Emily Swaddle 0:05
Hello, and welcome back to HappyPorch Radio season five. This season we are talking about the Circular Economy, all things digital and technology. Today, we're really excited to be joined by Dave Mackerness, who leads the customer success team a Kaer where he's responsible for delivering Kaer's brand experience across their regional air conditioning as a service portfolio. As an advocate for the Circular Economy and the product as a service business model, Dave regularly shares his experiences for those looking to transition to this disruptive business model. We had a great conversation, and where I learned just how fascinating air conditioning really is, whether it's as a service or not, I feel like there's so much to talk about on this subject. But specifically, the product as a service business model seems like a core part of this circular economy.
Barry O'Kane 0:59
Yeah, I 100% agree. And I think it's really interesting that, as you said, air conditioning is interesting, as if, before this, the idea of having this conversation that might not be true, but also really interesting, like you say, the thing Dave describes really well is how the servitisation of this business model branches, the service business model completely changes everything about because the underlying mindset changes, it changes everything about the business, I think another great example is, you know, his job was Customer Success Lead, which is maybe not the sort of thing you would hear from a traditional air conditioning or old school business. So it's really cool. And the thing to tie back to the Circular Economy, and I guess, my personal interest is all these other benefits and the business goals and everything. But for me, the real core benefit of this business model is it aligns the customers, the buyers needs, and the business' the vendors needs. And in this case, definitely the goal of being more sustainable, energy efficient as materials, and just generally better in every way.
Emily Swaddle 2:01
Yeah, he talks about that, holding the core of this business model as sustainability, how that really helps to frame everything else around that, that there isn't a separate arm of Okay, so let's also think about how we make this business sustainable. It's actually right in the middle of how their business is functioning. And that changes everything really, it was really inspirational to hear about that, actually.
Barry O'Kane 2:29
I agree. And so without any further ado, let's meet Dave.
Dave Mackerness 2:39
Hi, everyone. I'm Dave Mackerness. And I'm the customer success lead at care. We are an air conditioning firm based out of Singapore that sells air conditioning as a service throughout the Asian region.
Barry O'Kane 2:51
And welcome to the podcast. I'm really excited about this conversation, because as a service of the servitisation part of Circular Economy is such a fundamental I think one of the fundamental approaches to genuine circularity. So I thought maybe we would start the conversation there and just get your thoughts on, I guess exactly what you mean by air conditioning as a service and why Kaer has reached that point? And is doing it this way?
Dave Mackerness 3:19
Okay. Sure. So Kaer has been in the air conditioning business for about 60 years. And we've transitioned from being a distributor of air conditioning products and equipment, to a turnkey contractor. And we work in the the industrial space and commercial spaces, so we don't do residential air conditioning. And about six or seven years ago, we had the idea to move away from the traditional turnkey model where we're being asked to design and build systems for data centres and shopping malls, and servitise air conditioning. And the reason that we did that is because, you know, our customers were buying something from us that they didn't actually want. They were buying air conditioning equipment and air conditioning assets, usually at pretty hefty prices, so that they could deliver environments to their customers, and then they could run their business. So if you think of, you know, a data centre as an example, they need the climate and the cooling so they can run their data centre. But actually, it's the comfort and the conditions that they're looking for. So what we did is we said, well, if they're looking to buy an environmental conditions, why don't we sell them? So we said, well, if we can sell air instead of selling equipment, like chillers, and cooling towers, and, and all of that, that goes into producing the air, that could be a good thing. So we kind of decided to learn from some of the software companies who had servitised their business, you know, we see it all around our personal lives when it comes to servitisation of entertainment and transport. Almost everything is sort of been servitised now. And we said let's do that in the air conditioning. Well, I think that's sort of where the idea came from. It was kind of led by the customer and the benefits of that model. But when you talk about Circular Economy, one of the key things that did was it moved the burden of being efficient and being circular off of our customers and put it on to us as a vendor. And that's something that we are, I guess, much more able to manage, because we're an air conditioning provider, and it's sort of our core business. So it really helped to sort of move that burden across from from them to us, and sort of allowed us to think in a more circular fashion, because we had a portfolio of buildings that we're looking after, and really affect more change in terms of sustainability and the circular economy.
