Robert Eccles is a Senior Lecturer at Harvard Business School. He does research on corporate reporting, and has written three books on the subject, including his latest "One Report: Integrated[…]
A conversation with the Harvard Business School professor.
Question: What is Living PlanIT?
Robert Eccles:rn Living PlanIT is a company that has developed the most interesting, rninnovative, radical business model I’ve seen for creating new, rnsustainable cities and for retrofitting existing cities to improve theirrn performance. There are various tag lines that are used for new cities; rnsome people call them smart cities, some people call them green cities, rnthere’s nuance of those. What Living PlanIT is doing for its pilot rnproject is creating a research setting, so it’s a city where the rneconomic model is based on research and innovation, that will be the rneconomic driver, it is being built to the highest standards of rnsustainability, defined in terms of environmental issues, social issues,rn governance issues, but it’s not a green city, per se, the way I think rnyou could say Masdar is. So it has a strong and viable economic model. rnThe current title for this city, or name for this city, is Planet rnValley. It is being built on 1670 hectors of land in the municipality ofrn Paredes, which is outside Porto, about 20 minutes outside Porto. rnThere’s this remarkable man named Celso Ferreira, who is the president rnof Paredes, like Steve and Malcolm, is a visionary. The way these peoplern all found each other is an interesting story, has been very supportive,rn so there’s a strong relationship between the company and the Portuguesern government, both at the municipality level, the regional level, and thern national level—though it’s not in the classic sense a public/private rnpartnership because all of the funding that is being done is coming fromrn the private sector. And they will begin building this, as they say, rn1.0, because they’re software guys, it’s a software metaphor, Planet rnValley, this year. And the intention is to then replicate this model allrn over the world. Where clearly the major markets from a new cities pointrn of view, where many new cities have to be built are emerging markets rnsuch as China and India and Brazil.
The foundation of their rnbusiness model is an ecosystem of a variety of companies including rntechnology companies. Cisco is one of the key partners in this and rnthey’re working out the business model with them. I have a Harvard rnBusiness School teaching case, which describes the business model, rndescribes who some of the partners are that are involved. And for my rnresearch on sustainable urbanization that I’m doing with Professor Amy rnEdmondson, who’s a colleague of mine here at Harvard Business School, rnLiving PlanIT, the company, and then Planet Valley, the project, are rnbase line, sort of research sites right now and we’ll be studying that rnover time and then looking to study other so-called smart cities or rngreen cities. There’s a place called New Sangdo in Korea, there’s a rnMasdar in Abu Dhabi, which I mentioned, there’s a city that’s now kind rnof on hold for political reasons called Dongtan in China. So this area rnof sustainable urbanization is an incredibly, it’s an important issue rnand it’s a big market opportunity.
The issue around sustainable rnurbanization and part of Living PlanIT’s business plan, is a radically rndifferent approach to construction. The construction industry has showedrn negative productivity growth, 30 to 50% of the materials are wasted, rn40% of carbon emissions come from buildings. If these new cities are rnbuilt the way the old cities had been built, the process doesn’t rncontribute to sustainability, the outcome doesn’t contribute to rnsustainability. So a key part of their business model is a radical new rnapproach to building and construction on which they’ve developed rnintellectual property, so that’s an important part to cover as well.
It’srn interesting to note, thinking about our previous discussion on rnintegrated reporting, that Living PlanIT, as it gets established, is rncommitting to publish an integrated report. They’re a private company, rnthey’re under no pressure to do so and all the partners of Living PlanITrn and Planet Valley will also be producing integrated reports. So there’srn a clear, conceptual linkage between sustainable urbanization and an rnintegrated reporting. And for anybody that’s interested in sustainable rnurbanization and the impact of the built environment on the planet, I rnthink that following and understanding what Living PlanIT, and others rnare doing I think is an important, interesting, and useful thing to do.
Question:rn Do we need to rebuild our cities, or retrofit existing infrastructure?
