Innovation, Heresy, Get Creative Archives

June 29, 2010

Nike's Open (Green) Innovation

One of the hottest concepts in strategy and management today is the idea of "open innovation." Gone are the highly secluded R&D departments funded by a single company, carefully guarding secrets from the outside and even from other divisions. In its place, in theory, are hubs of collaboration capturing ideas from customers, academia, or some guys in a garage somewhere.

Given the simultaneous growth of the sustainability movement, it's no surprise that companies are starting to combine the concepts and try to create open green innovation.

The general idea of this new collaborative approach to innovation has been kicking around since the 2003 publication of Open Innovation by professor Henry Chesbrough at UC Berkeley (see a recent article he wrote with some key examples here). But it's been gaining real currency in recent years as (a) large companies such as Procter & Gamble and IBM have embraced the concept, (b) the platforms for accessing many brains through social media have evolved, and (c) companies have looked for low-cost innovation pathways during tight times.

The green shade of open innovation has appeared more recently. Earlier this year, Nike, Best Buy, Yahoo!, and a few others launched the GreenXChange, an organization dedicated to sharing patents and ideas that can help companies reduce their environmental impacts. The core non-corporate partner is Creative Commons, the godfather of modern idea sharing and an organization "dedicated to making it easier for people to share and build upon the work of others."

I met some of the key players in the GreenXChange consortium — and saw Professor Chesbrough speak — at the recent Sustainable Brands Conference. Nike managers described how this fascinating agreement to share patents works in practice. Earlier in the 2000s, Nike had developed a "green rubber" that lowered production costs and slashed toxic emissions by 96 percent. The company offered up this technology and the Canadian outdoor equipment company, Mountain Equipment Co-op, licensed it (for what I sense is a nominal fee) to apply to its products.

Members of the GreenXChange contribute patents for new methods of production that reduce energy, water, toxicity, and so on. Each company can learn from and build on what has come before. As the Nike managers put it, companies have latent ideas and technologies sitting on shelves, not being used. Why not let others in?

Is open innovation a great thing for sustainability? A couple of major points in its favor: First, it certainly represents heretical innovation of the innovation process itself, and I'm big proponent of asking heretical questions. Second, the energy, toxicity, waste, and water challenges the world faces are so great and pressing, we don't have time to wait for every organization to discover cleaner ways of operating on its own —- we need to share information and speed up adoption of new methods and technologies. We need cooperation across traditional boundaries and open innovation to solve the biggest problems, and that means companies sharing much more than they're used to.

But I'll admit to having one major reservation about this innovation strategy. One of the core arguments for going green is that it creates competitive advantage, a logic that makes sustainability palatable to many corporate leaders. A skeptical executive would be completely right to ask, "Won't sharing our ideas level the playing field and give away the keys to the candy store?" Imagine getting your patent attorney on board. Well, Nike execs brought theirs to the conference and he talked about his personal journey to seeing the value — to society and to Nike — in exchanging patents.

I asked the manager leading the GreenXChange project my core question about giving up competitive advantage. Her logic was interesting. When the company discovers something like green rubber, "people" (meaning, I think, their employees and other key stakeholders) expect the company to do the right thing and spread the word — and so Nike does just that.

But there are certain kinds of innovations the company wouldn't share. The ideal shoe, this manager imagines, would likely be made from one material (which would greatly reduce its material use and lifecycle footprint and make recycling very easy). If Nike could accomplish this feat, the new geometry and design would be all Nike's, and thus a source of real advantage.

In the end, I come down firmly on the side of supporting open green innovation, especially given the scale and nature of the challenges we face. But for each company, the supporting logic for open green innovation will need to be balanced by a good understanding of where and when to share ideas, and which ideas are unique to the company's core competencies — such as design and branding, in Nike's case. Those latter ideas will drive profit and advantage.

For now, it seems that Nike has this delicate balancing act down.

[This post first appeared at Harvard Business Review Online]

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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.

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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.)

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January 18, 2011

A Paradigm Shift in the Auto Industry

My monthly (or so) e-letter is out. If you don't receive it, here's a quick summary and link to the latest...

