Podcast #130 Energy Transformation

Good day, and welcome to edition 130 of our digital industry leadership series. I'm really pleased today to host Mahesh Sudhakaran, the Chief Digital Officer for IBM energy environment utilities industry business. Mahesh has over 18 years with IBM and Schneider Electric and is a recognized thought leader in the energy and utilities industrial and industry 4.0 space. He is a frequent speaker in global industry forums on AI and IoT. In 2020, he was elected to the IBM industry Academy, an elite cohort of preeminent technology leaders. Mahesh has a BS in electrical engineering from the National Institute of Technology and an MBA from the University of Cambridge. He is a global shaper and has lived in seven countries and loves the Mulu of technology, culture, and business. Mahesh, welcome to our digital industry leadership podcast.

1:30
Thank you, Ken, for the opportunity to come and share my perspectives on sustainable energy transition and doing digital transformation at scale. These are topics I'm extremely proud of and would love to share what we're doing in the space.

1:44
Excellent. And I'm looking forward to the conversation. So, let's go back and talk about your own digital industry leadership journey, what would you consider to be the red thread through this journey?

1:57
I've had the good fortune of being in both the IT side and the OT side equally for the past 18 years. And also, the fact is, I've done this across seven countries, this fundamentally shapes my thinking. Nothing motivates me more than the opportunity presented by change and getting things done. My career has a common thread. It's all about conceptualizing commercializing and scaling technologies, not just the exponential technologies that we commonly talk about, such as AI or hybrid cloud, but it's also about foundational industry systems like circuit breakers, relay protection, next-generation SCADAs. The entire activities of trying to get these things to market and getting them to scale. Getting them to adoption is something that I have enjoyed thoroughly and trying to do this globally, as helped me shape some of my perspectives.

2:51
You started in OT, as you said, and really at the forefront of energy and industrial, working with Schneider Electric as a sales leader. What first attracted you to the space?

3:04
Well, for me, this journey started when I started my electrical engineering degree as an undergrad. And at that time, problably was like the very early 2000s, when cleantech 1.0 was taking off, right, so that started my passion for clean energy transformation. This is the time when solar and wind were in their infancy. And we were talking about how we get this to a commercial scale and how this is going to lead to what is now known as energy transition. I always wanted to work in this space and I'm also attracted to the business side of things. I got a combination of trying to combine these two passions of mine when I got an opportunity to work for Schneider Electric. And one of the common traits I've always had in my career so far is to always work on topics that in one way or the other, improve people's lives. There's no better place to do that, than trying to get the world to use more clean energy transformation. And I've been in the space ever since. And I've enjoyed my time here. And I enjoyed my time working on both the operational side of things and the technology side of things. So, it's an interesting combination.

4:13
It is, and I love the fact that you kind of took a step up at least in the conceptual technology stack when you move to IBM, where you lead strategy for IBM cognitive systems and IBM Analytics. I'll call it creating the juggernaut we know as Watson; how did your industry background prepare you for this role and really inspire your perspectives in it?

4:38
With industrial technology companies, we always end up in what I call a horizontal platform or a technology stack conversation, or it's a vertical industry-specific use case conversation, and this debate is something that's been going on for a while. The right answer is not one or the other. The right answer is a combination of the two because at the end of the day, it's all of these are enablers to deliver value for our clients. So, when I started off with IBM in the early 2011/2012 timeframe, that is when AI was actually taking off at a commercial scale, right, that's when we showcased Watson to the world. And the promise of Watson was presented over the past 9 to 10 years, we, as IBM have been working on realizing the promise of Watson in multiple dimensions. And then now we have gone to places where an AI is in production, at scale. 

One of the differences I brought into the discussion was moving the conversation from tools to solutions for our industrial clients, and then taking the solution and making them into products. I've been part of two foundational journeys. One is creating the asset performance management product inside of IBM, and also a whole suite of capabilities around geospatial. But one thing I've realized, and also this is something from my collaboration with my teams is, AI is a cross-functional team sport, AI is not a thing, and I always use this phrase that AI is not magic, AI is about foundations. You need to have foundational capabilities to collect data, have an architecture to consume and analyze the data. And finally, AI needs to be applied in the industry, a use case context for it to be effective, so this is what I bring into the picture because AI is a piece of technology. But AI has to be applied in context for AI to scale to that is how you move from what I call random acts of AI in different parts of the enterprise to a value conversation. And this is also something that I'm seeing is scaling because AI has evolved with the evolution of additional technologies such as 5G, edge. AI is getting more into production now and this is something very promising. And I'm excited to be in the space.

