McKinsey Report on Energy Efficiency

Yesterday, McKinsey & Company, the global consulting firm, released a report indicating that the US could reduce energy use by approximately 23% by 2020, while also saving $1.2 trillion in energy costs, through greater investment in energy efficiency measures. In taking these measures, the country would also avoid 1.1 gigatons of greenhouse gas emissions every year, which according to McKinsey, is equal to “taking the entire US fleet of passenger vehicles and light trucks off the roads.”

The good news: McKinsey focused only on non-transportation uses of energy, which means current efforts at developing plug-in hybrids and electric cars would only improve our nation's energy effectiveness even more!

The bad news: McKinsey’s study indicates $520 billion of upfront investment would be needed to achieve the efficiencies described…kind of a large number!

Nevertheless, I am very excited by this report. A lot of buzz around alt-energy tends to focus on the supply side: solar, wind, biofuels, and the like. I think some of the more interesting—albeit less sexy—aspects of alt-energy are on the energy efficiency side of things, and encouraging corporations and households to make investments and change behaviors that impact their overall energy consumption.

In the coming decade, I see the supply side being driven by continued technological innovation, while the demand side being focused more on customer experience and business model-type innovations.

Thanks!

I just wanted to take a second and thank everyone for following my blog. I created this blog to share and exchange ideas, and I'm delighted that people are finding my thoughts worth reading, especially in this day and age where so many sources of knowledge and commentary are available.

For those of you who are more interested in alt-energy, please don't worry...I've come across a number of great things recently that I will be posting next!

As well, I want to thank my colleague, Carl Fudge, for helping me set up this blog and encouraging my writing. If you are looking for another great innovation read, Carl's Blue Sky Blog, is definitely worth following.

Packaging innovation in a Downturn: Miller Lite

In today's Wall Street Journal, there is a great article about MillerCoors new 1.5 gallon "Home Draft" beer system. For $20, you get a baby pony keg that stands upright in the fridge, keeps beer fresh for 30 days, and is totally recyclable too!

The WSJ article also notes that beer companies are introducing all types of innovations--especially package innovations--during the economic downturn as sales volumes fall in the very competitive, slow growth beer industry.

A quote from the article that's worth noting:

"In this economy, we are seeing an increase in packaging innovation" in consumer-goods industries, said Kara Gruver, head of the North America consumer-products practice at consulting firm Bain & Co.

"In many cases, it can be less costly [than creating a new product] and a very effective form of innovation."

Lessons from the Tropicana packaging effort

Although the “new” Tropicana package has been pulled off the shelf for quite awhile, I still get asked about it all the time. And as I think about the big takeaway from all those discussions, I am concerned that the poor performance by Tropicana (or more accurately, Pepsi and the Arnell Group) has made some corporate leaders apprehensive about investing in better package design.

At the end of the day, the Tropicana story is proof positive that great packaging design should be treated as a strategic activity. Here are three things that every VP, marketing director, or brand manager can do to avoid a calamity of Tropicana-like proportions:

1) Know your visual brand equities. All consumer-oriented companies do the work to establish their brand positioning and brand foundations. Leading edge companies also do the research to understand how the positioning and foundations should translate visually and what the implications are for various product pillars and packaging types.

2) Direct the agency (not vice versa). Engage your agencies early and tell them where your brands are headed. If you don’t come in with a clear perspective, the ad or design agency will tell you what they think—sometimes too convincingly in the case of Arnell—and the results may be in conflict with both the heritage of your brand and your long-term strategy.

3) Test for the right things. Nearly all companies do consumer testing to see what designs are preferred by consumers. But here’s the thing: consumers always prefer designs that they feel are more familiar, and as a result, marketing never learns if a breakthrough design is truly horrible (or just interestingly different).

Great Packaging Example: Samurai Vodka

A number of my CPG clients are always looking for great examples of packaging in their industry. And while the food/beverage players are relatively weak in this regard, I feel that the liquor companies always step it up a notch. Check out the Samurai vodka bottle below:

Of course, alcohol companies have a little bit more margin to play with, but it's still interesting to note that great packaging is a key core capability and point of difference for these companies and not other CPGs.

Design and Innovation in NYC

Last night, I attended a small gathering of the design and innovation community in New York City. Co-hosted by BusinessWeek and Smart Design, the event brought together an exciting mix of design and innovation luminaries, and the discussion touched on a number of topics, including green design, designing for Gen Y, and design impact in an economic downturn.

Some of the things that were said during the course of the evening:

"You can't focus on the average user. If you designed a door for the average, half the people would bump their heads!"

