World is Green

A fascinating story is developing in South Australia’s energy demands.

This is where BHP steps in. The world’s biggest miner owns Olympic dam in South Australia. This mine is one of the largest mines in the world filled with copper, gold and uranium.The mine is supposed to drive the state’s economy in the coming decades. With estimates of $1 trillion, the mine can drive the growth of SA’s economy, jobs and population. In fact, Roxby Downs, a town near Olympic Dam was created to support this and has seen one of the biggest property boom in recent times.

One of the biggest needs is the demand for energy for the mine to operate. But the recent news is that there is a much greater need for this energy, upto 690 MW per year within 10 years to expand the mine. This incidentally is half of the energy requirement of the entire city of Adelaide!

This brings to question the source of power. The Greens in SA believe that the state can become a “greenhouse pariah” due to Olympic dam.

As we have seen before, Geothermal energy has an interesting future. We know that the hot rocks can generate energy with the promise of no fuel, no emissions, no waste.

I recently attended the Clean Tech session of the 12 part Climate Change 2030 seminars at Adelaide University. One of the discussions was on the Geothermal projects in South Australia. It was claimed that Adelaide is the center of the world in terms of Geothermal projects and technologies.

The speaker, Prof. Richard Hillis, who is a director at Petratherm talked about the entire issue as an optimization problem. The parameters for success for different companies were hot rocks, nearer to the grid, depth of drilling, or near to a major consumer. Each company is working on a different paradigm.

But, there is a great new opportunity for Geothermal producers to supply the “no emission” energy to this large consumer. The race is on.

Hal Varian in his last Economic Sense article for the Ny Times last year, wrote about how the research into the production of the iPod and how much each country was making out of it.

S o how can one distribute the costs of the iPod components across the countries where they are manufactured in a meaningful way?

To answer this question, let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the “value added” at that step, which can then be attributed to the country where that value was added.

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Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.

There is a real business lesson for all companies here. Value addition is what brings about profits. Be it an iPod or sustainability.

Sustainability is turning up new niche areas of business opportunity. One major area is finance. I came across this bank today called - Ekobanken from Sweden. They have squarely targeted the growing understanding among consumers for sustainability and the increasing innovation from businesses in this field.

This is created in the form a member bank or what in Australia can be called a credit union with the participation of consumers as members or shareholders in the bank. In essence, the goals of users and owners are the same.

They work in the areas which increases social, environmental and cultural initiatives for a sustainable society. It says, “The public good and the benefit of our members is our main driving force and the reason why Ekobanken finances initiatives within the social economy. We are also interested in sustainable business that takes the environment and human being into account.”

In order to target the areas of finance which their members want; Ekobanken has created a unique set of accounts which use the deposits in these accounts to fund projects in that area. For example: savings in the Ecology Account “are used for loans to alternative energy, ecological and biodynamical agriculture, conservation, research and other ecological projects” whereas savings in the Culture account “finances loans to culture houses, artistic projects, community colleges, publishing, production of periodicals and adult education.”

At the time of joining the bank, members can choose to inform the bank to use their bank in all of their initiatives or as the example above suggests to a particular target area. These areas are broadly classified into Ecology, Culture, Healthcare, Child and Youth, The Way Out, Fair Trade and Sustainable development in the local area.

In the area of reporting they are very, very transparent. They produce a loans report every year, (latest is 2006, PDF Download) which takes a few areas of their work like Food, Pre-school and Micro-credits in the 2006 edition and explain their thinking in that field, examples of projects that they have funded and some links. At the end of the report they provide a list of all the projects that they have funded in each of the target areas. An amazing degree of transparency for a bank.

In terms of financial performance, the bank has been growing its deposits steadily, in fact almost doubling in the five years ending 2006; operating revenue growing a decent pace and profits more than doubling in the same period.

The banks vision, theme, products and marketing are all centered around the growing sustainability sector. A fine example of innovation and working in a market niche in this area.

More TATA news. Yesterday, it was about TATA Motors plan to create viable eco-friendly cars. Now, it is about the small car. The TATA’s have plans to launch a small car in the Indian market valued at Rs. 100,000 (USD 2,600).

Economic times has more:

Mr Mashelkar also revealed how the small car concept first struck Ratan Tata, who’s now in the race to acquire two iconic British brands — Jaguar and Land Rover. “You know how ‘Ratan’ (Ratan Tata) thought about this small car. He talked to me on several things. One day, he was going on the road and saw a family of four getting soaked in the rain. That was when he decided to create a small car for all,” he said. “Just a month ago, I was at the Tata Motors’ factory in Pune, talking to their engineers and their fantastic team there. It was there that I had the privilege of sitting in that small car — the Rs 1-lakh car that they plan to roll out at Singur. It is incredible,” said Mr Mashelkar. “I sat in that car by the way, and it was amazing,” he said.

