Get Creative Archives

July 30, 2007

Xerox Redesigns Paper

The Wall Street Journal reported today that Xerox has developed a new copy paper which, they say, uses half as many trees, fewer chemicals and energy to manufacture, and weighs 10% less (reduced shipping energy and cost). See Xerox press release. Apparently it uses a process closer to the one that creates newsprint, using more of the tree. On the down side, the paper isn't quite as white and apparently yellows "badly" (says the Journal) over time.

Is this another example of a green product that doesn't live up to its regular counterparts? The yellowing sounds iffy. But a savvy analyst quoted in the article says the paper will likely be used "for transactions such as invoices and phone bills where people don't care about long-term archiving.

Just think about how much paper is not needed for very long — most, I would wager, ends up in the trash the same day. Much like the rising awareness of the craziness of using potable water to flush toilets, businesses and consumers are starting to ask questions about when virgin, high-end materials are really needed. Xerox's innovation should help companies match the product to the need.

I've long thought the mantra of reduce, reuse, recycle was missing a couple of levels — redesign and re-imagine (see drawing below from Green to Gold that lays this out).

Priorities%20pyramid.jpg

Xerox, it seems to me, has done its part by redesigning paper. The customers need to reduce (how about not printing that presentation to flip through in the meeting, or printing 2-sided?), reuse, and recycle. And Xerox, other document handling companies, and creative start-ups can work on re-imaging how we use information so we don't need the paper at all. But for throw-away uses, which are a big part of the market, this innovation seems like a great incremental step. Bravo.

October 29, 2007

Green Cleaning Revolution

I'm incredibly excited about cleaning floors at the moment. Ok, stay with me. I spoke at a large convention last week, the International Sanitary Supplies Association. It may not sound like there would be much green action, but there is definitely cutting-edge innovation happening back in the supply chain hidden from view. I saw what appears to be a remarkable green innovation at this conference.

First, full disclosure: This story is about Tennant, a quiet public company that makes cleaning equipment, and they hired me to speak. But I can say that the industry gave Tennant the Innovation Award at this conference,so it wasn't just me. I also checked this out with some of their test customers, so I'm really just reporting what I heard and saw.

So, here's the big innovation: water. Tennant just launched a floor cleaning machine called Echo that uses no chemicals at all. The machine oxygenates tap water to split it into an acid and base (alkaline) that are safe to touch, then it sprays the two streams on the floor. In 45 seconds, the two polarized water streams mix and become plain water again. But in the process, the mixture grabs all the dirt off the ground. Sounds too good to be true, but it seems to work. Test customers included the Minneapolis Target Center (where the Minnesota Timberwolves play) and Unicco, a building contractor that services many malls in the Northeast.

I talked to Jay Souza from Unicco, which manages the janitorial services for the malls, and he said Echo actually cleans better than a chemical-driven machine. The floor also dries faster. Most importantly, there is absolutely no safety issue. The thing takes tap water so there's no handling of toxic chemicals and no safety concerns.

The catch? It costs about $1,000 more (they're $5,000 machines and believe it or not, there's a $5B market for these things). The payback period from not having to buy chemicals is in the range of 1-2 years. When I talked to the purchasing guy from Unicco, Greg Zifcak, he said he couldn't be happier to pay more to avoid all the safety concerns — the short-ish payback was not even that vital. The other small catch: it doesn't clean every kind of surface or all kinds of dirt (oil-based things like brake fluid are created to resist water). But I got the impression that it cleans the same floors as regular machines. So, there will still be a need for chemicals for many uses for now. But this innovation covers an awful lot of surfaces out there.

How did this all happen? The CEO, Chris Killingstad, arrived on the scene of this quiet 138-year-old company a few years back. He told everyone that they would no longer be a "non-residential service something, something" (I can't even remember what their mantra was it was so nondescript). Now, he said, we'll be an "environmental cleaning solutions company." Ta-da. That created the mindset for R&D to run free. Borrowing the idea for the technology from other industries and countries (Japan apparently uses these ionized streams for things like cleaning wounds), came up with the idea to use the recombination step as a cleaning process, and went from idea in January 2006 to launch in less than two years.

This kind of innovation is sort of head-slapping in its obviousness — in retrospect. And enormously valuable to the company that can hit on it first.

World, meet the Prius of floor cleaning.

February 28, 2008

Virgin Air Flying on Fumes?

[To my blog readers, I've started writing for Huffington Post, so i'll be re-posting some of those here -- these entries will be a bit longer than my usual]

On Sunday, Virgin Airlines flew a jumbo jet from London to Amsterdam powered in part by coconuts ("a biofuel mixture of coconut and babassu oil" to be more precise). Some would say the applicable part of that sentence is "nuts." Is this another wacky Richard Branson moment, or something legitimate and important? Or, as is all things Branson, maybe it's both?

It's easy to throw stones at Virgin's attempt and call it a publicity stunt. But it's pretty hard to chalk it up entirely to PR when Branson has pledged $3 billion, or all expected profits from his travel divisions, to battle climate change. But remember, this is Branson — PR stunts are his bread and butter, and they're a legitimate form of marketing if you have something to say. In the environmental realm, it's pretty important that what you say is real and credible though. So let me throw an important pebble before moving on to some positive thoughts on what Branson is up to.

The main problem is biofuels as a whole. I have no energy crystal ball — I have no idea which energy technologies will win. Nobody else really does either. But studies are showing that there are some real problems with biofuels when they're created in most of the ways we currently have. Science magazine just reported on a very important study of the greenhouse gas impact of biofuels (see abstract here). In short, corn ethanol is just nutty (I'm paraphrasing the scientists a bit). It creates double the greenhouse gases of fuel since we have to clear land for the additional crops, and thus release carbon stored in the trees. I'd also add that burning our food when we're heading toward 9 billion hungry mouths doesn't seem that smart. Even fast-growing switchgrass, which President Bush has praised, apparently increases emissions 20%. So a shift to new kinds of fuels isn't going to be easy. And it's very unlikely that as Branson says, "This breakthrough will help Virgin Atlantic to fly its planes using clean fuel sooner than expected.

But now for the praise and the good stuff. First, from an environmental strategy standpoint what Branson is doing makes sense. As every company should, Virgin is looking at its own (substantial) direct environmental "footprint." Planes burn a lot of fuel. Going green in that business will be hard — since you can't put a solar panel on a plane, there aren't that many options.

So, second, we need experimentation. While money is being poured into working on all kinds of biofuels, we need parallel experimentation on what to do with that fuel. Demonstrating potential demand for new fuels will help speed the investment and development of new technologies. Now, we may discover that all biofuels don't work from a life-cycle perspective, but until we know that for sure, trying out different combinations of fuels and vehicles is not a bad idea. As Branson put it, the flight would provide "crucial knowledge that we can use to dramatically reduce our carbon footprint." Again, he's probably ahead of himself a bit, but generating knowledge is a pretty good goal at this point.

Third, Branson is pushing the boundaries in other ways. Of course his biofuels pursuit may be a blind alley. So it's good that he's taken some other ground-breaking steps (in addition to that very unusual pledge of profits). Look at the fairly fun announcement he made about a $25 million award (my previous blog here) for anyone who can take carbon out of the atmosphere (harking back to the prize set in the 1700s for finding a way to measure longitude — a great book on that story here).

When you look at the contest Branson started, at first it's crazy, but then has some strong logic to it (much like many of his seemingly wild ideas that create giant new businesses). Since directly reducing the emissions will be hard, and a company called Virgin Air can't go around promoting alternatives for having meetings — although don't bet against a Virgin Teleconference business to do just that — then why not do something about the impact of the planes. Planting trees is nice, but a technology that pulls carbon out of the air could be a big business. I can't say whether it's feasible, but why not look into it?

Of course the greenest answer is not to fly at all, but that isn't going to happen anytime soon (I'll look at this in a follow-up post). But back to Branson. Given (a) how much innovation there may be to avoid flying, (b) the rising cost of energy that will drive some slow down in growth of flying, and (c) the responsibility Branson clearly feels for keeping his business and the planet healthy, isn't a good thing that he's trying to find ways to reduce the impact from flying?

Shouldn't somebody?

May 24, 2008

Better Get Efficient...and Fast

[Posted at Huffington here]

It's pretty clear that the business world is facing dramatic change driven by environmental concerns. Over the coming years and decades, we're going to change the entire energy system and find new ways to design, make, ship, sell, and consume things. While it's uncertain if quality of life will suffer (and I hope not), the quantity of resources used will change dramatically - e.g., using a lot less energy, or at least carbon-driven energy, to power our lives.

And this change is becoming a business imperative regardless of whether you buy the climate change argument (and I really don't want to open that can of worms from my last post ). Just looking at the high price of everything from metals to food to fuels, the case for being radically more resource efficient is getting clearer every day. What's also clear is that the world can't currently provide for what will be nine or ten billion people who all want our lifestyle (the government of China has set a goal of moving half its population into the middle class by 2020 - that's 600 million people; if they all use oil at our rate, China alone will need more than the world produces by 2030 or so). At current technologies and modes of production, there isn't enough stuff. So there's a business need and a system overload requirement that we innovate and do more with less.

But don't just take my word for it.

The Wall Street Journal ran a stunning article recently that I've been mulling over for awhile and needed to get my head around. It was titled, "New Limits to Growth Revive Malthusian Fears." The shocking part of this article was the fact that it didn't malign the idea that we may run out of things, which Milton Friedman-esque business people have been laughing at for 200 years (since Thomas Malthus first drew an exponential population chart plotted against a geometric resource growth chart and said we'd all starve). Yes, those doomsayers have been very wrong in critical ways, mainly related to our ability to innovate and substitute out of products when we found new options (like from whale oil to kerosene to oil).

But the Journal was deadly serious, talking about resources like water that we can't substitute our way out of. The related point was that there's really nothing left to substitute to -- we know where pretty much everything is. Two quotes were fascinating: "Record highs in the prices for oil, wheat, copper...are signs of a lasting shift in demand as yet unmatched by supply". The "as yet" is a big qualifier, but it feels a bit like wishful thinking, especially given the second quote from ConocoPhillips CEO James Mulva: "I don't think we are going to see the [oil] supply going over 100 million barrels a day, and the reason is: Where is all that going to come from?" So even the oil CEOs are telling us there's not enough stuff.

So what does this mean for business and how is it connected to the green movement? First, rising prices for nearly everything mean we're entering the big leagues. Whether you call it "green" or "eco-efficiency" doesn't matter; either way, all the efficiency tools we have - such as total quality, lean manufacturing, six sigma - are going to be put to the test. If your company has a knack for cutting out waste and reducing resource use, it will survive and thrive. If you can't reduce your reliance on fossil fuels in your whole value chain - from sourcing to manufacturing to distribution - you may be in trouble.

Second, if you can offer a new "supply" to help bolster that side of the Econ 101 curves, you will have a giant market to satisfy (those billions of consumers). And I'm talking about smart supply growth, not the corn ethanol kind that actually exacerbates all of our problems. I'm talking new low-carbon energy, water saving technologies and processes, good design principles, building efficiency, and on and on.

The mad race for renewable energy technologies and the dramatic shift in car offerings are good examples. The venture capital money flowing to new technologies easily recalls the Internet boom. But is this one a bubble? It might be, but these entrepreneurs are working to satisfy existing multi-trillion dollar energy and resource markets, not trying to create new markets or needs. So money from the biggest, smartest names in Silicon Valley is flowing freely. This is a very good thing. There will be a shakeout, but some winners will win big.

As demand for resources outstrips supply, the Journal worried, what if countries just try to grab what's left in a big resource fight? Companies might go down a biggest is best path as well. But won't the best companies profit much more if they just find a way to need less? And won't the competitors that help their customers use less do extremely well?

June 4, 2008

Resistance to Change is Blind

[Originally posted here on Huffington]

Recently the U.S. Circuit Court of Appeals in D.C. upheld a ruling that our currency violates the law - it will need to change to accommodate the blind (unlike most currencies, the size of each U.S. denomination is the same so you can't tell by touch how much you're holding). Of course some commentators had to chime in about activist judges and express concerns about the cost to society in fixing this problem. Apparently there's concern from some business interests that there will be costs in making the change. Here's what an op-ed in the Wall Street Journal said:

"Varying the size of bills would impose substantial costs on individuals and companies in the private sector for replacement or retrofitting of vending machines, automated teller machines, wallets and purses."

Well, of course there will be costs - change costs something. But what are the possible upsides beyond the incredibly obvious social benefits (hey, call me soft on the blind)? Maybe there are other reasons to make a change that saves some money.

