Convergence & Integration – Part 1 Proving the Business Case.

Allan McHale, Director of Memoori reviews the business case for convergence and integration in buildings and explains why this will change the business model and have a significant impact on merger acquisition and alliance.

This is a complex subject because it involves so many different stakeholders in the supply chain with some being protective of the status quo and seeing integration as a possible threat. The technology is not well understood by all and is not bound by common standards and the business requires collaboration between organisations that have previously never had a need to work together. We have in order to give proper treatment to the subject broken it down into two parts .Part 1 below develops a set of tools to explain the linkages between building control infrastructures and communications and IT and then evaluates the benefits in order to establish if it can meet the customers value propositions. We then review three case studies from different vertical markets quantifying the benefits realised. Part 2 to be published next month will focus on the part that the security industry is playing to deliver total solutions, explains the need to change the business model through partnership and shows how this is impacting on merger, acquisition and alliance on the supply side.

In the mid eighties the building environmental controls industry started to go digital. For safety reasons there was a need to transfer information from different technical infrastructures and digital system made it more practical and cost effective. In order to understand the complexities the author in 1989 developed a model Fig1-Model of Integrated Building Services & Convergence with IT. The left hand face shows the individual building services and progressively moving up the face integrating and developing sub systems that provided better and more comprehensive control. The right hand face contains the communications functions and similarly brings these together into sub systems. At the top of the pyramid both integrated systems can be linked together to create an intelligent building. Over time the various stages of integration on the left hand face came about starting with Stage 1 where the functions were hard wired linked. Stage 2 integrated subsystems through a serial link connected to a common supervisory computer. Stage 3 connected systems on a higher level LAN that allows information to be delivered to any PC on the system. Stage 4 is peer to peer connection across all the different control systems, possibly using a common communication protocol.

Most large buildings constructed in the last 5/10 years are integrated at Stage 3 and this was the first sign that using TCP/IP over Ethernet would play a major part in bringing about integration with the right hand face that had for many years being using this technology.

It was not until 2016 when through a combination of advancements in digital technology and the adoption of XML and Web Services and running these on IP based Networks, that eureka a holistic solution was realised. But much more important one that could now satisfy the value propositions of the building owners and operators by delivering improved performance and operation of the building and the business enterprise therein.

Progress over the last 20 years has been slow despite a lot of effort by the supply side in developing the technology because there was little coordination between the many different stakeholders and virtually none between the two faces of the pyramid. But most importantly there was a lack of serious effort by the supply side on proving how integration improved the performance and value of the building. Therefore in 2004 we extended the model (Fig2) to show on the other two sides of the pyramid, performance and value, in order to develop a tool to investigate the benefits of integration and intelligence in buildings. The base of the performance face is made up of three prime drivers, economic, social and environmental. Economic issues include the cost, both first time and life cycle, adaptability / flexibility, increased productivity and operating cost. The economic drivers may well carry more weight than social and environmental drivers but certainly not in all instances. Environmental factors include meeting future legislative needs such as, in Europe, the European Energy Performance in Buildings Directive (EPBD), building regulations, government incentives and tax schemes. On the social scale there is increasing pressure, in some cases mandatory, on corporate bodies to include green issues as just one part of their social responsibilities, along with providing the right air quality and temperature and safety and security for their employees. These last factors can also have a direct impact on improving productivity in the work place and are vital in some working environments, for example hospitals.

At the next level of analysis we have introduced another four sieves that will evaluate the benefits to be unlocked from integration, information and intelligence in buildings. These are Efficiency, Effectiveness, Threat/Risk and Opportunity and these can be measured across the full spectrum of demand drivers. For example, we could have an owner/operator of a hospital that could unlock economic, environmental and social benefits by using the patient communication system to operate local lighting and temperature control, order food, whilst delivering other services such as nurse call, patient records, and entertainment. This could reduce first time cost, improve productivity, reduce energy cost and have an immense impact on patient care by reducing patient time spent in hospital. It is without doubt technically feasible to achieve this integrated solution, and one of the case studies mentioned here shows how this has been achieved.

If we now look at the value face of the pyramid then we have to ask the question “value to whom” because there are a number of different players in the supply chain. Although it is quite clear that without it being of value to the owner/ end user integration will not take place, if it is not also of benefit to other parties in the supply chain then they are likely to put barriers in its way.