“I am a six footer and it’s spacious both in the front and in the rear. In terms of acceleration, it is equivalent to a Maruti 800 and has an incredible design finished by indigenous Tata Motors’ engineers,” Mr Mashelkar added.

Talking on the potential of economics of this car, the top-notch scientist said: “It will create a paradigm shift in low-cost transport and the whole world is looking forward to a car that efficiently runs 25 km on a litre of petrol and offers international specifications. These kind of fuel-efficient cars will be in demand as pollution is on the rise, climates are changing and fossil fuels are running out. People are looking at a new global eco-car and I have a feeling that this can be the new eco-car not only in the country but elsewhere — in other countries. I feel a sense of pride that it will be manufactured in India.”

At 25 km a litre it will be a great car for city driving if it matches the international standards. I have deep respect for the TATA group and especially Ratan Tata. If anybody can do it, it is his team. 2008 will be a year to look for.

Update:

NyTimes has more on the Tata’s bid to acquire Jaguar and Land Rover from Ford.

The combination of luxurious, specialized products and cheap, commodified ones may seem like an unlikely business model, but the Tata Group, the sprawling family-run conglomerate that owns a third of Tata Motors, is full of similar contradictions.

The group’s Taj Hotels command some of the highest rates in the world — one night in a luxury suite in the Taj Mahal Palace in Mumbai costs 110,000 rupees ($2,795) in high season. But the group is building no-frills hotels around India, with rates as low as 1,499 rupees ($37.95) a night for a double room in some cities.

Tata owns a chain of high-end jewelry stores, Tanishq, and makes fertilizer though its Tata Chemicals unit. The company has an exclusive charter airplane business, serving clientele like chief executives and Bollywood stars, and owns Tata Sky, which beams business news and hit movies into a million Indian households.
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As in many family-run conglomerates, there is a “strong emphasis on the long-term perspective,” said Subir Gokarn, Standard & Poor’s chief economist in Asia. Tata focuses on building institutions, on social responsibility and ethics, and on fair dealing with government, he said.

But it is also highly profitable. After-tax profits at Tata Motors, which is publicly traded, increased 21 percent in the first half of this fiscal year, to 9.94 billion rupees ($253 million).

Arun Natarajan points to the profile of S. Sivakumar, founder of Akash Ganga in The Mint.

All his life, Sivakumar, who looks an unlikely capitalist in his casual trousers, shirt, and bushy white moustache, has been interested in understanding what makes some people rich, and others poor.

At the Delhi School of Economics, where he completed his doctorate, his thesis was on this subject. He studied 200 families across three generations in rural India. His conclusion: “Affluence is a matter of chance.”

That discovery changed his political viewpoint…His interest in understanding the genesis of wealth did not…he was convinced that water, or the absence of it, held the key.

The idea for Akash Ganga came to Sivakumar in 2004, mainly as an offshoot of his research…The scientific basis behind Sivakumar’s air-to-water conversion is the heat exchange process: In this case, it involves sucking in air from the atmosphere and blowing it over cold gas resulting in the creation of water (in much the same way, condensate, or water, forms on the outside of the windows of a heated room in winter or an air-conditioned room in summer).

To Sivakumar, Akash Ganga, named after the tributary of the Ganga that provides water to the heavens in Hindu mythology, is more than a company; it is a mission. “I am doing this under a business format because there is no other format to take it to the people,” he says.
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By mid-2004, Sivakumar and his team worked out how to make water from air. AGL invested in a modest 3,000 sq. ft manufacturing facility and started rolling out its products. Priced between Rs9,200 (USD 235) (for an 8-litre version) to Rs42,500 (USD 1,087) (for a 120-litre one), the machines were powered by electricity, and sold through stores that sold consumer durables such as television sets, washing machines and refrigerators. The Akash Ganga machines produced a litre of water at an average cost of Rs0.80 a litre (USD 0.02c), but, surprisingly, found little success. The company was unable to sell the product as it lacked the resources to market the product on a larger scale.
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Since the process of converting air to water results in a drop in temperature (one reason why some air conditioners leak water), AGI has pitched its products as a three-in-one as the company terms it: an airconditioner, water creator, and air cleanser.

The machine produces ISO standard water for drinking and the company has sold some 400 machines till now. Considering fresh water is a major decreasing resource in the entire world and particularly in India, this innovation has some good potential if the economics work out.

In the current Climate Change talks in Bali, there is a great debate about the role of India and China in cutting down their greenhouse gases. This story provides a good viewpoint of the current problem facing India.