Emily Swaddle 5:34
Hmm. That's really interesting, this idea of flipping the switch from there in terms of responsibility, which I think I want to come back to, but just to clarify a little bit, this idea of air conditioning as a service, because the infrastructure that you mentioned, the the systems still need to be in place in order to sell the air, as you put it. So what does it practically look like for a customer when they are interacting with you? Do they need to already have a system in place? And you kind of take it over? Or do you provide all those things? And then they actually belong to you rather than the customer? How does it work?
Dave Mackerness 6:14
Yeah, so it works in two ways, when you look at new construction versus existing buildings. So for new construction, what we would do is we would design, procure, install the entire air conditioning system throughout the building, we own all of those pieces of equipment in that system. And we pay for the electricity that it uses, we pay for the water that it uses. So essentially, all of the CapEx and OPex, that goes into running that system is Kaer's responsibility. And then the building owner just buys air conditioning at a fixed fee, or pay as you use model, if you're looking at an existing building, which actually is much more exciting for us, because that's where we can make real gains in terms of sustainability. And the circular economy is, what we do is we go into a building with an existing system, and we would buy the assets off the building owner. So let's say for example, the all the chillers and cooling towers are on their books at $2 million, we would write them a check for $2 million, and buy them of them. And then we would do the exact same thing we'd be responsible for that equipment, we would pay for electricity and the water that that equipment uses, and then sell air conditioning as a service. So it is different, I think from from software in that way that you know, there is infrastructure that's you know, bricks and mortar infrastructure that's there. But you can treat it in the exact same way. And if you have a very sort of transparent contract with your customers, where you can transfer these assets across from them to us, like I just shared or even from us to them if they wanted to exit the contract. It's very easy to do that. And then you can you can really stay true to the principles of software as a service, which is the model we copied, I think.
Barry O'Kane 7:45
Hmm, I think that's really interesting, as you say, the software services model, but in the physical world where you've got these big, physical assets, it is the necessities that change but it really, I think it's really cool that you've got this, the way you describe the model, it's like it's really clear and really simple. We buy the assets, the machinery, and then we manage it and sell you the air. And basically, we can just end the episode there. That's the whole conversation, right, that it's sort of really simple in concept. But coming back to the other thing that I think are the sort of the first most powerful impact of this, in my opinion, is what you were touching on there when you said it, it sort of moves the responsibility. So can you tell us a little bit about what that means for you and Kaer as a business and why that is interesting.
Dave Mackerness 8:33
So when you move that, that business risk of running an air conditioning system away from, let's say, a real estate business and move it into an air conditioning firm, there's a couple of things that you can do with that. The first thing is that we have access to a massive data library. So we did, we went back and tried to look at exactly how many bits of data that we have. And it's a number that I can't even say it's sort of billions and billions and billions, because it goes back about 25 years when we started collecting data on air conditioning systems. And it allows us to therefore build systems that are sort of smaller and more efficient compared to what people generally would build if they were using a rule of thumb design approach. So it allows us to sort of build less and build things that are more suitable. But also the business model allows us to remove the risk in building smaller. So what do I mean by that? As an example, if you were a shopping mall, and you asked a consultant to design you an air conditioning system, you would have to over build and over design, because there's all these assumptions that you would have to cater for. So the assumptions are things like, what if it's the hottest day that it's been in the last 20 years? Let's take that as a reference point. Let's assume our shopping mall is 100% occupied. Let's assume the heat load or the air conditioning requirements go up by 15 or 20% because we might expand the footprint a little bit. So we take all these assumptions into place and we design and build a system because we are now selling as a service. We can use data to build exactly what our customers are going to need. And if there is a requirement, let's say it does get hotter, let's say their occupancy does increase, let's say that they increase that their footprint, we can add or increase capacity as they go along. So it's kind of like if you were in the in the in the data world, you know, you buy the data you need to store now from, you know, any of the cloud based service providers. And as your data increases, you pay more for the space that you use. So you can have the exact same feature and benefit in air conditioning. And so I mean, if you look at air conditioning assets across Asia now, depending on what country you look at, and what industry you're looking at 50% of the assets that are there are not currently operating, they're standby or they are overdesigned. So you can remove all of that and put that burden of sort of design onto us. And because the business model, you know, the more you use, the more you buy, it allows us to be able to do that without any risk at all for our customers or for us. But also when it comes to the efficiency side of things, because we have a price that we're giving our customers, if we can produce the same amount of air conditioning using less resources, and by that I mean less water, less electricity and less manpower, then it allows us to increase our margins. So essentially, what it's doing is it's aligning Kaer's profit, to our customer sustainability goals, because our customers want to have sustainable systems. So we can therefore invest huge amounts of money into software, and technology that allow us to provide the same level of service of better levels of service at a lower cost. Now, this is where we're really excited about the model, because we're not saying we're trying to be sustainable, or we're trying to help the Circular Economy, we're saying that the business model almost dictates that you must take sustainability and the Circular Economy into consideration because it drives your bottom line and drives your profit, which I think is really powerful.