How the Auto Giants are Managing a Paradigm Shift
The auto industry is arguably going through the most significant change in its history. The race to a future filled with clean cars that use a variety of new technologies is on. At the big Detroit auto show this month, companies are falling over themselves announcing green initiatives and products.

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So how are the big guys approaching this new world? The competition seems to be centered in large part on the range of the vehicle; that is, how far can you go on the battery? Here’s a quick look at the spectrum of tactics being employed...

See the full story here...

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February 14, 2011

Ask Customers to Use Less of Your Product: The Big Heresy

I recently attended an Executive Sustainability Summit hosted by Xerox, Waste Management (WM), and Arizona State University. The short conference brought together public and private sector managers working on environmental and social issues. Xerox asked me to attend and give my thoughts on what I heard and saw*.

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What really struck me is that both Xerox and Waste Management are doing something mostly unheard of: they're working with customers to help them use less of their traditional product or service. The plenary panel during the Summit included execs from both companies proudly talking about these fast-growing, service-oriented parts of their businesses. And what's really important is that these are not just niche product lines, but fundamental shifts in what these companies do.

In some sense, this shift is not optional, as both companies are in the throes of fundamental transformations of their industries. Xerox has been navigating the shift to digital documents for years, and WM is facing an existential threat. As CEO Dave Steiner put it, "When your company is called Waste Management, and your customers all talk about 'zero waste,' you better change your business model."

So both corporate giants are handling the industry transitions by embracing sustainability to the core. Xerox's president, North America , Russell Peacock, speaking for the company at the event last week said, "Sustainability...is what is driving the transformation of Xerox to a services-led business."

Xerox advises companies on how to save money on document handling, and holds a sizable 48 percent market share in the broadly defined, and surprisingly large, $7.78 billion "managed print services" (MPS) industry (according to research firm IDC). Part of this new strategy is an outsourcing play — they'll take over all your print needs for you — to grab share. This is clearly not a niche business-this is a firm that existed on selling devices, paper, and machine servicing, so the more it's used the better.

But at the core, what Xerox is offering is less total printing. That's a big shift in business as usual.

Xerox has worked with multinationals such as Dow (case study here) to drastically reduce the number of printers sitting in individual offices by thousands, shifting instead to many fewer centrally-located multifunction devices. But at the Summit, Xerox execs gave an example from their corporate backyard. The company helped the city of Rochester, NY slash the number of printing devices from 459 to just 168, saving a very budget-constrained local government millions of dollars over the next five years.

These printing retrofits save clients up to 30 percent of their document-related costs. And the sustainability story is significant. In addition to using less energy to run machines, slashing paper use also saves large amounts of energy and water upstream in the paper production process.

For Waste Management's part, the story their execs told was similar but goes beyond cost savings and has a measurable financial upside. When WM helps customers reduce waste to landfills — which is how WM has made all its money until recently — it diverts those waste streams to recycling facilities which segregate materials to resell or to waste-to-energy (WTE) plants.

Recycling streams can generate income for customers. So instead of paying to dump garbage, customers may get paid for valuable material, which adds up (GM, for example, has made $2.5 billion on recycling over the last five years). Meanwhile, the other stream of waste will create a potentially significant source of clean energy (adding to the sustainability win). In its WTE plants, WM now produces enough energy to power 1 million homes, more than all the solar power in the United States. From waste hauler to energy company — that's a transition for sure.

These two companies are not the only ones out there going down the "use less" path. It's increasingly common in the B2B space. Another client of mine, Kimberly Clark Corporation, has similar conversations with its customers for its K-C Professional division, which supplies paper and cleaning products to public and private sector organizations. The customers appreciate supply partners that help them save money.

Let's be clear: Xerox, Waste Management, Kimberly Clark, and others are purposely cannibalizing their own businesses. The wisdom of such a strategy has been discussed in business circles for years, most notably in the work of Harvard's Clayton Christensen (The Innovator's Dilemma). My tweak to Christensen's famous term "disruptive innovation" is to describe sustainability-driven creativity as even more heretical; it's about questioning the entire consumption model — it's heretical innovation.

It can be painful for companies to threaten their own cash cows, but what's the other option? I interviewed Xerox's CEO Ursula Burns for my last book, Green Recovery, and asked her about this strategy. Talking about Xerox's service business strategy and its "solid ink" technology, both of which displace existing printers, she said, "Will these new products cannibalize our machines? Maybe, but someone else doing it is much worse."

