Addressing the Elephant in the room at COP22

Posted on November 20, 2016 by Flyn McCarthy

The Convention of Parties (COP22) titled the ‘COP of Action’ is wrapping up here in Marrakesh, Morocco with policy makers and negotiators from nearly 200 countries outlining with more clarity their Nationally Determined “Carbon” Contributions (NDCs) and the policy measures intended to meet the Paris Agreement. There was obvious momentum behind the deployment of key measures such as carbon pricing and renewable energy but the elephant in the room was the ample supply of low-cost fossil fuels as well as the election of Donald Trump.

Addressing the elephant in the room was US Secretary of State John Kerry, who reinforced that the US would keep its commitments and stated that he was “convinced the pledges could not be reversed”. Kerry left the crowd with a much needed sense of optimism stating that, “In a time of uncertainty, actionable plans to avoid runaway climate change matter more than ever – and that’s what we got today.” Speaking about a mid-century carbon plan which commits the US to even further reductions of 80% below 2005 levels by 2050. In addition to Kerry’s statement, 360 US businesses including a dozen Fortune 500 companies issued an open letter to President-elect Donald Trump at COP22 to follow through on US commitments made under the Paris Agreement. US Companies including Nike, Hewlett Packard, General Mills and DuPont argue in the letter that participation on climate change is good for business.

Both the US and Canada, as well as Mexico, Sweden and others joined Germany at COP22 in releasing 2050 plans to guide investment and drive reductions in carbon emission. The plans identified tools intended to chart the quickest possible path to carbon reductions including: fossil fuel subsidy removal, carbon pricing, renewable energy requirements and energy efficiency standards. Ontario, Quebec and California held a tri-lateral meeting focused on the benefits of their linked carbon market which helps companies realize the lowest possible costs for carbon reductions. China’s nationwide emissions trading scheme (ETS) to be rolled out in 2017 was also indicated as potentially linking-up to the EU system, taking a step towards an international carbon trading market.

Financial impacts to Emissions-Intensive and Trade-Exposed industry were also recognized in various high level talks with representative from oil and gas, agriculture, mining and manufacturing. Oil and gas companies were a major focus, just prior to COP22 a number of the world’s biggest oil companies, including Saudi Aramco and Royal Dutch Shell, pledged to invest $1 billion to develop climate-friendly technologies as part of the Oil and Gas Climate Initiative (OGCI). Discussions at the COP22 Innovation Forum illustrated the opportunity for significant reductions from the mining industry including emission reductions from the integration of renewables, application of big data for energy efficiency gains and use of green financing to develop innovative technologies. The COP22 Low Carbon Solutions Forum showcased some of the leading companies that are putting carbon competitiveness as a priority including Moroccan miner OCP.

Direct impacts resulting from climate change and adaptation were another major focus of the talks. Impacts including desertification, major droughts and extreme weather events were a key focus of this “Africa focused COP”. Phosphate miner OCP illustrated how their investment in desalination would help to mitigate the risk of drought to their operations. Closer to home, impacts due to disproportionate warming in the far reaches of Canada’s north were also discussed. The lack of cold temperatures required for the development of ice roads, the supply lifelines for northern communities and mining operations in Canada’s North, is a risk that is already being felt as indicated in this year’s Arctic warmth and the lack of sea ice (see below).

Now, after the dust has settled on the conference floor what is clear is that despite the elephant in the room, important global stakeholders are committed to continuing the momentum of the Paris Agreement with legally binding actions and a tight timeframe. Certain aspects of this international climate regime are already in place and others are in the development process. What is also clear is that businesses that have a good understanding of the financial risks and opportunities are already taking action. These companies will be able to adapt and will thrive in the future carbon constrained world.

Flyn McCarthy, P.Eng. Principal, SysEne Consulting Inc.

Why do so many industrial projects underperform these days?

Posted on July 6, 2015 by Craig Louie

About seven out of ten industrial projects underperform in production, operability, and/or have significant cost or schedule overruns. Everyone working on the project, including the sponsors, want a successful, on budget, and on schedule project. There are thousands of reference projects that have been done in the past decade, yet why is it so hard to learn from experience?