Robertrn Eccles: Cities are being rebuilt all the time. I think the notion rnof “tearing down” existing cities and building them from scratch, rnclearly, you know, isn’t a practical one. But there’s a question about, Irn talk about this with my students, my MBAs, when I taught the case to myrn doctoral students, existing cities, the so-called urban retrofit rnmarket, could be an even bigger opportunity. It would be approached in rnthe somewhat different way, but the services, the products, the rntechnologies, the sensor technology, and in particular, a core aspect ofrn the Living PlanIT business model is something they call the urban rnoperating system, could be used in existing urban environments, as well rnas it is in new cities. So the basic notion is that you go into existingrn urban environments, incorporate the new technology, smart building, rnsmart grid mobility, look at the information in an integrated way in rnterms of how the city is functioning economically and socially and rnenvironmentally in a way that would improve performance. And then I can rntell you—and I can’t give you the names—but right now Living PlanIT is rntalking to existing cities, this is a major area of focus for Cisco and rnthey’re as interested in existing urban environments as they are new rnurban environments. And so just as Planet Valley will hopefully become arn showcase for how to build new sustainable cities, there will be one or rntwo existing cities, and there’s some fairly major and prominent cities rnthat they’re in discussion with now that could become models for how to rnuse these new technologies and this new way of thinking to create more rnsustainable urban environments.
The other thing I should note, rnand it’s relevant to both existing urban environments and new urban rnenvironments, what’s interesting about their business model is that it rnis not primarily a real estate development play and that’s been the casern so far. People say none of these new towns, none of these experiments, rnnone of these smart cities, green cities, have been successful and I rnthink that’s largely true. And that’s true because the business model rnthat has been used is a real estate development: try and get the land rncheap, have deep pockets, you know, build it, you know, lease it, sell rnit. It’s the classic thing that happens, you have a couple of guys with rnan extraordinary team of people from all over the world really, and it’srn a longer story than I can get into here, it’s in my case, but they’ve rncome at a problem through a different lens. So they’re looking at a rnproblem really through the lens of the software industry. And so they’rern framing the problem, they’re framing the opportunity in a different rnway. Clearly there’s real estate, there’s real estate development and rnthat’s being incorporated into it. But they’ve just kind of looked at itrn in a different way and I think they’ve come up with something very rninteresting and very creative and an example of that right now, here we rnare in Boston over the last two or three days, the Urban Land Institute rnhas had one of their—I think they meet bi-annually—so this is real rnestate developers from all over the world, one of the main sponsors for rnthe ULI Conference taking place in Boston this week, is Cisco. IBM is rnvery focused on smart cities. Oracle has developed software for smart rncities. Siemens has a number of products and services for smart cities.
Sorn you can see major corporations have identified this opportunity. What rnLiving PlanIT has come up with is a business model that integrates the rncapabilities of all of these different companies through this ecosystem rnand then the representation or the integration really of the rntechnologies that these other firms have through the urban operating rnsystem is the, in a sense, kind of mental, not mental, kind of the, it’srn like the nervous system, is probably the best way to think about it. rnThe nervous system for what will make these cities be sustainable. rnBroadly defined sustainable, not simply in environmental terms, but in rnsocial quality of life and financial terms as well.
Question: What do you make of the outcome of the Copenhagen rntalks, as discussed by Peter Brabeck?
Robert Eccles: Irn was disappointed in the talks in Copenhagen, I think there was a lot ofrn expectations, maybe expectations were greater than they should’ve been.rn This is not an area of expertise of mine, how things get negotiated on arn global basis. So whatever views I have would be those of a reasonably rnwell-informed citizen and somewhat casual observer. But I can say that rnin looking at the tape at Peter, and there’s always the danger that rnsince I just wrote a book on integrated reporting, I’m a hammer and rneverything looks like a nail. But as I watched his tape and he made a rncompelling argument for why simply jumping to bio-fuels was not a rnlogical conclusion. He discussed the difference between oil and rnbio-fuels in terms of the amount of water that needs to be used and for rnbio-fuels, the plant matter that could be food and used in another way. Irn was saying to myself, "If we were thinking about climate change, just rnclimate change, in a more integrated way, and we weren’t just focused onrn carbon, but if we were thinking carbon, we were thinking water, we werern thinking food, we were thinking about what the relationships are, what rnthe trade-offs are..." because there’s tough choices that have to be rnmade. It’s easy to say we can optimize across every environmental rndimension while we’re optimizing across financial performance and rnquality of life, but that’s not the world we live in. I think in some rncases, we can do better on all counts. In other cases, tough choices rnhave to be made.
