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Saturday, May 15, 2021

CEO Insider

Adopt the Right Mindset & Sustainable Solutions Can Generate Massive Profits

J. Byrne Murphy, Chairman & Founder, DigiPlex Data Centers

There is much chatter today about the Biden administration seriously taking on Climate Change. In response, there is also “woe is me” chatter from some business leaders. Such a mindset is outdated and ignores an immense opportunity.

The presumption has long been that “going green” hurts earnings. Government forces, critics say, are being substituted for market forces. That may have once been true, but sentiment and markets have changed. Harnessed correctly and marketed wisely, sustainable solutions addressing market needs can create highly profitable business models.

The problem isn’t “going green”. The problem is mindset. Management must adopt the new reality that there is a dire need for sustainable solutions. Ignore that fact and competition shall show you the price of hubris. The March 7 issue of Harvard Business Review highlights the price paid by Kodak and Blockbuster for not adapting to digitalization. They were quickly left behind. To best position one’s firm for success in this new race, management must take three steps to factor climate change into their business plans. First, adopt the right mindset. Second, take that mindset and reimagine business operations. Third, understand the next generation’s perspective to win the fierce war for young talent.

First, mindset. I positioned a sustainable and profitable solution as the key success factor when launching my Nordic data center company, DigiPlex, twenty years ago. Today DigiPlex is the largest data center company across Scandinavia, and provides our customers – including Silicon Valley’s Big Tech companies, known as hyperscalers – hundreds of millions of dollars in savings. How? We utilize dramatically less expensive hydroelectric power, which is renewable and sustainable, versus the fossil fuel power widely used elsewhere across Europe and the U.S. When the cost of power represents up to 60% of the typical data center’s operating costs, paying 1/5 the cost for power can save a lot of money.

A recent study commissioned by DigiPlex showed that the savings of one modest-sized contract over its 10-year term is nearly $200 million. Meanwhile, several hyperscalers are constructing up to 100 megawatts of data centers in each of three Nordic countries. Across their expected 20-year life, those data centers, which will use Nordic hydro power, will save several billion dollars compared with data centers that use fossil fuel power. Savings of that magnitude attract a lot of attention, mostly from way up the corporate ladder. In other words, going green is big business.

Why are data centers so important in this debate over going green?

Data centers are large, non-descript buildings that house “the cloud”. All the bits and bytes that underpin innovations in autonomous driving, Artificial Intelligence, robotics, 5G, e-commerce, the Internet of Things – all these powerful new technologies reside and are analyzed in thousands of these specialized buildings around the globe. And as the number of data centers grows, so too does their power consumption. Gobbling up nearly 3% of the world’s annual power usage, data centers’ power consumption today exceeds that of the global airline industry. But that usage need not lead to run-away carbon emissions.

That same DigiPlex study also found that carbon emissions from hydro-powered data centers equals approximately 3.5% of the traditional fossil-fueled data centers in Germany. By utilizing hydroelectric power instead of fossil fuel over the last decade, DigiPlex alone has prevented nearly 1,000 tons of carbon emissions. That’s equal to what a gas fueled car would emit driving 4,800 trips to the moon and back. Preventing that huge carbon emission and having our customers realize those massive cost savings were made possible by management having the right mindset. That enabled the right question to be posed: “Is there a better, lower cost power source for data centers?” Different mindset = more competitive business model = more sustainable company on all fronts.

The second area – reimagined business operations – can spark true innovation and enhanced competitiveness. In recent years, several large hyperscalers (including Amazon, Microsoft, and Google), have come to make up 80+% of demand for modern data centers. More than 70% of the $185 billion invested in data centers over the past few years is by the five biggest hyperscalers. In concert with making such massive investments the hyperscalers are setting the pace in creating data centers that are much more energy efficient, designed specifically with sustainability in mind. Even the critical back-up generators are now being phased out for more eco-friendly solutions, including sourcing power directly from national grid systems.

Meanwhile, the majority of corporate and especially government data centers are older designs, often no longer fit for purpose and remain very significant carbon polluters. To really move the needle on responding to climate impact, business leaders, government officials and environmental advocates must encourage as much of this ‘long tail’ to move to newer, cleaner and more efficient data centers as fast as possible. One easy method: change government policy to permit much faster capital investment depreciation of those dirty centers (e.g. over a five year period). That would have an immediate, material impact.

Our recent Nordic Data Centre Trends report showed that the migration from older corporate data centers is happening, but not fast enough. By 2022, 45% of organizations will still have some applications hosted in-house in such data centers. That’s only 8% fewer than in 2020. That pace needs accelerating.

The final and most important initiative addresses a company’s most important asset: its people, particularly people early in their careers who represent a company’s future. The good news: Millennials and Generation Z are already environmentally aware. Moreover, they care and they want progress. They know that actions today can negatively impact their lives tomorrow. They are finely attuned to whole-system thinking, the concept that considers consumption, efficiency, re-use, and circular economy approaches.

Paying close attention to the values and beliefs of the next generation of managers is smart business. There is a war for talent in the telecom, media, and technology sectors. Winning recruiting battles is vital to a company’s long term growth.

I am proud that DigiPlex is rated among the top Norwegian companies of comparable size in the independent “Great Place to Work” surveys. One of the strongest elements attracting young people to DigiPlex is our focus on sustainability. They clearly recognize it is woven into our DNA.

Senior management will never have all the answers, nor all the new ideas. With the right culture there is a steady stream of original thought emanating from all over the company. Establishing the right mindset establishes the framework for a virtuous circle: the mindset attracts a smarter, more dedicated team; that team works harder at creating a more profitable, sustainable business model; those solutions generate higher returns.

The DigiPlex team is fired up and enjoys working for something more than the bottom line. Harness both that dedication and the new market forces underlying it and suddenly going green is vastly more profitable than standing still.


Written by J. Byrne Murphy. Have you read?
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*Research undertaken by Future-tech (UK) on calculations for Carbon Emissions and Power Usage, 2021

J. Byrne Murphy
J. Byrne Murphy is the author of LE DEAL and the Founder and Chairman of the award-winning company DigiPlex, the largest operator of data centers in the Nordic countries and known as having some of the most sustainable centers in the world. Byrne is also founding partner and Managing Director of Kitebrook Partners Limited, an international real estate investment company.

Books by J. Byrne Murphy
Le Deal: How a Young American, in Business, In Love, and in Over His Head, Kick-Started a Multibillion-Dollar Industry in Europe (Lyons Press; March 14, 2021).

Education
Bachelor of Arts (B.A.) in Economics from Harvard University.
Master of Business Administration (MBA) from the University of Virginia Darden School of Business.

J. Byrne Murphy is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn.