Resilience Archives

July 15, 2014

The 5 Key Elements of a Resilience Strategy (and Why You Need One Now)

This past winter was a rough one for big swaths of the United States, with both unusual cold snaps and disruptive snowstorms. General Mills’ CEO recently blamed the winter for less-than-expected earnings, saying that “severe winter weather…disrupted plant operations and logistics…We lost 62 days of production…which hasn’t happened in decades. That would be the result of people not being able to get into work safely or not having inputs arrive.”

It wasn’t just one company, though; the whole economy was slowed by the extremes and volatility we faced.

Floods%2C%20resilience%2C%20iStock_000018186700Small.jpg

The disruption to operations and supply chains is real and costly, and all signs point to increasing threats as weather gets more volatile, driven in large part by climate change. The science is getting clearer that we’ll see more extreme hurricanes, droughts, floods, and even snowstorms – more moisture in the atmosphere means bigger downfalls of all kinds.

A couple important recent reports confirm that these issues are not some theoretical model to debate, but reality today. The Risky Business report from former Treasury Secretaries and Mayor Mike Bloomberg is incredibly blunt about the hundreds of billions of coastal property and business assets at risk. A few weeks earlier, the quadrennial U.S. National Climate Assessment, a 840-page tome, did not bury the lede and declared in the first sentence, “Climate change, once considered an issue for a distant future, has moved firmly into the present.”

Of course, all weather isn’t necessarily tied directly to climate change – like with the recent tornadoes that swept through the American Midwest – but no matter what you believe the cause, extreme weather will play an increasing role in our lives and economies. Nobody can predict exactly what might go wrong, but we can say with near 100% confidence that something will.

So let’s consider what a company can do in a world that’s volatile, uncertain, complex, and ambiguous – that’s “VUCA” for short, a military term that’s been adopted by business. Here’s a review of the five core components of resilient systems, which I pulled together for my new book,The Big Pivot, based in part on two other important works: Nassim Taleb’s Antifragile: Things That Gain from Disorder and Resilience: Why Things Bounce Back, by Andrew Zolli and Ann Marie Healy.

1. Diversity. A company is clearly more at risk if it has just one major product, service, technology, key supplier, or other core element. In the 2011 Thailand floods, both hard drive makers and auto giants realized that having a sole key component made in one place made for a fragile system (Toyota took a $1.5 billion hit to earnings). While companies don’t often share the details of their supply chain strategy publicly, you can bet these companies have built more diverse options for sourcing key inputs.

2. Redundancy and buffers. Taleb uses the natural world as a model for this principle: “Layers of redundancy are the central risk management property of natural systems,” he writes, pointing out how many of our biological systems have doubles (like lungs) or backups. Our business systems need leeway for extremes as well. A few days ago, for example, the Obama Administration announced a plan to stockpile a million barrels of gasoline in the northeast specifically to avoid the shortages that plagued New England after Hurricane Sandy.

This is all smart strategy, but the challenge for business specifically is that companies don’t like keeping two of anything – that’s not lean or (seemingly) efficient. It’s a fine line for sure, but having multiple pathways to get key inputs, for example, might have saved General Mills – and the hard drive and car companies – lots of money. It might have actually generated increased revenue as well, if it meant operating while competitors couldn’t. As Taleb says, “redundancy seems like a waste if nothing unusual happens. Except that something unusual happens – usually.”

3. A love/hate relationship with risk. It’s a paradoxical idea, but one way to build resilience, or antifragility, is to keep the vast majority of the business as safe as possible, but then take big risks – ones that may pay off 10-fold or more – with a smaller part of the business.

Think of the famous idea from Clayton Christensen of trying to disrupt or cannibalize your own business before someone else does. Imagine setting up a skunk works to identify major risks to the business stemming from resource constraints or climate change – and then lean into those risks and come up with products and services that avoid them and challenge the core business (for example, a car company investing in car sharing programs which consumers use to save money, but also reduce material and energy use dramatically).

4. Fast feedback and failure. If you’re going to take some risks to, ironically, make us less risky, you need to drop what isn’t working quickly. To be more responsive, companies need better data on resource use and climate risks up and down the value chain. So invest in capturing information and building real-time systems.