And what Peter’s video clip said to me was, if rnwe were taking a more integrated view and we were looking at data and rnanalyzing data in a more integrated way, I think we could be making muchrn better decisions.
Robert Eccles:rn Living PlanIT is a company that has developed the most interesting, rninnovative, radical business model I’ve seen for creating new, rnsustainable cities and for retrofitting existing cities to improve theirrn performance. There are various tag lines that are used for new cities; rnsome people call them smart cities, some people call them green cities, rnthere’s nuance of those. What Living PlanIT is doing for its pilot rnproject is creating a research setting, so it’s a city where the rneconomic model is based on research and innovation, that will be the rneconomic driver, it is being built to the highest standards of rnsustainability, defined in terms of environmental issues, social issues,rn governance issues, but it’s not a green city, per se, the way I think rnyou could say Masdar is. So it has a strong and viable economic model. rnThe current title for this city, or name for this city, is Planet rnValley. It is being built on 1670 hectors of land in the municipality ofrn Paredes, which is outside Porto, about 20 minutes outside Porto. rnThere’s this remarkable man named Celso Ferreira, who is the president rnof Paredes, like Steve and Malcolm, is a visionary. The way these peoplern all found each other is an interesting story, has been very supportive,rn so there’s a strong relationship between the company and the Portuguesern government, both at the municipality level, the regional level, and thern national level—though it’s not in the classic sense a public/private rnpartnership because all of the funding that is being done is coming fromrn the private sector. And they will begin building this, as they say, rn1.0, because they’re software guys, it’s a software metaphor, Planet rnValley, this year. And the intention is to then replicate this model allrn over the world. Where clearly the major markets from a new cities pointrn of view, where many new cities have to be built are emerging markets rnsuch as China and India and Brazil.
The foundation of their rnbusiness model is an ecosystem of a variety of companies including rntechnology companies. Cisco is one of the key partners in this and rnthey’re working out the business model with them. I have a Harvard rnBusiness School teaching case, which describes the business model, rndescribes who some of the partners are that are involved. And for my rnresearch on sustainable urbanization that I’m doing with Professor Amy rnEdmondson, who’s a colleague of mine here at Harvard Business School, rnLiving PlanIT, the company, and then Planet Valley, the project, are rnbase line, sort of research sites right now and we’ll be studying that rnover time and then looking to study other so-called smart cities or rngreen cities. There’s a place called New Sangdo in Korea, there’s a rnMasdar in Abu Dhabi, which I mentioned, there’s a city that’s now kind rnof on hold for political reasons called Dongtan in China. So this area rnof sustainable urbanization is an incredibly, it’s an important issue rnand it’s a big market opportunity.
The issue around sustainable rnurbanization and part of Living PlanIT’s business plan, is a radically rndifferent approach to construction. The construction industry has showedrn negative productivity growth, 30 to 50% of the materials are wasted, rn40% of carbon emissions come from buildings. If these new cities are rnbuilt the way the old cities had been built, the process doesn’t rncontribute to sustainability, the outcome doesn’t contribute to rnsustainability. So a key part of their business model is a radical new rnapproach to building and construction on which they’ve developed rnintellectual property, so that’s an important part to cover as well.
It’srn interesting to note, thinking about our previous discussion on rnintegrated reporting, that Living PlanIT, as it gets established, is rncommitting to publish an integrated report. They’re a private company, rnthey’re under no pressure to do so and all the partners of Living PlanITrn and Planet Valley will also be producing integrated reports. So there’srn a clear, conceptual linkage between sustainable urbanization and an rnintegrated reporting. And for anybody that’s interested in sustainable rnurbanization and the impact of the built environment on the planet, I rnthink that following and understanding what Living PlanIT, and others rnare doing I think is an important, interesting, and useful thing to do.
Question:rn Do we need to rebuild our cities, or retrofit existing infrastructure?
Robertrn Eccles: Cities are being rebuilt all the time. I think the notion rnof “tearing down” existing cities and building them from scratch, rnclearly, you know, isn’t a practical one. But there’s a question about, Irn talk about this with my students, my MBAs, when I taught the case to myrn doctoral students, existing cities, the so-called urban retrofit rnmarket, could be an even bigger opportunity. It would be approached in rnthe somewhat different way, but the services, the products, the rntechnologies, the sensor technology, and in particular, a core aspect ofrn the Living PlanIT business model is something they call the urban rnoperating system, could be used in existing urban environments, as well rnas it is in new cities. So the basic notion is that you go into existingrn urban environments, incorporate the new technology, smart building, rnsmart grid mobility, look at the information in an integrated way in rnterms of how the city is functioning economically and socially and rnenvironmentally in a way that would improve performance. And then I can rntell you—and I can’t give you the names—but right now Living PlanIT is rntalking to existing cities, this is a major area of focus for Cisco and rnthey’re as interested in existing urban environments as they are new rnurban environments. And so just as Planet Valley will hopefully become arn showcase for how to build new sustainable cities, there will be one or rntwo existing cities, and there’s some fairly major and prominent cities rnthat they’re in discussion with now that could become models for how to rnuse these new technologies and this new way of thinking to create more rnsustainable urban environments.
The other thing I should note, rnand it’s relevant to both existing urban environments and new urban rnenvironments, what’s interesting about their business model is that it rnis not primarily a real estate development play and that’s been the casern so far. People say none of these new towns, none of these experiments, rnnone of these smart cities, green cities, have been successful and I rnthink that’s largely true. And that’s true because the business model rnthat has been used is a real estate development: try and get the land rncheap, have deep pockets, you know, build it, you know, lease it, sell rnit. It’s the classic thing that happens, you have a couple of guys with rnan extraordinary team of people from all over the world really, and it’srn a longer story than I can get into here, it’s in my case, but they’ve rncome at a problem through a different lens. So they’re looking at a rnproblem really through the lens of the software industry. And so they’rern framing the problem, they’re framing the opportunity in a different rnway. Clearly there’s real estate, there’s real estate development and rnthat’s being incorporated into it. But they’ve just kind of looked at itrn in a different way and I think they’ve come up with something very rninteresting and very creative and an example of that right now, here we rnare in Boston over the last two or three days, the Urban Land Institute rnhas had one of their—I think they meet bi-annually—so this is real rnestate developers from all over the world, one of the main sponsors for rnthe ULI Conference taking place in Boston this week, is Cisco. IBM is rnvery focused on smart cities. Oracle has developed software for smart rncities. Siemens has a number of products and services for smart cities.
Sorn you can see major corporations have identified this opportunity. What rnLiving PlanIT has come up with is a business model that integrates the rncapabilities of all of these different companies through this ecosystem rnand then the representation or the integration really of the rntechnologies that these other firms have through the urban operating rnsystem is the, in a sense, kind of mental, not mental, kind of the, it’srn like the nervous system, is probably the best way to think about it. rnThe nervous system for what will make these cities be sustainable. rnBroadly defined sustainable, not simply in environmental terms, but in rnsocial quality of life and financial terms as well.
Question: What do you make of the outcome of the Copenhagen rntalks, as discussed by Peter Brabeck?
