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strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Next Industrial Imperative

Facing up to climate change requires a revolution in business thinking.

Illustration by Paul Wearing

Of all industrial countries, Sweden is probably the farthest along in weaning itself from fossil fuels. Today, the country depends on oil for only 30 percent of its energy, down from 77 percent in 1970. (The United States, by contrast, depends on fossil fuels for 85 percent of its energy.) Fifteen percent of all cars sold in Sweden in 2007 can run on ethanol, up from 2 percent in 2000. A car running on ethanol made from sugarcane or cellulose is estimated to emit 85 to 90 percent less greenhouse gases than a gasoline-powered car. All the major Swedish motor vehicle manufacturers, including Scania, the largest truck manufacturer in Europe, now offer flexible-fuel cars or trucks, which run on either ethanol, conventional gasoline, or a blend. In 2005, a government-sponsored commission announced its intention to make Sweden the “world’s first oil-free economy,” starting with an existing “BioFuel Region” (as it is called): an area encompassing 22 municipalities and located on the Gulf of Bothnia, roughly 200 miles (about 320 km) north of Stockholm. In this region, lower-emission ethanol is as readily available and economical as ordinary gasoline.

One might assume that changes of this magnitude require a massive government effort involving tens of thousands of people, substantial government subsidies, and years of extensively funded research. But until recently, no such support, government-sponsored or otherwise, existed. Instead, countless local networks developed quietly, catalyzed by the efforts of small groups of committed and courageous leaders from the public and private sectors.

The Sweden story is a valuable model of what historians call “basic innovation”: fundamental changes in technology and organization that create new industries, transform existing ones, and, over time, reshape societies. Basic innovations — including electrification, the automobile, commercial air travel, digital computing, and, most recently, the Internet — involve not just a single new technology but a collection of new inventions, practices, distribution networks, businesses and business models, and shifts in personal and organizational thinking that combine to transform the way business is conducted, technology is deployed, and people are engaged.

Over the past few years, as the implications of global climate change have become clearer, a new wave of basic innovation has begun. Much of it is occurring in household-name companies. DuPont, one of the oldest and largest companies in the United States, is shifting the materials in much of its product line from petroleum-based to bio-based feedstocks; its leaders see opportunity in the creation of new products (such as soy-based polymers and thermoplastics made from corn sugar) that could reduce dependency on conventional oil and gas. Coca-Cola formed a partnership with the World Wildlife Fund in 2007, with the goal, according to Coca-Cola Chairman Neville Isdell, of replacing “every drop of water we use in our beverages and their production,” that is, not re­moving more water from a watershed than the company can replenish. Nike has reduced its carbon footprint by more than 75 percent since 1988. “To do this,” noted Darcy Winslow, when she was general manager of the Nike women’s fitness division (she has since moved on to the Nike Foundation), “we are having to completely rethink how we design, produce, and distribute our products and how we recover them at the end of their lifetime.”

It may be tempting to see all of these efforts as isolated cases, but in truth they are all related. They are responses to the same shift of context, in which the prospect of global climate change, in particular, and of growing waste and toxicity and diminishing key resources, in general, has catalyzed a new way of thinking. In this shift, the entire industrial age can now be seen as a kind of extended bubble, showing some of the same dynamics as a financial bubble and being equally unsustainable in the long run. The stories of the Swedish BioFuel Region, and of DuPont, Coca-Cola, Nike, and many other companies, provide clues to what will happen in the new era when the bubble and the ways of thinking embedded in it no longer hold sway.

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  1. Mark Borden, Jeff Chu, Charles Fishman, Michael A. Prospero, and Danielle Sacks, “50 Ways to Green Your Business,” Fast Company, November 2007: Discusses the use of oat hulls as fuel.
  2. Lars Christensen, Formation for Collective Action: The Development of BioFuel Region,” Visanu (Swedish National Programme for Development of Innovation Systems and Clusters), October 2005: Case study of Sweden’s BioFuel Region.
  3. Jared Diamond, Collapse: How Societies Choose to Fail or Succeed (Viking, 2004): The sweeping history of human impact on the environment, and its evolution into today’s bubble — and potential crisis.
  4. Viren Doshi, Gary Schulman, and Daniel Gabaldon, “Lights! Water! Motion!s+b, Spring 2007: Complementary challenge in urban infrastructure.
  5. General Electric, Delivering on Ecomagination” 2006, Statement of aspiration, profit, and impact of this high-profile endeavor.
  6. Intergovernmental Panel on Climate Change, Climate Change 2007 — The Physical Science Basis (Cambridge University Press, 2007): Definitive, comprehensive source on the atmospheric science of climate change.
  7. Kate Raworth et al., “Adapting to Climate Change: What’s Needed in Poor Countries, and Who Should Pay,” Oxfam Briefing Paper No. 104, May 29, 2007: Covers the $50 billion per year current costs, the greater potential costs, and the responsibility of rich countries.
  8. Peter Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (1990; 2nd ed., Doubleday, 2006): Conceptual and practical guide to “learning disciplines” that transform collective capabilities, including the capability of moving beyond the bubble.
  9. Peter Senge, Bryan Smith, Nina Kruschwitz, Joe Laur, and Sara Schley, The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World (Doubleday, 2008): Describes the shift in thinking and action needed to meet the 80-20 challenge.
  10. Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge University Press, 2007): Impact and benefits of early action.
  11. Linda Booth Sweeney and John Sterman, “Understanding Public Complacency about Climate Change: Adults’ Mental Models of Climate Change Violate Conservation of Matter,” Climatic Change, vol. 80, no. 3–4, February 2007: Explains the stocks and flows of climate change.
  12. Edward O. Wilson, “The Ecological Footprint,” 2000 Kistler Prize Acceptance Speech, Carnegie Foundation, 2001: “In the real real world governed by both the market and natural economies, all of life together is locked in a Cadmean struggle. Left unabated, the struggle will be lost, first by the biosphere, and then by us.”
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