TranscriptQuestion: What is Living PlanIT?
Robert Eccles: Living PlanIT is a company that has developed the most interesting, innovative, radical business model I’ve seen for creating new, sustainable cities and for retrofitting existing cities to improve their performance. There are various tag lines that are used for new cities; some people call them smart cities, some people call them green cities, there’s nuance of those. What Living PlanIT is doing for its pilot project is creating a research setting, so it’s a city where the economic model is based on research and innovation, that will be the economic driver, it is being built to the highest standards of sustainability, defined in terms of environmental issues, social issues, governance issues, but it’s not a green city, per se, the way I think you could say Masdar is. So it has a strong and viable economic model. The current title for this city, or name for this city, is Planet Valley. It is being built on 1670 hectors of land in the municipality of Paredes, which is outside Porto, about 20 minutes outside Porto. There’s this remarkable man named Celso Ferreira, who is the president of Paredes, like Steve and Malcolm, is a visionary. The way these people all found each other is an interesting story, has been very supportive, so there’s a strong relationship between the company and the Portuguese government, both at the municipality level, the regional level, and the national level—though it’s not in the classic sense a public/private partnership because all of the funding that is being done is coming from the private sector. And they will begin building this, as they say, 1.0, because they’re software guys, it’s a software metaphor, Planet Valley, this year. And the intention is to then replicate this model all over the world. Where clearly the major markets from a new cities point of view, where many new cities have to be built are emerging markets such as China and India and Brazil.
The foundation of their business model is an ecosystem of a variety of companies including technology companies. Cisco is one of the key partners in this and they’re working out the business model with them. I have a Harvard Business School teaching case, which describes the business model, describes who some of the partners are that are involved. And for my research on sustainable urbanization that I’m doing with Professor Amy Edmondson, who’s a colleague of mine here at Harvard Business School, Living PlanIT, the company, and then Planet Valley, the project, are base line, sort of research sites right now and we’ll be studying that over time and then looking to study other so-called smart cities or green cities. There’s a place called New Sangdo in Korea, there’s a Masdar in Abu Dhabi, which I mentioned, there’s a city that’s now kind of on hold for political reasons called Dongtan in China. So this area of sustainable urbanization is an incredibly, it’s an important issue and it’s a big market opportunity.
The issue around sustainable urbanization and part of Living PlanIT’s business plan, is a radically different approach to construction. The construction industry has showed negative productivity growth, 30 to 50% of the materials are wasted, 40% of carbon emissions come from buildings. If these new cities are built the way the old cities had been built, the process doesn’t contribute to sustainability, the outcome doesn’t contribute to sustainability. So a key part of their business model is a radical new approach to building and construction on which they’ve developed intellectual property, so that’s an important part to cover as well.
It’s interesting to note, thinking about our previous discussion on integrated reporting, that Living PlanIT, as it gets established, is committing to publish an integrated report. They’re a private company, they’re under no pressure to do so and all the partners of Living PlanIT and Planet Valley will also be producing integrated reports. So there’s a clear, conceptual linkage between sustainable urbanization and an integrated reporting. And for anybody that’s interested in sustainable urbanization and the impact of the built environment on the planet, I think that following and understanding what Living PlanIT, and others are doing I think is an important, interesting, and useful thing to do.
Question: Do we need to rebuild our cities, or retrofit existing infrastructure?
Robert Eccles: Cities are being rebuilt all the time. I think the notion of “tearing down” existing cities and building them from scratch, clearly, you know, isn’t a practical one. But there’s a question about, I talk about this with my students, my MBAs, when I taught the case to my doctoral students, existing cities, the so-called urban retrofit market, could be an even bigger opportunity. It would be approached in the somewhat different way, but the services, the products, the technologies, the sensor technology, and in particular, a core aspect of the Living PlanIT business model is something they call the urban operating system, could be used in existing urban environments, as well as it is in new cities. So the basic notion is that you go into existing urban environments, incorporate the new technology, smart building, smart grid mobility, look at the information in an integrated way in terms of how the city is functioning economically and socially and environmentally in a way that would improve performance. And then I can tell you—and I can’t give you the names—but right now Living PlanIT is talking to existing cities, this is a major area of focus for Cisco and they’re as interested in existing urban environments as they are new urban environments. And so just as Planet Valley will hopefully become a showcase for how to build new sustainable cities, there will be one or two existing cities, and there’s some fairly major and prominent cities that they’re in discussion with now that could become models for how to use these new technologies and this new way of thinking to create more sustainable urban environments.
The other thing I should note, and it’s relevant to both existing urban environments and new urban environments, what’s interesting about their business model is that it is not primarily a real estate development play and that’s been the case so far. People say none of these new towns, none of these experiments, none of these smart cities, green cities, have been successful and I think that’s largely true. And that’s true because the business model that has been used is a real estate development: try and get the land cheap, have deep pockets, you know, build it, you know, lease it, sell it. It’s the classic thing that happens, you have a couple of guys with an extraordinary team of people from all over the world really, and it’s a longer story than I can get into here, it’s in my case, but they’ve come at a problem through a different lens. So they’re looking at a problem really through the lens of the software industry. And so they’re framing the problem, they’re framing the opportunity in a different way. Clearly there’s real estate, there’s real estate development and that’s being incorporated into it. But they’ve just kind of looked at it in a different way and I think they’ve come up with something very interesting and very creative and an example of that right now, here we are in Boston over the last two or three days, the Urban Land Institute has had one of their—I think they meet bi-annually—so this is real estate developers from all over the world, one of the main sponsors for the ULI Conference taking place in Boston this week, is Cisco. IBM is very focused on smart cities. Oracle has developed software for smart cities. Siemens has a number of products and services for smart cities.