There are many reasons, and I’d like to comment on a few of the key ones that are of heightened risk because of today’s environment. There is much material available on industrial project underperformance, and we have talked to many in industry, and unfortunately we hear painful stories too often. As a general background:

Project complexity increases daily, with more difficult to reach resources resulting in a continual need to deploy new combinations of technologies, more difficult environmental regulations, more difficult community relations, etc.
We have been through 15 years of an economic boom in the Global Industry, and even the slowdown blip in 2008 was just a short term 10 month bust cycle with one of the fastest rebounds of industrial activity in 2009. During this boom, the underlying cost structure for engineering and construction services has increased much faster than inflation. On a typical project in the North Sea, companies are having to pay $300/hr for mediocre quality engineering – mediocre since after 15 years of boom, engineering companies have been often taking on less and less capable staff in recent years.
In boom times, many unhealthy projects still make money.
For many years now, many owner companies have been shedding internal experts in the technical functions, and they try to offload work and risks to EPC(m) or other contracting firms. But much of the work and risk cannot be transferred from owner to contractor because they are structurally different. Owners make money from the capital asset and they can still survive a budget overrun. Contractors cannot afford to take any financial liability of an underperforming project. Many owners often try to offload their project management or technical work to the contracting firm, but this is can be problematic mostly owners and contractors have very different perspectives. Owner’s teams need to be able to provide enough business and technical direction, and also provide contractor oversight. When they struggle to do so because they don’t have the resources to do so, the whole project suffers. Owner companies also struggle with internal coherence between all their internal departments and managers when they don’t have enough project resources.
Engineering and EPC(m) firms are always in search of the next project and don’t provide or develop enough long term continuity, R&D, productivity, or innovative support to the project over its entire life-cycle, or to the next project. These contractors cannot hold specialty resources or afford to invest in innovation. Engineering and EPC(m) firms are more service firms than total solutions firms – in part because this is what owner’s ask of them through the procurement process.
Much of the supply base, where much of the innovation does happen, struggle to afford or acquire all the necessary expertise needed to develop reliable and cost-effective solutions.

And now the Global economic macro-environment has weakened, especially in Canada’s Energy and Resource sectors.

With today’s drop in energy and commodity prices, and a general shortage of industrial capital financing, industrial companies are slashing their technical and project teams and departments to reduce their operating expenses. Until mid-2014 or so, production was King. Now we see significant consolidations, downsizing, and a focus on industrial company survival. An overly-lean team without enough access to critical skills is going to make current and future industrial projects even more difficult to meet expectations, budget and schedule.

With weakened balance sheets, industrial companies are going to need successful projects more than ever.

Keys for Improvement

We need to do better and we can do better with an improved application of management, strategy, approaches, and more respect for the complexity of today’s industrial projects. While all key stakeholders have to improve, the greatest leverage is with the project sponsors. They control the highest level need, budget, scope, risk profile, etc., and so they have the largest leverage on the outcome.

There needs to be a common understanding by both business and technical professionals on why there are so many issues with these projects, and going forward, how these projects should be developed, governed, and executed.
The project team needs to have the right skills, adequate staffing levels, and then a robust training program on how to best manage and implement the industrial project
The up-front design and planning work needs to be adequately funded and given enough time. A weak design and/or poor plan causes too many problems downstream when the activity and capital spend ramps up.
The right contracting strategy should be chosen, and the overall team constructed in a complete way and consistent with the strategy. The owner’s team must have the right skills and do all the scoping, concept work, requirements development, and overall management that is typical of successful contracts. The contracting must be done so that the professional service firms deliver quality and get paid well enough for doing so.
Experienced and systematic approaches to the:
- technical solution,
- process of doing the project,
- build and organization of the team

While the above roadmap seems obvious, the root cause of the problematic projects are issues in the above five points, in either the understanding, approach, strategy, or implementation. Furthermore, they have to be done well enough to the sophisticated level required by the complexity in today’s projects.

