February 14, 2011
Ask Customers to Use Less of Your Product: The Big Heresy
I recently attended an Executive Sustainability Summit hosted by Xerox, Waste Management (WM), and Arizona State University. The short conference brought together public and private sector managers working on environmental and social issues. Xerox asked me to attend and give my thoughts on what I heard and saw*.
What really struck me is that both Xerox and Waste Management are doing something mostly unheard of: they're working with customers to help them use less of their traditional product or service. The plenary panel during the Summit included execs from both companies proudly talking about these fast-growing, service-oriented parts of their businesses. And what's really important is that these are not just niche product lines, but fundamental shifts in what these companies do.
In some sense, this shift is not optional, as both companies are in the throes of fundamental transformations of their industries. Xerox has been navigating the shift to digital documents for years, and WM is facing an existential threat. As CEO Dave Steiner put it, "When your company is called Waste Management, and your customers all talk about 'zero waste,' you better change your business model."
So both corporate giants are handling the industry transitions by embracing sustainability to the core. Xerox's president, North America , Russell Peacock, speaking for the company at the event last week said, "Sustainability...is what is driving the transformation of Xerox to a services-led business."
Xerox advises companies on how to save money on document handling, and holds a sizable 48 percent market share in the broadly defined, and surprisingly large, $7.78 billion "managed print services" (MPS) industry (according to research firm IDC). Part of this new strategy is an outsourcing play — they'll take over all your print needs for you — to grab share. This is clearly not a niche business-this is a firm that existed on selling devices, paper, and machine servicing, so the more it's used the better.
But at the core, what Xerox is offering is less total printing. That's a big shift in business as usual.
Xerox has worked with multinationals such as Dow (case study here) to drastically reduce the number of printers sitting in individual offices by thousands, shifting instead to many fewer centrally-located multifunction devices. But at the Summit, Xerox execs gave an example from their corporate backyard. The company helped the city of Rochester, NY slash the number of printing devices from 459 to just 168, saving a very budget-constrained local government millions of dollars over the next five years.
These printing retrofits save clients up to 30 percent of their document-related costs. And the sustainability story is significant. In addition to using less energy to run machines, slashing paper use also saves large amounts of energy and water upstream in the paper production process.
For Waste Management's part, the story their execs told was similar but goes beyond cost savings and has a measurable financial upside. When WM helps customers reduce waste to landfills — which is how WM has made all its money until recently — it diverts those waste streams to recycling facilities which segregate materials to resell or to waste-to-energy (WTE) plants.
Recycling streams can generate income for customers. So instead of paying to dump garbage, customers may get paid for valuable material, which adds up (GM, for example, has made $2.5 billion on recycling over the last five years). Meanwhile, the other stream of waste will create a potentially significant source of clean energy (adding to the sustainability win). In its WTE plants, WM now produces enough energy to power 1 million homes, more than all the solar power in the United States. From waste hauler to energy company — that's a transition for sure.
These two companies are not the only ones out there going down the "use less" path. It's increasingly common in the B2B space. Another client of mine, Kimberly Clark Corporation, has similar conversations with its customers for its K-C Professional division, which supplies paper and cleaning products to public and private sector organizations. The customers appreciate supply partners that help them save money.
Let's be clear: Xerox, Waste Management, Kimberly Clark, and others are purposely cannibalizing their own businesses. The wisdom of such a strategy has been discussed in business circles for years, most notably in the work of Harvard's Clayton Christensen (The Innovator's Dilemma). My tweak to Christensen's famous term "disruptive innovation" is to describe sustainability-driven creativity as even more heretical; it's about questioning the entire consumption model — it's heretical innovation.
It can be painful for companies to threaten their own cash cows, but what's the other option? I interviewed Xerox's CEO Ursula Burns for my last book, Green Recovery, and asked her about this strategy. Talking about Xerox's service business strategy and its "solid ink" technology, both of which displace existing printers, she said, "Will these new products cannibalize our machines? Maybe, but someone else doing it is much worse."
So the choice is not between asking your customers to use less of your product and ignoring the trend...it's between you doing it or your competitor. That's the risk reduction logic. But a related logic relies on improved customer service and deeper customer relationships. As Waste Management's Steiner said last week, "We're cannibalizing our own business to give back more to our customers."
Xerox's VP of Environment Patty Calkins probably put it best during the Sustainability Summit: "Who would think that Xerox would help you reduce printing or that Waste Management would move toward zero waste?"
(*Both Waste Management and Xerox have been clients of Winston Eco-Strategies, LLC. I attended this meeting at Xerox's request. This post first appeared at Harvard Business Online.)