Enexis is a DNO operating in the larger part of northern and eastern Netherlands. Like all DNO’s, Enexis is responsible for the replacement of all the electricity and gas meters within their supply area by a smart meter. For Enexis, this adds up to 2.7 million meters or stated otherwise: 2.7 million households. One of the main ideas behind the smart meter is that it will motivate house owners to become more energy efficient. However, Enexis realized that only installing this meter is not enough to reach energy saving goals. In most Dutch homes this meter is placed in small cupboards in the hall near the entrance door. Not the place to visit daily (Interview Buurkracht, 2015).
Additionally, many Dutch houses are still poorly insulated. Despite many campaigns, and despite the fact that most house owners are aware and willing to do something, current energy saving propositions did not lead to a large market uptake. There is lots of room for improvement. But how do we persuade house owners to insulate their homes and change their behaviour? In the summer of 2012, Enexis decided to tackle this challenge. The main challenge was: design a service that will lead to a breakthrough in Energy Saving for house owners thus enhancing the relevance of the smart meter. Enexis created a design team, consisting of mainly external professionals who needed to bring a fresh, new solution to this tricky challenge. The team was convinced that the key to design a relevant solution lied in the understanding of motives, attitudes and behaviour of house owners and other relevant stakeholders. They ignored some very sceptical voices at Enexis, like: “We already know people just don't want to, they are not interested”
The team started interviewing house owners thoroughly on their energy attitude. They created different personas that were researched further by extensive context mapping sessions. This is a method that uses generative techniques to get deeper insights in people’s motives and attitudes towards energy efficient behaviour and insulating homes, in the context of their daily practice. A new proposition was created. A key insight the proposition was built on was: energy efficiency is a goal, but energy-efficient behaviour is a process.
Energy saving is usually a process on household level that takes months, sometimes even years to realize. A process with many opportunities for behaviour change, but nevertheless many people never reach their goals. For example, every year, one receives their energy bill. For most people this bill is a complete puzzle. It takes a lot of effort to decipher. When the bill is higher than expected, this is for some people a starting point to take action. Or, in winter when feet become cold, people start to investigate their options for more comfort of the floor in their homes. Their sources of information are the Internet, and discussions with their next-door neighbour. Some eventually do research on technical stuff, like the variety of materials or installation options (Interview Buurkracht, 2015).
For many people this process is a sequence of frustrating experiences. Receiving an incomprehensive bill is one thing, but most information is very technical, options are difficult to compare and certainly not presented as a solution to their personalproblem. Not only is the information complex, it is almost impossible to get a grip on the real value of an energy saving measure. So, to most Dutch house owners, the process of Energy Saving is annoying, complex and time consuming. At the startof this project, most of the people that actually did insulate their homes were either energy saving freaks, or survivors in a frustrating process. The majority of house owners dropped out of their energy saving process before achieving any results.
Current service providers focus on the effect: insulate your roof and save money. Very result oriented indeed, but obviously not very effective. Their propositions ignore the energy saving process. They fail to take the perspective of the house owner into account. Therefore, it is not surprising that their prospective buyers dropped out of the process. Enexis found there is a need for a process approach instead of products, like the next smart device. A process designed to help a house owner with saving energy as the next logical step. Enexis had to shift the focus from the end result to the experience.
Enexis also found that there is one specific situation where energy saving becomes a high impact subject and a lot less frustrating. This is when small, local communities (neighbourhoods, streets) join efforts to save energy together or invest in solar energy. Then energy becomes a high interest topic. They found that small local initiatives potentially were very successful. And so they learned that the spirit of local community could help Enexis create a successful solution. And although they are different in many ways, local communities have one thing in common: they want to feel in control.
All of the local initiators emphasized the need to be able to make their own choices, to be and to stay in control. After all, it is their neighbourhood, their home and roof. They emphasise their autonomy, but that should not be interpreted as if there was no need for support. Enexis decided to harness the power of the communities in voluntary neighbourhood teams, who are guided by a new organization: Buurkracht.
Buurkracht, which literally translates to neighbour power, is a very carefully designed process that supports existing local initiatives in their efforts to save energy. Enexis is the mother at a distance, providing the necessary means to run Buurkracht.
Buurkracht has no profit goals. It measures its success by reduction of CO2 as a result of the measures that are taken. A team of nearly 20 community-coaches support local initiators with know-how on insulation as well as how to run a community energy saving campaign. Every participant in the neighbourhood is connected to the Buurkracht platform, where they can see their energy usage patterns, but also the savings they’ve reached with their community.