When owner’s companies become more open to a longer term value and improved partnering with the contracting firms and the supply base, it can enhance productivity and innovation from their products and services to the owner’s projects over the life of the asset. For example, engineering firms could provide more long term asset support. They have significant data on all the projects from the design phase, and can get operational data from the currently operating assets. Currently after the project build is finished, the engineering contractor moves their resources onto other projects (or if it is slow lets them go). The owner’s operating department of the asset struggle without the contractor engineering support, design models, people continuity, etc., and often the result is the asset does not operate to its potential. There can be a great business case to further optimization and operational improvements to the operating asset that could be turned into a long term support contract. Everyone wins.

We must change the way we do things for a better outcome, and the ways do exist.

Tailoring Product Development Processes

Posted on May 27, 2015 by Craig Louie

There is a wide spectrum of product development processes, from stage gate to spiral processes. Stage gate processes are able to stage scope and investment decisions and are typically employed in capital intensive industries. Spiral processes take advantage of many repetitions of the design-build-test cycle and are typically employed in software development. There are many variants in between.

To best tailor the product development process for the organization, it is important to understand the:

business and strategy of the organization
architecture and complexity of the product
product/project schedule, budget, and requirements
risks and uncertainties
needed iterations in the process
capability and culture of the organization, including Global aspects
customers, stakeholders, and suppliers
best practices

The resulting product development process is then “systems engineered” as it is an integration of systems and systems elements – technical, process, and people.

There are many useful methods to choose from during this design process, including:

Design Structure Matrix (Eppinger)
Agile Methods
Lean Methods
Model Based Engineering
Collaborative Supplier Integration
Risk-based Planning
Quality Approaches

A key aspect of product development is dealing with all the risks and uncertainties, which means iteration is inherent in the process. There are both planned iterations and unplanned iterations (to fix it when it’s not right). It is important to understand the linkages, interactions, and drivers behind how the iterations will happen. From that understanding, iteration can be accelerated through information technology, coordination techniques, or decreased coupling. After that, by prioritizing risks, planning the needed iterations, planning the integration and test activities, and scheduling reviews to control the process, the project risks can be addressed.

The process must also be tailored to the organization, specific people, and key stakeholders. This is probably the most difficult part, as it is all about dealing with people, managing change, and shifting cultures. It is important to pick and choose the most important methods, implement them, and sustain them, in a practical way. Too many processes fail because they are not used, unwieldy, inflexible, not fully coherent, too conservative, too bureaucratic, take too many resources, or are only partly implemented. Beyond process definition, there is training, coaching, fine-tuning, and ensuring the team sees that the change is in their self-interest to adopt, and really “owns” any new processes.

While overall improving the process is a complex and difficult initiative, having a competitive Product Development process is key to quality products, low costs, speed to market, satisfied customers, and good business.

Improving Systems Education and Research at Canadian Universities

Posted on November 18, 2014 by Craig Louie

In today’s world, products and processes are becoming more complex, and systems engineering is the best method to manage change and complexity. Students that have academic and experiential capability in systems engineering will be more useful and attractive to potential employers. Universities that provide a strong program in Systems will attract better students and improve academic and industry collaborations. Industry and Government will benefit by improved systems development.

Worldwide

Engineering education worldwide has begun to broaden from preparing students for technical careers in a particular discipline to also prepare technical leaders that will develop complex systems or have their “subsystem” fit better into the next higher level system. Engineers today are expected to be capable in management concepts and social science that encompass supply chains, politics, economics, and customers. The leading Universities have made cross-functional organizations that often combine engineering, management, and social science into “Engineering Systems” systems-oriented schools. These organizations can better cut across the more siloed traditional disciplines to offer integrated systems education and research which benefits from discipline fusion.

The forefront of the Engineering Systems Education and Research Universities include MIT ESD, Georgia Tech ISyE, Stevens SSE and SERC, Keio SDM, TUDelft TPM, and others. There is a Council of Engineering Systems Universities (CESUN) that helps coordinate the development of this field of study, with about 60 universities as members. SFU and the University of Waterloo are members of CESUN.

Overall I find much of the best Systems content comes from MIT Engineering Systems Department and associated community, such as from Steven Eppinger, or their book on Engineering Systems by de Weck, Roos, and Magee. There is a lot of other great material out there from many others, but if I had to choose the best Engineering Systems University program, it would be MIT’s ESD program. MIT’s ESD Strategic Plan is a worthwhile read. To also see that other regions are also at the forefront of Systems education, the “SDM in Two Minutes” video from Keio University’s program is also worthwhile.