Robert Eccles: Irn was disappointed in the talks in Copenhagen, I think there was a lot ofrn expectations, maybe expectations were greater than they should’ve been.rn This is not an area of expertise of mine, how things get negotiated on arn global basis. So whatever views I have would be those of a reasonably rnwell-informed citizen and somewhat casual observer. But I can say that rnin looking at the tape at Peter, and there’s always the danger that rnsince I just wrote a book on integrated reporting, I’m a hammer and rneverything looks like a nail. But as I watched his tape and he made a rncompelling argument for why simply jumping to bio-fuels was not a rnlogical conclusion. He discussed the difference between oil and rnbio-fuels in terms of the amount of water that needs to be used and for rnbio-fuels, the plant matter that could be food and used in another way. Irn was saying to myself, "If we were thinking about climate change, just rnclimate change, in a more integrated way, and we weren’t just focused onrn carbon, but if we were thinking carbon, we were thinking water, we werern thinking food, we were thinking about what the relationships are, what rnthe trade-offs are..." because there’s tough choices that have to be rnmade. It’s easy to say we can optimize across every environmental rndimension while we’re optimizing across financial performance and rnquality of life, but that’s not the world we live in. I think in some rncases, we can do better on all counts. In other cases, tough choices rnhave to be made.
And what Peter’s video clip said to me was, if rnwe were taking a more integrated view and we were looking at data and rnanalyzing data in a more integrated way, I think we could be making muchrn better decisions.
Question: What do you see as the incentive for the U.S. to rncollaborate with China on issues of sustainability, as depicted in the rninterview with Gro Harlem Brundtland?
Robert Eccles: rnThe issue that she brought up about China, the relationship between the rnUS and China, I think is a fundamental one. People talk about the Big rnTwo, I think the relationships between the US as the world’s largest rndeveloped economy and China, as the world’s largest developing economy, rnis absolutely a critical one. I happen to be spending a lot of time in rnChina for work I’m doing at Harvard Business School, both in terms of rnsustainable urbanization and executive education programs of various rnkinds. What I’m finding is very interesting, is an extremely high level rnof interest in sustainability and integrated reporting in China. If you rnlook at what the official government agencies are talking about, and I rnforget the exact term, but the current five-year plan is essentially onern that says we need to continue to grow, we need to take care of a large rnpopulation, but we need to do so in a responsible way that takes accountrn of society’s limited resources.
My book on integrated reportingrn is being translated into Chinese, it should be available in June. When rnI’m in Shanghai in June I will be doing a conference in collaboration rnwith the Fudan School of Management. Since there’s an extremely high rnlevel of interest in sustainability in China, one of my colleagues, rnProfessor Chris Marcus, is doing a study of CSR in China and when I rnasked him what the topics around CSR core responsibility are, that are rnin high on the list, environment is clearly high on the list, you know. rnWater’s high, energy, reporting around this is high. SASAC, the agency rnthat manages the government’s share, the people shares of the large rnstate-owned enterprises, last year required the SOE’s to start issuing rnCSR reports. It’s not hard to imagine that SASAC would think about, rntalking earlier, the role of regulation could require the SOE’s, which rnare the dominant market cap in China, to issue integrated reports. Thesern large Chinese companies have the assets, have the ambition. They don’t rnwant to just be big companies in China, they want to be global players rnand they understand that to be global players, they’re going to have to rnplay by global rules and they’re going to have to establish themselves rnas legitimate in the global community, perhaps different standards in rnthe US, certainly in Europe, around environment, around social, around rnlabor. They’re smart, they get it, they’re adaptable, and I think you’llrn see tremendous change in China. In fact, one can imagine in China, rnbecause it doesn’t have the same embedded infrastructure that you would rnget in places like Europe and the United States around rules and rnreporting and regulations, it’s not completely a green field, but it’s arn greener field.
One could imagine that leadership around things rnlike integrated reporting could happen in China and could happen in rnChina more quickly than it happens in the United States. In Brazil, for rnexample, two of the companies that we talk about in our book are rnBrazilian, there’s an extremely high level of interest in Brazil around rnsustainability, driven by the great consciousness they have about the rnprecious resources in the rainforests and they need to use those rncarefully.