So the choice is not between asking your customers to use less of your product and ignoring the trend...it's between you doing it or your competitor. That's the risk reduction logic. But a related logic relies on improved customer service and deeper customer relationships. As Waste Management's Steiner said last week, "We're cannibalizing our own business to give back more to our customers."

Xerox's VP of Environment Patty Calkins probably put it best during the Sustainability Summit: "Who would think that Xerox would help you reduce printing or that Waste Management would move toward zero waste?"

Who indeed.

(*Both Waste Management and Xerox have been clients of Winston Eco-Strategies, LLC. I attended this meeting at Xerox's request. This post first appeared at Harvard Business Online.)

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.

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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.)

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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.

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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.)

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July 6, 2011

A Swedish Burger Chain Says "Minimize Me"

Last week I wrote about how eating less meat was the best way to reduce your food's carbon footprint. But what do you do if you want to be a responsible corporate citizen and you sell fast food? Well, I think your company would look a lot like Max Burgers, based in Sweden.

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I recently spoke to Richard Bergfors, the CEO (and son of the founders) of this unusual 44-year-old "fast" food chain. With 3000 employees and about $200 million in revenue, Max Burgers is a great example of how a midsize company can carve out a profitable niche through a focus on sustainability — even in an unexpected sector.

In 2000, the company set a new strategy focused on the word "fresh." The leaders looked closely at every ingredient and reduced fat, salt, and sugar, and eliminated genetically modified organisms (GMOs) and trans fats. The menu got healthier, with multiple side options besides fries, 10 drinks with no added sugar, and a selection of darker, healthier breads. The company now sources 100% of its beef and chicken — and 90% of all its product — locally.

To explore its broader climate impact, the firm started working with Swedish thought leaders Natural Step, which, not surprisingly, identified beef as the biggest problem for the company (80 to 85 percent of the footprint). Bergfors acknowledges that industry-wide climate-friendly beef is still a long way off, so Max Burgers plants trees in Africa to offset its carbon footprint. New stores also use solar panels for 15 to 20 percent of electric needs.

But perhaps the most surprising thing this company does is try to influence its customers to buy less meat. Quick reminder: the chain is called Max Burgers. This counterintuitive strategy is the kind of heresy I love — asking customers to use less of your core product. Max Burgers accomplishes this by adding more non-meat items to the menu, prominently displaying climate footprint data in store (there's transparency for you), and suggesting customers buy chicken, fish, or veggie sandwiches periodically (a là Meatless Mondays).

In 2004, a golden marketing opportunity came along with the launch of the documentary Supersize Me, which followed director Morgan Spurlock as he ate only McDonald's food for 30 days. Max Burgers decided to launch a tongue-in-cheek "Minimize Me" campaign. A customer, much like Subway's famous Jared, ate only Max Burgers for 90 days and lost 77 pounds. Two years later, the company re-ran the promotion with multiple people competing on the Max-only diet.

The result of all these efforts is a more sustainable burger chain that's telling everyone to eat less meat, and doing so profitably. The mix of non-beef products is 30% higher than it used to be. But the profit margins are very high.

Bergfors reports that his stores are averaging 11 to 15 percent profit margins versus 2 to 5 percent at the big name competitors. He says Max Burgers is the most profitable, fastest growing chain in Sweden, expanding at 20% per year (and 5% same store sales growth) in a flat market. Granted, higher-end niche brands generally do have higher margins, but this is not an overly small company, and it doesn't seem to be sacrificing anything with its "minimize me" strategy — quite the contrary.

Of course a family run company always has more leeway to act on values (see Patagonia, the prime example). As Bergfors told me, "we've always done things a bit differently — the goal is greater than to just maximize profit." But it's still a business, and in the next breath he said, "we're profit driven and like to make a profit like everyone else...but we don't put profit first...we don't have to maximize profit and we can care for people and the planet we're living on."

But given Max Burgers' profit levels, it seems that maximizing all value, not just profits, can be darn good business.

(This post first appeared at Harvard Business Online.)

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July 14, 2011

The Smarter Mobility Challenge

fyi to my readers...