Emily Swaddle 11:51
It is really powerful. I read somewhere on I think it was on your website that you kind of described, you use the analogy of having a car. And if you or I were to drive it, then, you know, we could go anywhere and kind of the car would function. But if Lewis Hamilton were to drive it, he could get so much more out of that machine, it could be so much more efficient. And it could kind of reach its maximum capacity, even if it was just a standard kind of run around car than what you're describing as as Kaer as the air conditioning expert, with all this data at your fingertips. And the experience. And the investment that you put into making these systems means that you can make much more efficient right?
Dave Mackerness 12:38
Yeah. And I think when it comes down to operating these systems, the differences are that stark, which is if you invest the time and the money into running these systems better, you can get huge, huge increases in terms of, you know, efficiency and sustainability. So, as an example, most people would assume that when you build a building, over the lifecycle of the building, it deteriorates. And you sort of the efficiencies or productivity within that building, and those systems decrease over time. But if you take the the driving example, Lewis Hamilton gets faster, the more he drives, his car gets better, the more he drives. And so we have the exact same requirement here, which is okay, we ran it in a particular way today. And we ran our portfolio across Southeast Asia in this particular way, tomorrow, we want to run it faster or better. It's just it's very simple change in mindset, which comes from the business model. And I think that's the biggest thing that we try and talk to people about is that it's not that the engineering is different, it's not that the technology in terms of the equipment we're using is different. It's just that the we're bought into a very different mindset because of the business model. And by doing that, it's really software data and that kind of passion to drive it faster. That makes a huge, huge impact. And I think it's such an impact in terms of efficiency. You know, a lot of people talk about that when we talk about Circular Economy and sustainability, but also in terms of delivering an experience to your customers. So we have data throughout buildings, which can tell you exactly what the conditions are in very precise terms at every minute of every day across our portfolio, when you can access that kind of data, it allows you to deliver a consistent experience when there are so many dynamic kind of changes going on in the environment or, or in the building itself in terms of people coming in and out, etc. But you can manage it to deliver that experience 24 hours a day, at any point in time all the time, which is I think, why some of our customers in the mission critical space gravitate towards the model as well.
Emily Swaddle 14:39
So when you say the passion to drive it faster to keep getting better at this in real terms, that's referring to, like research and development, right. So presumably, there's a huge amount of the business actually focusing on on that.
Dave Mackerness 14:56
Yeah. And I think if you were to ask that question, maybe five or six years ago, I would say that our passion and interest in running system is what differentiated us. And that, you know, that was true, then it's true now and that we genuinely are interested in, in how we can run the systems better. But I think we're also, I think, learning that we are only human. And when it comes to running complex systems with multiple components, all of which affect each other, we don't have the ego that says we're better than the machines. And I think it became very apparent that this is an industry which requires artificial intelligence. And it when we've shown that so we, because we have a portfolio of buildings now, it essentially justified us investing in technology. So I think, you know, I think that's another great thing about servitisation is, in the old world, if you're selling project by project or construction project by construction project, it really doesn't justify investing huge amounts of money in artificial intelligence and software development, because each individual project can't justify it. If you're running 10 million square feet of space across Southeast Asia, and expanding into India, it kind of justifies investing in this stuff. So we we built a an artificial intelligence platform called BRICS, it was 2015, or 2016, we launched it, that can basically be applied across our entire portfolio so that all of our buildings are learning from each other, and operating autonomously. And I think, you know, the analogy we use is, it's kind of like the autonomous electric vehicles, you know, when they come into play around the world, it's going to have a huge impact on customer experience, but also costs to deliver a service. So we have a, you know, a fleet of self driving buildings around Southeast Asia, that are constantly learning from each other. Because Yeah, I think there's just too much data for us to be able to analyse on our own.