7:04
And that probably describes why in 2018, you became Chief Digital Officer for IBM's energy transformation environment and utilities having a foot in, I'll call it the IT world, the IoT world, the solutions, and the platforms and tools. So, tell us a little bit about your mandate there as Chief Digital Officer at IBM.

7:25
Chief digital officer of IBM is something I started in 2018. And I had an opportunity to take up this role because we as IBM were going through a fundamental transformation at scale. And at this time, our clients, such as private electric, water, and gas utilities, we're also going through a fundamental transformation. The pace of the adoption of exponential technologies was changing. So, there's a role for IBM to play. And also, there's a role for IBM to transform itself to be a provider in the space.

My perspective from our chief Digital Officer's perspective had two dimensions. One was the How do I influence a client's business so that they can transform and move from what I said was random acts of AI or random acts of exponential technology, or random acts of digital transformation to a more programmatic digital transformation method by identifying value pools, and also taking advantage of the sense of urgency that will be present at that point in time. So, I was involved very closely in helping up clients around the world, manage the how, when, and where of digital transformation, and finally getting value out of this. And this is something that I've been doing for the past three years. And we have had some very good success here.

The second part of my role was all about helping IBM position itself to serve our clients better because utilities are assets heavy, engineering-centric, are regulated, and have a huge focus on security. So how do we convene our systems, our solutions, and most importantly, ecosystems enabled by exponential technologies, so that we have a value conversation and not just a technological conversation? In the meanwhile, we are also building products for the utility industry, we are one of the few technology firms that actually have an industry-specific solution portfolio. I'm also involved in leading that part of the portfolio and ensuring it is delivered, using what I call the new ways of working, especially from a digital footprint standpoint.

These are the two dimensions that my role and encompasses and I am more than happy to report in three years, one thing that I've been fascinated by is how utilities are adopting digital transformation at scale. And they're also seeing value being derived. So now the value pools are moving from the traditional front-end systems or the customer systems and moving to more operational systems. And that is something that I'm very fascinated by.

10:00
Several months ago, we featured Guido Jouret, who was Chief Digital Officer at ABB at the time, he's been a constant contributor during our podcast. And I was fascinated by his own story about, his role within ABB and the role he played, the difference I see is you're in a digital organization. So how does the chief digital officer in the digital organization differ from one like Guido, who's in a Cap X OEM company?

10:28
The Chief Digital Officer role is something that emerged four or five years back. And the emergence of the role was an indication, both externally and internally to show that the companies are interested in change with the urgency of change. The role evolved in two dimensions. So, there are three regional officers, such as myself, who were part of technology companies, whose role was to not only transform our clients, in my case, electric water gas utilities but also transform how we approach our clients. It was across two dimensions. The role that Guido was, and which is also a very interesting role is where he was, responsible for transforming ABB and moving ABB from an industrial conglomerate to an industrial and digital conglomerate. For him, the client was ABB and his role is primarily around defining strategy and executing for ABB to become a digital enterprise. And his role would have been around defining new ways of working, and also defining how products are delivered digitally. I think the difference between the two is, in terms of focus and depth, my focus is broader across the clients, and also across the IBM businesses. Guido’s role is deeper on one topic, which has to lead, ABB.

11:57
You know, I like that description, because you really have a unique perspective across a number of companies, both the IBM companies and of course, your clients as well, utility clients especially. So, let me step back and maybe ask a couple of questions I asked of him, but looking for that broader perspective. When you look at, let's say, your client companies or the IBM companies, how do you know if a business is truly ready to take on a digital transformation at scale and what are the indicators you're looking for?