The base of the value face is made up of 10 different stakeholders that are involved in the building supply chain. These include investors/owners, owner/occupiers, developers, architects/consultants, building contractors, mechanical/electrical contractors, facilities management contractors, IT / communications suppliers, building services suppliers and system integrators. Integration will at the very least mean change for all in the supply chain and this for some could detract from their present power base. For others, new opportunities will result from integration. In all cases it is possible to evaluate through qualitative measures but much more difficult to quantify. Although difficult to quantify, this process needs to be carried out and we suggest that the criteria to measure should be efficiency, effectiveness and threat / risk. These will decide profit and opportunity, which are shown at the pinnacle of the pyramid.

In 2016 we set about implementing these models through a study on IT-Convergence in Buildings carried out in the USA. The report that followed showed that proving performance and value was vital in order that customers would change their long established buying habits, cross the chasm and adopt the new integration and IT-Convergence model. In the ultimate to convert the pragmatists you need to prove performance and value of IT-Convergence with real life case studies. At that time and we suspect even now very few installations had carried out a detailed quantitative analysis of performance that could assess ROI. We did identify three case studies and details on these can be obtained through our blog . Whilst these are now three years old they are still very relevant because they are based on real numbers.

At this time Return on Investment (ROI) is key in convincing building owners of the business case and most are looking for a quick return. Most of the respondents from the real estate business that participated in the study were looking for a return of no more than three years. However, the ROI can be influenced by other factors than reducing operating costs, such as increasing the rental value, reducing vacancy rates and adding new revenue streams and in fact these may have an even bigger impact on increasing the value of the building. These drivers will be more or less important dependant upon whether the building is rented out or occupied by the owner and whether the tenant or building owner is responsible for maintaining and paying the utility costs.

So the differentiators that will have impact on the relative importance of demand drivers will vary dependent upon the ownership of the building, the type of building, its complexity and the process taking place therein and last but by no means least whether it is a new construct / major refurbishment project or retrofitting an existing building. The case studies identified in this paper clearly illustrate the importance that these different factors have had on influencing the investment decision for installing IT-Convergence. It should be mentioned that they have all been delivered through partnerships. In the case of One America Plaza the real estate owner wanted to increase the rental income and value of the building. They subsequently sold the building for the highest charge per square foot in the history of property sales in California. The Cisco Enterprise Security case study shows how they have saved millions of dollars by eliminating 300 security officers. At the same time by monitoring safety and security worldwide they have also improved its effectiveness throughout their building stock. The digital hospital in Omaha Nebraska delivers its patients a much more effective level of care whilst reducing the medical and operational costs. This is a particularly good example of how connecting the technical infrastructures to the business enterprise have brought about true synergy. The Health Care business right across the developed world is now in the process of undergoing some fundamental changes. These have been brought about because of the need to meet changes in patient demographics, advances in drugs and medical treatments and provide a holistic social model of health-gain. This requires the adoption of patient centered approaches to the delivery of health care and despite the considerable inertia to change; the challenge is being taken up. Good building design, based on patient-centered requirements is gradually being adopted and this has brought about the need to integrate building technical services and further, to interface with patient administration and medical care services. IT-Convergence has enabled all of these services to be integrated in a robust and practical way, adding more value and better performance for no or little extra cost. Other building types that have benefited in a similar way are Airports, Life Science and Hi-Tech buildings, Educational establishments and Retail and Hotel buildings.

The move towards an IT-centric business and the role that XML and TCP/IP is playing in convergence and integration in intelligent buildings will have a major impact on the way business is conducted in the future. What makes convergence important is that XML is incorporated in IT Infrastructures both within major companies and across the worldwide web. The IT Infrastructures will eventually carry all the IBC information that management will analyze and act upon to both improve building and estate performance and provide holistic solutions that will also effect the operations being carried out in the building. Increasingly, this will be demanded by building owners and they will seek out suppliers to partner with them to ensure that they get robust and reliable solutions that are cost effective and appropriate for their needs. Understanding and making the business case will be key to winning business in this new environment where more business will be conducted directly with the client or his consultant and less will be bid against traditional contractual procedures. Some buyers will require the supplier to take total responsibility and supply a managed service complete with the equipment and so take away the perceived risk of operation and updating of the system long term.

In order for this market to really move forward to meet demand it will require the backing and commitment of some large companies that have the technical and financial muscle to inspire customers with the confidence that they can be relied on to deliver robust solutions that will add value and performance to their buildings. These companies will come from the following backgrounds; IT Networking / Communications, Technical Infrastructure Suppliers and Technical Infrastructure Integrators. One name in particular grabs the headlines here and that is Cisco Systems Inc. They have transformed there own real estate and have played a major part in promoting the cause of IT-Convergence. Similarly, from the technical infrastructure background, Siemens Building Technologies, Honeywell and TAC Schneider are serious providers of holistic solutions.

consolidation, and more:

Convergence & Integration – Part 1 Proving the Business Case. + IT Convergence