Barry O'Kane 16:45
Sort of the reason for that this is going back to the theme that you've been emphasising all the way through. The reason that that is possible is because of the business model. If you roll back 50 years, whatever they're building the machine once and selling it, and then going and selling the next one would have been the business model, that's what that's the linear thing. That's what it is. And the only way to optimize is to sell more things. It's in direct competition, I guess, to the to the needs of the customer. In many ways. It's a sustainable disaster. And it doesn't open up opportunities, like you've just described to create these really interesting, innovative as part of the business.
Dave Mackerness 17:23
Yeah, I think the way that we break it down at Kaer is it's a difference between business model innovation and business model disruption. A lot of people will look at business model innovation. And I think servitisation is innovative, because it drives a better customer experience. So that allows you to step change what you're doing and get incrementally better. However, once you've done that, you then have scale and scale is what unlocks business model disruption, because that's what allows you to justify spending huge amounts of money and time and resources and focus on to technology and software that improves your customers lives. And you see it if you look at any of the sort of case studies out there around Software as a Service, music as a service is a really great one. It sort of shows and actually transport as well. So you know, the Ubers and Grabs of this world, if you see how they've improved our lives so far, I would say that's business model innovation. Now that the scale that they've got, and if I look at the the car market as an example, you know, these guys are now responsible for the largest fleet of cars in human history. And they are investing millions and billions of dollars into autonomous vehicles and electric vehicles, because that's going to allow them to provide better service level to their customers and reduce their costs. You think about a we use Grab here, I guess, globally? Do you guys use Uber? Or do you guys use Lyft? I think the other one?
Barry O'Kane 18:43
Yeah, Uber is probably one of the most common ones here.
Dave Mackerness 18:46
Yes, I think when you so when you when you book a car, I imagine depending on where you are about 50% of your cost is the driver, you know, these guys have come out and said, Everyone can be a taxi driver. And you know, in about two or three years time when they move to autonomous vehicles, they're going to say the exact opposite, which is no one needs to be a taxi driver, it's really going to be a huge disruption, which I think they should look at. But if you think about that, if you can reduce that amount of cost by so much and have a better level of service, it's extremely disruptive. And I think when you move to that business model innovation, and then business model disruption, the old way of doing things just cannot compete. When's the last time you bought a piece of software that wasn't as a service? I can't remember the last time I did that, because it just could not compete with that level of disruption.
Barry O'Kane 19:34
Yeah. And I want to come back to the question of sort of unintended consequences that you're sort of starting to touch on. But before doing that, just to go back a little bit in time. So you've you've got this as a business, you've started this journey of this new business model and the mindsets changing and these opportunities are working out. At the same time, then to the point where you're developing your AI platform to understand and optimise and create opportunities you just described. Is that as a business where you were kind of needing to learn a new set of skills as well as mind set shifts, you know, you're now looking at? Well, we need to understand how to track this data even more how we need to analyse it, how we need to display, you know, there's the kind of software and, and and everything related that's changing within the business, Was that a big shift. Was that a difficult process?