There is also strong Systems Engineering Professional Education Programs available from places like Caltech or Georgia Tech, as many organizations send mid-career engineers, project managers, business analysts and management to these programs. INCOSE, the International Council of Systems Engineering also provides links to training and certification as a Systems Engineering Professional, again primarily for professionals in the workforce.

The Systems Engineering discipline primarily came from Industry and Government, especially Defense and Aviation, and is now grown to be applied to develop and manage the complex systems in Energy, Transportation, Health Care and other industries. Both the Systems Engineering Professional Education and the University Education in Engineering Systems are complementary and synergistic.

Universities that provide Systems education provide Undergraduate programs, Graduate programs, or Professional Certificate programs, or a combination of all three. Undergraduates with Systems education are able to become useful as a Systems Engineer right away. Charles Wasson makes a great argument for comprehensive systems engineering training at the undergraduate level to all engineers in this paper. At the same time, it can also be good to become well educated in one of the disciplines, like Mechanical or Software Engineering, and then take a Graduate degree in Systems, often with some work experience in between. Many engineers in the workforce find that their background in one of the disciplines is not enough for being a leader in developing complex multi-disciplinary systems, so they return to get either a Graduate degree or take Professional courses in Systems. The average age of students in MIT’s System Design and Management Program is 34, reflecting more mature students.

Canada

The Canadian University Programs in Engineering Systems or Systems Engineering are not as well developed as the leading Universities in this field. UBC and SFU have undergraduate programs in Integrated Engineering and Systems Engineering respectively, and both are a good first step towards multi-disciplined engineering, but neither school has a Graduate Level or Professional Programs, and the current curriculum does not generally include the Systems Engineering fundamentals or have the same level of fusion with social sciences or management science as in other leading Universities. SFU’s program is more of a Mechatronics program than what Systems Engineering is typically known for. The University of Waterloo has perhaps one of the best Systems program in Canada, with their System Design Engineering program, which is both Undergraduate and Graduate level, though it has a flavour of more “subsystems engineering” than “macro systems engineering”. Concordia also seems to have a good Systems program, graduate level, and focused on Information Systems. U of T has a graduate certificates in global engineering or multidisciplinary engineering final project programs, but the bulk of instruction is still in the traditional disciplines, and there isn’t the same level of Systems education or Research as the leading Universities. Overall for Canadian Universities there is a good start but there is much room for improvement.

Note there is a large diversity in the naming of these “Systems” programs, as to a certain degree, each University likes to brand their program as unique.

In my home region of Vancouver, there are many local companies that heavily use systems engineering in their development. They include MDA, Westport, Ballard, and many small tech start-ups. They have all had to teach the Systems Engineering discipline by bringing in external resources, as BC graduates don’t come with much Systems educational background. For future BC developments, such as a new LNG plant, or improving our Health Care System, Systems Engineering is of great benefit. In the rest of Canada, we have world leading companies like Bombardier, GE Canada, SNC-Lavalin, Cisco, and Blackberry that all heavily use Systems Engineering.

Canada is shifting from a more Resource-centric economy to more of a Knowledge-based economy. One of the most effective pillars to do that is to ensure Canada has a very strong systems-centric engineering education at our academic institutions to complement the traditional disciplines. Canadian Universities must improve their Systems education and Research. There are great examples by the leading Universities that Canadian Universities can incorporate.

While these changes are difficult to do, because it requires organizational changes, there can be tenure and political issues, there are fixed budgets and five year plans already in place, and it can be hard to fuse departments between different faculties of Engineering, Management, and Social Science – the incredible benefits of improved Systems education to Canada, the Provinces, Industry, Students, and the Universities is well worth the investment.

Why are Kei cars so popular in Japan and will they be popular elsewhere?

Posted on October 8, 2014 by Craig Louie

During my stay in Japan, small 660 cc engine Kei-cars are very noticeable, especially in the more rural areas. In the past few years in Japan, approximately 40% of new cars sold are Kei cars.

