What is Happening?  On November 12, 2008, Sam Palmisano, IBM Chairman and Chief Executive Officer, spoke at the 2008 Business Leadership Forum in Istanbul, Turkey. His remarks focused on a concept termed the “Smarter Planet.”

Palmisano characterized the Smarter Planet initiative as striving for more intelligent management of business processes and consumption of natural resources.  Examples include utilizing information technology to address energy consumption and CO2 emissions. The Smarter Planet thrust includes a range of initiatives, from energy-efficient hardware and energy management software for data centers, to intelligent electric utility networks, support for solar development, carbon management, and intelligent transportation systems.

In addition, IBM is contributing technology, expertise, and guidance to various groups to “better understand and manage the impacts of climate change.” For example, IBM and The Nature Conservancy have joined in an initiative to create tools for simulating, visualizing, and forecasting more sustainable management of the world's great river basins. The system will provide access to wide-ranging data on climate, rainfall, land cover, vegetation, and biodiversity, and enable users to better understand how policy decisions impact water quality and ecosystem service.

Why is it Happening?  While IBM is definitely neither a not-for-profit nor a philanthropic organization, the Smarter Planet initiative strikes chords that resonate with both business and social motivations: Becoming more competitive through smarter processes; conserving natural resources through smarter infrastructure.

Palmisano offered key statistics that help provide context for the huge range of challenges and opportunities for all involved. These included the following:

• Losses of electrical energy due to inefficient grid systems range from 40 to 70 percent around the world. Assuming an average transmission cost of 8 cents per kilowatt hour places the losses at between $23B and $40B per year – just for U.S. household electricity. 
• In one year in one small business district of Los Angeles, drivers looking for parking spaces drove the equivalent of 38 trips around the world, consumed 47,000 gallons of gasoline, and produced 730 tons of carbon dioxide emissions. One intelligent transportation management system to more efficiently regulate traffic and transport in urban areas could save drivers as much as $750,000 in that district in vehicle operating costs, along with reducing congestion and emissions, reducing repair costs for vehicles and infrastructure,  reducing insurance costs for drivers and carriers, reducing needs for tires, and so on.
• Every year due to inefficient supply chains, consumer product manufacturers and retailers together lose about 3.5 percent, or $40 billion, of their sales.
• Health care systems rarely link between diagnosis, drug discovery, insurers, employers, patients, and communities. Studies indicate that unified, standardized and integrated healthcare management systems can save 40 to 70 percent in overall hospital operating costs, while reducing errors, improving work environments, reducing training needs, and improving the availability and quality of health care at lower costs.
• Typical data centers lack intelligent power and cooling management that can reduce energy consumption by half, and are filled with IT equipment that is utilized an average of between 10 and 20 percent of its capacity.

Palmisano added that current worldwide economic conditions offer a fortuitous incentive to focus on the changes that Smarter Planet encompasses.  However, those changes may be impeded by organizational lethargy and lack of necessary IT and management skills.

For example, Saugatuck research indicates that implementing virtualization can dramatically improve IT infrastructure utilization, and yield dramatic reductions in power and cooling costs. However, our research also shows that new skills, tools, and processes are required to properly manage the new virtualized IT infrastructure.

Market Impact  The concepts that comprise the Smarter Planet can yield substantial improvements in the global environment and the global economy. On a macro level, they can yield substantial improvements in national economies, regulated industries, and public interests such as traffic control. And, on the micro level, the concepts can yield economic and competitive benefits for companies of all sizes.

However, many of the broad sweeping changes encompassed by the Smarter Planet will not be easy, quick, or inexpensive. Palmisano offered one estimate that modernizing the world's urban water, electricity and transportation systems would require 25 years and cost $41 trillion.

In recent years IBM has introduced sweeping initiatives (e.g., e-Business, autonomic computing, On-Demand) with considerable publicity and coordinated company-wide (i.e., worldwide) product and marketing strategies. In each of those initiatives, the underlying drumbeat (and core motivation) was sales of IBM products and services. Recognizing the opportunities, other major “full line” IT vendors such as HP, Sun, and Unisys, launched similar efforts.

The Smarter Planet initiative differs from those previous initiatives in the following ways:

• In keeping with the aura of altruism, IBM is promoting the Smarter Planet initiative in a low-key approach, not as a major marketing thrust.
• Since many potential “solutions” will require governmental approval and funding, IBM is hoping to drive broad government and business acceptance of the concept.

This is not to ignore the possibilities for IBM and its vendor partners. Smarter Planet could reasonably become a link that connects many of IBM’s key projects and offerings. A visible example is IBM’s New Enterprise Data Center initiative for optimizing IT infrastructure and reducing user data center power and cooling costs, which has roots in the “Green Data Center” originally announced in May, 2007. In a less-obvious example, Stanley Litow, VP of Corporate Citizenship and Corporate Affairs, hosted a briefing on December 8, 2008, for IT analysts to review IBM’s support of the World Community Grid and IBM’s participation in research to develop less expensive and more efficient solar cells.

And other IT vendors appreciate both the near-term and the long-term opportunities offered by focusing on environmental issues. For example, similar to IBM’s Green Data Center initiative, vendors have been helping users implement more efficient IT networks and infrastructures through “green” products and services. Cisco promotes the network as a central control mechanism for a more efficient infrastructure and HP offers “EcoSolutions” including Data Center Transformation services for implementing a more efficient IT infrastructure.

Several vendors, including Cisco, Dell, HP, Intel, Microsoft, and Sun, support the Global eSustainability Initiative (GeSI). The GeSI is a partnership of information and communication technology companies that is focused on promoting technologies for sustainable development. GeSI is broad-based, and is focused on many of the same areas identified in IBM’s Smarter Planet initiative.

Such major vendor positioning, combined with an increasing demand for “green” initiatives and actions by customers and regulators, and the urgency of current economic conditions, suggests to Saugatuck that we are seeing a series of signposts – indicators that the time has arrived for investment by users and vendors in improving business, public, and governmental processes and infrastructures. Many earlier ideas and initiatives that were formerly held to be impractical or uneconomical are now much more attractive due to the combination of conditions. Some changes will yield near-term savings while other efforts will be protracted but could yield near term benefits. For example, a public works effort to renew the US power grid could offer currently needed employment opportunities.

Clearly, the types of changes envisioned in the Smarter Planet and in GeSI present enormous product and services opportunities for major IT vendors. But Saugatuck does not expect vendors (or users) to abandon long-standing IT or business planning, development, purchasing, and management practices, and suddenly switch to so-called “smart” alternatives. We do expect an upsurge in interest and action toward “smart” and “green” initiatives and solutions (such as virtualization of IT infrastructures) partly as a result of these major vendors’ positioning and pressure - which in turn, are responses to increasing public market pressures – and partly the result of near-term cost benefits. More and more, there is profit in doing good.

The authors invite your comments and inquiries on this Research Alert. Please contact  Charlie Burns at charlie.burns@saugatech.com, ,or Bruce Guptill at bruce.guptill@saugatech.com .  For a PDF Version of this Research Alert please Click Here (Site Registration Required).

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