation.

Of course the above example is simplistic, and in most cases we are talking about projects that could in fact go into millions of dollars, but the fundamental goals of non-integrated building purchases are similar: a) they are based on achieving some specific technical and functional need, and b) the cost price is acceptable. This purchase is typically seen as a grudge purchase, and this is a cost that needs to be reduced at all costs (pun intended). Competition can be fierce since several vendors can provide the same solution and companies often find it easy to justify reducing margins to get or retain that valuable customer.

Building as an asset

Many astute organizations that own or use buildings (pretty much all organizations) are now beginning to understand that their buildings and facilities are critical elements to their business. Many organizations are now being squeezed by their shareholders to perform better; the buzzword of this decade (and possible century) is efficiency. We see this in enterprise-based systems that manage personnel, supply chain and customer relationship management. These systems basically take masses of data and organize it into usable information for managers, directors, VP, presidents and the CXO staff to make business decisions that will allow all of their resources to achieve more with less.

Buildings are the second most significant expense in most organizations’ overheads, second only to the cost of people. It is not going to take long for most organizations to realize that they can look at their buildings as an asset that can actually contribute to the success of their organization. To do this they need data and information systems that will measure their building’s contribution against their objectives and put into place building control systems that will contribute to these objectives. This is the fundamental value of intelligent buildings—one that contributes to the owner’s or occupants’ objectives, whatever they may be.

You will notice two things here. Firstly, such a view of buildings requires IT-based systems, systems that these organizations already have in place for their other efficiency drives (ERP, CRM, Supply Chain, etc.). Secondly, you will notice that in this view the concern is not the cost, sensor performance, some component of the building, or even the specific system in the building such as HVAC, security or lighting.

The problem statement is simply how the building can contribute to the organizational objectives.

CatNet Systems I was taught a long time ago about the difference between cost and asset. Your home electricity bill is a cost, you will do all you can to reduce this cost. You may change electricity suppliers to do this, or you may install a new water heater to reduce this cost, but the only way to go is down as far as cost and the amount of cost reduction—although initially could be significant—very quickly gets smaller and smaller. Imagine if your bills are $1,000 a year; once you reduce this by a huge (and improbable) 50%, it is unlikely that you can achieve this level of reduction again, and even if you can save 100% of the cost, the value of this savings is finite.

Your home on the other hand is an asset that you want to grow. While you would want your mortgage payments to be as low as possible, you would invest money into your home to improve it. You would remodel it, put on a new roof, put in a pool, or build an extension because by such investment in your home would be worth more to you as an occupier or to someone else should you wish to dispose of it. Here the increase in value is not finite. You can (theoretically) invest $x every year to increase your home size by some relevant size to increase your home’s value by $2x, and you can do this until you run out of land, and then you could invest in buying extra land. The point is that increasing the value of assets is not finite.

To many building owners, the costs of their buildings and facilities have in the past been essentially a cost to be reduced by whatever means possible. The buying behavior of the past is clearly an indication of this. As more and more organizations that own or occupy buildings are starting to realize, their facilities are a becoming potential goldmine to increase efficiencies, and in turn to improve their bottom line. Realizing that IT can be the vehicle that achieves this liberation of value, owners are starting to look at their facilities as asset, and with all assets, and there is a desire to increase them even if it means spending money.

Selling the new Solution

It is becoming clearer that the most significant value proposition of integrated and intelligent buildings is not in the technology, not in the increased flexibility of suppliers, not even in the reduction in staffing to manage disparate systems. These are all enablers for the real value to come.

The most significant value is in how organizations that own and occupy buildings can now view buildings: as a holistic entity that becomes an integral component of their enterprise system; as an asset they can monitor and control in real time; and by business terms, ways to measure whether the facility is contributing or detracting from their business objectives – and take action accordingly.

The successful and very valuable service you can provide building owners is in realizing this potential in their facilities.

In next month’s issue we will explore how we should go about organizing our industry to provide valuable solutions.

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