So it will be interesting over the next couple of rnyears to see, as society becomes more and more committed to—I think the rnawareness is there—more and more committed to society, you could see rnleadership being taken by some of the major emerging market countries rnlike China, like Brazil, like India. But I would agree with, Mrs. rnBrundtland that the relationship between the U.S. and China is an rnextremely critical one and if, from the point of view of my major rnmission around integrated reporting, if the US could exercise leadershiprn here in the developed world and if China could exercise leadership in rnthe developing world, I think that would be just terrific. And the rest rnof the world would probably bet on board fairly quickly.
Robert Eccles: rnThe issue that she brought up about China, the relationship between the rnUS and China, I think is a fundamental one. People talk about the Big rnTwo, I think the relationships between the US as the world’s largest rndeveloped economy and China, as the world’s largest developing economy, rnis absolutely a critical one. I happen to be spending a lot of time in rnChina for work I’m doing at Harvard Business School, both in terms of rnsustainable urbanization and executive education programs of various rnkinds. What I’m finding is very interesting, is an extremely high level rnof interest in sustainability and integrated reporting in China. If you rnlook at what the official government agencies are talking about, and I rnforget the exact term, but the current five-year plan is essentially onern that says we need to continue to grow, we need to take care of a large rnpopulation, but we need to do so in a responsible way that takes accountrn of society’s limited resources.
My book on integrated reportingrn is being translated into Chinese, it should be available in June. When rnI’m in Shanghai in June I will be doing a conference in collaboration rnwith the Fudan School of Management. Since there’s an extremely high rnlevel of interest in sustainability in China, one of my colleagues, rnProfessor Chris Marcus, is doing a study of CSR in China and when I rnasked him what the topics around CSR core responsibility are, that are rnin high on the list, environment is clearly high on the list, you know. rnWater’s high, energy, reporting around this is high. SASAC, the agency rnthat manages the government’s share, the people shares of the large rnstate-owned enterprises, last year required the SOE’s to start issuing rnCSR reports. It’s not hard to imagine that SASAC would think about, rntalking earlier, the role of regulation could require the SOE’s, which rnare the dominant market cap in China, to issue integrated reports. Thesern large Chinese companies have the assets, have the ambition. They don’t rnwant to just be big companies in China, they want to be global players rnand they understand that to be global players, they’re going to have to rnplay by global rules and they’re going to have to establish themselves rnas legitimate in the global community, perhaps different standards in rnthe US, certainly in Europe, around environment, around social, around rnlabor. They’re smart, they get it, they’re adaptable, and I think you’llrn see tremendous change in China. In fact, one can imagine in China, rnbecause it doesn’t have the same embedded infrastructure that you would rnget in places like Europe and the United States around rules and rnreporting and regulations, it’s not completely a green field, but it’s arn greener field.
One could imagine that leadership around things rnlike integrated reporting could happen in China and could happen in rnChina more quickly than it happens in the United States. In Brazil, for rnexample, two of the companies that we talk about in our book are rnBrazilian, there’s an extremely high level of interest in Brazil around rnsustainability, driven by the great consciousness they have about the rnprecious resources in the rainforests and they need to use those rncarefully.
So it will be interesting over the next couple of rnyears to see, as society becomes more and more committed to—I think the rnawareness is there—more and more committed to society, you could see rnleadership being taken by some of the major emerging market countries rnlike China, like Brazil, like India. But I would agree with, Mrs. rnBrundtland that the relationship between the U.S. and China is an rnextremely critical one and if, from the point of view of my major rnmission around integrated reporting, if the US could exercise leadershiprn here in the developed world and if China could exercise leadership in rnthe developing world, I think that would be just terrific. And the rest rnof the world would probably bet on board fairly quickly.
Recordedrn on April 19, 2010
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