So I thought about this for like 30 seconds (nobody said blogging takes years of thought) and came up with another good reason to change vending machines - they use a ton of energy. For a few years now, the Natural Resources Defense Council (NRDC) has been advocating for changes in vending machines design. Here's the data from a paper written by Noah Horowitz from the NRDC and his partners at the EPA, American Council for an Energy Efficient Economy, and the DOE:

"In the U.S. there are about 2.5 million vending machines in the field and new machine sales exceed 250,000/year. Existing vending machines consume approximately 7.5 billion kWh/year and cost $600 million/year to power...Approximately 3.5 kWh/day can be saved per machine through refrigeration and lighting energy efficiency improvements alone...Over the ten year machine life, [each machine will save] 13,000 kWh, $910 in electric savings, and 10 tons of carbon dioxide."

First of all, $600 million...in vending machine energy. Wow. But my general point is not actually that changing money to accommodate blind people is the right thing to do (which I feel ridiculous even having to say), but that we need to get more innovative and flexible about finding ways around stumbling blocks. Some have pointed out that there may be solutions that don't even require changes to machinery (like raised dots on the bills), but even if they do, again, there may be other benefits. This isn't as narrow as the political view of "crossing the aisle" to explore compromises and opportunities. Perhaps it's more about crossing the hemispheres of the brain and thinking differently.

The environmental challenges facing society and business are profound, and it will help if businesses and policymakers can think holistically about issues and see things through the green lens. Opportunities to kill two or more birds with one stone are all over the place.

July 29, 2008

Will Your Company Predict the Future Like GM or Like Toyota?

I don't mean to pile onto a disaster in the making, but the demise of the "Big Three" automakers is hard to turn away from (like, yes, a car wreck). It also perfectly demonstrates the dangers, and opportunities, stemming from the green wave sweeping the business world. While Japanese companies prepared for a resource-constrained future, Detroit automakers did not...and they're running on fumes. As the Wall Street Journal declared a few days ago, "Wagoner Says GM Won't File For Bankruptcy." If your CEO has to say you're not bankrupt, it usually means you're darn close.

First, a quick tour of how bad it's gotten. In May, U.S. auto sales were down 11% year over year. GM, Ford, and Chrysler were down 28%, 16%, and 25% respectively while Toyota was down 4% and Honda and Nissan were up 16% and 8%. April was just as bad. More specifically, sales of large vehicles are plummeting - Ford's SUV sales dropped 55% in June - while small, energy-efficient (dare I say "green"?) vehicles are rising in a down market. July numbers are out in a few days, and it looks like Honda may pass Ford for the #3 spot after a tied-for-first GM and Toyota. GM's stock recently hit a 53-year low and its market cap is down below $7 billion, less than one-third of tiny First Solar's market value. Of course Toyota's market cap is down from its peaks as well...to $140 billion.

This mess is hardly just a case of bad luck for Detroit. True, the rise in the price of oil has been unprecedented and it was hard to predict perfectly. But some companies saw the future coming. In the early 90s, Toyota set out to build the "21st century car" and chose "environment" as a core principle (keep in mind that oil was less than $20 per barrel then). The result was the blockbuster Prius. Toyota looked at its strategy through an environmental lens and redesigned the car from the ground up.

In contrast, as late as 2005, GM's CEO re-committed the company to the then- profitable large vehicles. While the speed of the rise in oil prices has been surprising, it wasn't impossible to foresee - in 2005, oil company execs were already talking quietly about peak oil.

There's one interesting side note to this seismic change in the auto industry. In June, Toyota's sales actually dropped more than 20% versus the previous year. The company's sales have been hit hard for two diametrically opposed reasons: 1) unlike Honda, which is the big winner lately, Toyota emulated U.S. automakers by pushing its big vehicles as well; 2) the Prius and other small vehicles are so successful that Toyota can't keep up with demand - sales of the Prius actually dropped in June as Toyota sold out its inventory and fell behind on production (the company is retooling a Mississippi SUV plant to make Priuses instead).

So even Toyota makes mistakes. Its leaders fell prey to some of the short-termism that killed GM, and they didn't perfectly foresee the speed and scale of the shift toward smaller cars. But Toyota did look forward years ago, asked what an environmental version of its product should look like, and made it a reality. Very few companies or industries have made this switch yet, but things are moving fast now.

Where is your industry headed? What will your products need to look like in a resource-constrained world? Are you ready?

This post first appeared at Harvard Business Online.

September 15, 2008

Are These Energy-Saving Measures Wise...or Wacky?

As we all know, energy prices have skyrocketed. Organizations of all kinds are trying new ways of doing business to cut costs. Some ideas, like Wal-Mart putting doors on refrigerated cases and cutting energy use 70% in that aisle, are head-slappingly obvious. Even seemingly wacky ideas can seem downright wise once you run the numbers. One of my favorites is the UPS "no left turns" program. To avoid waiting to cross traffic - and thus wasting time, energy, and money -- UPS used GPS data to program new routes that basically go in concentric circles to the right. The company has saved about 28 million miles of driving and 3 million gallons of gas.

But other ideas to cut energy use just seem desperate or short-sighted. I've been thinking a lot about a recent story in Time Magazine last week about what schools are doing to deal with high gas prices. Some districts, particularly in rural areas, are going to four-day weeks. About 1 in 7 school boards nationwide are apparently considering this option. They're also eliminating field trips and extracurricular activities and even laying off teachers. While some schools and communities like the shortened schedule, most research shows that more school hours are generally better (the countries with longer school years seem to produce higher scoring kids).

Cutting school days as a way to get more efficient certainly sounds wacky at first glance. But unlike UPS's solution, this one is also wacky at second glance. Aren't there better ways for us to reduce fuel use and costs? Unless I'm getting the very simple math wrong, improving school bus efficiency by 20% would generate the same fuel savings as cutting a day of school. (Caveat: the schools of course save more energy than just gas when they shut down, but these districts are citing fuel costs specifically as the problem -- and it's not like schools stop being heated or cooled on off days).

There are solutions in the private sector, as companies focus more and more on logistics and improving efficiency (see one report on logistics here). Wal-Mart has enacted a range of efficiency initiatives for its fleet, from cheap "wind skirts" that streamline vehicles to auxiliary power units that reduce idling. (All idling in the US, by some measures, may amount to a shocking five percent of the country's energy use). Xerox put together a logistics streamlining plan that reduced fleet energy use 10%, including "right-sizing" vehicles to fit the load to using metrics and GPS. And office retailer Staples cut fuel use 15% (and saved $1.7 million) just by placing a 55 mph limit on its drivers. The trucks move slower, but stop for gas less frequently. The total delivery time is the same.

These corporate examples demonstrate that ideas are out there to help school districts, but I'm making a larger point about finding innovative solutions. UPS, Staples, Wal-Mart and many others are saving a ton of money through seemingly wacky ideas that turn out to be very wise.

So how do you know which is which? Here are a few signs that an initiative or idea is wacky and wise, not just wacky. The new idea or initiative...

- Seems obvious in retrospect, even if it seems a bit silly at first. "You mean if we slow down the trucks, or put doors on refrigerators, we'll use less energy?!"

- Reduces total footprint, even if that footprint is a strange shape. Sam's Club is selling milk in square cartons. Since they're a new design, they probably cost more to make. But the square shape means they stack a lot better, and without the crates. They pack much tighter, fitting nearly three times as many in every cooler, saving money and energy, and requiring 60% fewer trucks.

- Does not create other significant problems. Cutting school days means many parents have a day of childcare to deal with and pay for, one of those important unintended consequences. "Significant" is the critical word here. Extra daycare is significant. Getting used to pouring out of square milk cartons, which some customers complain about, is not.

- May actually solve other problems. School buses produce tremendous air pollution and health risks as kids sit in diesel fumes. Reducing miles reduces pollution and also shortens the time kids spend on buses (sometimes over an hour for what would be a 10 minute trip directly). And if school districts can raise the capital, larger solutions are available. Navistar, the big truck manufacturer (disclosure: I spoke at an annual meeting of their dealers recently) has launched a hybrid school bus which nearly eliminates the local air pollution problem.

Also keep in mind that wise ideas depend on context. While cutting school days is counterproductive and possibly disastrous for learning, cutting workweeks to four days to save employees on commuting expense can be very smart. In business, we can shift workloads effectively or work at home if need be.

The best innovations always strike you as odd the first time you hear them. Then they get you thinking. Then you wonder how you could've ever lived without them.

This post first appeared at Harvard Business Online.

November 24, 2008

Apparently, It's the Government's Fault Detroit Is Bankrupt

Sometimes I think the Wall Street Journal editors are phoning it in. In a piece titled, "The Environmental Motor Company: Making Detroit a subsidiary of the Sierra Club," the Journal complained about those horrible Democrats in Congress that want to tie the $25 billion in loans to Detroit to "green retooling." I guess pushing U.S. automakers to make cars that get much higher gas mileage, and thus will sell better, is a bad idea.

The Journal also makes the ludicrous statement that the real problem for Detroit has been those awful fleet fuel-efficiency standards (the CAFE rules) "that force the companies to make cars domestically that are unprofitable." To add to the absurdity... the same day, in the same op-ed section, GM's CEO Rick Wagoner explains "why GM deserves support" and talks about the super-fuel-efficient cars GM will make with the loan. So even GM is saying it needs to make different cars.

We're seeing an amazing act of willful ignorance here. The knee-jerk response in some circles seems to be that these poor companies were just burdened by bad regulations (not to mention big bad labor). This crazy idea comes on top of the general fiction -- which Wagoner is pitching -- that Detroit is reeling because of the credit crunch and the economic downturn. But the proof on this one is in the data.

The U.S. automakers were having very serious problems months before the financial meltdown.

Let's look at May '08 sales in the United States, when high energy prices forced Detroit's hand. While the Fall has been the real Armageddon for U.S. auto sales, the spring year-over-year comparisons told a scary story. The overall car market was down 11%. But Ford was down 16%, Chrysler down 25% and GM down 28% (which in retrospect looks pretty good compared to GM's nauseating 45% drop year-over-year in October). But how did the other guys do in May? Toyota was also down after making some mistakes and trying to sell some big vehicles also, but only dropped 4%. Nissan was up 8% and Honda sales were up an astonishing 16%. Let's repeat that: Honda sold more cars this spring than the year before. If you look at total sales through October, the difference between U.S. and Japanese performance isn't quite as bad (only Suburu is up for the year). But the companies that sell smaller, more energy-efficient cars are doing ok.

My favorite media moment on this topic came on one of the 24-hour news stations yesterday. While covering the Congressional hearings with auto CEOs, one story explained that U.S. automakers spend an extra $1500 on each car (vs. competitors) to pay for pension and health care obligations. To be sure, these costs don't help Detroit. But the news anchor went on to say something like, "so Detroit is struggling because of that $1500...and the fact that it's known for making low-quality cars." Oh, just that little problem of making bad products.

The business guru Jim Collins, in his fantastic book Good to Great, focused on the importance of "Facing the Brutal Facts." Pretending that evil regulations are the primary cause of Detroit's fall does not help our automakers. Acknowledging that they were making the wrong cars at the wrong time is at least admitting we have a problem (in whatever 12 or 200 steps Detroit needs to heal).

The predicament that Detroit has found itself in is an American business tragedy. Let's not make it worse by lying to ourselves.

This post first appeared on Huffington Post.

January 14, 2009

2009: The Year of Light Green

It's always fun to predict what's going to happen. The risk of being spectacularly wrong is very high, but that's what makes the exercise so entertaining. 'Tis the season for dwelling, quickly, on what we learned last year -- de-leveraging is really painful and when gas prices are high, people want smaller cars -- and for pontificating about what to expect in 2009.

For my predictions, I'll stick to my area of knowledge, the greening of business. Over the past two years "green" has become part of nearly every serious business discussion. But what will happen now in this damaged economy? It would be silly to suggest that the intensity of the focus on green will continue unabated. But we'll see a form of what I'll call "light green" this year.

Some of the green pressure on companies will lessen, but I believe that the underlying forces driving the green wave will continue over the coming years - from volatile commodity prices (which will rise again aggressively after the recession) to a rise in transparency to tougher questions from key stakeholders (such as your business customers, consumers, and employees). Those big picture trends will continue over years, but here now are a few specific predictions for 2009.

"Light Green" will focus primarily on cost reduction...

Going green drives innovation and creates value in four fundamental ways: cost reduction, risk mitigation, revenue growth, and brand value enhancement. But for 2009, the top priority will be the first one, lowering costs (primarily through so-called "eco-efficiency"). Few companies will have the stomach for deep investments in R&D to create new green products.

...but, companies (and banks in particular) will also broaden the definition of "risk"

If we learned one thing in 2008, it's that the business and financial communities are not so great at measuring and accounting for risk. It's in our nature to overestimate some risks and drastically underestimate others (like the possibility that housing prices could actually drop). On climate change, we're realizing that the risk of inaction is too great.

Citigroup, JP Morgan and Morgan Stanley launched the Carbon Principles early in 2008. In short, this agreement committed the companies to look very hard at any coal investments and ask tough questions about how climate change and a cost on carbon would affect the risk profile. And at the end of '08, other financial and insurance giants -- including HSBC, Munich Re, Standard Chartered, and Swiss Re -- created the Climate Principles. These guidelines are admittedly aspirational, but they also increase awareness of the impact of climate change on all aspects of their businesses, including their investment portfolios.