Dave Mackerness 20:21
Yeah, it was, it was a huge shift. So I mean, we had been collecting data for 25 years, but we've been using it to inform our engineers and allow them to make better decisions. But we hadn't moved into the world of, you know, data scientists, analysts and big data and artificial intelligence until 2015. And it is a completely different industry. So you know, we had to bring, attract people who, you know, would otherwise be working at Google, or Amazon, or some of these other companies. And we have to attract and compete with Silicon Valley companies to bring them into air conditioning in Singapore, which was, can be can be difficult. But I think what was great about it is that these people that work in data science, they are industry, agnostic, almost because data is data. And I remember vividly a guy walked into our office, and I wasn't aware that we were moving into this. And this kid walked into our office, and he came in at 10.30, in the morning, when you're supposed to be at 8.30. He had shorts on he hadn't shaved yet scruffy hair. And I remember saying to my colleagues, like who is this guy? And they said, oh, let's use a different name. This is Brian, who, who came into office, and he's going to be working on. He's a data scientist. And he's going to help us optimise our systems. And I said, Okay, well, in that case, you should probably dress appropriately come in on time, and I'll go take into some of our sites. I'll show him what air conditioning is. And they said, No, he doesn't need to, to go. And I said, Of course, he needs to go, how's he unless he's an air conditioning person? How is he going to possibly help us unless he understands our business. And they said, You don't understand he doesn't need to understand our business, he needs to understand the data. And he helped us build this artificial intelligence program that we're using today. And it beats all of our efficiency metrics every day. And he, you know, never looked at a chiller. And so it was surprising how easy it was to bring this discipline into, you know, our more traditional air conditioning world, which is really hard. And you just have to really jump in and do it and realise the importance. But I think the other thing around data is that, in the past, we had used data to run equipment better. And I think, although that's important for us as a business, it wasn't important to our customers. I mean, if I can run my business more efficiently, what's that got to do with my customers? Now, of course, I can give them a cheaper price if I can reduce my cost. But that's a very transactional benefit. And where we moved to about two or three years ago, saying, Okay, how can we use this data to be more customer centric, and drive benefits for people in our spaces. And let me describe what we see as a potential future of this technology. So there is facial recognition and spatial recognition technology widely available, it is very easy to integrate these sorts of systems into air conditioning control systems. So as an example, if you scanned your face on your mobile phone, and you said, I'd like it to be 22 degrees, and I have asthma, or I have a breathing condition, which requires a better air quality for me within my space. That technology is available, that can then feed into an air conditioning system, which could know where you are in a building. So if we had facial recognition, or if we had other ways of finding where you are in a building, which there are many, then I can essentially deliver a customised service level to you in particular. So if you want 23 degrees, it gives you 23. If you want 26, because you'd like it to be a bit warmer, then you get 26. And this can all be done automatically without you having to change a thermostat or call up your building manager to say that you're too hot or too cold. You could also have hierarchies where if I put six people in a small meeting room, it takes an average of what they all wanted, and then gives them the average, you could say there's a hierarchy, that's the most senior person, whatever the boss put is the temperature or the conditions he wants. That's what he gets. You could also increase air changes or look at your filtration. If there's someone in your building that has a breathing condition, you could overlay other data. So for example, there's outdoor air quality. So overlay that data and how do you manage the amount of fresh air coming into a building? You could update that with? I mean, just as an example, we don't do this yet. But the technology is available. But if you overlaid, let's say COVID prevalence across your portfolio, and if there's more prevalence of COVID in a particular area, maybe you increase fresh air and reduce air circulation, maybe you reduce the velocity of the air traveling in the space or you reduce transmission, maybe you put in different air treatments. And it can all be adaptive, depending on all these external factors. And so that world I've just described to you is 100% possible. I mean, the technology is there today. It's not it's not sort of sci fi it's not 10 years in the future it's available today. And it's just a question of how do you use data to give those benefits to your customers in those personalised environments and space conditions, which is, I think, what we're excited about these days, as opposed to running your equipment better.
Emily Swaddle 25:15
The story you told about Brian, that was a great example of disruption, as you mentioned, you know, not just necessarily within the business model, but also kind of socially within business environment. A whole different level of work that has to be done that kind of takes a different set of skills and experience and brings with it a whole different kind of culture. I think that's a really interesting part of this evolution of the business model.
Dave Mackerness 25:42
And I think a lot of that comes from the values that we have of always improving. So I think everyone at Kaer has this culture of, you know, people talk about fail fast and fail, but fail fast. I think one thing that we've done is we really have a culture of trying new things. And so when someone comes in with a new idea, or a new perspective, or a totally new approach to something, the general consensus is okay, well, we'll give that a go. As long as it's not going to affect our customers or affect negatively on the customer experience, we'll give it a go and try it. So I think that that allowed us to, I think, bring in more people with more points of view without them being hit by this legacy business and the way things are done and the way things have always been done, and always will be done in the future.
Emily Swaddle 26:31
Just to go back to the examples that you were mentioning of the ways in which this service can be personalised to customers and improving the customer experience. It does seem kind of surreal, and like another world to have these options at your fingertips. And I think with every introduction of such data use, there comes this question of privacy and the handling of the data and the storing of the data even. So, I mean, presumably, that is maybe one of the the hurdles that has to be able to come before this could be a real world scenario.