I recently contributed to an interesting website/online discussion, built by CNBC and Harvard Business Review (and sponsored by Shell). The topic is Sustainable Mobility and it's part of a larger series called "Energy Opportunities."

CNBC taped three people providing a perspective on mobility and posing some 'challenges' to us all. First up was Bill Ford discussing gridlock and challenges of moving people around in a crowded world.

Second is me, with a question that frequent readers of mine will recognize -- "How do we encourage heretical thinking?". My 2-minute video is totally animated, which is cool.

The third perspective comes from one of my heroes, Jaime Lerner, the former mayor of Curitiba, Brazil. He's one of the most creative thinkers on sustainable cities, and he built the first real bus rapid transit system in the world, and it's now a mass transit system in 120 cities. Lerner asks people to reimagine cities as places to mix peoples of all incomes and backgrounds.

Please swing by the site to check out the three short perspectives and comment if you like...

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July 26, 2011

Innovators, Meet Your Old Friend: Government Regulation

In the midst of the debt ceiling debacle, the House recently found the time to vote on (and fail to pass) a bill that would've repealed the so-called "light bulb law" that raised energy efficiency standards for lighting. The mandate was considered by authors of the repeal attempt — and apparently by 233 House representatives — as a "government intrusion."

Hear, hear! I'm tired of all these higher government standards. I want to retain the "freedom" to buy a refrigerator that uses as much energy as possible (and runs on coal you can shovel into the front), buy clothes and furniture as flammable as possible, purchase food without any safety standards and take my own darn risk of e.coli. Oh, and I want drive my car without that annoying life-saving seatbelt.

Kidding aside, this vote was absurd. If the bill hadn't been brought to the floor under some arcane two-thirds majority rule, it would've passed. The House has continued its attack by trying to defund enforcement of the bill. This is a really bad idea.

It may seem heretical in today's anti-government mindset, but I'll say it: many regulations and standards are very good for business. Here are a few reasons that the continued attack on the light bulb bill makes no sense, and in fact, why we should be passing a lot more laws like it:

1. Government standards, and particularly energy efficiency standards, are, well, standard.

Quick history: President Bush, who I think was a Republican, signed an energy bill in 2008 which raises efficiency standards for all new light bulbs starting in 2012. And the anti-freedom Congressman who put those standards into the bill: Rep. Fred Upton, also a Republican (he has now, as the Times put it, "reversed his position on the standards he authored").

In short, before recent hyper-political times, this country passed bipartisan safety and energy standards for decades on everything from boilers to cars and trucks to heating and cooling systems.

Critics claimed this particular law was the end of the incandescent bulb. But the bill does not pick technologies; it says how much energy the bulbs can use. It's the classic and most effective use of government mandates: set the standards and let the market decide how to meet them.

2. Efficiency standards drive innovation and save lots of money.

To be fair to critics, the standard did effectively rule out most incandescent bulbs at the time it passed. But then something totally expected happened: companies got creative. As the New York Times reported on July 5, "Incandescent Bulbs Return to the Cutting Edge." Apparently, some people didn't get the message that regular bulbs were dead. Instead, companies like Philips — while innovating around the new CFL and LED technologies — took the 100+ year-old bulb and made it 30% more efficient and last three times longer.

This pattern in common in industries affected by efficiency standards. Look no further than the dramatic innovation in refrigerators. Art Rosenfeld, the godfather of California's energy efficiency movement, likes to show the powerful chart shown here (from NRDC's David Goldstein). Due in large part to aggressive efficiency standards, the energy use and price of new refrigerators has plummeted — all while the size more than doubled. The innovation has saved consumers many billions of dollars.

(Note: Rosenfeld's work has been at the core of California's amazing record of holding per capita energy use flat for 40 years while the rest of us increased energy use 50%).

3. The companies most affected by these standards aren't complaining that much anymore. (Hint: higher product quality and efficiency makes companies more competitive)

One of the biggest battles over efficiency is often waged around automobile miles per gallon targets. The creativity of the auto industry over the last decade or two has been driven (sorry) by higher oil prices at times. But high standards on vehicle miles per gallon around the world have been even more effective (see page 18 of this UN report for chart comparing EU, Japan, China, and the trailing US on mpg standards).

