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A M R R e s e a r c h R e p o r tA p r i l 2 0 0 7
by John Davies
We have seen a rise in inquiries rom senior
executives regarding the social and environmental
questions that ace global corporations and their
roles as leaders in addressing some o the world’s
most dicult problems. For executives seeking
guidance, IBM’s approach to the environment oers
one set o lessons.
Big Green: IBM and the ROIof Environmental Leadership
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© Copyright 2007 by AMR Research, Inc.
AMR Research® is a registered trademark o AMR Research, Inc.
No portion o this report may be reproduced in whole or in part without the prior written permission o AMR Research. Any writtenmaterials are protected by United States copyright laws and international treaty provisions.
AMR Research oers no speciic guarantee regarding the accuracy or completeness o the inormation presented, but the proessional sta o AMR Research makes every reasonable eort to present the most reliable inormation available to it and to meet or exceed any applicable industry standards.
AMR Research is not a registered investment advisor, and it is not the intent o this document to recommend speciic companies orinvestment, acquisition, or other inancial considerations.
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TheBottomLine
AMR Research Report | April 2007 © AMR Research, Inc.
Big Green: IBM and the ROI of Environmental Leadershipby John Davies
Saving more than $100M since 1998 by conserving energy, IBM continues to
set environmental goals while openly reporting its performance, proving good
practices generate good money.
“Can we leverage our experience as a responsible company to make
money?” Over the past several years, AMR Research has seen a rise
in inquiries like this rom senior executives regarding the social and
environmental questions that ace global corporations and their
roles as leaders in addressing some o the world’s most dicult problems.
Industry leaders understand the need or building a sustainable business. Few, i any,
question the impact o global warming. Tey all have concerns about energy security, and
the role o globally responsible citizenship is taken seriously. Progressive business leaders
also see unique opportunities or new products and services or the emerging green
economy. For many executives, it is not what they can do individually, but how they can
aect change within their organizations as well as the world at large. Tey are looking or
lessons rom the ront lines that demonstrate a broader set o leadership principles.
IBM’s approach to the environment oers one such set o lessons. As a result o our
research into Big Blue’s approach, we have identied three undamental cultural traits
that have inormed IBM’s environmental initiatives o the past, present, and uture:
• Leadership responsibility —While its internal environmental stewardship initiatives
have been broad, IBM has also participated as a ounding member o numerous
industry and governmental organizations and helped develop global standards or
environmental excellence.
• Open communication—Since the publication o its irst environmental progress
report, IBM has not only reported on its impact and progress in a clear and
transparent manner, but has consistently communicated perormance against its
internal targets, which typically exceed government laws and regulations.
• Values-driven organization —hroughout the organization, a concern or IBM’s
impact on the environment is apparent, rom product design to the establishment
o business practices. Beyond merely “doing the right thing,” a concern or the
environment is embedded at all levels o the organization.
For the purposes o this Report, we reviewed documents rom the past 35 years and
conducted numerous interviews to understand how IBM achieved its leadership
position in environmental stewardship and what this might mean or the uture.
ExecutiveSummary
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Global challenges for global leaders—an IBMcase study
In 1970, economist Milton Friedman argued in Te New York imes that “the social
responsibility o business is to increase its prots,” elaborating that “only people can
have responsibilities…business as a whole cannot be said to have responsibilities.”He goes on to question whether it is the role o the corporate executive “to make
expenditures on reducing pollution beyond the amount that is in the best interests o
the corporation or that is required by law in order to contribute to the social objective
o improving the environment.”
Since that time, public perception has shited. Many now believe that businesses do
have social responsibilities beyond increasing prots. But at the time when Friedman
wrote his opinion, the people o IBM—executives and employees alike—already saw
environmental stewardship as integral to their business. Teir view was not only to
meet regulatory requirements, but to set the standard or business while saving money and, eventually, discover new sources o revenue.