Leading companies (read: Wal-Mart) will continue pressing suppliers.

To be a bit cynical for a moment, greening the supply chain is perhaps the easiest path to take in hard times. After all, you basically push the problem and cost onto others, and if you're as big as Wal-Mart, you get your way. To be less cynical, the companies that have learned to take a value-chain perspective have discovered real value in lower costs and better products. So why go back if you've discovered a better way of doing business? Wal-Mart and others clearly believe that reducing environmental impacts up and down the chain creates value for all. The retail giant convened a historic meeting in Beijing, China in October 2008 (see my first-hand account of the meeting here). Wal-Mart's top execs made it very clear that the green agenda was not going away and, in fact, that it was accelerating. Of course global recessions can put a damper on anyone's plans, but there are few indications the big guns are pulling back on supply chain pressure.

Innovation will become even more important.

This may sound like a contradiction to my "cost reduction will rule" prediction. But innovation is about more than just flashy new products; it's also central to reducing costs in a smart way. But beyond getting lean, 2009 will be a good time to truly rethink business models and ask new heretical questions. Innovation guru Clayton Christensen recently told the Wall Street Journal that the economic downturn "will have an unmitigated positive effect on innovation." Say what? By his counterintuitive logic, tight times "force innovators to not waste nearly so much money."

So use 2009 to seek out green innovation opportunities. Find ways to drastically reduce energy and other resource use both in your own operations and through your products (that is, help customers reduce theirfootprint). Even if investment dollars remain scarce, be ready to run with good ideas when cash frees up. We may look back at the end of 2009 and see that staying green during the recession, at least in mindset, not only drove creativity, but even saved some companies.

Yes, 2009 will be a tough year. But the Green Wave, albeit a bit diminished, will roll on. The smartest companies will continue to pour the foundations for a new form of capitalism - one that takes into account the resource constraints we face. After this recession, when capital is more readily available, green investments will begin in earnest again. Sustainable business will no longer be a side pursuit, but the core focus of successful companies.

This post first appeared at Harvard Business Online.

February 3, 2009

What's Your Heresy?

Can a plane fly with no jet fuel?

Ridiculous, right? But the aviation industry is starting to ask itself this very question. In early 2008, Virgin Airlines and Boeing launched a test flight where one engine ran partly on biofuels, in this case coconut oil. I've done some work with Boeing and heard their environmental execs tossing around ideas like these for a plan they call Project Heresy. I love it.

Imagine creating space for disruptive innovation where no question is dumb. It's the "no-left turns" approach (after UPS' catchy phrase for its GPS-enabled route minimization that included avoiding left turns to save idling time). Of course, now might not seem like the best time to look for next-generation ideas, given the economic climate. But even if the focus in the green realm turns mainly to getting lean this year, there is still opportunity for rapid innovation. Here are a few more heretical questions:

Can we send no waste to the landfill?

What a pain that sounds like. It's so much easier to just cart it all away. But Subaru and a few others have found that they can reduce landfill waste not just a lot, but to zero. The last trip to the dump from Subaru's Lafayette, Indiana plant was May 4, 2004. It's a longer story for another time, but through the old "reduce, reuse, recycle" mantra, the company has easily paid for the effort through savings, brought toxic emissions per unit down 55%, and reduced CO2 per unit by 20%. All these benefits stemmed from a focus on getting lean and reducing waste and from asking a seemingly wacky question.

What does our business look like if oil goes to $500 per barrel?

At first, the idea of a ten-fold increase in the price of oil sounds ridiculous. But we went from $14 to $140 in less than 10 years, so it's possible. We're facing a medium and long-term constraint on energy and other basic resources. Some diehards are holding onto the notion that there will always be enough, but the Wall Street Journal and other sober business sources have been hitting a theme very hard all year - supply will not keep up with demand in the coming years. That means we either substitute out (by asking, "Can we drive or fly without oil?") or deal with very high prices, which brings me back to my heresy about $500 oil. But whether or not you believe prices will rise again, asking the question makes you think differently, perhaps creating the mental space for real innovation. If your products can help your customers reduce costs or avoid environmental challenges, you'll find a market. Which brings me to...

Can we clean the floor with no chemicals?

Ok, this one is a bit more particular to a specific industry. I'm referring here to the question that the mid-sized commercial cleaning company, Tennant, asked itself a few years ago. It's a story I've been telling a lot, but in short, Tennant developed a process that allows their floor-cleaning machines (the small Zamboni-like machines you see janitors pushing around) to use just tap water. The technology works and avoids chemicals. Instead of just getting more efficient, Tennant found a way to avoid the chemicals entirely, thus allowing customers to avoid a major environmental and safety concern.

Heretical ideas have swept industries many times. If someone in the advertising, television, or music businesses had asked 10 years ago, "What if people stop watching commercials?" or "What if people think music should be free?" they would've been laughed out of the room. Then Tivo and Napster asked those questions. Of course, one turned out to be illegal, but their innovations laid the groundwork for others, like iTunes. And the television business is in the middle of a painful transformation away from traditional 60 second spots.

Environmental pressures will force much bigger changes than these in many industries in the coming years. Are you ready? What's your heresy?

This post first appeared at Harvard Business Online.

May 8, 2009

The Genius of Biomimicry

[This post appears on Harvardbusiness.org in my new weekly column/blog...]

I recently went to the Fortune Brainstorm Green conference in California — a who's who of green business leaders, thinkers, and practitioners. One of my favorite sessions included the dream team of Ray Anderson (Interface Inc.), Paul Hawken (author of the seminal Ecology of Commerce and Natural Capitalism), and Janine Benyus, the real focus of the session. Benyus is famous for coining the term "biomimicry," which I'll let her describe: "Biomimicry is a practical methodology to solve problems by looking to nature." But what does this really mean?

Here's one quick example that I use in my talks: the Speedo swimsuit that Michael Phelps and other Olympians won medals with in Beijing is called the "shark suit," and for good reason. It was designed to mimic the way sharks move through the water. At the panel, Benyus mentioned that Airbus planes also mimic sharkskin to cut through the air more efficiently. She has many more examples of products we use in our lives every day that are borrowed from the 3.8 billion-year-old laboratory of nature.

I believe that biomimicry is one of a small handful of very important ideas that will change the way business is done. And it seems to be catching on. Benyus pointed out that any investment in this kind of research was mainly from the military or aerospace sectors until recent years. But, she said, in one study of worldwide patent databases, between 1985 and 2005, inventions inspired by "biomimetics" increased by a factor of 93.

So how do companies apply this thinking?

See the rest of this blog here...

June 26, 2009

Can Small Changes Save Your Business, and the Planet?

[From my column on Harvard Business Online]

At a recent executive education program on sustainability, I spoke about the many tactical ways to reduce environmental impacts and save money quickly in areas such as facilities, fleet, IT, telework, and waste (these are the main topics in a free special report I put out recently on green cost cutting). To fit the current economic climate, my focus was specifically on short-term, quick wins. After I finished my talk, an interesting challenge came from one of the program faculty: Given the scale of environmental challenges we face, shouldn't we be talking more about systematic, disruptive changes in how we do business?

After the session, one of the attendees, Mike Desso, Head of the Operations Environmental Sustainability Council for Nestle USA, told me he wanted to ask the group a simple question: "Has anyone here done all the things Andrew suggested?" His point was basically that there are still many simple things companies can do — so why debate whether we're doing the "big" things when we haven't even acted on all the "small" ones yet?

The whole discussion got me thinking a lot about the perceived trade offs between incremental and systematic approaches or, similarly, between incremental and disruptive change. The question is not an idle one given the legitimate concern about whether traditional eco-efficiency approaches will be enough to tackle large-scale environmental challenges.

It would appear on the face of it that incremental approaches won't get us there. So after some thinking, I come down conclusively and firmly...in the middle. In essence, none of these ideas of change and innovation — incremental, systematic, or disruptive — are independent. Instead, they're pieces of the same strategic and tactical puzzle. Arguably, the concepts are inextricably linked: Don't incremental changes spur thinking about — and if they save money fast, perhaps even fund — the larger shifts we need?

See the rest here.

June 30, 2009

How to Beat the NEXT Recession

[My new column on Harvard Business Online]

We're in the midst of the worst decline in auto sales history — yet Toyota can't make the newest model of its hybrid gas-electric Prius fast enough. According to the New York Times, the world's largest automaker has received 80,000 pre-orders already, one-fifth of the company's Prius sales goal for the year. On the heels of the depressing GM and Chrysler bankruptcies and layoffs, Toyota has instituted overtime production in its Tsutsumi plant in Japan.

This news comes on the heels of one of Honda's latest entries in the hybrid market, the significantly revamped Insight, becoming the bestselling car in Japan in April — not the bestselling hybrid, but the bestselling vehicle — racking up over 10,000 sales at $19,000 a pop.

The era of niche eco-vehicles is over. With Toyota and Honda experiencing their first losses in decades, the vast success of the green parts of their product portfolios must be very welcome — a life boat in troubled times.

It's educational to think for a minute about when the foundations of these successes were built. Toyota started development on the first generation of Prius, not one, but two recessions ago. Sixteen years ago, on the heels of the early 90s downturn, Toyota started designing what it thought would fit the demands of the 21st Century. Early in the process — and even though oil was only $17 per barrel — the team decided that a critical focus should be "environment." And while I can't say exactly when Honda decided to completely retool their earlier Insight model, how long after the early 2000s recession could it possibly have been?

[See the rest here]

August 18, 2009

Will Videoconferencing Kill Business Class Travel?

[My column last week on Harvard Business Online]

In a tight economy, with companies spending much less on IT, the tech giants will take growth wherever they can find it. The Wall Street Journal reported recently that Cisco and HP are in a pitched battle for customers for their high-end teleconferencing systems. According to the report, it's "one of the few technologies that has benefited from the downturn, growing 30% from last year as businesses look to reduce travel expenses."

Cisco, HP, Nortel, and telepresence-focused players like Teleris have developed impressive, beautiful systems that make you feel like you're in the same room with your colleagues. The pitch is that you'll save money — but you'll also reduce your environmental footprint through reduced travel. These companies are cashing in on the business world's pressing need to get lean, while also appealing to the desire to get green. In my new book Green Recovery, I lay out five areas of a business that hold real promise for fast payback: facilities (lighting, heating, cooling), IT, fleet, waste, and telework. While companies are finding savings in all these operational areas, telework may be the most underleveraged of them all.

Just a few companies have made a concerted effort to reduce business travel through a combination of high-end telepresence systems and everyday technologies like WebEx. Most of the big users are, not surprisingly, tech companies that are acting in the spirit of "eat your own dog food." British Telecom calculated that it was saving $330 million per year on avoided travel costs and time saved, and Microsoft pegged its savings at $90 million. Non-tech leaders such as P&G and Deloitte have installed dozens of systems around the world — you need the network effect to kick in and make the investment worth it. They're saving millions every month on reduced travel expense.

It would seem that telework fits service and knowledge-based businesses best, but even companies with mostly hard assets see the value. David Ratcliffe, CEO of electric utility Southern Company, talked to the Journal in early 2009 about ways to cut costs in the downturn. He focused on two items: slashing $200 million from the capital expenditure budget by delaying some work on the physical plant and "more meetings with technology instead."

The business of telework is interesting to me on two levels. First, from the customer's side, even though the upfront investment is not small, it clearly saves a lot of money. Telework also represents a great way to show your most harried and valued employees that you care both about their life balance AND about greening your business.

But second, from the perspective of the suppliers of these technologies, the story has some interesting strategic angles. With their pitch of reducing travel, who are Cisco, HP, and the others truly competing against? The phone? No, they're going after the airlines — and targeting their best, most frequent, business-class customers. Do you think the airlines ever thought they'd be competing with IT companies?

[the rest of the blog is here]

August 22, 2009

Moore's Law and the Environment: An Opportunity

Everything's getting faster these days you've heard it before. Two mega-trends in particular are merging: rapidly accelerating technological change and rapidly evolving environmental issues and pressures. Lucky for us, the first change is going to save our butts from the second. Fast-evolving, smart IT will play a critical role in helping us navigate and profit from environmental challenges. The two trends together are combining to make for enduring change in how business is done, a movement to a permanently higher plane of green and tech-driven activity.

A recent Wall Street Journal op-ed, "Ten-Year Century," makes the well-known case that the pace of transformation in society is accelerating. More has changed, the authors say, in this decade than in the previous century. To be specific,

Changes that used to take generations economic cycles, cultural shifts, mass migrations, changes in the structures of families and institutions now unfurl in a span of years... Game-changing consumer products and services (iPod, smart phones, YouTube, Twitter, blogs) that historically might have appeared once every five or more years roll out within months.