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The U.S. is in this game also — the Obama administration is proposing a new rule that would force automakers to raise their fleet average to 56.2 mpg by 2025. The Washington Post reports that this rule could save us 4.7 billion barrels of oil and $705 billion over the next 20 years. Even with these benefits, we'd normally see the auto companies fight hard, and there's always haggling. But this time it's a bit different. GM has broken from the pack and indicated that it would figure out a way to meet the standard. As GM's North America President, Mark Reuss put it recently:

It's our job to [figure out] what it takes to do it. The auto industry does not get easier. It always gets tougher. That's the challenge and that's what our jobs are. If even-stricter guidelines require billions more in investment, so be it. It's not an either/or thing. It's how we get there with cars and trucks that consumers really want to buy at a [price] that doesn't put unreasonable cost on them.

GM, after lagging for many years on product efficiency — a strategy that basically killed the company in 2008 when oil prices spiked — seems to get it now. As Reuss indicates, high standards push companies toward what consumers will demand. And in a world of expensive energy and tight resource supplies, they'll want cars that sip fuel.

In short, those who complain that higher expectations on energy efficiency will "kill jobs" or be destructive to industry aren't giving our business leaders much credit. Companies can and will innovate. It's in their best interest for many reasons, including the fact that the rest of the world continues to raise the bar. Multinational companies need to keep up to stay competitive.

And it's in our vital national interest to continue getting more efficient as quickly as possible. While energy efficiency standards may not be a complete solution, they have represented a rare bright spot in the nearly defunct national energy and climate policy realm. So let's stop the silly votes, move forward, save everyone some money, and help drive innovation.

(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 13, 2011

Climate Reality

I believe in science and facing facts or, to borrow words from an important awareness-building event today, I believe in “climate reality.” I'm donating my Twitter feed and this blog space to point people to the Climate Reality Project , Vice President Gore's latest attempt to light a fire under everyone about our climate.

In my work, I try to convey the benefits of going green to executives around the world. I generally avoid talking about climate change, at least in the U.S. where it's such a political hot potato. So instead I demonstrate how profitable it is to reduce your footprint (including carbon), regardless of the science on climate change.

My basic logic is this: decoupling our companies and economy from fossil fuels, and oil in particular, is just good business. By reducing energy use and carbon pollution, companies save money, reduce the risk that comes from relying on volatilely-priced fuels, and reap the benefits of taking part in the clean economy, which will drive innovation and generate vast wealth. But it's also a matter of national security (which is why the U.S. Navy is greening itself faster than any company I know). So, no, it doesn't matter if you "believe" in climate change.

But every now and then, I have to state clearly what I believe. Saying "it doesn't matter" is true, but it's not leveling with everyone about the depth of the challenge.

So here's my belief: The scientific evidence that the earth is warming and humans are the primary cause is vast, overwhelming, and very convincing. We are destabilizing our one home, and it's endangering our economies, communities, and even our species. The fundamental change in how the planet works – which has begun already with record droughts, floods, heat waves, and storms – is larger than we realize..

I think a lot about what a "real" approach on climate would mean for business, which will play a pivotal role in finding and spreading solutions to our energy and climate challenges. While many companies have begun the hard work, they need to step up their game.

On the day-to-day level, that means setting much more aggressive carbon reduction goals (80 to 100% reduction by mid-century or sooner). A few leaders, such as Wal-Mart, P&G, and Sony have set 100% renewables (and/or "zero impact") as goals. The rest of the business world needs to follow, and truly lay out a path to get there.

On the larger level, companies need to pursue what I call "heretical" innovation that rethinks business models and provides goods and services with dramatically reduced environmental footprint (see my blogs on this, here and here).

I see a deep parallel in all of this with one of strategy guru Jim Collins' major principles in Good to Great: "Confront the brutal facts." Collins makes a compelling case that businesses won’t succeed if they don’t tell themselves the truth.

The same logic applies to each of us as individuals, and to all of us collectively as a country and planet. It's time to confront our brutal facts -- our climate reality -- and get moving.

(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.

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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.

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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.

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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

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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.

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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)

March 7, 2014

CVS Gave Up Tobacco -- Could Fossil Fuels Be the Next to Go?