Creating the foundation for a higher standard
In 1990, IBM was one o the rst companies to publicly issue an environment,
health, and saety report, a orerunner o what we now reer to as a sustainability or
corporate citizenship report. Tis initial document described its progress in addressing
environmental issues, which coincided with the establishment o a corporate
sta dedicated to environmental aairs. But this action and the 1990 report
didn’t represent the beginning o IBM’s ormal eorts to communicate theimportance o environmental responsibility. A corporate policy issued by
then chairman and CEO Tomas J. Watson, Jr. on May 26, 1971, instructed
that “line management in IBM must be continuously on guard against
adversely aecting the environment. Tis eort must include constant
attention not only to the waste incident to producing a product, but also to
the consequences o the processes established during product development.”
While this may be the rst documented evidence o IBM’s perspective on
the environment, executives who began their careers with the company at
that time or earlier state that a concern or the environment was already
a value embedded in the company’s culture. Several o the executives weinterviewed rearmed that environmental policy at IBM was not a CEO mandate, but
a part o the abric o the culture. According to one source, IBM was communicating
inormation about chemicals used in the workplace to employees and chemicals used in
products to customers since the 1960s, 20 years beore it was required by law.
“Perhaps the first of IBM’s
environmental efforts
was industrial wastewater
treatment at our plants,
back in the 1940s, years
before treatment was
required by law.”
— John Serino, director of
corporate environmental
programs, 1989
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From environmental reporting to Big GreenInnovations
In order to understand IBM’s position as a business with a strong sense o
environmental stewardship, the evolution o the company’s role in this regard
can be viewed in three overlapping phases. Te values (and value) associated withenvironmental stewardship are central to all three phases (see Figure 1).
Figure 1: IBM builds on its experience
Source: AMR Research, 2007
Values-based
environmental reporting
Tying values to
products and initiatives
Creating products
from values
IBM’s history of environmental stewardship
provides a foundation for future company
initiatives and new products
As IBM’s approach to environmental stewardship continues to evolve, the company
has moved rom sharing its experiences with external organizations and clients to
identiying new business opportunities. Te past ew years have placed IBM at a
turning point: the company’s initiatives are no longer ocused solely on cost-cutting,
but on providing a oundation or generating new sources o revenue.
Here are the overlapping phases that describe this journey:
• Values-based environmental reporting —Critical to IBM’s environmental
stewardship has been its long history o operational transparency. he irm is
one o the irst to publish aggressive goals in terms o lowering its impact on the
environment as well as its perormance against those goals. As a leader in reducing
its environmental ootprint, IBM has helped governments and other businesses
by sharing its approaches through participation in a number o programs and
organizations. his has resulted in the company winning the U.S. Environmental
Protection Agency’s (EPA) Climate Leaders Award twice, among many other awards.
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• Tying values to products and initiatives—As IBM pursued projects associated
with environmental stewardship, the company began to integrate its design eorts
more closely to relect a concern or its products’ environmental impact. his led
to designing products based on their entire liecycles, beyond end o use to reuse
and recycling. As a result o incorporating environmental criteria in its product
stewardship eorts, IBM incorporated increasing amounts o recycled materials into
its products, designing them or disassembly and reuse, and making them even more
energy eicient.
• Creating products from values—More recently, IBM has embarked on programs
that leverage its longstanding experience in environmental stewardship and applies
its knowledge and experience to some o the biggest problems acing the world.
hese initiatives involve overhauling the technology used in utility networks,
decreasing pollution resulting rom transportation, and, perhaps most importantly,
averting a looming international water crisis.
During the early 1990s, IBM underwent a dicult period as markets shited and the
company needed to reinvent itsel to compete across a new landscape. However, in
1994, while this transition was underway, then CEO Lou Gerstner asserted, “In the
past two years, we in IBM have had to rethink much about the way we do business. In
the process, it has become clear that there are certain things that should not change.
One o them is our responsibility to run a business mindul o the world in which that
business operates. When it comes to the environmental well being o that world, this
responsibility takes on added weight or a company such as ours: a multinational orga-
nization whose technology represents a powerul engine o change.”
Te oundation o environmental stewardship IBM established several decades agocontinues to bear ruit. Although the savings have been dramatic, the results are
not only rom cutting costs. IBM has beneted rom employee innovations, in both
technology and advanced processes, that have not only improved the company’s
revenue and protability, but also contributed to a less polluted and greener world.