The Mint has an interview with Harish Hande, the founder of SELCO-India and the winner of the 2007 Social Entrepreneur of the Year award in India.

The problem: In a country where we spend thousands of watts of electricity for a day and night cricket match, use the power greedy heater to ward off the winter chill, there lies another India where villages are dimly lit by paraffin lamps and dim lights battling darkening chimneys. For this cash-strapped India an ignited filament powered by current is a rare luxury, for they cannot even afford electricity.

Finding basic electricity is still an issue in India. How do you convince those people that they need to cut down their carbon emissions?

Hande is working towards building solar home systems for poor people in India with technicians on the ground understanding the actual requirements. He is collaborating with banks to provide an affordable way to own these systems.

In terms of economics, Hande has some interesting cost figures.

For example, there are 20 million street vendors in the country. In Delhi, a street vendor pays Rs15-20 everyday for an incandescent light. We do not pay Rs600 a month for a single light, neither do we pay Rs2,400 a month for four lights. That means poor people pay more for energy. It is the same case with Bangalore street vendors who pay Rs15 every evening for a kerosene lamp they use for four hours whereas solar costs Rs5-6, that too for five to six hours. It is a grave reality that the poor end up paying more for energy. Surely, this needs far more serious intervention.

And on the role of government.

In terms of central and state governments, the biggest plus is that they are not interfering. I have seen it in other countries like Dominican Republic where the government suddenly appeared on the scene, subsidized it, and spoiled the whole programme. However, the government can help by replicating our work on a mass scale. For that, we need many similar social enterprises and government policies that can creating caps in financial institutions, in much the same way as they did for agricultural financing 40-50 years ago.

In Payback and Plugins we talked about Wrightspeed and their strategy to target the automobile segments with the highest payback for using EV technology. In Luxury and Innovation; I suggested how luxury cars like Tesla will drive innovation.

Now, the former CEO of Tesla (now the President of Technology), Martin Eberhard has a discussion with David Pogue and he spells out Tesla’s strategy in simple steps.

DP: That’s handy. Now, you have bigger plans than this one model . . .

ME: Yeah. This is our first car. We come in at the top of the market, changing the way people think about electric cars fundamentally. Electric cars don’t have to be goofy little golf carts; they can be something that we all want to own. Maybe we can’t all afford one of these things, but we realize that electric cars can be hot cars. O.K.

It allows Tesla Motors to develop the brand, to develop the relationships we need with suppliers, to build and buy things at prices that allow us to make more affordable cars.

With that progress, then we consider the next car. We look for a car that’s in the $50,000 range that can seat five adults as our next model. Still kind of expensive, but a step down, for sure, from the $100,000 roadster.

If we pull that off, then the next car should be higher-volume still and lower priced.

It’s how you get into the market. If you try to come in from Day 1 and build a car that everyone can afford, it’s a recipe for disaster—as all of the electric car companies in the last 30 or 40 years have proven.

Well, you cannot get a better explanation. Now, the same blueprint can be used by other companies to enter the “sustainability and environmental” markets and drive innovation and growth.

The Age reports on the new initiative by Timberland to provide carbon labelling on their shoes.

The US-based company’s autumn collection includes a grey fabric sneaker, priced at $US49.99 ($A59.40), and a wool-lined leather clog for $US105.

A close look at the labels reveals, however, that the clog is a bargain when it comes to greenhouse gases that cause global warming: 66 pounds (30 kilograms) of carbon dioxide and other gases were emitted in producing the clog, compared with 88 pounds (40 kilograms) for the sneaker.
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Though mostly in use in Britain, the labels are gaining ground in the US. Corporations such as PepsiCo and Wal-Mart are conducting inventories of their products’ carbon emissions and considering labelling.

But climate experts say today’s complex, transnational supply chains make it challenging to accurately assess a product’s carbon footprint — the total emissions generated during production and transportation. And no national standard exists to verify such assertions.
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Calculating carbon emissions was simple enough when you’re talking about buying a tank of gas, said Jonathan Pershing, director of the climate program at the World Resources Institute, which developed a widely recognised method for companies to figure their overall greenhouse gas emissions. But it gets tricky for a more complex product, such as a pair of jeans.

“You have to ask, where was that pair of jeans made?” Pershing said. “Was it made with hand labour or a machine, and what was powering the machine? Where did the cotton come from, the United States or Egypt? If it was from Egypt, was it grown with an irrigation system or (rainwater)? All of a sudden, the analysis becomes, at the moment, beyond what we can do.”

Does carbon labelling increase sales? That is the crux of the issue for companies.

The Mint reports on D.Light and its plan to provide LED lighting to Base of the Pyramid markets in India.