Kei cars are very popular in Japan because they are inexpensive – about half the price of a Prius, they get the same fuel economy as a Prius, they are very practical and roomy, they are easy to park in crowded Japan, and they have lower taxes and licensing costs. Women make up approximately 65% of the owners, and in some Prefectures, 99% of households own one, often as a second car. They are more popular in rural areas as compared to a big city like Tokyo, where it is more convenient to take public transit and owning a car is not as necessary as a more rural area.

Kei cars are not planned for the US or Canada because small cars are not really popular here, nor would they meet the US or Canadian safety standards because of their small size and lightweight build. The safety of Kei cars is not much of a concern in Japan, because road traffic accidents are amongst the lowest in the world in Japan (about 1/3 the victim rate of the US), and continues to drop every year, even with so many Kei cars on the road. Japan has good road safety measures, good driver training, and Kei cars are more popular in the more rural areas where road speed tends to be lower (though Japan has the highest rate of elderly traffic deaths at 54% vs. the US at 17%).

The Kei cars in Japan are made by all the major Japanese auto manufacturers, and they are becoming increasingly loaded with high technology based on customer demand – turbochargers, infotainment systems, airbags, remote controlled doors, keyless start, collision avoidance systems, CVT, and four wheel drive.

One of car reviewers I like is Bertel Schmitt, of the Blog “The Truth About Cars”, and he writes a pretty good review of a typical Kei car. It is a positive review for its market segment.

The Japanese Government is concerned that the Kei cars are too popular in Japan, as they not manufactured for export, because of their small size and insufficient safety equipment. The Japanese Government would prefer Japanese automakers to develop “world cars” for the economies of scale to compete in the Global market. Therefore, the Japanese Government has raised taxes on the Kei cars in 2014 and plans further tax increases in 2015.

One advantage of these small cars is that they contribute to lowering the amount of oil imports into Japan. At current oil prices, Japan has a net outflow of $100 billion/year from their economy from oil imports. The automotive sector in Japan has been steadily lowering its oil consumption over the past 10 years.

Honda is planning to raise their production from 4 million cars today to 6 million by 2017, and they see these minicars as one of the main ways to do achieve their targets by targeting markets in India or Southeast Asia. They will then be able to realize a return on their Kei car technology investments.

I think Honda is on the right track. The Japanese market is purchasing Kei cars much more than expected because for a large percentage of Japanese consumers – especially younger people, women, families that need a second car, small business owners, and rural areas – these vehicles make sense. Even with the 2014 Kei car tax increases, Kei cars are up 12% year to date over 2013, and higher than forecasts. While the numbers may drop with the 2015 Kei car tax increase, Kei cars have gone from a car to settle for to a desired car. There will be many world wide markets that have similar conditions where these cars, or similar minicars will make sense.

I don’t expect Kei cars will come to the US or Canada for a long time, if ever. In the US and Canada, the safety standards are not going to change, small cars are not popular, and fuel and other operational costs are relatively low compared to many other countries.

Honda has also introduced their S660 Roadster which they plan to introduce in 2015 as a Kei car for Japan, and perhaps with a 1 liter motor for other markets. I’ll be interested to see how this vehicle sells.

Winning Strategy for Canada’s Hockey Gold

Posted on February 24, 2014 by Craig Louie

Canada’s Men’s Hockey team won gold in the 2014 Sochi Olympics yesterday with both a winning strategy and a committed execution of that strategy.

Until the final game and result, it was not fully clear what their strategy was, nor whether it would meet the goal of a gold medal. The Canadian team was clearly loaded with scoring talent, but so were the Americans, Russians, Swedes, and Finnish teams. The International Ice Rink size is larger than the NHL rinks, which changes the game to require faster skaters and skill players, and is the development environment for the European Hockey players. In the first four games of the tournament for the Canadians, they did not score as many goals as expected with only a 2-1 overtime win vs. the Finns and a 2-1 win over Latvia. The US team had been scoring on average 5 goals per game over their first four wins, including a 5-2 win over the Czech team in the Quarterfinals.

The Semi Finals

The story going into the Semi-final game between the US and Canada was that the Canadian team was slightly stronger overall on paper, with a little more depth, but that the US team was clearly playing much better. Analysts were pretty split on who would win, as they seemed evenly matched, the outcome was difficult to call, and if anything the momentum seemed to be on the US side.