Dave Mackerness 27:10
Yeah, you're exactly right. And I think that's one of the barriers or challenges that we'll have to address in order to realise that, and I think there is technology available, where you can, you know, overlay occupancy data on space data. So if you don't personalise, but you essentially run your systems better, depending on the number of people, then you still have a bit of rule of thumb, you know, you have to say generally, people like it to be 24 degrees or 23 degrees. So you can sort of you can do that. But when it comes to if you want to personalise environment, you will have to somehow tell the system, your personal preferences. And so what we're doing at the moment is you're right, not going into people giving their personal preferences, because we haven't overcome those challenges yet. But we are treating a global community within a building as a singular entity. So one thing we have looked at is how do I run my systems for the sort of a global minimum of complaints, I call it. Which is how do we make the most people happy, as opposed to responding to individual people saying they're too hot or too cold. And if you use a data driven approach to that, actually, you can improve your complaints or your your people that aren't comfortable by about 50%, just by going to a databased approach as opposed to a reactive approach?
Emily Swaddle 28:25
I suppose that's 50% fewer people who would say that they were uncomfortable. I'm intrigued, actually, just from a kind of social experiment perspective as to how that works out in terms of, you know, maybe people who are lower in the, in the hierarchy of the company, if they're less willing to say, I'm uncomfortable in this temperature or socially, I think that's a really interesting question.
Dave Mackerness 28:47
Yeah. And I think also it It depends, the feedback that you get, there's always a bias, especially in this part of the world towards feedback around being too hot versus too cold. So if you look at the data, generally, the complaints you get in a building a 50% of people are too hot, 50% of people are too cold. And most people would say, Well, okay, that's, that's a pretty good mix. You're, you've got the right set point, if that's the case. But actually, if people are too cold, it's very easy for them to put on a jacket or a cardigan. If people are too hot, there's nothing they can do. So they're more likely to complain if they're warmer. So actually, although you think you're in the right zone, and it's 50% too hot and 50% too cold, if you dive a bit deeper into people's behaviour, actually, you'll find there are more people that are cold than there are people that are hot, they're just not complaining. And so what that means is there's a real opportunity to give a better customer experience. And also, the sustainability impact of increasing your temperature is available as well. So you can at the moment where overcooling people which is spending more energy and giving them a rubbish user experience or customer experience, because you got to sort of dive in that next layer of the data and sort of see if there's any biases within it.
Emily Swaddle 29:59
Yeah. Yeah, that's really interesting. And of course, there's differences along kind of lines, as you mentioned, regional lines in terms of which part of the world you're in. And along gender lines, I imagine in terms of preferences of heat or cold, or just generally the clothes that you're wearing. There's all sorts of kind of different factors that come into play with personalising or generalizing the environment of air conditioning, who would have thought that air conditioning is a fascinating topic.
Dave Mackerness 30:27
So on that point, it was fascinating. So we are fascinating for me, I guess. So we did an analysis of every complaint we got across our portfolio. And actually, if you look at the data, one of the most contributing factors to whether you're going to get a complaint, oddly, is nothing to do with temperature, it's to do with time of day. So if you have a constant temperature throughout your building, which generally you would set it, let's say 24 degrees, at about 7 or 8am, when people are coming in, that's usually when they feel warm, then at about 11, or 12, just before lunch is generally where they get cold. And that's probably because they've been sat at their desk for a while not moving too much. And then at about two o'clock in the afternoon, when they come back from lunch, and they've been out of the hot weather, and they're coming back and they've been moving around, they don't generally get hot again. So it's actually time of day, which is a better indicator of complaints than then temperature or humidity or any other sort of IQ parameter you measure.
Barry O'Kane 31:19
It's really interesting to me that a lot of the point you're making there, Emily, conversation of air conditioning is at this level, you know, it's about the people and and what temperature people like in measuring that, rather than, rather than how efficient is our cooling? Where should we put our extraction fans, rather than fairly old school? I think that's really fascinating. The other thing, Dave, that you mentioned, that I wanted to pick up on was the sustainability metrics. Is that something that the business included in this data and this analysis and decision making? Where does that kind of measurement fit in?