The "Laws" of Technology that the authors highlight Moore's and Metcalfe's perfectly describe how quickly both computational power and networking capacity are growing (double the computing power on every chip every 18 months, for example). It's a "law" in the world of technology that things are steadily getting faster.

But this op-ed and other "tech is changing the world so fast" stories and I'm a sucker for them miss the another big shift that's moving just as fast: the degradation of the natural world and the resulting pressure to green society and business.

[The rest of this blog appears on Harvard Business Online here]

September 2, 2009

Why GM Will Go Bankrupt Again

[This article first appeared on Forbes.com]

Ford is profitable again. General Motors is exiting bankruptcy much faster than anyone expected. It would seem that Detroit is recovering and that GM will limp through the rest of the recession. But the real question is whether the biggest of the Big Three will make the strategic shifts necessary to survive until the next one.

Early signs indicate it won't.

First, look at how GM got into this mess. The decline of the American automakers took decades, but one massive misstep lies at the core of what happened more recently. GM and its Detroit brethren missed a seismic green wave that swept the business world and society, a rising tide of real environmental challenges and growing public concern about those challenges. When GM was hit by a deadly combination of global resource constraints--which drove energy prices to historic highs--and changing consumer preferences, the already-weakened giant was unready. Indeed, former chief executive officer Rick Wagoner actually recommitted the company to big, energy-inefficient vehicles as late as 2005.

The frightening thing now is how many companies--not just automakers--remain overexposed to environmentally driven risks. Gas will not stay under $3 a gallon much longer. It already appears that China and India will soon resume their torrid growth, and when the full global economy recovers along with the rising East, the demand for fossil fuels will outstrip supply. Add to that the reality that governments everywhere will make fossil fuels even more expensive through legislation aimed at reducing greenhouse gases. Climate action is now a political and business reality. But how many companies are changing their products and strategies to deal with that fact?

The "new GM" certainly hasn't done so so far. As recently as last year, vice chairman Bob Lutz, who is now in charge of GM's communications of all things, called climate change "a crock of s--t." Imagine what sort of language he must have used to describe U.S. auto sales for the first eight months of 2008. During that crucial period of high fuel prices, sales at GM, Ford and Chrysler fell a bone-jarring 15% to 25% (year over year). Over that same stretch, Subaru, Honda and Nissan actually increased their sales. With gas prices at historic highs and consumers demanding more energy-efficient vehicles, the automakers with greener portfolios performed much better.

GM apologists will be tempted to make excuses by blaming the higher costs of producing vehicles in the United States, or even the credit crunch. But higher labor, pension, and health care costs affect profitability, not, necessarily, sales. And the deep recession came after those critical eight months. Only by putting those stale excuses aside can GM move forward.

What would success look like? GM could learn from other American giants that have proved adept at riding the green wave. Leaders such as Wal-Mart, General Electric, and DuPont have realized that "going green" is now a matter of survival. They're not scaling back their sustainability efforts because of the current downturn; they're accelerating them. They've realized that environmental strategy doesn't raise the cost of doing business, as many fear; it actually lowers expenses, reduces risk and drives innovation and sales.

GM can also look to its direct competitors to see the benefits of having a longer-range environmental strategy. Toyota announced this spring that it had received 80,000 preorders for the new 2010 Prius, and that it had instituted overtime production to meet the demand. Meanwhile Honda's Insight was the bestselling car in Japan in April--not the bestselling hybrid, but the bestselling vehicle. These results must have been very welcome during the worst decline in auto sales in history, but they were not overnight successes. Toyota started developing its "environmental" car not one but two recessions ago.

It takes foresight, hard work and courage to get ready for a green and carbon-constrained future. For GM to survive--and for American taxpayers to avoid having to bail it out again--it will have to completely overhaul its portfolio. Developing one new green model, the much-hyped Chevy Volt, will not be enough, especially when the Warren Buffett-backed Chinese firm BYD has already produced a similar vehicle. No, GM's only hope is to design all its cars to reduce resource use in the supply chain, require less energy to manufacture, and of course, need much less or no gas to drive.

Missing the green wave cost GM dearly. The realities of higher resource prices, political action on climate change and changing consumer demand are poised to swamp it again. And unless we see big changes soon across the business community, GM won't be the only company to go under.

December 2, 2009

Five Ways to Use (Green) Data to Make Money

If you put an energy meter inside a home and show people total usage in real time, a miraculous thing happens: they use about 10 percent less energy. The simple act of placing data in front of people changes their behavior. Data makes people smarter and inspires them to make small changes to save money and energy. You can use this powerful tool in business not only to cut costs, but to drive innovation and revenues.

Some are calling this phenomenon the "Prius effect," referring to how people respond when they see real-time fuel-efficiency data while driving the popular Toyota hybrid. As the described it, the Prius effect "can change driving in startling ways, making drivers conscious of their driving habits, then adjusting them to compete for better mileage." Similarly, making footprint data more accessible to those managers that can do something about it can create real value. As they say, you can't manage what you don't measure. It's amazing how often I hear that phrase — and how often people need to hear it. Tech leaders will tell you that one of the best possible solutions to the rapid increase in energy use and cost in data centers is simple: Add the power bill to the CIO's budget!

You can put your green data to use in five ways that will help your bottom line:

1. Saving money — a lot of it. As we've seen, if you give your operational people information on resource use, they will be inspired to find ways to cut back.

2. Driving internal competition. Share footprint data broadly and transparently and you'll see how badly people like to win. When PepsiCo Chicago ran a floor-by-floor energy reduction competition, the results were staggering. In one three-month period, electricity use dropped 17% (and paper use 22%). Energy use on the winning floor plummeted 31%. Factory heads at a number of companies have told me that they'd rather miss their financial targets than their green or energy goals — it's just too embarrassing to be at the bottom of the list.

3. Answering your customers' pressing questions. Wal-Mart, along with many other companies, is asking suppliers and vendors very tough questions about their environmental and social impacts. Those that can gather their data and tell the best story will get the most shelf space and mind space (see my previous post on Wal-Mart's eco-ratings for more on this point).

4. Prioritizing initiatives. Resources remain very tight — you don't want to spend money on the wrong things. With all the pressure to go green, it's easy to get lost in the weeds and pursue avenues that may not yield the most benefit. When companies really look at their full value-chain impacts, they're very often surprised at the results. Green leader Stonyfield Farm discovered that 95% of the ecological damage from its packaging occurred during production and distribution. So the company has made light-weighting (which is what it sounds like) the top priority — use less stuff and the footprint goes down. Stonyfield has made the deliberate choice to not use a recyclable, yet heavier, plastic; this counterintuitive and seemingly non-green choice makes the most environmental and fiscal sense given the real data.

5. Finding new market openings and focusing innovation. Procter & Gamble went through a similar lifecycle exercise and made a similar discovery about its laundry products. The vast majority of energy use was not in sourcing, production, or distribution, but in the use of the detergent in homes. And the majority of that was not the washing machine turning, but heating the water. This insight led to Tide Coldwater, a reformulated product to help customers wash in cool water, using less energy and saving money. Coldwater is one of P&G's seven original "sustainable innovation products" that generated $2 billion in sales in the first year.

Operating your business without environmental and social metrics leaves part of your management "dashboard" blank. How well can you run your company without complete information? But don't worry — you're not that far behind if you don't have a perfect handle on your value-chain footprint, or even your direct impacts. It's getting easier and easier to gather this data, and you can accomplish a great deal with even "back of the envelope" calculations (more on this in my next post).

For a slightly longer take on this topic, see also my recent e-letter, or the full discussion in my new book Green Recovery

[This blog was originally posted on Harvard Business Online]

December 4, 2009

More to Deal with Than Just Climate: 25 Years Since Bhopal Disaster

Yesterday was a sad anniversary -- it's been 25 years since the Bhopal disaster raised the specter of chemicals and toxics as a deadly serious environmental issue. In the late 60s and 70s, rivers catching on fire and dense, opaque air above cities forced our attention on solving the pressing, tactical issues of air and water pollution.

But perhaps no environmental disaster grabbed people's attention quite like the gas leak at a Union Carbide plant in Bhopal, India on December 3, 1984. Estimates vary, but at least half a million people were exposed to toxins and thousands died within a few days. Birth defects and other serious lingering effects still plague the population in the region, affecting hundreds of thousands of people. (See the Bhopal Medical Appeal for more info).

This one event drove awareness and contributed mightily to the momentum building to reduce human exposure to toxicity. It was the beginning of a quarter century of action. One of the first real industry-driven initiatives in any sector, Responsible Care, grew out of the tragedy. A few years later, the U.S. created the Toxics Release Inventory which mandates transparency on a range of industries. The measurement and disclosure of toxic pollution by facility has forced a lot of soul-searching and kicked off long-standing sustainability efforts at companies like DuPont (which discovered it was the #1 polluter in the first TRI reports).

The movement has evolved a great deal in recent years as part of the larger green wave that's swept business, especially the powerful trends of supply chain greening and transparency in all we do. Wal-Mart, never one to pass up a chance to increase pressure on suppliers on sustainability issues, quietly introduced a new tool, GreenWERCS, to assess products on its shelves on chemical composition. Companies like SC Johnson, Nike, and HP have made significant efforts, some for years, to reduce toxicity.

High-profile stories of lead in toys, toxic drywall, and melamine in milk products (all tied to Chinese supply chain practices), as well as concerns about chemicals like BPA leaching from baby bottles here, have also raised awareness dramatically. As the world contemplates vast policy action on climate, it's worth noting that government pressure has continued to rise on toxics, with a large number of powerful laws around the world. Regulations in EU over the last decade, such as RoHS and REACH, have changed the game dramatically (shifting responsibility to prove safety from government to business). The U.S. has gotten into the act in recent years as well, with bans on phthalates in toys, the controversial and stringent Consumer Product Safety Improvement Act, which targets toys in particular, and regional actions like California's new regs. Companies cannot avoid questions about what's in everything and how their products might affect human health.

But what's really interesting is how the approaches companies take to handling toxics have been shifting over years from end of pipe solutions to pollution prevention to a new movement under the banner of "green chemistry." Rather than demonizing chemicals and chemistry -- when they continue to play a critical role in meeting human needs -- this new approach seeks a third way.

The leaders are starting to design chemicals and products in new ways to reduce toxicity. Do this right, the thinking goes, and avoid tons of regulation, liability, and health problems altogether. There's enormous upside potential for the companies that can innovate and find ways to create the same material or chemical properties that we need with much lower risk to humans and the environment. So this is not all about regulations and risk-reduction - it's about getting smart about your own products, and it's about profit.

With all the extensive, and justified, coverage of climate change and the Copenhagen Summit, it's easy to forget that there are other serious environmental issues out there. This anniversary today certainly reminded me. From water to biodiversity to waste, a range of other problems continue evolve and create pressing challenges, for society and for business. Of course most of these, especially water, have deep connections to climate change, so it's right that we make that a priority issue.

But the issue of toxicity and chemicals is one that lies somewhat separate from the climate discussion. While it gets lost in the shuffle sometimes, the pressure on companies to deal with it just keeps rising and rising. It's worth, today, remembering why.

[Originally posted on Huffington Post]

[If this was forwarded to you and you'd like to sign up for Andrew's blog via email, click here]

February 2, 2010

Adapting to a Warming World

[A post from December from Harvard Business that i forgot to post here...but it's still timely!]

No matter what happens in Copenhagen, or in the follow up meetings in Mexico and elsewhere, the world is warming. It's happening today, and even the majority of skeptics seem to agree on that point (often the debate is whether humans are behind it and how much money we should invest in "fixing" the problem). But the very real changes we're already seeing are prompting many in the climate-watching world to talk about not just reductions in emissions but "adaptation."

What used to be seen as a dirty and defeatist word is now a central discussion point, even in Copenhagen. The G77 (the developing world) is demanding significant aid from the rich countries not to help them combat climate change, but to help them adapt to it. Just a couple weeks ago, President Obama said he sensed some consensus around mobilizing "$10 billion a year by 2012 to support adaptation and mitigation in developing countries."

Given the cold reality of a warming planet, adaptation is now a strategic issue for countries and companies alike (whether or not they realize it). The changing climate can mean many things, but includes, according to an important report from the state of California, threats to ocean and coastal resources and land, water management challenges, major changes to agriculture, and stress on transportation and energy infrastructure. In California alone, $2.5 trillion of assets will be exposed to extreme weather and wildfires, costing many billions a year.

For companies the same basic issues apply. Specific industries, such as agriculture, face massive change. But all companies will find impacts up and down their value chains from weather, changing water availability, and temperature shifts. But just laying out doom scenarios and risks doesn't help much. So let's look at a couple of excellent (and short) reports on adaptation and business.