5. Modular and distributed design. If some part of a system fails, it would be great if it didn’t bring down the rest of it. A tree branch hit a power line in Ohio in August 2003, causing cascading failures across a highly connected U.S. grid, and 50 million people in the northeast lost power (including me, my wife, and our 11 day-old child in Connecticut – we were not in a resilient mood).

These principles alone may not make for resilience in a hotter, scarcer, more open world, but they go a long way. And they point toward one key pathway for managing – and even thriving – in a VUCA world: renewables.

Companies (and homes) that generate their own onsite energy will be able to literally weather storms better than competitors. Not all the technologies we need to do this well are in place – like building-scale energy storage at a reasonable cost – but we’re getting there. And during the day, companies with their own solar panels can operate after the storm has passed, even if the grid is down.

Nobody can prepare for every possible outcome. Randomness, of course, is a prime element of our new business reality. But we can build systems that are better prepared than they are now. And, sure, it’s a challenge to value resilience: How much is your business damaged by a breakdown in your supply chain, or a threat to your ability to operate? How much will it cost all of us if we let the drivers of deep volatility, like climate change, go unchecked?

It’s not easy to say, but let’s avoid finding out.

[A version of this piece appeared first at Harvard Business Online. See also my HBR magazine cover story from April, "Resilience in a Hotter World."]

(Andrew's new book, The Big Pivot, is out! Get your copy here. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

July 30, 2015

Taking Action on Climate is the Ultimate No-Brainer Business Strategy

[Just some summer catch up on re-posting things I've written in other places. I posted this on The Guardian's site a few months ago. It's one of those "going green is a win-win" stories that I wish were not necessary anymore. For the knowledgeable sustainability folks, this is a 'duh'...and I could've written this in almost the same way years ago -- except for the part of the story about the precipitous drop in the cost of renewable energy. So I expected more pushback from readers on 'we've heard this before', but I got almost entirely positive feedback on how I'm making the case (again). The larger point is that we do need to tell this story over and over -- the misperception remains that if it's green, it must cost more. Let's put a stake through that.]

Solar%2C%20rooftop%20%28Flick%2C%20h080%29%2C%206539456103_583816d5b9_z.jpg
(Photo: Flickr by h080)


Recently, as I finished speaking to a group of fund managers, I was asked two questions that have become increasingly common. The first was: “What if scientists are wrong and the climate thing doesn’t turn out to be so bad?” The second was: “Will companies regret doing something about it?”

On the bright side, these questions are a big improvement over the one I kept getting asked a year or two ago – namely, whether climate change was happening at all. While climate change is more than reason enough for a deep reconsideration of how we do business, I suppose it’s not an unfair question to ask if going green has other benefits. The short answer is yes.

To get a feel for how tackling climate change can benefit a business, it helps to look at the four major categories of corporate action that fall under the banner of “doing something” about carbon:

  • Eco-efficiency in all its forms: slashing energy and material use in production, packaging, distribution and business operations, as well as redesigning products and encouraging customers to reduce their energy draw
  • Using renewable energy: either investing in energy-generating assets or signing long-term power purchasing agreements for renewable electricity
  • Ensuring the supply chain is working on eco-efficiency and renewable energy
  • Lobbying for a tax on carbon or encouraging other policies that would help drive all of the above

No regrets

It’s hard to see which of these actions might be regrettable. The first category, eco-efficiency, saves money and makes companies less dependent on resources that can disappear or get more expensive. Most companies looking at these investments tie themselves to an arbitrary two-year hurdle rate, but even if a company went further down the payback list, what would the regret be? Lowered operating costs after payback?

The second point, renewables, has often been a harder sell. Renewable energy has been the poster child for the most expensive – and, presumably, anti-profit-maximizing – way to go green. But this view is incredibly outdated: solar and wind prices have dropped 60-80% over the last five years, and “grid parity” – the point at which unsubsidized renewables are as inexpensive as fossil fuels – is quickly approaching in most countries.

Because of these trends, more companies are now able to sign power purchasing agreements to buy renewables for the same price or less than they’ve been paying for non-renewables. Financing options also mean they don’t have to start off with any capital investment, which further eases the transition.