The users are involved in finding out what measures are required in the neighbourhood. For example, they walk through the street in the evening with a thermal camera to see how the insulation holds and whether there is draft. Consecutively the neighbourhood team selects measures and decides where to purchase them. Buurkracht is convinced the local approach is successful. By now, they’ve built a solid network of supporting local and regional governments, cooperatives and energy foundations (energy touchpoints) who know their locals and who can exert their local influence to motivate the communities to reduce their energy consumption.
As Buurkracht is very successful, Enexis finds itself in some difficulty financing the process. Therefore, alternative sources are being researched. In 2016, Alliander, The second largest DNO in the Netherlands, will join the Buurkracht process. Also, subsidized research must provide some extra resources. Datamining professionals are being attracted in order to provide detailed intelligence on the value of the Buurkracht initiative in terms of CO2 reduction, social cohesion etc.
Sensing user needs is taken extremely seriously in the developing phase of Buurkracht. The initiative originates from the idea that old ideas and old opinions on how to solve the ‘insulation’ problem of all the houses didn’t prove to be successful at all. A new perspective was needed and this could be found at the house owners themselves. However, the capability wasn’t well developed within the organisation, hence, there was a lot of resistance towards the approach at first. Therefore, professionals from outside the organisation were hired to fulfil this capability.
The organization also involves users to help with sensing user needs in the community. As it turns out, locals have a more natural feeling for the priorities and problems in a neighbourhood. This way only a few people have to invest time in understanding the market and social cohesion can persuade other members of the community. Besides this hands-on approach, several instances (educational and public) are involved in more fundamental research on user involvement and uncovering its needs.
In a way, Buurkracht is far ahead of the Enexis organisation and consequently the stretching capability needs development. Enexis still is a traditional, tech oriented organisation where a lot of effort is being put in fulfilling the task of maintaining the grid. However, a few of the Enexis directors were dedicated to bring Buurkracht alive.
Anton Philips is one of the founders of a large multinational that today produces a broad range of products. Philips' origin lies in the city of Eindhoven where it was founded by Anton's father and brother, Frederik and Gerard, in 1891. The firm started in the business of producing light bulbs, it has been their market for many, many years now. When, in 1895, Anton, a real entrepreneur, got involved in the firm's management Philips grew and is currently a multi-national active in areas ranging from Healthcare to Lighting and several appliances. The firm knows everything there is to know about innovation processes, efficient manufacturing lines, plant management, human resource management and many more aspects to running a company.
Even when the LED was introduced, Philips didn’t blink. But then something completely new happened. A partnering architect, Thomas Rau, asked Philips if they could help him in his vision: to not own products that you don't need. Instead of buying and owning lamps the architect suggested buying light and paying for the service of having light.
Philips agreed and Thomas Rau founded Turntoo to partner with Philips and work on further development of the concept. Providing light as a service meant significant change to Philips' business model. Not only the value proposition changes significantly, also the key-activities are broadened. Besides manufacturing the LEDs, maintenance, management and service contracting become key areas as these services are added to the offering. Furthermore, Philips does not sell its LEDs. Instead, it owns all of them. This means that Philips will have a much larger responsibility in refurbishment and recycling, a new area for the firm that also enables them to work on a circular economy. Engaging in service contracts and being judged on the performance of the outcome (light) instead of the product meant a significant change in the customer relation Philips maintains. More intensive communication was needed and the relation lasts a much longer time as the system requires maintenance and inspection during its lifespan.
The customers that are targeted are specifically chosen. Philips aims to reach a customer segment that it knows to be interested: firms that are enlisted with the Ellen MacArthur foundation. These firms have already indicated to be interested in the circular economy and will very likely be interested in light as a service too. The foundation turns out to be the main channel in the acquisition of light as a service projects. Besides the foundation, Philips and Turntoo also partnered with other firms, for instance Deloitte and Cofely, where they could experiment with the concept.
The radical change in business model clearly affected the costs and revenues. The costs significantly shifted from creation of a product to extra costs in maintenance, refurbishment and service contracts. On the other hand the revenue model now relies on firms paying per lux instead of LED.
As a multinational, Philips looks at sensing user needs from a high level. The user is consciously learned from through broad market research which is performed to look at needs and wishes in different markets and contexts. Besides that, for more innovative solutions like smart lighting, pilot projects are organized. Research as well as devoting financial and human resources are called a necessity to be able to move to a different portfolio as a company. Sensing user needs and conceptualizing the desired value are skills that are appreciated and developed in the firm.