Some big institutional investors, with the guidance of the consultant Acclimatise, recently released "Managing the Unavoidable" (register for free to download it here or get the similar 2008 report on similar topic here). A few key findings struck me as dead on and important:

1. Climate change adaptation is starting to receive more management attention but management systems and processes are much less developed than those for climate change mitigation. Basically, most companies are not thinking about this, with a few exceptions — Coke comes to mind since it's been mapping water availability for years. But they are in the minority.

2. There appear to be significant weaknesses in companies' risk assessment processes. They say that "incremental changes are being under-emphasized" (we all focus on extreme weather events rather than 'creeping' changes) and "indirect impacts on business models are being neglected" (we focus on risks to our own fixed assets and haven't looked at supply chain disruptions). Meaning, even if you don't think you rely on water in an arid region, someone in your supply chain might.

3. Companies are more concerned about risks than opportunities. While it may seem cold to talk about how to profit from a warming planet, it's a reality that there will be winners in this. More importantly, we actually need companies to pursue solutions to greatly reduce human misery. And, yes, there will be profits.

And this brings me to the second report that's worth a look. "The New Adaptation Marketplace" from global NGO Oxfam lays out some helpful categories and sample companies that stand to profit from the changes to come. These include, water management (Pentair, Siemens), energy supply (GE), insurance (Swiss Re), climate change information and consulting services (ICF International), and of course agriculture projects (CH2M Hill).

On the last one, consider one of my clients, Bayer, which has a sizable crop sciences business. In its last annual report, Bayer identified drought-tolerant plants as a major investment opportunity. Clearly, the world needs to keep food volumes growing, even on a dryer, warmer planet. The companies that can solve this kind of problem will grow and win share.

Or think of the more extreme needs that might arise and the entrepreneurial opportunities. As some smart people have pointed out, cutting carbon won't be enough — we'll need to drag it out of the sky. Imagine what new technologies we'll need to do that.

From my conversations with Oxfam, clients, and other corporations, I can tell you that most organizations — including ones that already have products that will help with adaptation — are not yet thinking clearly about the risks and opportunities from climate change. Are you?

February 14, 2010

Toyota, Getting Squished Like a Grape

Reality 1: Last year, the Toyota Prius was the bestselling car in Japan. On the back of innovations like the hybrid gas-electric engine, Toyota also became the largest car seller in the world by volume. Toyota is clearly the best, most forward-thinking auto company.

Reality 2: During the same period, a number of Toyota models developed (or exposed) a serious quality problem that has caused deaths and led to one of the largest recalls in product history. In its delayed response, Toyota has not won any prizes for openness and customer care. Furthermore its line of trucks took a huge hit when the auto industry collapsed. Toyota is clearly the worst, most slow-moving auto company.

F. Scott Fitzgerald once said that it takes "a first-rate intelligence...to hold two opposing ideas in the mind...and still retain the ability to function." But how can Toyota still be one of the best companies in the world and still make horrendous life-threatening mistakes?

In the green/sustainable business realm, this dichotomy is actually not so unusual. Wal-Mart is arguably the most important company in the greening realm, with its aggressive actions to reduce its own — and all its suppliers' — environmental impacts. But, according to a large segment of the population, it's also a force for thoughtless consumption and low-price-above-all. A consumer survey last year proved the point: Wal-Mart topped the list of most sustainable companies, and sat atop the list of the least sustainable as well.

Toyota itself has for years been prompting head-scratching about how green it really is. At the same time that the Prius was rising in popularity and winning the company accolades for a good chunk of the 2000s, Toyota was also embracing a big vehicle strategy and focusing sales efforts on its giant Tundra truck. Most pundits agree that Toyota's quality and revenue problems stem from trying to grow too fast — partially by putting a big push behind the Tundra. By pursuing truck sales, Toyota grew, but it also found itself in the same whirlpool of anti-big vehicle sentiment when oil prices peaked in 2008.

But it's not just that Toyota grew too fast. Comparing figures from the first eight months of 2008 vs. the previous year, it's clear that Detroit was already hemorrhaging sales before the economic collapse because they had missed the green wave. Meanwhile, Detroit's Japanese competitors, with their more energy-efficient, greener product portfolios, were selling more vehicles year over year. Toyota's results were right in the middle because it was trying to be all things. It was trying to be smart — to maintain two opposing strategies at once.

This kind of integrative thinking is a skill all modern leaders will need (see an interesting piece on this opposing-views idea and President Obama). Holding opposing views can lead to innovative ideas, and we desperately need radical innovation, or what I call "heretical" innovation, to solve our environmental ills.

For example, we can't forget that when Toyota asked why cars couldn't have solid power, good midsize interior space, nice design, and get better gas mileage, it was on to one of the most important innovations of our time — even if today the Prius is getting caught up in the quality concerns as well. As has been already argued, we shouldn't use the Toyota saga as a warning against innovative thinking. Instead we should look more closely at where their strategy worked, and where it failed.

What matters is holding the right kind of opposing views, because not all of them are safe or sustainable. As the wise Mr. Miyagi once told Daniel-san, "Walk on road, hm? Walk left side, safe. Walk right side, safe. Walk middle, sooner or later get squish just like grape." Pursuing leadership in lean manufacturing and design while at the same time trying to grow at all costs has badly damaged Toyota.

Sustainable growth, the kind that isn't going to get squished, is found by using the kind of integrative thinking that allows us to provide goods and services that are the same or better and also to use drastically less stuff: that's heretical, and involves the right kind of opposing views to try and hold in your mind. But where Toyota got in trouble with integrative thinking was when it combined sustainable growth in one part of its portfolio with uncontrolled, unsustainable growth in another, exposing it to the very risk its Prius strategy sought to mitigate.

No matter how green your company is elsewhere, that kind of unthinking growth is not a worthy or, it turns out, a profitable pursuit.

[This post appeared first on HBR]

June 24, 2010

Sony Sees the Value of Zero

Though corporate green efforts have grown exponentially in the last decade, most initiatives fall woefully short of what's necessary to meet the enormous sustainability challenges we face — from climate change to water shortages to poverty and social equity.

That's why it's so refreshing to see one large company, Sony, set a goal of zero environmental footprint by 2050. The company has dubbed this mission its "Road to Zero."

Before diving into how Sony has approached its target-setting exercise, here's a quick review of why "zero" is an idea whose time has come: In a resource and carbon-constrained world, the best scientists tell us, we need to cut emissions of greenhouse gases by 80% by mid-century (it's no coincidence that Sony picked 2050). For other pressing issues, society, governments, and the cold realities of science will demand even more dramatic changes. The word "zero" — as in zero waste, zero net water use, zero toxicity, zero child labor, zero fatalities, and zero carbon — will by necessity become a core part of business strategy and operations. (One large consumer products company is in the process of setting sustainability targets, which it calls the "Eight Zeros.")

Only one of the green-themed zeros has had broad appeal thus far in the business community — the quest to send no waste to landfills. Most people shorthand this pursuit to "zero waste" even though it's not really zero (but everything is being recycled or, much less preferably, incinerated).

Subaru demonstrated it could be done in 2004 in its Lafayette, Indiana plant (saving millions of dollars in the process), and GM has recently achieved the goal at 62 plants across the world. These are impressive feats, but we'll need even greater innovation to get to the other zeros.

Yet outside of a few usual suspects, such as perennial sustainability leader Interface Flooring or Wal-Mart's goal of using 100% renewable energy, there are nearly no companies (or countries for that matter) that have outlined a path to get to zero environmental footprint.

This spring, however, Sony made the leap. If you spend some time at the Sony site dedicated to the Road to Zero, you get the sense that executives have clearly thought this through. They seem to realize that a big goal, just hanging out there on its own, would be far too daunting, nebulous, and not very actionable. So The Road to Zero works, as I see it, because of two fundamental components.

First, the company broke up the goal into pieces, separating the discussion into four "perspectives" and six "lifecycle" stages. Sony has phrased the perspectives as ongoing actions:

- Curbing climate change,
- Conserving resources (which covers material use, waste, recycling, and water),
- Promoting biodiversity, and
- Controlling chemical substances.

The perspectives hew closely to the biggest environmental challenges we face as a species: climate change and energy, water, biodiversity, and chemicals and toxics. So while I might nit-pick and suggest that "conserving resources" is a bit too broad to be actionable, it's a good list.

The six lifecycle stages cover:

- Research and development,
- Product planning and design,
- Procurement,
- Business operations,
- Distribution, and
- Take-back and recycling.

Sony indicates that it will need to find a path to zero in each area, using different tactics and approaches. In distribution, for example, Sony describes a broad set of strategies including smaller packaging, improved loading efficiency, and shifting to more rail and water transport.

The Road to Zero site describes these all in very general terms, which reflect the reality that nobody really knows exactly how to get to zero. But what's important is that Sony is pairing this directional exercise with some down-and-dirty tactical goals as well. So...

Second, Sony set interim targets dubbed "Green Management 2015," which follow and build on its now-completed "Green Management 2010." This step is critical and the goals are both specific (reduce greenhouse gases 30% in absolute terms from 2000) and thought provoking (reduce mass per product by 10%). For some areas, such as operations and distributions, the targets are numeric and clearly understood. For others, such as R&D, they're more strategic.

The four environmental impact areas — or perspectives as Sony calls them — and the six lifecycle phases make up a matrix. Thus the company has set a climate-related goal for each lifecycle phase, chemical reduction goals for most phases, and so on.

Sony's site repeatedly refers to hitting zero "throughout the lifecycle of our products," which raises an interesting question: Will Sony be demanding that its suppliers hit zero as well? I would think that this discussion could not be very far away.

Of course, we could debate if "zero" is even good enough, since cutting-edge sustainability thinking focuses on creating products that improve the environment (such as concrete that captures CO2 in its manufacturing process or building materials that clean the air). But for the big guys like Sony — and for all of us — zero is a pretty good start.


[This post first appeared at Harvard Business Review Online]

(Sign up for Andrew's blog, via RSS feed, or by email right to your in-box)

October 4, 2010

A Soccer Ball That Generates Power and Other "Breakthrough" Awards

Popular Science released its list of Breakthrough Awards 2010 for new ideas and products (some on the design table, some out in the market).

Out of 18 winners, 5 are clearly green innovations:

- A more affordable PV Solar Cell, that uses much less silicon
- A "radically" redesigned airplane that lowers drag and fuel use
- The plug-in hybrid Chevy Volt as a "breakthrough product"
- Ditto the all-electric Nissan Leaf

But my favorite idea is a soccer ball that captures kinetic energy. Four Harvard undergrads created this clever, fun solution to the complete lack of power in the poorest parts of the world. After just 15 minutes of play, the ball can be plugged in and provide 3 hours of LED light.

Revolutions can come in small packages.

October 27, 2010

Some Gems From Seth Godin

Business guru Seth Godin is on a bit of a tear lately on issues related to sustainability.

Three posts that grab me...

Efficiency is Free -- makes the case that, as always, efficiency is the cheapest path, and it mentions 'heresy', which I'm obviously a big fan of!

What Does Pro-Business Mean? (Hint: it's not about maximizing shareholder value only).

Deliberately Uninformed, Relentlessly So [A Rant] - Ok, to be fair this is about general ignorance, but it certainly applies to the discussion of green and climate change science, which has been the target of one of most organized and powerful disinformation campaigns in history. I'll have a post on my Harvard Business Review blog next week related to this topic...

Enjoy Seth's wisdom...


(Sign up for Andrew's blog, via RSS feed, or by email)

January 17, 2011

Innovation in Managing Water

Note: This post is co-authored by Will Sarni (see bio below)

Last week we asked, "Is Water the Next Carbon?". Although our short answer was "no," we believe that managing water will become a critical business skill for the 21st century. Need drives innovation, so this week we want to highlight some of what is happening in the new markets in water.

bldgs%2C%20aqueduct%2C%20iStock_000005061191XSmall.jpg

First, even large companies are carving out new niches to help businesses and communities manage water scarcity.

For example, GE's investment in water technologies is well known, and its leadership stems from its ecomagination portfolio of products. GE not only recognizes the critical role technology plays in addressing water scarcity, it also understands the challenging interconnection between energy and water: increasingly, the world will be needing low-energy water treatment technologies.

Another major industrial company moving to address water risk is ITT, the world's largest supplier of pumps and systems to transport, treat, and control fluids. ITT has a stake in seeing cities and companies invest in water management, but the company is discovering a relatively low level of awareness of the need.

ITT conducted a survey titled "The Value of Water" highlighting both how much water we waste and exploring the critical gap between the current price and the real value of water. We spoke with Colin Sabol, a Vice President at ITT, about the survey and ITT's goals.

In the US, ITT tells us, about 650 water mains break each day at a cost of $2.6 billion per year. Our crumbling infrastructure on the whole loses 1.7 trillion gallons of water per year, equal to the water use of 68 million homes. On the positive side, approximately 95 percent of individual consumers said water was the most important service they received in their home. And consumers said they'd pay more for improved water infrastructure.