Of course, it’s possible that these companies will regret locking in a price if energy costs plummet. But that contingency seems unlikely: recent oil price drops aside, basic commodity prices have been trending upward since the beginning of the century. In fact, even at recent lows, oil costs twice what it did in 2000.

More importantly, energy prices are incredibly volatile, so locking in prices brings stability, risk reduction and increased resilience. All of these benefits are real, even if we don’t put numbers on them.

But what about those companies that buy their own power-generating equipment – like solar panels – and face a longer payback than the normal hurdle rates? Even in this case, there isn’t much to regret: getting a significant portion of energy at zero variable cost holds zero risk.

The same logic broadly applies to pressing the supply chain to reduce carbon. Driving suppliers to lower operating costs and increase reliability and resilience is good for their businesses.

As for the final point, putting a price on carbon accelerates the benefits of all of the other actions. The only regret might be if we go too fast for the economy to adjust to rising prices for dirty fuels. Then again, I wouldn’t bet on global policy action moving too fast any time soon.

The big picture

Moving beyond the corporate level to the macro perspective, these benefits multiply. Cutting carbon means cutting overall pollution, not to mention the serious and expensive health consequences of burning fossil fuels. Perhaps most importantly, it makes us more energy independent. After all, nobody can raise the price of sunlight and wind – or cut off the supply.

This isn’t to say that there won’t be any losers in a clean economy. The entrenched technologies and the workers in those sectors – like coal miners – will be hurt. But we can, as a business community and society, work to ease that transition rather than deny the overall benefits that will come from doing so.

Looking at the situation as a whole, asking about the regrets that we might face if we slash carbon emissions is a bit like asking what would happen if smoking wasn’t as bad for our lungs as doctors say. Would we regret avoiding all the other problems like increased risk of heart disease and stroke? Would we regret eliminating the $10 per pack expense from our lives?

The question about whether we’ll regret moving to a clean economy is usually put in terms meant to sound careful and risk averse. The truth, however, is that not going clean is riskier. After all, a key part of risk management lies in considering the “tails” of the curve of probable outcomes. In other words, if you’re asking what happens if science is overstating the problem, then you have to ask what happens if they’ve understated the problem. And, given the consistent trend of headlines like this, this side of spectrum seems far more likely.

How much will a company – and all of us – regret not taking action if the outcomes are much worse? Given the day-to-day benefits of moving to a clean economy, corporate action on climate is the ultimate no-brainer.

(This post first appeared on The Guardian online.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

December 18, 2015

On Climate Change, Skepticism is Getting Old...Optimism is Warranted

Paris%2C%20Flickr%20%28Ramon%20Duran%29%2C%20125225539_b304f72dfb_z.jpg

Is the Paris Climate Agreement good enough? Can the world build a low-carbon economy fast enough?

These are critical questions for the future of humanity, so it’s important to consider them carefully. But too many people in the press and in the business world are unnecessarily dour about the whole thing.

Consider two important voices that spoke up at the start of the Paris COP 21 climate conference. First, David Brooks, the quasi-self-appointed “reasonable” voice of moderate U.S. conservatism, penned a skeptical op-ed about the prospects for global change. Although he gave his arguments a veneer of tech optimism, he mainly focused on how hard will be to reduce carbon emissions. Brooks lamented, “the pain in reducing carbon emissions is individual but the good is only achieved collectively. You’re asking people to impose costs on themselves today for some future benefit they will never see.”

Second, listen to Alan Murray. He’s the editor of Fortune magazine, a publication that has covered the greening of business fairly extensively and positively for a decade, going back to an important cover story, “Green Machine,” which was accompanied by the cover line “Wal-mart Saves the Planet.” But Murray personally is clearly wary of a large-scale move to a clean economy, tweeting, “Sadly, U.S. is split between those who deny climate change and those who embrace wildly unrealistic solutions.”

Alan%20Murrary%20tweet.jpg

He goes on to say the quest for a low-carbon world could “destroy the economy.”

These views on the cost and feasibility of building a low-carbon world are not uncommon in the business world. But they are dated, damaging and dead wrong. We need a broad coalition of business, government and citizens to tackle a problem as large and complex as climate change. Telling people it’s not possible is worse than unhelpful. Luckily, most of the world is now ignoring the naysayers.