Values-based environmental reporting
Many global business issues, ranging rom global climate change to tracking
greenhouse gas emissions, which are beginning to be recognized or their broader
public and investor interest, have a legacy o being addressed proactively withinIBM’s internal operations. However, issues associated with business impacts on the
environment are oten dicult to navigate. While environmental issues can oten be
deeply technical, they can also be a lightning rod or public policy as well as public
perception. For that reason, IBM has long sought to be ahead o the curve when it
comes to environmental issues.
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In interviews with Wayne Balta, vice president o corporate environmental aairs and
product saety, he noted that “IBM’s outlook in terms o environmental leadership
encompasses all business units within the company. Tis includes how the environment
is considered in relation to research, product design, manuacturing, procurement,
distribution, and logistics as well as other areas such as health, medical, marketing, and
branding.”
Te core internal initiative or dealing with environmental issues within IBM is its
global environmental management system (EMS). As stated by the International
Standards Organization (ISO), a properly implemented environmental management
approach can provide assurance that good perormance is not an accident. A company’s
EMS can identiy environmental risks, helping to manage any required resolution.
While most companies certiy their EMS on a per-plant basis, IBM was the rst com-
pany in the world to achieve a single global registration to the ISO 14001 standard
when it earned the certication in 1997. IBM’s environmental management system
is dened by a set o documents that includes policy directives, instructions, internal
regulations, and governmental regulations around the world. Te system, maintained
on a corporate intranet site, allows access or all IBM employees.
Corporate Policy 139 (summary of current revision)
The primary policy directive issued by IBM is Corporate Policy 139, which establishes the
following policy objectives (presented here in an abbreviated format):
• Provide a safe and healthful workplace.
• Be an environmentally responsible neighbor.
• Maintain respect for natural resources.
• Develop, manufacture, and market products that are safe for their intended use,
efficient in their use of energy, protective of the environment, and can be recycled or
disposed of safely.
• Use development and manufacturing processes that do not adversely affect the
environment.
• Ensure the responsible use of energy.
• Assist in the development of technological solutions to global environmental
problems.
• Meet or exceed all applicable government requirements.
• Conduct rigorous audits and self-assessments.
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Setting targets and promoting transparency
While IBM’s certication o a global EMS is certainly a signicant accomplishment, its
approach to managing environmental issues goes ar beyond a reporting system. Since
its rst corporate environmental report, the company has not only recorded its per-
ormance, but set targets or uture achievements. Each site submits an environmentalmaster plan that is then aggregated with plans rom other sites or IBM’s consolidated
evaluation and reporting.
An example o IBM setting corporate targets associated with the environment is its
approach to the topics o ozone depletion and global warming. In a 1990 article in
IBM’s Tink magazine, Mason Southworth wrote that “even more serious has been
the growing recognition o two potential threats to the whole Earth: global warming
caused by gases that build up in the atmosphere and damage to the ozone layer by
other gases that accumulate higher up in the stratosphere.”
When the environmental report was issued, IBM was trying to determine how to deal with its use o chlorofuorocarbons (CFCs), which were later shown to cause depletion
o the ozone layer in the atmosphere. Te company set a target to eliminate the use
o CFCs by 1993, six years ahead o the deadline set by the U.S. Clean Air Act. In
a number o other instances, the company set a high bar and exceeded it. As Mr.
Balta noted, “Continuing to raise the bar ater our past accomplishments becomes
incrementally more dicult, but it’s a challenge we embrace.”
Most recently in the public arena is the issue o global climate change. As a ounding
member o the EPA’s Climate Leaders program, IBM has long identied addressing
climate change issues as an important initiative or the company. “While some assume
that cutting carbon dioxide (CO2) emissions costs businesses money, we have ound
just the opposite. Addressing climate change makes business sense,” said Mr. Balta.
He goes on to state that IBM has “saved more than $100M since 1998 by conserving
energy. When you consider the signicant environmental benets also achieved,
cutting emissions is a win-win proposition. Climate Leaders presents an opportunity
or IBM to continue its voluntary eorts to urther conserve energy and reduce its
greenhouse gas emissions, share best practices, promote cooperation between industry
and government, and gain recognized leadership.”