An example of a pilot project is the office building of Deloitte, a Dutch accountant. To realize this project Philips partnered with Deloitte and OVG, a real estate firm. More than 30.000 sensors and ‘intelligent’ LEDs have been installed to make the building more efficient and at the same time give the occupants the ability to personalize the lighting with their smartphone. Philips aims to learn about the social and technological possibilities of personalized lighting more through these projects. In this case Deloitte can be seen as a co-innovator, closely involved in the research process. Besides lessons through direct interaction with the users of the building, the connected lighting system can also provide data; the user is thus also interacted with indirectly through the smart phone.
In the marketing phase Philips mainly uses bi-lateral interactions to persuade firms to become a customer of their lighting solutions. As mentioned they initially target firms involved with the Ellen MacArthur foundation whom they ask: “Do you have circular lighting yet? They will tell you no, then you have a new appointment. So you start with clients that are willing and they will spread the word and proudly tell about their building. That’s the way we roll this out” (Interview Philips, 2015).
From Philips' point of view the needs and wishes of the customer have not changed, nor has Philips' approach. In essence, the user has always wanted reliable, but mainly cheap lighting. This has been a driver to make lightbulbs more efficient and also led to a change from incandescent lighting to LED. The new business model, lighting as a service, in a way continues the path set out long ago: engaging in a circular process increases the material efficiency and in this sense is the next step towards cheaper lighting.
Philips as a firm has seen an extensive entrepreneurial journey with many years of experience. However, even for such an organization a complete business model shift can be challenging. The most important changes in the business model that Philips operates are triggered by the switch from a product to service supplier. As mentioned earlier, this switch was not solely made on the basis of insights provided by user interactions. The switch was rather based on the potential to decrease costs and by insights that the firm had from the architect Thomas Rau (Ellen MacArthur Foundation, 2011) and developments in circular economy (Interview Philips, 2015).
These factors led to a fundamental change of the business model. In fact, all business components were affected either directly or indirectly. For instance, Philips anticipated that not all their clients would be interested light as a service; they thus tried to create a dedicated customer segment through involving the Ellen MacArthur Foundation. Several other problems were encountered in the process. The need for balance accounting resulted in new partnerships, which would bring the expertise. From these examples it becomes clear that Philips is capable of taking a macro perspective and seeing what is needed to make the system work. Their capability to work with the context and orchestrate the network is well developed. They successfully found new partners with a different focus which fulfilled the new capabilities that were needed. At the moment they are already organizing the recycling process of LEDs that are to be returned when they break; thus planning decades ahead.
Philips recognizes that scaling the proposition is hard as there is still a large user base that is not ready for light as a service yet. The shift from lighting as a product to light as a service can be seen as a transition and these generally take around 40 years (Interview Philips, 2015); this means it will take time before the large majority is on board. The needs of the majority thus do not match yet with the values offered by Philips. However, Philips is well aware of this phenomenon and their capability to scale the offering is likely developed.
Aside from this part of the user base, some existing structures with firms or governments can be a barrier to the adoption of light as a service. “A customer, for example a government, could have their own service organisation that for instance maintains street lighting. That can be done very traditionally: an employee just drives around in the evening and sees a broken light. He notes this and the next morning there is a report on the desk of maintenance service” (Interview Philips, 2015). This process can go on and on and could be done much more efficiently using intelligent lighting. Sometimes employees within these traditional organizations might however fear losing their jobs; these can then undermine the decision making process. This poses a challenge for Philips who has to find out how to deliver value to all stakeholders.
Philips is positive about the pro-active stance of the national government, which tries to remove legal barriers that still exist. An example of a barrier is found in waste legislation; some hazardous materials legally cannot be re-entered in the supply loop. “The term ‘waste is food’, which cradle-to-cradle advocates, is thus not completely true” (Interview Philips, 2015). The government is aware of these problems and tries to speak with stakeholders to resolve this. According to Philips the European Union is also looking at the circular economy and will publish a white paper that possibly leads to new legislation. In the transition the role of the government is very important.
Philips has a clear strategy in relation to the stresses between stakeholders due to different business logics. As they see that the mass market is not ready for their innovative business model they found a dedicated customer to slowly create a change in the market on the basis of success stories, slowly stretching the context. Even though there are stakeholders with different business logic in the ecosystem, Philips knows how to work with them.