Driving Clean, Smart Energy and Radical Services Integration

Downstream Strategic Summit 2018

Industrial Internet Revolution

Flow on effects of technology revolution

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Productivity Commission analysis indicates greatest productivity gains come when a business is internationally connected, and product innovation is linked to organisational and operational innovation: • ‘..to successfully innovate and make the most of new technology, firms need to reinvent many aspects of their operation

– including process and service design, software development, organisation structure and marketing. This requires not only R&D capability but also considerable management expertise and an ‘all of firm’ innovation mindset.’

• “New Zealand firms that improve operational processes and organisational structures at the same time as innovating their products achieve much better productivity gains than firms that innovate in only one of these areas’

• New Zealand firms that export or invest in offshore markets generally do experience productivity improvements following some types of innovation .. NZ firms focussed solely on domestic markets are less likely to innovate

Source: ‘Cut to the Chase – Innovation and firm performance’ New Zealand Productivity Commission September 2017

https://www.productivity.govt.nz/sites/default/files/CTTC%20grants%20innovation%20firm%20performance.pdf

The link between R&D, innovation and productivity

NZ invests half as much as other countries in innovation New target: R&D spend at 2% of GDP by 2027

New Zealand 2016 R&D spend % of GDP

1.28%

OECD 2016 R&D spend % of GDP

2.40%

Denmark

2x more researchers and 3x more spend than New Zealand

Source: OECD, Main Science and Technology Indicators, January 2017

Human and financial resources devoted to R&D

Across the business sector R&D is increasing in NZ

20%

29%

46%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total NZ R&D Business expenditurein R&D (BERD)

Callaghan InnovationCustomers total R&D

Expenditure*

% increase in R&D indicators 2014-16

Our customers increased their R&D expenditure at a much

higher rate than the national growth in R&D or BERD

TIN 200 Callaghan Innovation customers: • 4 times revenue growth • 4 times job growth

But not in energy sector with an appalling 7% of businesses conducting small levels of R&D

34% - Computer Services 18% - Telco 14% - Food and Beverage 13% - Info, Media and Comm’s

Total $m spend R&D 2007 - $15m 2016 - $8m

$586m Manufacturing $476m Computer Services $100m Food and Beverage $50m Financial & Insurance $40m Information media & telco

And in other news…….

39%

50%

9%

Over the last financial year, to what degree did this business’s technology change?

None Minor Major

0%

10%

20%

30%

40%

50%

Fully up to date Up to 4 yearsbehind

> 4 years behind

How does this business’s core equipment compare with the best commonly available

technology?

Telco / Computer Services Industry experiencing ‘major’ tech change at 2-3.5 times the level of your sector

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The curse of a domestic focused market – putting a lid on productivity and performance

Global trends will impact our market

》 Incredibly cheap grid scale storage

》 Biofuels

》 Building micro-grids and mini grids across the developing world (low cost solar)

》 Zero carbon building materials

》 Geothermal

Source: Breakthrough Energy Coalition

》 Rise of low cost intermittent electricity

》 Emergence of burgeoning middle class

》 Increasing urbanisation

》 Autonomy, Internet of Things and distributed everything

》 Ample supply of fossil fuels

Energy Technologies Megatrends

How many of these are you actively testing now ?

Our jobs will change, plan for it

Source: McKinsey & Company

McKinsey analysis shows scale of impact

Source: McKinsey & Company

The dilemma is the transition, less so the end game

Source: McKinsey & Company

New leadership skills needed

Intersection and Integration is inevitable – how will your business play in these new eco-systems?

Your local based potential eco-system partners also present you with challenges

Which of these trends do you think will impact your industry in the next ten years?

• 13% big data

• 13% 3D printing

• 23% automation

• 14% machine learning

• 39% cloud computing

• 44% improved connectivity MYOB SME Survey 2017

Boards play a critical role

Only 35% of boards say they have the right skills and experience to lead

their digital future

28% don’t have the right digital capability (37% unsure)

47% of boards receive good quality report and information from management on technology related matters

23% of boards actively participate in security policy

93% of security breaches could have been avoided

Driving Innovation: Questions to ask

》 How are you talking about your sector? As a utility?

》 How are global and sector mega trends impacting your future? Emerging energy technologies? Customer aggregators and platforms?

》 What level of R&D are you undertaking? Application of emerging technologies to:

》 New (and adjacent) products and service offerings

》 New customer experience / interactions

》 Operational efficiency / transformation

》 Supply chain interactions and integrations

》 Health and Safety

》 New business models

》 Are you innovating simultaneously – product, operational, organisational?

Driving Innovation: Questions to ask

》 Are you actively planning your workforce for transition to automation and up-skilling / re-skilling? Are you active in the global search for talent in new roles involving AI, Big Data, Blockchain for example?

》 Are you investing in preparing your leaders with new skills for leading through the industrial revolution?

》 Have you mapped your current and future eco-systems you will be operating in?

》 Actively planning your eco-system approach?

》 Participation in hackathons, incubators and accelerators?

》 Identification of relevant (international) eco-systems partnerships?

》 Identification of acquisition opportunities?

》 How are you actively managing the ‘curse’ of domestic dominated markets?

Questions and Answers?