A Serious Response to a Serious Problem

Before addressing their biggest concerns, let’s stipulate something. Fossil fuels brought billions of people out of poverty. Society has invested for 150 years in infrastructure to power modern life. So of course it’s daunting to contemplate moving the world away from what we know. And many fossil fuel companies and petro-dictatorships are fighting the transition with their immense influence and power.

Nobody said it would be easy.

But throwing up our hands and saying “this is all too hard” is not much of a response to a serious problem. And, more important, the reasons for optimism are now bountiful.

Let’s look at Brooks’ commentary more closely. He says there are costs, which is a deceptive (or perhaps uneducated) way of referring to smart investments: All business or government expenses are choices about where to put capital. But the weirdest and most dated part of his statement is saying we’ll “never see” the benefits of a clean economy. Quite literally, China will see clearer air by reducing coal use and traffic in Beijing and other megacities. And for business, there’s an enormous range of initiatives that slash costs quickly — such as lighting and building retrofits, efficiency, and now even renewables. Companies like Walmart, Google and Apple are cutting carbon, buying tremendous quantities of renewable energy and saving money doing it. So when is this “never” that Brooks speaks of?

The idea that it’s just too expensive to go low carbon is one of thebig myths that are crumbling right now. If anything, the best economic analyses show that not moving away from fossil fuels will be devastating to humanity and our economies — a possible US$72 trillion expense over the next 40 years, according to a report from Citi. The bill for inaction is already starting to come due. Look at the costs of droughts like the one in California, or the immense human and economic toll of the “once-in-a-century” rains and floods in Chennai, India. Ford, BMW and many other multinationals have factories there. Lost production is expensive.

Citi’s study also suggests that we can take the trillions of dollars we will be spending on infrastructure and fuel in the coming years and point it toward renewables instead of old, dirty technologies. The total bill will be the same or less, just without the carbon and climate risk. So, far from destroying the economy, the low-carbon world will save it.

It’s true that it is a big job to turn over the world’s energy systems. But the need to cut carbon fast is not driven by love of polar bears. It’s about keeping the planet livable and productive for humans and our businesses and economies.

The continuing good news is that the new technologies are getting much cheaper all the time. Solar and wind costs have plummeted around 70 to 80 percent in the past five years, and a number of analyses tell us that, as the International Energy Agency and Bloomberg noted, “fossil fuels [are] losing cost advantage over solar, wind.” The world seems to have noticed this economic shift: More than half the new energy built today is renewable.

Murray has his concern about wildly unrealistic expectations, but I have a practical point. It’s true that it is a big job to turn over the world’s energy systems. But the need to cut carbon fast is not driven by love of polar bears. It’s about keeping the planet livable and productive for humans and our businesses and economies. We’ll do what’s required because we have to, based on physicsand economics.

It’s a strangely defeatist attitude to declare visionary thinking as unrealistic. Imagine rewinding the clock 25 years, when some were likely predicting a cellphone in every hand or magical portable computers that would give everyone access to the world’s knowledge. I’m sure many said it was impossible, but most in business probably eagerly embraced the massive multi-trillion-dollar build-out of the mobile industry in the 1990s and 2000s. So why not get excited about the trillions moving us toward a more resilient, distributed-energy, renewable-based world?

Predictions From Optimists

I prefer to get my predictions from optimists — people like Tesla’s Elon Musk who are painting a world of electric cars and renewable energy and moving forward to build it. And now we have the biggest source of optimism to date: In what is perhaps a first in human history, representatives from nearly 200 nations agreed in Paris to cut emissions over the next 10 to 15 years.

Yes, the deal has huge flaws. It has limited repercussions for countries not meeting targets, the tracking and transparency could be stricter, and even if we meet the current targets, we come up far short of slowing warming to 2 °C.

Companies are coming off the sidelines now for real, committing to serious reductions in carbon and massive investments in renewables.

But these are all problems we can deal with if everyone is on board. And, most importantly, the deal tells business and the markets that governments are serious. Investing in building the low-carbon economy just got even more rational. Why, then, is the carping from the sidelines usually couched as the more reasonable, sober position versus pie-in-the-sky or naïve activists wanting a renewable-powered world?