The business community was another story, however. Three-quarters of corporate respondents told ITT that they take clean water for granted. As Sabol says simply, "The infrastructure is literally out of sight, underground." That's why ITT has a big challenge in conveying to its customers the importance of investing in its services. But if this shift in thinking happens, the business opportunities are likely to be vast.

Secondly, it is often innovators who must lead customers down new paths, showing them new ways of managing a resource and saving money that they didn't know were possible. So in addition to large multinationals such as GE and ITT, there are a number of startups in the process of bringing new technologies to the water industry. Several of these innovators participated in recent competitions such as the annual ImagineH2O and the CleanTech Open. Both of these groups may play a crucial role in creating an ecosystem for water innovation.

This year's ImagineH20 finalists illustrate the diversity and imagination of the entrepreneurs paying attention to the opportunities in the water industry (here is a sample of these innovators — you'll see a couple themes, including capturing wasted energy in the water system).

  • Agua Via developed a nanotech membrane that enables desalination at a 66 percent energy reduction and 50 percent cost reduction, providing energy efficient purification and wastewater remediation.
  • BlackGold Biofuels recovers energy from wastewater streams, creating lucrative renewable energy assets from pollution liabilities.
  • FogBusters treats petroleum, biofuel and food processing wastewater "better, faster, cheaper, cleaner and greener" while capturing the FOG (fat, oil and grease) to make into biodiesel.
  • NLine Energy, Inc. converts wasted energy found in water transmission and distribution systems into renewable energy.
  • Puralytics, winner of this year's CleanTech Open, uses photochemical processes work to break down or remove contaminants from water.
  • Water Resources Management Co. helps water utilities realize the full benefits of their investments in advanced meter reading, system control and asset management.

To get a sense of what companies are doing about water, check out these and other ImagineH2O finalists as well as the work of ITT and GE — they all highlight the exciting business opportunities and challenges in the water industry. It's a space worth watching as these challenges are expected to become more pressing in the coming years.

Guest co-blogger Will Sarni is a director with Deloitte Consulting LLP and leads Enterprise Water Strategy for Deloitte's Sustainability Services. He is an internationally recognized thought leader on sustainability and is the author of the upcoming book Corporate Water Strategies (Earthscan).

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

January 23, 2011

Ford's Impressive Sustainability Strategy

For years, Toyota has been the darling of the green business world. The hybrid Prius was a legitimate business home run (2 million sold), and it helped both differentiate Toyota's brand as the market innovator and propel Toyota to unprecedented profits. But now the company faces renewed competition for the title of green auto leader.

Ford%20Focus%20plug%2C%20fce13_007_lg.jpg

In the last couple of years, every auto giant has launched alternative vehicles, which they've been touting aggressively at last week's Detroit Auto Show (see my newsletter on the different strategies the big companies are pursuing). GM's "extended range" Chevy Volt and Nissan's all-electric LEAF are potential blockbusters, with strong early sales and serious buzz.

But I want to focus on Ford. The company announced its own electric vehicle, the Ford Focus EV, at the recent Consumer Electronics Show.

Buried beneath the pizzaz of high-profile PR announcements, Ford has developed what appears to be a broad, well-thought-out sustainability strategy.

As I explored Ford's fascinating sustainability report (and how often do those words go together?) from last year, I noticed a number of unusual things. So I reached out to Ford's Director of Sustainability and Environmental policy, John Viera to help me better understand the company's approach.

Three key aspects of Ford's sustainability strategy strike me as critical, and show the company's real leadership:

1. It's based on hard science. Ford's in-house climate scientists - yes, you heard that right — have bought into an important global scientific consensus: humanity must keep CO2 levels in the atmosphere below 450 parts per million to reduce the odds of catastrophic, species-threatening climate change (many leading scientists have since lowered the goal to 350 ppm — and we've already hit 390 ppm).

Ford then worked back from this necessary future reality, determined the share of global emissions coming from Ford products (around 2%), and mapped out the fuel-efficiency levels required to meet the scientific mandate. As Viera said, "I can tell you 5, 10, 20 years from now, where we need to be." Relying on hard climate science to map out non-negotiable boundaries for your products is, to say the least, very unusual.

2. It tackles both long-term and short-term sustainability challenges. Given those science-based plans, Ford is investing in the long-term — the sexy, new EV market that everyone is going after — and rolling out a series of efficiency technologies in the existing, combustion-engine fleet. The 2011 Ford Explorer, for example, is using EcoBoost engine technology to improve fuel efficiency by 25%. Viera points out that the world may save more fuel between now and 2020 through these incremental improvements than through nascent sales of cleaner cars. "It's not as glamorous," Viera says, "but it makes sense number-wise."

3. It's heretical. In Ford's sustainability report, one statement stopped me in my tracks: "By 2050, there will be nine billion people on Earth...Putting nine billion people into private automobiles is neither practical nor desirable." This is an auto company saying that going after market saturation is not ideal for the company or the world (since cities would cease to function with that much traffic).

To explore the larger topic of "sustainable mobility," Ford worked on a pilot program in Toronto that encouraged people to use more public transit. Suggesting that people might — and should — use less of your product is an aggressive, tight-rope walk of a sustainability strategy. It's not easy, but it can drive real innovation and new thinking, as well as build customer loyalty that maintains or grows market share. (I discussed this idea, and give some examples of companies using this strategy to great advantage, such as Xerox, in my last book, Green Recovery.)

Even as they look at mobility more broadly, Ford is still pushing hard on cars of the future. The company is not missing the electric wave. Car guru Chelsea Sexton, who knows more about the market for EVs than nearly anyone, says the Focus EV demo seriously impressed her and other influencers. As Sexton told me, "It's the first time in my life that I've lusted after a Ford!"

In sum, Ford's sustainability strategy is to pursue a broad portfolio approach, making multiple bets on the future — a stark contrast to competitors that have really bet the farm on one technology. Improving the environmental profile of the current product portfolio while launching new leapfrog products is no doubt a tough balancing act. But it's very smart. The world is nothing if not uncertain; who can know whether policy, technology, and consumer whims will continue to drive adoption of electric cars?

Of course, as Sexton reminds me, strategy is one thing, but execution is another. She believes Ford is doing things for all the right reasons, but wonders how well they'll translate all that smart thinking into market success. In her opinion, the company has been late to the party on communications around electric vehicles (all the heat has been around the Volt and LEAF).

So will Ford develop — and build great brand stories around — the efficient or electric cars that people want? That's the billion-dollar question, and it's where, in this industry, the rubber really does meet the road.

April 21, 2011

How Can We Build a Culture of Disruptive, Heretical Innovation?

The forces driving the business world toward sustainability are vast, powerful, systematic…and growing. In recent months, we’ve witnessed massive climate disruptions everywhere from Russia and Pakistan to Brazil and Nashville. Resource constraints are a reality, with serious discussions about peak oil, peak coal, peak coffee, and, well, peak everything. Technology-driven transparency is creating a mad rush to capture product and company sustainability data, and companies continue to push new demands aggressively up their supply chains.

innovation%2C%20out%20of%20box%2C%20iStock_000012664198XSmall.jpg

And the mega-force to beat all – the relentless rise of population and living standards in the developing world – continues unabated. So how will we provide a good quality of life to what will be 9 billion people on a resource-constrained planet?

In short, we need some very large changes to “business as usual,” requiring radically new ways of thinking.

Over the past couple of years, I’ve written frequently (in my last book Green Recovery in particular) about the need for “heretical” innovation – that is, asking very hard questions that challenge the very nature of a business or product. I wrote recently about two companies, Waste Management and Xerox, in the middle of deep transitions. From hauling waste and getting paid by the ton, to managing recycling streams and helping customers achieve zero waste goals. Or from selling as many printers as possible to helping customers reduce the number of devices and do less printing over all. Asking customers to use less of their core products – that’s heretical.

Some will point out that this is similar to the concept of “servicizing”, and of course it is. But I believe there’s a deeper heresy at work than just turning a product into a service. After all, Xerox could offer outsourced printing services and try to print as many pages as possible. It’s the combination of service and talking openly to customers about using less in total that makes it novel.

So I have a paradoxical task in mind: figuring out how to systematically and logically ask illogical, wacky, heretical, leapfrog questions. I’m looking for ideas from the assembled knowledge and experience of the sustainability leaders reading this.

My three main questions are:
1) How do we cultivate a culture of heretical innovation (how do we make it ok to ask wacky questions)?
2) How do we identify and support the true innovators, intrapreneurs, and heretics in even the largest organizations?
3) Is sustainability-driven innovation fundamentally different than ‘regular’ disruptive innovation, and how?

On the first question at least, I have a few broad ideas. Here’s a starting list for budding corporate heretics:

Start with value-chain data to identify big risks and opportunities. With solid data, managers can focus limited resources on tackling the real footprint and drive toward new ideas and questions. For example, Pepsi’s Tropicana brand is experimenting with low-carbon fertilizer after discovering that growing oranges was the biggest part of its GHG footprint. And more famously, P&G launched Tide Coldwater to address the largest (by far) portion of detergent lifecyle emissions, washing clothes in hot water.

Use open innovation. The hottest concept in innovation today is inviting people in to solve your problems. P&G has opened up its innovation pipeline to anyone with a good product idea. A few companies are sharing some of their best ideas (and patents) with the world – as Nike and others do with GreenXChange – and then hoping for reciprocal karma.

Try “co-creation” (the second hottest concept in innovation and a subset of open innovation perhaps). IBM has had great success in recent years with “Innovation Jams” that allow all employees and customers to throw ideas into the mix. Cross-fertilizing people from radically different disciplines, and from outside the organization as well, can lead to some novel questions.

Show personal leadership (walk the talk). Have senior execs take part in jams and brainstorms. Let them publicly generate wacky ideas and support pilot projects to explore them.

Systematize innovation. 3M and Google famously set aside a portion of everyone’s time for whatever strikes their fancy. More companies should emulate this practice, but also make a point of focusing specifically on sustainability pressures.

Award the wackiest ideas, even the ones that don’t pan out. Some public pats on the back and recognition for employees who show bravery and try new things can go a long way.

Create competition. Sharing data on sustainability performance internally can drive real competition and learning across divisions or products. Or utilize public prizes, like the famous X Prize or the $1 million Netflix Prize.

All of these paths can help us regularly ask the toughest, most interesting questions. Only then can we match the scale of innovation to the scale of the sustainability challenge.

These are just a few ideas (after all, this is a blog, not a book). There are many more. So please send me your thoughts on how to drive breakthrough innovation and how to find the heretics in the organization. Finally, any examples of heretical questions within your organizations are very welcome. (andrew@eco-strategies.com).

(This post first appeared on Corporate Eco-Forum's site.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

June 13, 2011

Our Future Business Leaders Are All About Green

Tucked into this year's Fortune 500 issue is a short article on the annual Rice University Business Plan Super Bowl. With $1.3 million in cash, equity, and advice in play, this contest is one of the world's most prestigious and richest competitions for budding entrepreneurs. It also provides some insight into what MBAs and VCs are excited about today.

business%20plan%2C%20iStock_000013563516XSmall.jpg

If these entrepreneurs are our future business titans, then I'm feeling pretty good about where we're headed. In short, next-gen leaders want to build businesses that solve sustainability problems. Here are a few of the 6 winners profiled in Fortune.

  • 3rd Place: PK Clean from MIT designed a factory that converts carbon-containing waste like plastic into fuel.
  • 4th Place: cycleWoodPlastics from University of Arkansas developed a biodegradable plastic bag to replace grocery bags, which are increasingly being banned around the world.
  • 5th Place: SmarterShade from Notre Dame created an elegant technology that adjusts the tint on windows, saving on building cooling costs by preventing heat gain.
  • 1st Place. TNG Pharmaceuticals from University of Louisville developed a vaccine for a parasite that strikes cattle, costing the dairy and beef industry over1 billion a year. The winning team pointed out that, compared with the current industry "solution" of ear tags to mark the sick cattle, their method is cheaper and "greener" (it reduces pesticide use and increases milk production, thus making the industry more efficient and saving lots of energy).

The other winners, FYI, were a better human authentication tool for websites and a material science innovation, a heat-resistant filter made from titanium dioxide.

So out of the six winners, call it three (and part of the TNG pitch) were green-focused. I'd say that three and a half out of six is a darn good ratio in a competition that was not intended as a sustainability contest. And these entrepreneurs are working on some of our biggest problems — buildings represent about 40% of all energy use and emissions, waste is the new frontier in fuel sourcing, and the cattle industry is one of the largest sources of greenhouse gas emissions.

Given the outcome of this year's contest, perhaps what the judges and competitors are telling us is that every competition needs to be about sustainability now. We're facing a tough future for our species if we don't turn the power of all of our institutions — business, government, academia, NGOs, and communities — toward solving our biggest challenges. Luckily for all of us, these bright young minds, our future business leaders, are excited to tackle these problems (and make gobs of money doing it).