12:29
Before I get to the indicators, but I want to like to define what I mean by digital transformation, because digital transformation means a lot of things, to a lot of people so I want to be clear about what it means in my context. For me, digital transformation is a value conversation, and it's about agility and the value is, it's a conversation either about creating new revenue streams or taking costs out. And the agility conversation is all about innovating faster, understanding your client requirements faster, or responding to threats or market opportunities faster.

These are the dimensions I define digital transformation. And when I look at companies who are interested in doing this, the first thing I look at this, is their top-down agenda, because digital transformation is not a sideshow, it is a big tent conversation, it has to be an organizational focus right on the board of directors and CEO. So that is the first thing I look at. The second thing I look at is are they talking about digital transformation across the enterprise? Or have they identified value pools and where they want to, start, what I call the first sprint of digital transformation.

In the case of utilities, for example, there are multiple values pools you can target around a customer or an asset or an enterprise operation, for you pick the value. And after you've picked the value pool, are you thinking about creating some organizational change? Normally, it starts off with appointing a Chief Digital Officer, or someone senior in the organization who's going to be a sponsor for those activities. Those are the initial things I look for, for companies starting to look at a digital transformation. As we go through. The next important thing I look at is, do we have additional skill sets that we want to hire, and the most important thing, digital transformation is what I call a cultural change in how you talk about the business. This is a new way to work. Is the organization starting to think about this dimension? It's an important one.

When I see an organization starteing to talk and message about these dimensions, I know that the organization is ready to start this conversation, because transformation does not happen overnight. I would consider the initiatives that are successful normally happen over a period of 12 to 24 months when you can get to a tangible value that is repeatable. And once you get to that level of success, you can use this success as an exemplar, to roll out digital transformation in other parts of the organization. It’s always better if you're starting with a program where you're able to show success or learnings and then use that as an example to roll it out organization-wide. When I see these dimensions, I understand that the organization is ready for transformation.

15:22
Typically, a first step along the way in some form of benchmarking traditionally, either internal or external, to create, in many cases, a burning platform to get that organization or that top-down, if you will, to what degree do you believe organizations should benchmark themselves and what are some best practices, especially those that are operating in pretty tight industry segments?

15:54
Right, in this case, right off of this particular dimension. I have a bit of a different view. And I'll tell you why. Because most of the time, when we look at digital transformation across the industrials or for example, any asset of industry, we end up looking at industries that are adjacent, we look at new startups and new competition that's emerging in that space. We try to look at how do we what I say emulate some dimensions that these new entrants are demonstrating, and how do we use that, especially on the customer side, or especially your interaction with your customer and the customer journeys. How do you influence those, and a lot of the time, digital transformation is focused on those dimensions. I feel industrials and correspondingly, their clients’ utilities are going through a fundamental change right now. And I think the biggest disruption of best practice I see is the emergence of open source in the industrial world. And this emergence of open source is going to fundamentally change how this industry operates. And when I look at this, the closest parallel that I can see is what has happened with Telco’s over the past decade, right, especially the movement from proprietary solutions and the telco industry to more open source and software-defined solutions that have emerged.

If you look at Telco’s, for example, it's dominated by large vendors, Ericsson, Nokia, and the Huawei’s of the world. And now, with the emergence of 5G and edge, the entire industry has shifted to an open-source model around Software-Defined network function virtualization, which has just changed the dynamics of the industry, this industry has moved from what I call the physical network, which was the telephone to a wireless network, and now to a completely data-driven network. And all of this was possible, given the agility that software-defined provided, right, and I see the same trend starting to happen in the large industrial side of the role, especially with industry 4.0.

In the large utilities, which are still serviced by large proprietiary firms such as ABB and Schneider who have their own stacks. And I see that emerging and emulating some of those open-source characteristics. I think this has to accelerate as we get to the energy transition, the benefits of the energy transition, interoperability, and orchestration are going to be key. And these foundational systems coming from industrials will have had a pivotal role to play, especially from scalability, flexibility, and innovation standpoint, because the data that resides in these systems has to be unlocked to create ecosystems that matter.