‘We don’t think it’s right that families are using kerosene in 2007,” said Tozun, who added that kerosene and candles are polluting, bad for respiration, can cause fires, and often have very dim lighting. “With today’s technology available, it is possible to have safer, better lighting. We want to provide that.” The product, called Forever Bright, will have a retail value of about Rs500 and is small enough to hold in your hand, said Tozun.

Uused in modern appliances such as the numbers on digital clocks, images on a television screen, and traffic lights, LEDs are tiny light bulbs that fit into an electrical circuit, but unlike ordinary bulbs, they don’t have a filament or get too hot.

According to Light Up The World, an international humanitarian organization whose goal is to light up the world’s poor, benefits of LEDs include ultra low power usage, durability and extended lifetime.
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The for-profit company was formed a year-and-a-half ago, after Tozun and a few colleagues took the “Entrepreneurial Design for Extreme Affordability,” class at Stanford University’s design school. They learnt to design for folks who earn a dollar or two a day.

D.Light’s plan is a good example of socially motivated, highly educated entrepreneurs to target a base of the pyramid market. And it’s just not easy.

Sam Goldman, the CEO and founder, is sharing his experiences on his blog.

Some lessons to sell in India from him.

There’s plenty of budget airlines and a quarter million cell phones being made a day. India is ‘calling all entrepreneurs.’ And yet its not that easy. Razor thin margins, an older bureaucracy, whole neighborhoods of C&D (copy and develop instead of research and development), and the little things - like trying to get a cell phone present constant challenges. I was shocked by how demanding the Indian consumer is - requiring high quality, low price, and service guarantees even or $10 purchases. If we can crack this market - we can crack any.
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India is the ultimate retail market and quite a challenge. As far as base-of-the-pyramid and rural marketing is concerned, I have found a few surprises. The first is how sophisticated the market has become. For example, the Chinese imports coming in as emergency lights have received a terrible reputation for low quality, and although they are still sold by the tens of thousands, newer Indian brands are springing up. Although the Indian brands are higher priced (often 2X) they come with guarantees (6mo-1yr) and often service warranties (up to 3years). Consumers are not only demanding high quality at low prices, but they want to be able to easily and inexpensively repair their products. If you are offering products that cannot be easily repaired – it is going to be hard to crack this market.

From the Wikipedia:

Value networks are complex sets of social and technical resources. They work together via relationships to create economic value. This value takes the form of knowledge, intelligence, a product (business), services, innovation or social good. Examples of business value networks are research, development, design, production, marketing, sales, organizational learning, procurement and distribution (business). Value networks exhibit interdependence. They account for the overall worth of products and services. Companies have both internal and external value networks. External facing networks include customers or recipients, intermediaries, stakeholders, complementors, open innovation networks and suppliers. Internal value networks focus on key activities, processes and relationships that cut across internal boundaries, such as order fulfillment, innovation, lead processing, or customer support. Value is created through exchange and the relationships between roles. Value network operate in public agencies, civil society, in the enterprise, institutional settings, and all forms of organization. Value networks advance innovation, wealth, social good and environmental well-being.

Verna Allee on the origin:

I have no idea where the term originally was used, but it began to come into general usage in the late 1990s in the supply chain world, e- commerce, customer relationship management,  and industry analysis. There was some interest in the KM community but most of the network thinking there is still focused on communities of practice and knowledge networks, which are best understood with social network analysis. The term seems to resonate with a growing interest in understanding organizations as complex adapative systems.

There are a couple of other books on value nets (Bovet and Martha, Cinzia Parolini) and many that include the topic either directly (Christensen’s Innovator’s Dilemma) or indirectly (Iansiti and Levie, Keystone Advantage). Stabel and Fjelstad also are known for comparing value networks and value shops and there is an academic group in Finland that also does work in value networks. A complementary method was developed by Jeff Shuman and Jan Twombly that is described in Collaborative Communities and Everyone is a Customer, but their method is proprietary other than what lis in their books. Their includes a similar value network mapping method and an analysis table configured for understanding the value exchanges with customers and stakeholders. Jeff teaches at Bentley College in the Boston area.

Most other methods seem to fall into two categories. The first is the process view of the world where value network is a term used to refer to complex supply chains. Such methods build on process tools, the most common of these being value stream mapping, which is used a lot in Lean. The Parolini value net method, which is quite solid work, also comes from the same perspective.

The second category is a type of cluster analysis which looks at various attributes and relationships of stakeholders in industry clusters. Cluster analysis has been around for quite some time and is of course complementary to value network analysis, as are all of these other methods. Christensen’s work would fall into this category I believe and we recently saw a draft of a good critique of his work that we hope to include on the www.value-networks.com site when it is finalized.