It’s easy to be depressed about the situation we’re in. Corralling close to 200 countries to act in collective best interest is obviously hard. And the science is not helping, because the climate problem is moving fast (I’m sick of seeing headlines like “The Arctic is melting faster than scientists thought”).

But the reasons for hope are now plentiful: from rapidly improving economics, to serious action in the business community, to global citizen and political will-building. Those denying we have a problem are being sidelined within nearly all governments (except the U.S. Congress) and increasingly, I find, within executive suites and boardrooms. Companies are coming off the sidelines now for real, committing to serious reductions in carbon and massive investments in renewables.

Globally, we’ve finally achieved a consensus that there is a serious problem. We’re nearing consensus that it’s in our economic and moral interest to do something about it. So it’s time for everyone to join the parade, criticize only when it’s productive and suggest real solutions that help us build a thriving world.

(This post first appeared at Ensia online.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

November 9, 2016

Trump Can't Stop the Clean Economy

If there’s any force greater than whatever propelled Donald Trump into the Presidency, it’s economics. Nobody, not even a President Trump, can stop all movement toward the clean economy. The reason is simple: it’s now cheaper to cut carbon and use renewable energy than to keep the status quo.

Don’t get me wrong. Today is a very hard day for many Americans. I know I am fearful about our democracy and threats to human rights of all kinds. I also believe some critical structural problems in our system badly need to change (like the electoral college, profit and clicks-driven news media, and money in politics). 

But part of my coping mechanism is to focus on one key area of my work and life — tackling the world’s biggest challenge, climate change, by building a clean economy. And even though I believe electing a climate denier in 2016 is lunacy, I have hope.

Yes, if Trump follows through on what he said he would do on energy and climate — lots of support for fossil fuels on the former, nothing or worse on the latter — it could have a devastating impact on global political progress on climate change. The U.S. may pull out of the Paris accords, leaving the rest of the world holding the bag.

But even if that happens, it won’t stop the clean economy for two big reasons. First, other countries, including China, are not going to stop their own investments in clean energy and technologies. And, second, neither will the business community. Why? The short answer is it’s more beneficial to bottom lines, health, and economic growth to keep going on the clean economy. It’s flat out more profitable.

To understand why I’m confident about this economic reality, bear with me as I get a bit wonky. I’ve spent a lot of time diving into detailed analyses of energy economics. Clean energy skeptics will tell you that renewables are more expensive than fossil fuels. That’s not true. Let me repeat — it’s really not true anymore.

The bankers at Lazard have been building models of what it costs to build and operate different forms of energy. Their numbers-dense report shows very clearly how fast the cost of wind and solar has dropped (60 to 80% in the last 6 years). Now, compare those unsubsidized costs — yes, that means without any government incentives — to the retail price of energy around the country. The newest renewable energy projects cost less than the average industrial and commercial energy prices in at least 45 states.

Because of this economic reality, a large majority of the new energy being put on the grid is now renewable and big companies are buying gigawatts of clean energy directly to reduce their emissions, build stability and resilience into their energy supply, and save money.

In other words, renewable energy has already won.

On the geopolitical side, other countries will keep going. We’ve moved way past the “no, you go first” phase of global climate negotiations. They’re not waiting for the U.S. anymore, and thank god. Consider China. The country isn’t investing hundreds of billions of dollars in clean technology because of global accords like the Paris agreement. It’s the other way around — they came to the table to agree to global carbon cuts because they want to invest in the clean economy. Part of the reason is staring us all in the face: people can’t breathe in the cities (this is true in India as well). They need a transition to cleaner tech for their own very tangible well-being, and to hold onto power — people could easily rebel if their kids are choking. But more importantly, again, it’s cheaper.

For those of us who believe climate change is an existential threat, this is a tough morning. But we will move forward with or without national-level leadership from the U.S. Only a few forces are strong enough to fight ignorance (like climate denial), isolationism, and fear. Those may include a measure of righteous anger, mixed with hope, forgiveness, and love. 

But they definitely include economics. So follow the money and fight on.

(This post first appeared at Huffington Post online.)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)