"The [new] Negroponte Switch...physical things are becoming more digital, and digital things are becoming more physical." (tremendous implication for designing services)

"Zipcar capitalism is a trend. More sharing and less owning."

"Form doesn't always follow function. The iPhone is a brick!"

"Within Gen Y, there is the older Gen Y and a younger Gen Y, and they are different in how they use technology."

Kudos to BusinessWeek, Bruce Nussbaum, and Smart for putting together the event! I look forward to attending other meetings of design and innovation enthusiasts in the future.

Self-Quantifiers Customer Experience: Positive Energy

A few blogs ago, I wrote about self-quantifiers and the potential value of a self-quantifier customer experience for alternative energy. To my surprise, Positive Energy, an Arlington, VA-based company, has already taken advantage of this concept.

Using a combination of behavioral economics, marketing analytics, and proprietary software, Positive Energy assesses energy usage by neighborhood and sends comparative reports (on behalf of the local utility) to individual consumers. To reinforce positive behavior, consumers who are relatively energy efficient compared to their neighbors get a series of smiley faces on their report! People who are below average used to get frowns, but too many people complained.

Would taking a peek at your neighbor’s utility bill inspire you to “keep up with the Jones” and change your energy usage behavior? A number of utilities in California, Washington, Illinois, Minnesota, and New York (representing approximately one million homes) are betting yes.

Creating new customer experiences continues to be one of the greatest levers for innovation in many industries. To learn more about Positive Energy’s Home Energy Report customer experience, check out their web site.

Building a Great Design Organization: P&G

Every week, I meet with Fortune 500 senior executives who are looking for a playbook on how to build great design organizations. To me, they should look no further than Procter & Gamble and the work that Claudia Kotchka did to make design a new core capability.

The following video of Claudia Kotchka’s presentation at IIT's annual conference in 2008 should be standard training material for every design-oriented senior executive.

Claudia Kotchka on innovation at P&G, Institute of Design Strategy Conference, May 2008 from IIT Institute of Design on Vimeo.

Waxman-Markey Energy Bill

Last week, the Waxman-Markey energy bill passed the House by a narrow margin of 219 to 212. There are a number of reasons why people are opposed to the legislation. Some continue to question the underlying science about climate change; others worry about the potential cost to consumers of the programs outlined. And of course, many are concerned that the bill calls for the creation of a cap-and-trade program for carbon emissions.

As someone who has followed these issues for over a decade, I believe that cap-and-trade has strong merits as an enabler of innovation on carbon emissions reductions. Specifically, cap-and-trade:

• Leverages market-based incentives. In general, policy that fosters market-based incentives encourages greater innovation and is more efficient than traditional command and control regulation. In a cap-and-trade program, the government sets an industry cap. Companies then have the flexibility of determining how they wish to comply, and those who are successful can sell excess credits.
  
  
• Provides environmental certainty. Under a cap-and-trade program, there is, by definition, a clear cap for the amount of emissions produced. Any legislation and resulting innovative efforts by companies that fail to produce true environmental impact will be harshly judged in the coming years.
  
  
• Has worked before. While not a direct parallel, the innovative Acid Rain cap-and-trade program has been incredibly successful, reducing SO2 emissions by 51% compared to 1990 levels. Another successful cap-and-trade program is the NOx Budget Trading Program in the Northeast, which reduced ozone-based NOx emissions by 60% compared to 2000 levels. Cap-and-trade is a proven policy innovation.
  

A US cap-and-trade program also:

• Encourages global harmonization. At the end of the day, carbon emissions are a global challenge, and we must address the issue on a global level. Establishing a cap-and-trade program allows the US to harmonize efforts with foreign countries and learn from their early pilots on similar programs.
  
  
• Re-establishes our leadership position. As one of the highest polluting countries in the world and the leader of the free world, the US has a moral obligation to step up to the plate. A cap-and-trade program would allow the US to reassert our commitment to being an innovator on the link between business and the environment & gives us credibility during the upcoming Copenhagen meetings in the fall.
  

Is the Waxman-Markey bill a perfect piece of legislation? No, of course not. But I do believe the cap-and-trade program will work, esp. with accurately tracked emissions data and a smaller number of free permits. Just as important, the bill is fomenting a sea change behind boardroom doors and will foster the types of innovation we need to address our nation’s energy challenges.

For an overview of the current bill (without reading all 1200 pages), check out this snapshot.

For other opinions about Waxman-Markey, including those of our President and various enviro groups, read this article.