Dave Mackerness 31:55
So I mean, a lot of companies are seeing sustainability is sort of a key impact driver for their business. And I think it's becoming more important for their customers, and also their, their employees and their team members. And I think as time goes on, sustainability will only become more important. And so what people are doing is they're starting sustainability divisions, or other departments which look at sustainability. And they report on it, which is great, and they create more awareness around it. But generally, it's seen as almost a side interest, which is a requirement as opposed to being baked into their business model. And what we said is, okay, if you're looking at a metric of sustainability, what are you using, you're using reduction of carbon emissions? Are you using reduction of energy consumption? What's your, your metric. And if you look at servitisation, so kind of what we talked about a little bit at the beginning, where you, the burden of being efficient is on the service provider, as opposed to the customer, it means that the metric of sustainability is profit, because the more efficiently you can run your systems, which has a great impact on sustainability, the lower your costs are. So essentially, what you're doing is you're baking sustainability into the model. So in some old world, and or some old version of our company, we would have someone who looked after the performance of our systems, he would report into the engineering team. Now the people that run the performance of our systems reporting to the CFO and the CEO, because they have a huge impact on on the profitability of our business. And I think that's a great thing is that if you can bake it in, it means that it won't be a passing fancy, it means that it won't improve and wane over time. It'll be sustainable sustainability, I guess, because it drives your business. And and there was a great quote, you know, there was another, another webinar, and there's another guy who was talking about if you do things because it's you're trying to be charitable, because you think it's a good thing to do. Then you have some days when you do it really well, in some days, when you focus on your business. If you can bake it into your business, it means every day you go into work, that's your key parameter is your core business. And if sustainability is part of that it means it never goes away.
Emily Swaddle 34:08
Yeah, sustainability as a core business objective is really important to making it sustainable. Yeah, it makes a lot of sense, makes a lot of sense. And what's interesting about air conditioning, specifically, another thing that's interesting, about air conditioning, as you mentioned, this business model is aiming at the kind of mitigation of negative climate impacts. And but obviously, air conditioning is also involved in adaptation. You know, there's parts of the world that are heating up really rapidly, and also in those parts of the world, and the economy is changing in a way that more people are kind of working in office buildings. And, you know, there's a lot of really rapid development happening in those parts of the world. How is the industry changing in that way, in terms of this changing climate that we're in?
Dave Mackerness 34:55
It's a great question, because a lot of people will ask us, you know, how are we how do you weigh this up, but you know, you're a sustainable business. But at the same time, your energy consumption is massive, you know, the more people that require air conditioning, the more energy that you're using. So on one hand, you're giving comfort, but on the other hand, you're using huge amounts of resources. And I think, you know, there are some trains of thought that says, well, let's, let's maybe mitigate those negative impacts by not having so much air conditioning. And I think asking people to compromise their lifestyle or quality of life or productivity of business, for an environmental impact is noble, but is not sustainable. As in, you know, going to have most people signing up to that. And most businesses, if you can say to people, you can use more air conditioning, and you can have it in a sustainable way, that's a much more sort of appealing message for us. And so we've actually looked at, and we've done this in, to give you an example of a business park that we did in India. And this business park is adding huge amounts of jobs to the area. It's, a house, a corporate office, there's an education block, there's automotive factory, there is a engineering company, which makes lighting and control systems for the automotive industry. So it's a huge business park in Hunan, India. And that's great, but they all require air conditioning, and they have servers and stuff. So they need quite a lot of air conditioning. And we said, well, what if we, if we did our model, and we did air conditioning as a service, and what if we daisy chain that with water and, and solar energy as a service. So buying solar as a service is pretty popular now. So we actually daisy chained. as a service business model for our resources. And we used our technology and our software to reduce our energy consumption as much as we can. And actually, what we managed to do was the electricity and the water that is captured on site through solar panels, and water capture is actually net positive when it comes to running our air conditioning system. So we actually produce more energy on site through solar panels than we can use. And we can sell that back into the grid. If you look at that business park, it is 100%. net positive in terms of air conditioning. So if you ask yourself, okay, well, is there a negative impact which you're mitigating? Well, if you put this business model, and you really use the power of this business model, you can have a positive impact. So you can have more air conditioning, and use actually give energy back to the global supply chain, then when you use it.
Emily Swaddle 37:22
Yeah, I mean, the world is quickly becoming too hot for humans really. So I feel like air conditioning is a must. It's one of those things that we have to learn how to do better, rather than to do less. And that sounds like that's exactly the mindset that Kaer is running with.