As ar back as 1990, the company was reporting its energy savings, particularly o electricity, in terms o CO2 emissions eliminated. It then translated this to the
equivalent number o cars taken o the road.
In terms o perormance since that time, IBM has reduced or avoided CO2 emissions
by an amount equal to 39.88% versus a baseline o 1990. Tat accounts or avoiding
more than 8.98 million metric tons o CO2 emissions. Te company expects to extend
this achievement by urther reducing CO2 emissions associated with its total energy
use 12% by 2012 (against a base year o 2005).
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IBM was also a ounding member o the Chicago Climate Exchange (CCX), the
world’s rst voluntary, legally binding, rules-based greenhouse gas emission reduction
and trading system. As a result o its longstanding environmental stewardship eorts,
IBM is currently a creditor based on its aggressive stance on reducing CO2 emissions.
Pollution prevention with community involvement
Reducing greenhouse gases and CFCs is only one example o IBM’s
approach to pollution and emissions. Since 1971 the company had ormally
established a pollution prevention program ocused on reducing hazardous
wastes and other pollutants at their sources. Ten CEO Tomas Watson
noted that, above and beyond vigilant corrective measures, the best way to
ght pollution is to stop it beore it starts.
Stopping pollution beore it starts can also mean holding yoursel to a higher standard
o measurement. Many years ago, IBM noted that its standards or sae water quality should not only be measured in parts per million (although it would signicantly
beat these requirements when established by internal and external regulations). Te
company’s internal rule is to ask sites to base their quality criteria on how the discharge
would aect the ecology o the body o water they are using. By raming the discussion
in this way, IBM engages more directly with the community involved and considers a
broader range o contingencies and local impacts.
IBM has saved more than
$100 million since 1998
by conserving energy.
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Tying values to products and initiatives
IBM was clearly an early leader in implementing environmental initiatives or managing
its worldwide business operations. Te values that drove environmental stewardship as a
oundation or corporate-wide initiatives are also deeply embedded in the way that IBM
views product stewardship. A corporate policy rom then president Frank . Cary onSeptember 9, 1974, instructed the ollowing: “I expect each operating unit to cooperate
ully in national energy conservation programs, give high priority to conservation o
energy, raw materials, and commodities in the design and manuacture o our products
and—wherever practicable—develop substitutes or materials in short supply.”
Mr. Cary’s policy directive amplied Mr. Watson’s 1971 memo, where he called or
an assessment o the environmental impact o every IBM product and process. By
1991, IBM had established a ormalized product stewardship program to address the
company’s environmental management o the product development process and the
products and services it oers. As a result o implementing this program, product
design ocused on the ollowing eatures:
• Avoiding toxic substances
• Enabling easy disassembly and reuse
• Incorporating recyclable plastics or materials with recycled content
• Improving energy eiciency
Tere are a number o eects that can be seen rom IBM’s integration o environmental
concerns with product stewardship, such as improved production methods,
manuacturing processes, and equipment. Among the most signicant eorts are IBM’s
design or environment and design or recycling programs.
Design for environment
Design or environment is a strategy historically employed by companies to probe or
potential product hazards during the design phase. According to early work by the
EPA, by ollowing this philosophy it was possible or companies to substitute less toxic
materials to make a product saer to build as well as use.
In 1984, IBM initiated a program that specically ocused on the environmental impact
assessment o all its products. By 1991, IBM developed an online environmental impactassessment system to provide an early review o any proposed product or process.
According to then director o integrated saety technology, Diana Bendz, “Tis eort
has ocused the attention o IBM design engineers on all aspects o a product’s liecycle,
including packaging, material selection, energy eciency, and recyclability.”
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Early impacts o this program were on the company’s packaging. IBM made the
move to standard corrugated boxes and required greater recycled content. In 2000, it
established a database to capture the cost savings o its various packaging initiatives.
In the last ve years, the company has realized over $80M in savings while reducing
the environmental impact o its packaging. More recently these design or environment
processes and I tools have enabled IBM to report the compliance status o assembliesor ull systems against regulations such as the European Reduction o Hazardous
Substances (RoHS) requirements.