But let me leave you with two main questions if you're a current business leader:

  1. Are you ready to innovate and find solutions for our toughest sustainability challenges?
  2. Will you be able to attract the best and brightest talent to your organization if you're not?

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @GreenAdvantage)

October 10, 2011

What Sustainability Should Learn from Steve Jobs

The passing of Steve Jobs was in no way surprising – we knew it had to be serious for him to leave the company he loved. But it’s still a shock that we’re robbed of his brain and all the amazing things that he would have invented.

iPad%20and%20Jobs%2C%20iStock_000017650700XSmall.jpg

I had always hoped that this once-in-a-generation genius would turn his prodigious mental powers to solving the world’s largest challenges. Imagine a Jobs-designed, must-have iCar that people would want as badly as an iPad…Or an iHome that uses drastically less energy with its iFridge and iWasher…Or how about an iCity or iTrain to tackle urban design and transportation challenges?

We’ll never get those products from Jobs, so other innovators will have to fill the void. But there is one incredibly important lesson that sustainability-minded leaders can learn from Jobs’ legacy: you should lead your customers and show them a better way.

Steve Jobs did not ask people if they could use a tablet computer. In fact, in a long list of amazing quotes from the man, one of the most powerful is this: "It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them."

Before the iPad came out, plenty of pundits asked why anyone would really need a tablet. After all, laptops were fairly small already and we had connectivity and games on our phones. Why add this midsize device to our lives? Steve Jobs made us want to.

In my experience, most large companies today are “fast followers” – a strategy that has seemingly lower risk for a public company. But just look at the playing field littered with tablet computer also-rans to see how expensive second-place can be. And yet it still seems like the preferred (or default) approach for most companies.

This fiscal and strategic conservatism breeds a culture where execs prefer to wait and talk to customers before doing anything drastic. Of course customer (and other stakeholder) perspectives are critical. But as with tablet computers, when it comes to sustainability, often the customers don’t really know what they need.

Companies often gather data on what their business customers think a sustainable product should be, and the survey might show that including recycled material is important, even if that’s a tiny part of the real footprint story. Nobody knows the value chain of your product and service as well as you do (or if someone else does, get them in the room pronto). So figure out where the impacts really lie and what you can do to reduce your customer’s footprint in ways they hadn’t considered. This might require asking heretical questions about whether the product should even exist in its current form or should be converted into more of a service.

Do most people think they need a hybrid car, or would they even imagine that they’d share a car using a service like ZipCar? Probably not, but if the experience can be made fun and profitable enough, perhaps they will. The Toyota Prius has sold well, in part, because it did some exciting new things (ran quiet on no gas at times) in a familiar midsize car framework, much like the iPad looked like a big iPhone but could do so much more.

I wish I could come up with more examples of companies truly leading with sustainable products. It’s a sparse field for now, but that will change. The next generation’s Steve Jobs will most likely focus on sustainability since that’s where the largest challenges and business opportunities lie. Consider the case of William Kamkwamba, a boy from rural Malawi, one of the poorest countries in the world. At 14, this self-taught “Boy Who Harnessed the Wind” built a working wind turbine from scraps. He’s now at Dartmouth College.

The world contains some true innovators. Will our big companies find these leaders and harness them…or be brought down by them? I know which one I’d pick if I were normally a “fast follower.”

Here’s hoping we find the next Steve Jobs quickly, someone who can bring us green things we never knew we wanted so badly. Rest in peace, Steve.

May 24, 2012

3M's Sustainability Innovation Machine

Planes are now held together by tape, not bolts. It's really, really strong tape, but still. Who knew the maker of Post-It Notes could help keep aircraft aloft?

This somewhat frightening factoid is just one of the fascinating things I learned in a recent visit to the St. Paul, MN, headquarters of the perennial innovation leader, 3M. During my daylong visit, I observed a quiet, longtime sustainability leader plugging away, creating new products that will help the world save energy, water, waste...and lots of money.

invention%2C%20old-fashioned%2C%20iStock_000010435509XSmall.jpg

For good reason, the $30-billion company has long been held up as a role model of how to manage innovation. In the sustainability realm, 3M pioneered what now seems like an obvious idea: avoiding pollution before having to clean it up. The company's simply named Pollution Prevention Pays (3P) program has saved many billions of dollars over 36 years.

The environmental results of its near obsession with eco-efficiency are frankly astonishing. In the last two decades, 3M has slashed toxic releases by 99% and greenhouse gas emissions by 72%. It's the only company that has won the EPA's Energy Star Award every year the honor has been bestowed.

3M's sustainability leadership has come mainly from its eco-efficiency success, but these practices are increasingly the norm in business. So I was happy to observe abundant evidence of the company pivoting to make sustainability a driver of business growth as well.

Before my presentation at an employee event, I listened as CEO Inge Thulin and senior execs from each of the major divisions laid out their strategies. Thulin spoke about sustainability being "embedded...in our new vision" of growth and innovation. Other execs bragged about the high percentage of their division's sales coming from sustainability and "energy preservation."

But most importantly, I heard about some great new products and technologies. When you're describing a company that launches an average of 20 new products every week, it's hard to pick favorites. But here are a few examples of what sustainability innovation looks like:

  • The world's highest reflectivity mirror film, which can take sunlight from a roof and carry it deep into a building — the length of a football field, in fact — all while losing less than half of the light. I saw this technology paired seamlessly with some regular fluorescent lighting and working well in an interior conference room. As one exec said, somewhat heretically, "Why build solar panels to convert sun to electricity to then turn on lights if you can do this?" (Note: I'd do both!)

  • Pipe linings: Every year, due in large part to 250,000 water main breaks, our cities lose 1.7 trillion gallons of treated water (equal to the total water use of the 10 largest cities). To help solve this problem, 3M launched a product that sends a machine down into pipes to apply a fast-setting lining which structurally reinforces them, without having to go to the significant expense of digging them up first.

  • An industrial paint application product/service that reduces toxic solvent use by 70% and is saving customers, mostly auto repair shops, $2 billion from simpler paint operations and reduced waste. It's also a sizable business for 3M.

  • 3M's Novec Fluids, which provide cleaning, coating, cooling, and fire suppression for the electronics industry (chip manufacturing, datacenters, and so on) in a non-flammable, non-ozone-depleting way. It's also remarkably safe for users and technology — you can safely dip an iPhone in the stuff.

3M is a refreshingly humble company: every estimate or "boast" is carefully and conservatively calculated to not overstate the case. For 36 years, the company has used only first-year savings to tally the benefits of pollution prevention projects — that's an effective discount rate of, well, infinity. And with the water-pipe-lining technology, the payback calculation for customers includes only labor savings and overall construction efficiency. A more thorough accounting would add in the significant water and energy savings, as well as reduced impacts on local economies (traffic and business disruption).

But there are signs of a feistier attitude brewing. The new CEO is making sustainability, growth, and innovation a powerful trifecta. With Novec Fluids, the team is not only working with key customers and early adopters, but it's also pushing the market toward greener options by advocating for tougher government standards and regulations. This kind of pro-environment lobbying is an advanced sustainability strategy that only real leaders can pull off.

Finally, I toured the company's relatively new innovation demonstration center. It's a customers-only, hands-on science museum that proudly demonstrates all that 3M can do through cool combinations of its 46 base technologies.

Bottom line: sustainability is deeply integrated in 3M's innovation pipeline, which is the engine of the company. The company's core new product development process includes key sustainability questions and criteria for designers to address.

Many companies start talking about sustainability efforts before they've really made significant changes to the company or its products. Although 3M may have the opposite problem — getting too little brand and marketing value out of its efforts — it is usually smarter to execute first, and then tell your story. In 3M's case, it's nice to see the engineers at this quiet company just out there doing it.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

September 6, 2012

Your Competitive Position Is Always Eroding

Note: I've been out on a leave of absence -- thanks to those who wondered why my blog and twitter feed had gone quiet. I'm back and have some new blogs coming in the next week...but I discovered that I never posted this one from HBR from the spring...

Whenever I share stories about "green" business strategy, someone inevitably asks me whether pursuing sustainability is against a company's best interests. The question is understandable, but unfortunately it's based on deep misconceptions about how businesses need to operate in a world of constant change.

Jenga%2C%20eroding%20position%2C%20iStock_000009475452XSmall.jpg

Here's a concrete example: I often talk about how Xerox (along with all its printer-making peers) ishelping customers print less. As part of the fast-growing "managed print services" sector, the company shows organizations how to reduce the number of printers they use. The shift helps customers reduce their environmental impacts and costs by cutting back on paper, energy, and waste.

To me it's a clear story of serving customers better, but recently an executive at one company I was working with asked me, "Doesn't pursuing those green goals reduce Xerox's profits and eliminate jobs?"

There are a couple core answers to this question: First, as Xerox's CEO Ursula Burns replied when I asked her basically the same question, "Maybe, but someone else doing it is much worse." In short, if your company doesn't implement green, customer-friendly solutions, someone else will, and you'll be cannibalized from the outside rather than proactively innovating from within. But a second reason has become increasingly clear to me lately, and it is fundamentally important to the way that we understand sustainability in a business context.

I think many of us harbor a dangerous misconception (perhaps even a cognitive bias?) about the nature of "business as usual" — namely, that there is such a thing. It's taken as a given that when we're considering any change — in business or in our personal lives — that we compare it against a world where things stay as they are.

But the reality is that any company's competitive position is always eroding: the status quo is on a downward trend. As the great guru on innovation Clayton Christensen has said, we base our thinking on "an assumption that the status quo in the business will maintain itself into the future. You're comparing the upside generated by this innovation with the present state of affairs. But the present status quo...is on a declining trajectory of performance which will accelerate over time."

As Christensen's warning implies, this misconception is dangerous in strategic contexts because it makes us miscalculate the risks and rewards of preparing for different futures. But we have to consider — where will our customers be in five, fifteen, thirty years? How will our competition evolve to meet those new needs? How will systematic pressures like rising commodity and energy prices, or water and resource scarcity, affect our business and our customers? These are the kinds of questions we need to ask and plan for.

Consider the printing business again. Customer expectations are changing fast, along with competitive actions to meet them. Even without sustainability pressures, change would be the norm. Xerox and its brethren are always competing to offer the highest print quality in dots-per-inch or fastest printer speed. But the sustainability lens offers a deeper understanding of market forces. No printer company — whatever the dpi of their printers' output — would stand a chance against those who go beyond normal product innovation to the whole business model. The competitors that help customers reduce their footprint and cost will win. Seeing the business through a sustainability lens provides an increasingly critical way of understanding those ever-evolving market needs and future business models.

So, to circle back to answering the main question, in a competitive world of scarce, more expensive resources and rising customer demands, green goals are not at odds with a company's "best interest" — they're one in the same.

The companies that don't pursue deep, sustainability-driven innovation that challenges business models will become irrelevant. "Change or die" has always rung true, but now big-picture sustainability forces are creating conditions for much deeper, much faster changes to the status quo.

In the end, it's better to create the new, sustainable norm than to wait for it to crush you.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

December 22, 2012

Top 10 Sustainable Business Stories of 2012

Hurricane%20Sandy%20Weather.com.jpg

It's time once again to try and summarize the last 12 months in a handy list. But before I dive in, some quick thoughts.

It was an odd year for green business, and it began with some mixed signals about how far companies were coming on sustainability. A GreenBiz report indicated that progress had slowed or even regressed, but MIT and BCG also declared that sustainability had reached a "tipping point" with more companies putting sustainability "on the management agenda."

In reality, both views were right. Corporate sustainability lost some of its sexiness from previous years, as it grew more entrenched in day-to-day business. Some parts of the agenda — eco-efficiency and resource conservation for example — are widely accepted now, and it's rare to find a big-company CEO who doesn't have sustainability on his or her radar.

The mega forces driving sustainability deep into business — such as climate change, resource constraints, and transparency — are getting stronger. We may not be keeping pace with these pressures, but leading companies continue to evolve more sustainable strategies and tactics. Let's look at some top macro- and company-level stories.

Macro Trends

1. Historic drought and Hurricane Sandy sweep away (some) climate denial
For many people this year, climate change moved from theoretical to painfully real. Mega weather took many lives and cost over $120 billion in the U.S. alone ($50 billion for the drought, $71 billion for Sandy). After Sandy raged across the eastern coast, Businessweek blared on its cover "It's Global Warming, Stupid." New York Mayor Bloomberg, a Republican, endorsed President Obama in the election, titling his open letter, "A Vote for a President to Lead on Climate Change."

As bad as Sandy was, the relentless drought across the middle of the country may prove more convincing in the long run. Corn yields per acre fell 19%, food prices rose, and water disappeared —the Mississippi River may soon struggle to support commerce. Individual companies are feeling the bite: analysts at Morningstar estimate that input costs at Tyson Foods will rise by $700 million — more than its 2012 net income.