So you can see major corporations have identified this opportunity. What Living PlanIT has come up with is a business model that integrates the capabilities of all of these different companies through this ecosystem and then the representation or the integration really of the technologies that these other firms have through the urban operating system is the, in a sense, kind of mental, not mental, kind of the, it’s like the nervous system, is probably the best way to think about it. The nervous system for what will make these cities be sustainable. Broadly defined sustainable, not simply in environmental terms, but in social quality of life and financial terms as well.
Question: What do you make of the outcome of the Copenhagen talks, as discussed by Peter Brabeck?
Robert Eccles: I was disappointed in the talks in Copenhagen, I think there was a lot of expectations, maybe expectations were greater than they should’ve been. This is not an area of expertise of mine, how things get negotiated on a global basis. So whatever views I have would be those of a reasonably well-informed citizen and somewhat casual observer. But I can say that in looking at the tape at Peter, and there’s always the danger that since I just wrote a book on integrated reporting, I’m a hammer and everything looks like a nail. But as I watched his tape and he made a compelling argument for why simply jumping to bio-fuels was not a logical conclusion. He discussed the difference between oil and bio-fuels in terms of the amount of water that needs to be used and for bio-fuels, the plant matter that could be food and used in another way. I was saying to myself, "If we were thinking about climate change, just climate change, in a more integrated way, and we weren’t just focused on carbon, but if we were thinking carbon, we were thinking water, we were thinking food, we were thinking about what the relationships are, what the trade-offs are..." because there’s tough choices that have to be made. It’s easy to say we can optimize across every environmental dimension while we’re optimizing across financial performance and quality of life, but that’s not the world we live in. I think in some cases, we can do better on all counts. In other cases, tough choices have to be made.
And what Peter’s video clip said to me was, if we were taking a more integrated view and we were looking at data and analyzing data in a more integrated way, I think we could be making much better decisions.
Robert Eccles: The issue that she brought up about China, the relationship between the US and China, I think is a fundamental one. People talk about the Big Two, I think the relationships between the US as the world’s largest developed economy and China, as the world’s largest developing economy, is absolutely a critical one. I happen to be spending a lot of time in China for work I’m doing at Harvard Business School, both in terms of sustainable urbanization and executive education programs of various kinds. What I’m finding is very interesting, is an extremely high level of interest in sustainability and integrated reporting in China. If you look at what the official government agencies are talking about, and I forget the exact term, but the current five-year plan is essentially one that says we need to continue to grow, we need to take care of a large population, but we need to do so in a responsible way that takes account of society’s limited resources.
My book on integrated reporting is being translated into Chinese, it should be available in June. When I’m in Shanghai in June I will be doing a conference in collaboration with the Fudan School of Management. Since there’s an extremely high level of interest in sustainability in China, one of my colleagues, Professor Chris Marcus, is doing a study of CSR in China and when I asked him what the topics around CSR core responsibility are, that are in high on the list, environment is clearly high on the list, you know. Water’s high, energy, reporting around this is high. SASAC, the agency that manages the government’s share, the people shares of the large state-owned enterprises, last year required the SOE’s to start issuing CSR reports. It’s not hard to imagine that SASAC would think about, talking earlier, the role of regulation could require the SOE’s, which are the dominant market cap in China, to issue integrated reports. These large Chinese companies have the assets, have the ambition. They don’t want to just be big companies in China, they want to be global players and they understand that to be global players, they’re going to have to play by global rules and they’re going to have to establish themselves as legitimate in the global community, perhaps different standards in the US, certainly in Europe, around environment, around social, around labor. They’re smart, they get it, they’re adaptable, and I think you’ll see tremendous change in China. In fact, one can imagine in China, because it doesn’t have the same embedded infrastructure that you would get in places like Europe and the United States around rules and reporting and regulations, it’s not completely a green field, but it’s a greener field.
One could imagine that leadership around things like integrated reporting could happen in China and could happen in China more quickly than it happens in the United States. In Brazil, for example, two of the companies that we talk about in our book are Brazilian, there’s an extremely high level of interest in Brazil around sustainability, driven by the great consciousness they have about the precious resources in the rainforests and they need to use those carefully.
So it will be interesting over the next couple of years to see, as society becomes more and more committed to—I think the awareness is there—more and more committed to society, you could see leadership being taken by some of the major emerging market countries like China, like Brazil, like India. But I would agree with, Mrs. Brundtland that the relationship between the U.S. and China is an extremely critical one and if, from the point of view of my major mission around integrated reporting, if the US could exercise leadership here in the developed world and if China could exercise leadership in the developing world, I think that would be just terrific. And the rest of the world would probably bet on board fairly quickly.