18:46
As part of that, unlocking you take what was the air gap between many times OT systems and IT systems. Most recently there have been, challenges with TeamViewer in the Florida utility, and of course, we're still suffering a little bit from solar winds hack, and no doubt the industry needs to move in the direction that you advocate, and we've seen the same thing. But that number one fear that's usually listed for not making that jump is OT security, how do you balance that? How do you move at an acceptable pace to make sure that you're contemplating and addressing the risk?

It’s a great question, Ken. There are two words I tend to use; it's balance and the second topic is architecture. Right now, what is happening in the OT spaces, we are trying to fit some of the legacy technologies into the new open-source world, right if we have to get to do this at scale. We have to fundamentally re-architect and change how we deploy and manage some of these estates, we also need to start looking at how interoperability and the innovation around interoperability are looked at differently. Because as more people come into the ecosystem and more people are innovating on this ecosystem, some of the challenges would be unlocked and could also be fixed.

I am of the belief that any industry, which has opened itself to an ecosystem, has also become more secure. And this is true with what's happening, in financial services. It's truly what's happening telco. And I see that slowly extending to the industrial world. Having said that, there's a long way to go, because there are fundamental dimensions that we need to look at, because some of these industries are essential industries, and they have a lot of legacies to overcome. This has to be done in a planned and phased manner. The second aspect also is some of these are highly regulated industries. So, there's a dimension of policy and regulation, that also needs to be looked at.

21:08
And speaking of the central industries, most recently, we've just come off with the cold snap in Texas, and, of course, the challenges they had with energy. And so, as they say, with that with the utilities, people only notice you when you're not there. And unfortunately, and sadly, there were a lot of people who went without heat there for a couple of weeks. You know, when I look at the challenges associated with the infrastructure right now, at least, when you look at that specific circumstance, what do you see as some of the key drivers and opportunities for what I'll call the energy transformation or transition in the next five years, including, kind of the baseline of what we just experienced in Texas?

21:57
It’s a great time to be in what I call the energy industry today because this is one of the industries that's going to underpin how the world moves towards a transition into a sustainable energy way of doing things. So, this is going to be the next platform for realizing sustainability. And let me explain how right there are two fundamental truths when we look at what's happening around us. The first truth is renewable energy is hitting price parity. The second to that's happening is more and more things around us are electrifying. Right, you can already see that what's happening with electric vehicle fleets. And we see buildings electrifying. And now slowly, certain aspects of the industry are also electrifying.

If these two themes are able to come together, when renewable energy is supplying this increased electrification, we see the entire value chain becomes a more sustainable energy transition. And this is one of the ways that I call practical sustainability. And this is one of the ways we can achieve this goal. Having said that, there are further opportunities that we need to look at because some of these things are changed the way how the network is built and how the network is managed.

I always talk about them in four dimensions. Like you said, People don't realize the utilities unless there is a problem. And that is the reason why the number ONE opportunity is network resilience and operational excellence is what I call an infrastructure on infrastructures, meaning without electricity, you have no water gas, or communication, right it is, it is that essential. And utilities have a social contract of providing uninterrupted power in a safe, reliable, and most importantly, and affordable manner.

With climate risk, you need to adapt, and all of these present opportunities for adjacent industries to ensure network resilience and operational excellence is always Paramount because any amount of change, electricity needs to be delivered.

The SECOND aspect that I see is happening in renewable energy integration, renewable energy needs to be integrated into a much more seamless fashion. And we already talked about energy and energy services being more bidirectional in nature. But we need to find out better ways of integrating renewable energy transformation at scale. And also ensuring while we're doing that, we are trying we are making the system stable. And this is where a lot of new technologies and science needs to be developed. And it's a great opportunity for the sustainable energy transition. 

The THIRD dimension that I think is important is industrial electrification itself because everyone knows that as you move from fossil to more renewable sources of energy, using electricity as a source is a more cost-optimized way of fueling sources. These workloads. And this is going to, accelerate starting from low heat to medium heat to high heat. And we already see some industries doing what I call the fuels, which already transportation, residential and commercial building are good examples. I think, this aspect also provides a lot of opportunities, because new industries need to electrify this electrification needs to be managed. And that presents an opportunity for an ecosystem to emerge to do it.

And finally, the LAST ONE, I think, is what I call the dimension of energy integrators. Well, how do I define this, we see more and more non-utility owned, owned, and also operated assets coming into the grid. And this is happening exponentially. This is both happening on the generation side, and also on the distribution side, and also on the side of retail. So, the utility network is moving from a linear network starting in a generation, transmission distribution to final retail, it is moving to an ecosystem on both ends. Now the utility needs to move from being managed to being orchestrated. Like other industries, you still need wires and cables to transmit electricity, right utilities have an opportunity to be the next big platform to drive the energy transition. And this opportunity is what I call the energy integration opportunity.

I think this is a place wherein exponential technologies such as AI, blockchain, 5G edge, and also hybrid cloud has an essential role to play because the only way to manage such a complex ecosystem is to have a common platform, which acts as a control plane. And this presents an opportunity both for utilities and for new participants who are going to look like your companies.

26:51
You know, we've opined in the past that the decentralization of energy as you will establish a few minutes ago, and it is in some ways a precursor for other industries like manufacturing as an example or transportation that this idea of moving from managed to orchestrated, I think, is a brilliant concept in that regard. If I'm sitting in utility today, how do I leverage the innovation ecosystems? Maybe inside my companies, but around my companies adjacent as well?

27:33
Something that usually the world is already doing. I think I think one of the places where I'm seeing this happen at scale is already in Europe, especially in the Nordics, when a lot of these foundational technologies are being applied. We work very closely with all the transmission system operators in Europe, especially around a project called Equigy when Swissgrid, Tennet and others are coming together to create an ecosystem for flexibility training on so on one end, you have electric vehicles, who are contributing their flexibility to the grid, and then using blockchain, creating a market mechanism to settle all of this. And also, the city of Copenhagen, taking the platform further by connecting buildings to the same platform and using blockchain as a settlement mechanism.

One of the things that you see here is usually is the platform in between, and the different participants who are providers of flexibility. This, of course, this happens across buildings, large consumers of energy, like supermarket, cold storage, and also in the case of Denmark is basically the dairy industry are all on one end as the ecosystem and then on the other end, you have an ecosystem of folks consuming this energy. And given that there is a market mechanism for all of this, it becomes a very efficient model. Because I feel that for some of these technologies to take off, it is not just the fact that these technologies exist, the business model is essential for these to be successful.

What I'm seeing are places wherein the business model promotes an ecosystem that is financially incentivized to make this work is normally the model that works. And I'm already seeing that in Europe. We're also seeing some of these things are starting to be applied in the United States with some of the leading-edge utilities. One of the biggest challenges that I see here, while these things get adopted, is there are fundamental ways in which we have to think about architecture, right? Because these are technologies where you have to go much deeper to see how you use the data from different parts of the enterprise to get them onto a common platform because you're moving from management to orchestration.

You have to think about your data architectures differently. And that is something that leading utilities are starting the trend. And I'm sure there are more and more participants are going to follow.

30:08
You know, I have to imagine you study energy and you study architecture, and you study pretty much all the dynamics of the industry, which must keep you pretty busy. But as a closing question, I always like to ask what books people, and or resources inspire you?

30:31
More than books, I like podcasts, such as the ones that you have. One of the things that I am absolutely fascinated by is how to think better, and especially thinking better using mental models. So, there is this fascinating person Shane Parrish, who runs the former Farnam Street blog, I'm a big proponent of, to think clearly, then also works of Charlie Munger, his philosophy around mental models. So that's one dimension of things I like to read. The second dimension that I also like to read about is how to make my habits better. And basically, by improving habits slowly so James Clear, has written a great book called atomic habits - and that is something that I do-follow.

31:31
All great recommendations and I appreciate the pitching of the momentum podcast in that as well. Thank you for this really insightful interview today.

31:40
And Thank you again, for the opportunity, I hope some of my perspectives, resonated with the audience. And if folks have more questions, I'm more than happy for your listeners, reach out to me.

31:52
Excellent. I appreciate that so much. And it's interesting. This is one of those podcasts that I probably could launch another four or five themed podcasts off of given the depth of material that you've, you've presented there. So, this has been Mahesh Sudhakaran, and the Chief Digital Officer for IBM energy environment and utilities, industry business. And I'll call him Mr. Think better.

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