The recent decision by drugstore giant CVS to stop selling tobaccoreceived a great deal of attention, as it should. It's a big deal when a US-based, public company chooses to stop selling something.

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Some have downplayed the move, calling the $2bn in lost sales "a mere dent" in the company's $123bn in revenues. But I challenge anyone to walk into their bosses' office at a big, publicly held company and say, "Hey, let's cut a couple billion from our revenue on purpose." The choice that CVS made, in a culture of relentless pressure on short-term earnings, was brave – full stop.

As others have pointed out, it was also a logical decision that was likely good for the business.

The free publicity alone was worth a great deal. And the goodwill from many customers should pay off. I realize my family makes an unscientific focus group, but when the decision was announced, my wife said: "We really should go to CVS more and give them some business." I went to a CVS that day.

More strategically, a couple of key questions come to mind. First, why did CVS do this? Perhaps they'll just save money. After all, Target stopped selling tobacco in 1996 to cut costs (from reduced shoplifting and anti-theft measures).

But I'm inclined to take CVS at face value. Here's what Larry Merlo, CVS' CEO, said about the company's core mission to provide health services: "Cigarettes and providing healthcare just don't go together."

That indicates this was a strategic decision about the future of the company. Still brave, but logical. It's a great example of what I call a big pivot – a fundamental shift in strategy and tactics to deal with some big shifts in how the world works. I usually focus more on climate changeand resource constraints as drivers of change, but health and wellness issues are extremely large forces to reorganize a company around as well.

The second big question is, what's next? What other items on CVS shelves don't fit the health care focus? Several columns in the Guardian – as well as The Boston Globe – call out the candy, soda and other fatty or sugary snacks still on offer.

It's worth considering, in a larger sense, the things many companies are doing today that don't fit with their missions. Does it make sense, for example, for companies that rely heavily on a robust middle class to fight a raise in minimum wages? A century ago, Henry Ford raised wages so more people could afford cars. And on Wednesday, apparel retailer Gap announced it would pay its employees more, raising its minimum hourly rate.

How about the use of fossil fuels in business? It may seem like a leap, but for many companies and organizations, using, supporting, and investing in climate-changing fuels goes against their missions. For CVS, we could ask, what's "healthy" about fuels that generate air pollution, which increases asthma and heart attacks, or that destabilize the climate and drive extreme weather that threatens public well being?

We can look at many stated visions for organizations and ask whether fossil fuels fit. Take Walmart's "Save money, live better" slogan. We're clearly not going to be living better with extreme weather, droughts and floods.

To Walmart's credit, the company is buying significant quantities of renewable energy (not as high a percentage of its energy use a few other retailers, such as Ikea, but still a quickly growing one). At the company's quarterly milestone meeting this week, it announced that 1,300 of its stores use renewables and Walmart de Mexico is now getting 60% of its energy from clean sources.

The company makes the case in mainly financial terms, saying it's paying less for energy, or by citing the resilience benefits. Those are great reasons, but a mission check might drive even faster adoption of new technologies.

Or consider the universities under pressure to divest from fossil fuels. Most recently, Harvard and Brown resisted calls to divest. They made seemingly well reasoned arguments: they have other means to effect change, their investment portfolios aren't so large as to influence the markets, and there may be hypocrisy in relying on fossil fuels to operate while de-investing.

A recent piece in The Nation makes a number of strong counter arguments, including the basic fact that climate change already disrupts university operations. For example, Tulane in New Orleans had to shut down for months after Hurricane Katrina.

But perhaps the most powerful argument is that climate change threatens a core mission of a university, preparing students for the world, by changing the world irrevocably. This means the universities may be training a generation for the wrong reality.

I recently wrote about three possible paths to getting us off of fossil fuels– government regulation, economics (as renewables get cheaper) and moral pressure. But there may be an important additional pathway that we can see at play in the tobacco example: changing cultural norms. Perhaps CVS has decided, about 50 years after the Mad Men era when everyone smoked, that it's just not cool anymore.

So who's going to be brave enough to say no to fossil fuels, without couching it in economic or business-case terms? Who will state clearly that this kind of energy no longer fits with what we want to be?

(This post first appeared on the Guardian Sustainable Business hub.)

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