Design for recycling
In its global operations, IBM was an early leader in solid waste recycling. In
1988, IBM set a goal o recycling 50% o all wood, metal, paper, glass, and
plastic rom its manuacturing sites by 1992 (by 1990 the worldwide gure
was 52%). IBM has since updated its nonhazardous waste recycling goal.
Currently, the company’s goal is to recycle 67% o the nonhazardous wastegenerated by locations owned or operated by IBM. In 2005, the last year the
data was compiled, IBM recycled 77% o its nonhazardous waste.
Its experience with recycling programs throughout the organization made
it easier or design engineers to think about how to embed those same
principles into the product development process. In 1991, IBM established
the Engineering Center or Environmentally Conscious Products (ECECP) in
North Carolina.
As ar back as the PS/2 Model 40 in 1991, IBM designed products based on a “design
or disassembly” strategy that made manuacturing as well as disassembly much easierthrough the use o snap technology. At the same time, with the PS/2 E, the company
was able to recover plastic covers rom end-o-lie computers and blend the recaptured
plastic to make PS/2 covers with 25% recycled content. By 2006, 28% o all plastic
resins procured by IBM contain recycled plastic content.
“Maintain respect for
natural resources by
practicing conservation
and striving to recycle
materials, purchase
recycled materials, and
use recyclable packaging
and other materials.”
—Corporate Policy 139
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Creating products from values
One o the issues many companies are working to address is how to leverage the
strengths o their research labs, brand equity, and organizational core competencies to
develop more environmentally targeted products. As the awareness o consumers and
businesses increases about topics such as global climate change and environmentalstewardship, businesses realize these criteria could set the stage or the rms that will
dominate in the 21st century.
“Energy prices will be an issue, as will security concerns and concerns about climate
change,” said Mr. Balta. “With our experience, we can help companies understand how
good environmental practices make good business sense.” What he and others at IBM
also see is their knowledge and experience in environmental stewardship can help the
company develop new businesses.
Already IBM has collaborated with its customers on a number o innovative projects.
Tese span all areas o its business, rom hardware to industry-specic solutions orvarious sectors. Consider the ollowing examples:
• Intelligent oil fields—In an initiative headed by Steve Edwards, Global Lead
Chemical and Petroleum, IBM helps companies extract oil eiciently and responsibly
by applying advanced analytics and modeling. Once a site is in operation, RFID-
enabled networks can provide real-time monitoring o production, supporting the
remote management o acilities, plants, and equipment. As an extension o this real-
time network, RFID tags are embedded in workers’ identiication badges, which can
expedite search-and-rescue eorts in emergency situations.
• Data center energy savings—While IBM has invested in energy eiciency or a wide range o equipment used in data centers, rom blade servers to storage systems
and virtualization technology, the company has also innovated in other areas that
aect the data center. By using robotic thermal mapping, managers can pinpoint hot
spots and redesign around them. With a sotware tool called PowerExecutive, data
center managers can begin to take control o their power usage, measuring real-time
usage on each piece o PowerExecutive-enabled equipment. hey can set power caps
to control power usage during peak loads by slowing down ans and blowers, as well
as by selecting the best power/perormance operating mode to meet the blade or rack
power budget.
While these are examples o initiatives that could be expected rom a large global
company, IBM has reached out over the past year to collaborate with a much broader
range o partners, including industry leaders, IBM employees, government ocials,
and nongovernmental organizations. Tis outreach has helped IBM dene the most
important initiatives to address in the uture. Te oundation or this eort was laid
with the publication o the second Global Innovation Outlook. A more detailed plan
was established through a mechanism called the Innovation Jam.
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The Innovation Jam
Under CEO Sam Palmisano, IBM has held a number o discussions via the Internet
dubbed “Jams.” Tese conversations employ the company’s strategy o extended
collaboration. An earlier Jam helped update the ocus o the company’s core values.
A more recent one uncovered new business opportunities and helped IBM prioritizeuture eorts.
Te Jams are viewed within the company as critical to IBM’s uture success, as 50%
o its workorce has ve or ewer years o tenure with the company. For a globally
integrated enterprise to maintain its history as a values-driven company, these Jams
represent the way orward or what IBM calls “innovation that matters.”