Dave Mackerness 37:41
Yeah, and I think there's two sides of this coin, right. One is you need to, the only reason energy efficiency is important is because the energy that we get is terrible for the environment. So it's all burning fossil fuels. If you use solar energy, and everything is off solar, then you can use as much as you like, because it doesn't have a negative impact. So I think the two sides of the coin is we have the responsibility as vendors in the built environment to reduce the energy consumption as much as possible. And then we also have the responsibility to outsource to renewable energy sources to use within within our systems. And if you can marry those two things, if we can bring down the energy consumption, if other vendors can bring up the renewable component, as soon as you get parity on those two things, and you've got a, you know, a net-zero system. And I think we just need to get there as quickly as possible. Because we're, you know, as you see in the news, we're running out of time pretty quickly.
Emily Swaddle 38:31
Barry O'Kane 38:32
So I feel like we've barely scratched the surface as so often in the season, we get some really interesting conversations, and we've barely scratched the surface, we get to some interesting things. But we run out of time. So there's so much there. There's just amazing, but there is one thing that we would like to one final question I'd like to put to you, and I guess is, and I guess that is why are you talking about this publicly? Why is this the business model and the concept, a story worth you sharing?
Dave Mackerness 39:01
So I often get asked that, which is if this is your secret sauce? If this is your IP, why are you Why are you sharing it with everybody? And I think the realisation we had at Kaer was that this is not secret sauce. And it wasn't our idea. It wasn't an original idea. If you look at the idea of servitisation, we stole it from Spotify and Netflix and Amazon Web Services, you know, everyone is using this idea to disrupt their industry. So we just looked across and said, Why don't we do the same thing. And so it's it's a really powerful business model that we believe in. And I think when it comes to making a significant impact and achieving some of these things that we've been talking about in terms of customer experience and sustainability in the circular economy, the more people that do it, the better. We don't only want more people buying air conditioning as a service. We want more people offering products as a service because we want to use those services and not buy products. So you know, we're a huge advocate for the business model. You know, we run all of our data is in cloud based services, we try and buy solar as a service as much as possible even office furniture and equipment we're seeing how can we servitise that and by that as a service, and we just feel that it aligns the, the sort of priorities of the vendor and the customer so well. And then the side benefit is the sustainability in the Circular Economy. So we, we kind of just believe in the business model, and we don't think it's IP, because it's not our idea we stole it as well. In fact, the first example we found of servitisation was it was 1906. In the US, and it's a story we tell around GW Maxwell, I believe his name was so you can google it now and see if I was right, and he invented the milk carton. And he said to Americans, I think it was in San Francisco, he said, You don't need to own cows anymore, you can just buy milk. And that is servitisation. You know, don't own the cow just drink the milk. So we stole it from him. So I think it's only fair that we try and share it as much as possible. And to such an extent, actually, that our vision as a company as a business, is actually to make air conditioning as a service, the model of choice. It's not about us in particular, it's about that business model and the impact that it has on on our industry.
Barry O'Kane 41:09
Outstanding that's another thing that I think is amazing. And as an inspiration as a sort of purpose above and beyond all the other things we've talked about as well. I think that's another really inspiring thread to the story that you're sharing.
Dave Mackerness 41:22
And I think if there was there's one last thing I would say is that there's nothing in this world that cannot be servitised. And if we can servitise as air conditioning, you know, these huge, massive pieces of equipment and systems within buildings, then you can servitise anything, and there's nothing that's off limits. I always encourage if you are a consumer of any products, demand that it'd be servitised and try and buy it as a service. And if you are a producer of products, servitised immediately otherwise somebody will, and you will go out of business.
Emily Swaddle 41:55
That's the challenge. Everyone out there who's offering a product offer it as a service.
Dave Mackerness 42:01
Barry O'Kane 42:04
So thanks again. It's really appreciate your time. Just finally, for anybody who wants to find out more about the things we've talked about more about Kaer, where should they go?
Dave Mackerness 42:11
You can jump on to www.KAER.com. So kaer.com, or follow us on LinkedIn actually, which is a great way to see some of the things that we're doing in terms of our software or artificial intelligence in our portfolio. Yeah, well, yeah, get in touch. Thanks again.
Barry O'Kane 42:27
As usual, we'll put those links on HappyPorchRadio.com in the episode show notes. Thanks again, Dave. Appreciate your time.
Dave Mackerness 42:33
All right. Cheers, Barry. Thanks, Emily.
Emily Swaddle 42:35
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