Over one-third of the world's largest companies surveyed by the Carbon Disclosure Project arealready seeing the impacts of climate change on their business. So with life-and-death consequences and vast costs, we must have moved quickly to tackle climate change, right? Sort of...

The year ended with the failure, yet again, of the international community to come to some agreement on climate change. But country-level and regional policy moved forward: Australia passed a carbon tax, South Korea approved carbon trading, and California just began its own trading experiment.

Many countries also committed serious funds to build a clean economy: Saudi Arabia pledged $109 billion for solar, Japan declared that a $628 billion green energy industry would be central to its 2020 strategy, and China targeted $372 billion to cut energy use and pollution.

In the U.S., a backdoor approach to climate policy took over. The Obama administration issued new standards to double the fuel economy of cars and trucks, and the National Resources Defense Council (an NGO) proposed using the Clean Air Act to reduce emissions from power plants by 25%.

2. The math and physics of a planetary constraints get clearer
Arithmetic had a big year: Nate Silver's nearly perfect predictions of the election gave him the oxymoronic status of rock-star statistician. The math and physics of sustainability got some serious attention as well.

Writer and activist Bill McKibben wrote a widely-read piece in Rolling Stone about climate math — how much more carbon emissions the planet can take — and followed it up with a national awareness-building tour. Based on similar numbers, both McKinsey and PwC UK calculated how fast we must reduce the carbon intensity of the global economy (PwC's number is 5% per year until 2050).

And on the resource constraint front, Jeremy Grantham, co-founder of the asset management firm GMO ($100 billion invested), continued his relentless numbers-based assault on the fallacy of infinite resources. In his November newsletter, he demonstrated exactly how much of a drag on the U.S. economy commodity prices have become.

Nobody can really deny that, in principle, exponential growth must stop someday. Grantham, McKibben, and many others are making the case that someday has arrived.

3. The clean economy continues to explode
The rapid growth of natural gas production (the biggest energy story of the year) and the high-profile failure of one solar manufacturer (Solyndra) have confused people about the prospects for clean tech. In reality, the clean economy is winning. The share of U.S. electricity coming from non-hydro renewables doubled to 6% in the last 4 years. On May 26, Germany set a world record when it produced 50% of its electricity needs from solar power alone. In a mini political tipping point, six Republican senators publicly supported an extension to the wind production tax credit in the U.S. (which will expire in days), and got an earful from a Wall Street Journal editorial.

It wasn't just energy. One auto analyst declared 2012 the "Year of the Green Car," with more high-MPG models, 500,000 hybrid sales in the U.S., and plug-in sales up 228%. To cap the year, the pure electric Tesla Model S was selected as the Motor Trend Car of the Year.

Company Stories

This year, there were countless eco-efficiency stories about companies saving millions of dollarsand developing new tools to make buildings, fleets (Staples and UPS, for example), and manufacturing much leaner. Aside from that overall theme, the following stories grabbed me because of their connection to larger trends.

4. The green supply chain gets some teeth: Walmart changes incentives for buyers
This year, Walmart finally added a key element to its impressive green supply chain efforts. The retail giant's powerful buyers, or merchants, now have a sustainability goal in their performance targets and reviews. For example, the laptop PC buyer set a goal that, by Christmas, all of the laptops Walmart sells would come pre-installed with advanced energy-saving settings. It was by no means a hiccup-free year on sustainability issues for Walmart, with deep concerns about corruption in its Mexican operations. But the subtle change in buyer incentives is a big deal.

5. Transparency and tragedy raise awareness about worker conditions
Early in 2012, Apple took some serious heat for the working conditions at Foxconn, the giant company that assembles a huge percentage of our electronics. Later in the year, tragedy struck Dhaka, Bangladesh when a fire at the Tazreen Fashion factory killed or injured hundreds of people. The company that owns the factory serves Walmart, Carrefour, IKEA, and many others (but in fact,some companies didn't even know that Tazreen was a supplier). It's unclear if any of these human and PR disasters will affect the companies downstream, but transparency and knowledge about the lives of the people who make our products will continue to rise.

6. Data gets bigger and faster: PepsiCo and Columbia speed up lifecycle assessments
The rise of Big Data was an important theme in business in general this year, but especially in sustainability. And nowhere is good data needed more than in the onerous and expensive task of calculating a product's lifecycle footprint. PepsiCo has had great success with the method, finding ways to reduce cost and risk for key brands, but execs wanted to apply the tool across thousands of products. To make the exercise feasible and affordable, they turned to Columbia University, which developed a new algorithm for fast carbon footprinting. This isn't just a wonky exercise: As PepsiCo exec Al Halvorsen told me, "the real reason you do an LCA is improve the business, to put more efficient processes in place, and innovate in the supply chain."

7. Sustainability innovation opens up: Unilever, Heineken, and EMC ask the world for help
This new world of social media, where everyone has a voice, can be tough on companies. Consumers can gather around a green issue and pressure companies to change their behavior. Some notable change.org campaigns this year challenged Universal Pictures (about its green messaging around The Lorax), Crayola (recycling markers), and Dunkin' Donuts (Styrofoam cups). But companies can also use "open" innovation tools to generate new ideas and invite the world to solve problems together.

Unilever, which has my vote for leader in corporate sustainability right now, held an online discussion or "jam." Then the company posted a list of "Challenges and wants" and asked for ideas on solving big issues such as how to bring safe drinking water to the world's poorest regions.Unilever has received over 1,000 ideas and is "pursuing 6 to 7 percent of these with internal teams." Other notable open innovation models this year included Heineken's $10,000 sustainable packaging contest (which yielded some very fun ideas like a roving tap truck) and EMC's eco-challenge with InnoCentive on e-waste.

8. The economy gets a bit more circular: M&S, H&M, and Puma experiment with closing loops
On the heels of Patagonia's "Don't Buy This Jacket" campaign (one of my top 10 stories from last year), British retailer M&S began a program called "Schwop" that asked customers to bring back old clothes every time they bought new ones. This month, H&M also rolled out a global clothing collection and recycling effort.

Puma, after making last year's list with it's Environmental P&L, kept the momentum going andannounced a new "InCycle" collection with biodegradable sneakers and shirts, and recyclable jackets and backpacks. Remanufacturing has been around a long time, but closing loops is getting more popular every year.

9. Dematerialization gets sexier: Nike's knitted shoe shows off sustainable style
Keeping the apparel theme, um, running, check out Nike's new shoe with FlyKnit technology. The upper part of the shoe is constructed from a single strand, which greatly reduces waste and lightens the shoe dramatically. It's a great thing when a more sustainable design also coincides perfectly with customer needs. Enough said.

10. Zero becomes more the norm: DuPont, GM, and John Elkington show the way
The idea that organizations should send zero waste to landfill was once a niche idea, but it's quickly becoming the ante to enter the waste management game. Announcements on waste may not be exciting, but they demonstrate how companies can turn a cost center into a source of profit. DuPont's Building Innovation Products business reduced its landfill waste from 81 million pounds to zero in three years. GM announced that it would ramp up its already extensive waste reuse and recycling efforts, which are now generating $1 billion a year. And a plug for a fellow writer: In a new book, sustainability thought leader John Elkington made the case that the future would belong to the "Zeronauts," the "new breed of innovators determined to drive problems such as carbon, waste, toxics, and poverty to zero."

Five Questions For 2013

Some other promising stories are in the "too early to tell" stage, but bring up some key questions:

1. Can we standardize sustainability, which some smart folks began to do around rankings (GISR) and accounting (Sustainability Accounting Standards Board)?

2. Will we find a way to value externalities like ecosystem services and internalized, intangible benefits? (A focus of some of my work as an advisor to PwC US). For example, Microsoft launched an internal carbon tax and some major companies (Coca-Cola, Nike, Kimberly-Clark, etc.) pledged to value natural capital at Rio+20.

3. Will government get in the way or help, like when the U.S. Senate allowed the military to keep investing in biofuels?

4. Hertz and B&Q (Kingfisher) have delved into collaborative consumption (see WWF's Green Game-Changers report), but will the sharing economy make a dent on sustainability issues?

5. Finally, how much will we challenge the nature of capitalism, and what will that mean for how companies operate? (This is the focus of my next project.)

So many stories, so little time... on to 2013. Happy holidays and have a safe and wonderful New Year!

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

February 24, 2013

The Inside Story of Diageo's Stunning Carbon Achievement

This is the exclusive, short story of how Diageo North America, with creativity and guts, both in operations and in the senior ranks, achieved the holy grail of carbon emissions reductions. They did it without using carbon offsets — and about 38 years earlier than they had to.

impossible-possible%20blackboard%2C%20iStock_000016576964XSmall.jpg

Here's what scientists are telling us: the world must cut carbon emissions by at least 80 percent from 1990 levels by 2050 to (we hope) avoid the worst of climate change. This level of change seemed like a pipe dream to many, including me... until I spoke last fall to Roberta Barbieri, the global manager for environmental sustainability for Diageo, the $17 billion spirits company. Imagine my shock, as we talked about setting aggressive goals on carbon emissions, when she casually mentioned that Diageo's North American division — a group with $5.58 billion in sales and 14 production and manufacturing facilities — had already cut emissions 80 percent.

The first thing I said was, "Excuse me?!," followed quickly by, "when can I come and talk to you?"

It all started in 2008, she told me later, when top Diageo execs had their minds set on doing something big. First, for perspective, they ran the numbers on what it might cost to go entirely carbon free. The back-of-the-envelope calculation was daunting (hundreds of millions of dollars) and included ideas like building bioenergy plants to power some of their largest distilleries — an option that would achieve large reductions, but was in no way cheap. They settled on a still-aggressive goal of 50%, made it public, and, remarkably, crossed their fingers.

At about this time, Richard Dunne, an environmental exec, entered the picture and took responsibility for meeting the target in North America. He had a strong suspicion that building an expensive bioenergy plant was not the only way to get there. His team implemented a rigorous process of collecting ideas for emissions cuts and estimating the costs. Then they sorted the results on a massive spreadsheet, ranking ideas by net gain on environmental improvement and then by financial investment. By looking at the largest carbon reduction options first, they could group ideas into three big buckets: 1) low/no cost (the no-brainers); 2) some operating expense increase; and 3) more significant capital expenditures (like the bioenergy plant).

Executives initially thought that only major capital projects would reduce emissions significantly. But Dunne's process revealed a surprising number of no-brainers. As a result, Diageo North America achieved a 50% carbon reduction by 2012, mainly with a mix of no- and low-cost initiatives. These project range from easy efficiency efforts like lighting retrofits, boiler upgrades, and installing variable speed drives; to larger, but still economical, changes, such as switching fuels (from oil to natural gas) and cutting back from two boilers to one in a small distillery.

Reaching the 50% reduction in North America years ahead of schedule was a pleasant surprise. But Diageo still needed to go further: the economics on reductions in other regions were not nearly as good, so North America needed to close the gap to help the global organization reach its 50% goal by 2015. But even with the expensive bioenergy plant beckoning as a solution, something even more unusual happened at a Canadian distillery, one of the company's largest.

Gene Ruminski, Diageo's North American sustainability manager, proposed that the Canadian distillery contract with its utility to supply natural gas harvested from a landfill - a net zero carbon solution that would reduce the carbon footprint for North America by another whopping 30%. But there was a big catch: energy costs would go up more than $1 million per year. This expense was more than the single plant could justify.

But then a senior exec, the president of Global Supply and Procurement, got wind of the idea (important point here: this exec sits on the company's internal sustainability council). With his global perspective, he realized that even though the landfill gas solution would increase operating costs for this one plant, it was actually a relatively cheap way to deliver a large reduction in emissions. So he gave the go-ahead and some financial leeway to the plant manager who had to take the annual million-plus hit to his bottom line. As it turns out, the plant's ongoing cost-cutting initiatives had already identified many millions of savings, so Diageo reduced the plant's target for total cost savings to allow for this massive carbon-reducing project.

This is an amazing story, with a few important lessons:

1) Companies still have much more room to cut energy, water, and waste than they realize. Even a well-run company can find enormous savings from easy, low-cost stuff.

2) Big goals force you to look for big ideas, meaning you can, as Diageo's Roberta Barbieri says, "do more than just turning off the lights."

3) Leadership matters. With a more strategic attitude, you can invest in longer-term value, both tangible and intangible. Flexibility is crucial, as the top exec had to give the plant manager leeway on his savings targets to meet the environmental goal.

This last point is really critical. Shifting subtly away from an attitude of "maximize profits this quarter at all costs" does not mean you leap right from capitalism to communism; it just means you take into account a broader definition of value to the organization and community. Flexible thinking about value frees you up to find unique solutions. As a clean tech and impact investor Charles Ewald said to me recently, "the gap between 'capitalism' and so-called 'philanthropy' leaves a lot of room for creativity."

I congratulate Diageo for getting creative, finding that chasm, and driving a spirits truck right through it.

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)