In all 2006, the Innovation Jam brought clients, employees, and their amilies together
to collaborate in a worldwide brainstorming session. In two collaborative phases, more
than 150,000 people in 104 countries suggested more than 46,000 ideas. Ater a
second phase o interaction, 10 diverse business opportunities were approved or urtherdevelopment.
In November 2006, as a result o the Innovation Jam, Mr. Palmisano announced the
top 10 ideas at a town hall event in Beijing. Beore a live audience o nearly 2,600 IBM
employees, partners, and distinguished guests, he announced that IBM would und
$100M to develop these ideas. 3 o the 10 initiatives have a direct relationship to IBM’s
work in terms o environmental stewardship:
• Intelligent utility networks—Headed by Guido Bartels, IBM’s general manager
or the global energy and utilities industry, these eorts are ocused on increasing
the reliability and manageability o the world’s power grids. he eorts to createa smarter power grid that utilizes real-time monitoring and control as well as load
simulation will help increase power availability and reliability. It should also help
reduce wasteul energy consumption, which will help reduce pollution.
• Integrated mass transit information systems—Both real-time transportation
data management and advanced simulation modeling will be used to develop these
systems. IBM has the beneit o leveraging past experiences such as its work with
the city o Stockholm in implementing a real-time monitoring system to support a
dynamic pricing system or commuter tolls.
• Big Green Innovations—One o the most exciting programs or IBM is reerredto as Big Green Innovations. he group behind this is led by Dr. Sharon Nunes,
who has taken on the role o green innovations champion. he broad ocus o this
group is to apply IBM’s expertise in technology, advanced modeling, materials
science, physics, and other areas within the company to emerging environmental
opportunities.
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Big Green tackles “Big Blue”
While over three quarters o the earth’s surace is covered by water, only 1% o it is
resh and accessible. According to a recent United Nations study, water scarcity is a act
o lie or over 700 million people around the world. Te study goes on to project that
this gure could rise to impact three billion people by 2025. Agriculture and industry are equally thirsty or this scarce resource. Te world’s biggest problem or the 21st
century may not be energy related, but rather the availability o water.
According to Dr. Nunes, one o the major initiatives under the Big Green Innovations
program will be advanced water management. Tis encompasses a broad agenda,
rom availability to distribution and consumption. IBM’s wide-ranging experience in
modeling will be brought to bear in terms o weather prediction, as well as discovering
underground aquiers and designing ecient distribution strategies. IBM will also work
with other organizations to develop nanotechnology-based water ltration systems and
other products to address this challenge.
“Tis is a world-changing opportunity,” said Dr. Nunes. “We are collaborating with
customers that have a global presence to address water-related problems. ogether we
eel we bring an innovative perspective that reaches across ecosystems to solve problems
none o us could have solved individually.”
A real difference for the environment
Te results o IBM’s ongoing programs or environmental stewardship are providing
quantiable returns economically as well as environmentally. While employee
comments captured by the Innovation Jam recorded the personal passion o IBM
employees, it was not a surprise to Wayne Balta. “In the past couple o years, there has
been a marked increase in unsolicited calls and e-mails rom people wanting to get a
job in this organization. I think our employees see that a company like IBM can make
a real dierence or the environment.”
Perhaps the most encouraging news rom IBM is the economic benet it realizes
rom its leadership in environmental management. “IBM estimates that, over the past
eight years, annual savings rom its ocus on pollution prevention and design or the
environment have exceeded environmental expenses by an average o two to one.” As
IBM has done since 1990, the dollar amounts to back up those statements are clearly presented in its most recent sustainability report.
8/6/2019 Technology Green Innovations PDF Amr Research Report 20313-Big Green Ibm and the Roi of Environmen
http://slidepdf.com/reader/full/technology-green-innovations-pdf-amr-research-report-20313-big-green-ibm-and 16/16
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AMR-R-20313
Acronyms and Initialisms
CCX Chicago Climate Exchange
CFC Chlorofuorocarbons
CO2 Carbon dioxide
ECECP Engineering Center or Environmentally
Conscious Products
EMS Environmental management system
EPA Environmental Protection Agency
GARS Global Asset Recovery Service
ISO International Standards Organization
RFID Radio requency identication
RoHS Reduction o Hazardous Substances
ROI Return on investment