The Canadians won the game 1-0, and while the score was close, most observers commented that the Canadian team was pretty dominant defensively, and the American’s really struggled to get any sustained pressure or second chances.

The Bronze Medal Game

The American’s went up against the Finns in the Bronze medal game, and again were favoured, because the Finnish team was not as talented or deep, with only about half their roster from the NHL. The American team was embarrassed 5-0, and went home without a medal. In this game, the Finnish team showed that when they play their European style of hockey they are very strong, and the US team showed that a lack of heart, intensity, and poise, and fell apart.

The Gold Medal Game

Going into the Gold medal game, again, there were many doubts on whether the Canadians would win. The Finnish team showed the night before that the European style of hockey can demolish a more talented US team. The Swedish team was stronger than the Finnish team, and beat them 2-1 in the semi-finals. The Canadians still seemed to have trouble scoring goals, though had also been demonstrating very few goals against. The Canadian goaltender, Carey Price, had not been tested much in the tournament, and had not had to make that many difficult saves, whereas the Swedish Goaltender, Henrik Lundqvist had seemed to have demonstrated stronger performances in the past 5 games. Overall the story going into the game was that either team had a good chance of winning.

The Canadian’s won 3-0 in a dominating, clinical performance and won Gold.

The Strategy

The medal was won with a complete commitment to a team defense model that emphasized offensive puck possession. It was not a sit back and turtle team defense. Instead it relied on a combination of the forwards coming back to help the defense when the other team had the puck, and then when the Canadians had the puck, they kept it as much as possible through puck possession, strong backcheck and forecheck, and help from the defensemen in the attacking zone. The Canadian’s scored only 17 goals in 6 games the 2014 tournament, whereas in the previous 2010 Olympics they scored 35 goals. But in the 2014 Olympics, they only allowed 3 goals over those 6 games, and had two shutouts in the semi-final and gold medal game. While they did not score a lot, they didn’t need to. The other teams really could not generate sufficient chances against the Canadian team.

Defense wins championships.

This strategy was unrolled to the team in August 2013 at the Calgary training camp, and used Ball Hockey to demonstrate the system of team defense. They had to use ball hockey because for insurance reasons they couldn’t use an ice surface.

During the Olympic tournament, observers could see that the players had totally bought into this system, from their between game interviews, to their short shifts, to their selfless play.

“It was a feeling of absolute trust,” was how Jonathan Toews described the feeling of being one of Canada’s team members. “As soon as you jump over the boards you’re going out there to do the exact same thing the line before you did, and to keep that momentum going. Even when we got up two goals, we never stopped. We just kept coming at ’em, backchecking, forechecking. We didn’t give ’em any space. It was fun to watch and fun to be a part of.”

“That’s why we won,” said Steve Yzerman, the architect of a golden back-to-back. “Our best players said, ‘Guys, we’re going to win. We don’t care about individual statistics.’”

Mike Babcock, the Team Canada coach, said as much before he left a post-game press conference to partake in the closing ceremonies.

“Does anybody know who won the scoring race? Does anybody care?” he said.

The answer to those questions were, for the record: Yes, Phil Kessel. And, um, probably not.

Babcock continued.

“Does anyone know who won the gold medal?”

Babcock wanted a point clarified, mind you, when the talk turned to defensive genius. It should be remembered that Canada, he essentially said, wasn’t partaking in Euro-brand defensive hockey. Canada wasn’t mimicking the bronze-winning Finns collapsing in a shell around Tuukka Rask, begging you to beat one of the world’s best goalies from beyond the human blockade.

“When we talk about great defence, sometimes we get confused,” Babcock said. “Great defence means you play defence fast and you have the puck all the time so you’re always on offence. We out-chanced these teams big-time. We didn’t score (as much as they would have liked). But we were a great offensive team. That’s how we coached it. That’s what we expected. That’s what we got. We didn’t ask guys to back up.”

“Canada was much, much better,” said Marts, the Swedish coach.

Concluding remarks

There were high expectations placed on the Canadian team, and a nervous concern through the first four games of the tournament. The only revealing of the strategy during the tournament was what we saw on the ice during the games. After the gold medal game was won, the team revealed the thinking behind their brand of team defense system, and their strategy became clear. It is never good to be to clear about your strategy during the tournament, as it can be countered by your opponents.

While execution of the strategy on the ice was an important part of the result, developing the team first culture was an inherent part of the strategy and improved the likelihood of executing the system on the ice. We all know that a coherent high performing team always outperforms a looser collection of individuals. In this case, the strategy of how to develop that team and the system of play during the games was a strong key for winning Gold.

Organizing Clean Energy Complex Capital Projects

Posted on June 4, 2013 by Craig Louie

There are many similarities between Clean Energy Capital Projects (i.e. a new Clean Powerplant or Wind Farm) and Complex Engineered Product Systems which can benefit from the novel approaches to Global Project organization.

In the Global Product Development industry, a leading method to organize Complex Engineered Product Systems (i.e. aerospace, automotive, electronics) has been developed by Steven D. Eppinger, MIT. He applies systems engineering methodology to complex product development by considering not only the technical aspects, but also the work and people aspects, and especially interactions and iteration between all three. A good example of his work is noted in this paper, and he has written an excellent related book on his application of the analytical method Design Structure Matrix which has many case studies, including BMW and Pratt and Whitney. An example diagram from his above paper discusses one aspect of the Global Application of Product Development:

There is much more to his approach, with the above diagram “telling a thousand words”.

This same overall approach can also be applied to Clean Energy Capital Projects, as at the heart they are Complex Engineered Systems, even though most Clean Energy Capital Projects are not mass manufactured products and are often custom engineered for site, size, customer, environment, politics, etc. Today and tomorrow’s Clean Energy Projects have to take into account so many more boundary conditions, interactions, water conservancy, failure modes and effect analysis, etc, that the systems engineering of the whole system, and how they fit into the bigger ecosystem continues to gain in complexity. Down at the subsystem and component level, the supply chains, global sourcing, recyclability, and other aspects must also be organized considering global aspects. Applying the Eppinger approach to Clean Energy Projects is likely to significantly improve the outcome any complex Clean Energy Project and of the client’s overall condition.

Reference: Organizing Global Product Development for Complex Engineered Systems IEEE Transactions on Engineering Management vol. 58, no. 3, pp. 510-529, August 2011. Anshuman Tripathy, Steven D. Eppinger

New Direction for US DOE: Energy Efficiency vs. Batteries and Biofuels

Posted on May 23, 2013 by Craig Louie

The previous US DOE Secretary Chu had the strategy “Batteries and Biofuels”. That strategy has made some progress in those two areas in the past few years, but much less than planned. Much of the US DOE investment in US Advanced Batteries has not turned out as well as planned, for example the recent demise of A123. Biofuels have also have not had as much positive impact as planned, with issues such as “Food vs Fuel” or energy efficiency/balance, or environmental.

The new US DOE Secretary, Dr. Ernest Moniz, has stated that he wants to put Energy Efficiency “way, way up” on the US DOE priorities, and supports the Obama State of the Union goal of doubling US Energy productivity by 2030. Achieving this goal is detailed in an expert commission in this report by the Alliance to Save Energy (ASE).

While the goal is ambitious, if it is even close to being realized, it will have a major impact on the US Energy landscape, and other regions will tend to follow as well. In the figure below from the ASE report, in this scenario, the overall energy demand would drop while still increasing the US economic output.

A drop in demand would have significant implications to new power projects, upgrades, infrastructure etc.

Going in the direction of increased energy efficiency has significant challenges but also promises some of the best investment returns of any opportunity with much lower risk. While the topic of energy efficiency has waxed and waned over the years, this new emphasis by the US DOE looks like a much better strategy than the previous “Batteries and Biofuels” strategy. Bravo!

The Four Key Ingredients to a Successful Clean Energy Innovation Cluster in Vancouver/BC

Posted on May 22, 2013 by Craig Louie

Vancouver/BC has become a leading Clean Energy Innovation Cluster in several Technologies/Industries, despite many challenges:

smaller transportation/power industry and energy innovation ecosystem compared to many other regions, especially in the US, Japan, Korea, China, and Germany.
relatively low needs for Clean Energy applications compared to other regions because of lower energy prices, lower pollution, and a smaller market
higher cost of living for employees

The medium and long term Policy and Business Case for Clean Energy is compelling, according to the IEA, and is summarized in their IEA Energy Technology Perspectives 2012. A summary excerpt chart is below:

Governments and Industry worldwide are collaborating and competing for business, projects, and products, and Clean Energy clusters are a big part of that.

Within the Vancouver/BC Cluster, examples of world leading Clean Energy technology companies in Vancouver include Westport, Ballard, and AFCC/Mercedes-Benz Fuel Cell. These companies are all acknowledged global world leaders in their sector, and all continue to attract significant Foreign Direct Investment from big OEM multinationals. There are many emerging or established small Clean Energy companies in Vancouver as well – dPoint Technologies, Endurance Wind Power, and Greenlight Innovation – to name a few. The BC Energy companies, such as BC Hydro or Fortis, are players in many Clean Energy projects. The BC Consulting Engineering companies all have Clean Energy services. The BC Government has laid out a near term strategy, including a recent focus on LNG (which is one of the cleaner fossil fuels, though still has a medium carbon intensity).

So, what are the four key ingredients for Vancouver/BC?

World-leading technology/product prototypes and projects, which must be decisively better and more competitive than competing technologies, product prototypes, or projects from companies in other regions.
1. For technologies/products, in the critical OEM/customer prototype evaluation phase, the prototypes must demonstrate a superior performance and high robustness to real-world usage profiles; as well as a pathway to cost effectiveness and high volume manufacturability. Though high-volume, low-cost manufacturing is not a typical fit for Vancouver, as it is more likely to be done in other regions and closer to the customer deployment regions; proving technology readiness can be easily done in Vancouver.
2. Clean Energy Projects need to meet or beat the project intent – on time and on budget – and use the best Project Management, Engineering and Construction techniques, while navigating the complexities of stakeholders, the public, and politics.

Though self-evident the most critical ingredient is the competition. The core technology/product/project in Vancouver/BC must be extra competitive to prevent the host OEM/funding organization from doing the development in their backyard, or with their own internal resources.

Target worldwide export markets, as the needs for Clean Energy technologies/products are higher in other regions (energy prices, availability, and pollution). The challenge of finding early applications in BC forces the Clean Energy industry to study the worldwide market and partner with strong companies from other regions – US, Germany, China, Japan, etc. to bring applications, help, and funding. By being export focused, it can also strengthen the development/project team in comparison to teams in other regions, since challenge breeds character.

Build on Vancouver and BC’s strengths, especially in technology innovation, and where there is a critical mass of expertise or a strong competitive advantage; such as natural gas, hydro, environmental protection, energy management and power electronics, or PEM fuel cells. The Globe Foundation has summarized many of BC’s strengths in this 2010 report. Trying to catch up in areas where Vancouver/BC is not as strong is not practical, as noted in research by Pisano and Shih in this Harvard Business Review Article. For positive examples that Vancouver/BC should consider, in the USA, there are several cities that are clearly specializing in clusters, according to this article, such as Indianapolis in Life Sciences or San Antonio in Cybersecurity.

Improved partnering between industry and government. Canada is well known for its supply of resources to global markets, and for its small-scale innovation. However, Canada does not have nearly as much success in turning innovative technology into global products, as it has just a handful of world leaders in other industries (for example: Bombardier or Blackberry). Collaboration is needed between industry and government in Clean Energy because of the high capital requirements, risks, regulations, and long timeframes. Canada and BC can especially build on other regions that have strongly supported their clusters with:
1. Long term strategic policy support and National/Provincial strategies similar to Germany, Japan, Korea, and California (i.e. Roadmaps and Policy requirements through 2050)
2. Procurement and demonstration of competitive BC/Canadian technologies/products to fill new needs where they make sense.
3. Funding support through the gap between technology and commercial launch, such as from SDTC or BDC.
4. More industry “pull” mechanisms on University/College Research and Student-Industry placement (i.e. through NSERC, NRC, Policy etc), similar to Germany and Japan

In closing, Clean Energy is a both a collaborative and a fiercely competitive sector; and with the right strategy, Vancouver/BC developers can be successful players.

The SysEne Blog

Systems thinking for the real world

Category Archives: Strategy