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


The Next Industrial Imperative

Just as there is money to be saved, so is there money to be made. As Fast Company reported in November 2007, General Mills sells its oat hulls, a Cheerios by-product, as heating fuel, earning more than it used to spend to dispose of them. Customers include U.S. Steel and the University of Iowa. And according to the National Homeowners Association, the market for green (energy-efficient and low-waste) buildings hit $7.4 billion in 2005 and is projected to reach $38 billion by 2010. Enterprise Rent-A-Car uses energy savings as a differentiator; 334,000 of its vehicles, about half its fleet, get more than 28 miles per gallon. (This is nearly 10 times the number of fuel-efficient cars and trucks offered by Enterprise’s closest competitors.) Major retailers, including Costco and Wal-Mart, now favor suppliers that can demonstrate prowess in sustainability.

Perhaps most important, the companies that figure out how to escape the bubble early — how to contribute to an infrastructure or create a product line that embodies ecological principles and cuts greenhouse gases dramatically — will end up shaping the future of their industries. Toyota, Honda, Sony Europe, GE, Shell, and many other companies are reorienting themselves this way. GE initially committed to doubling its R&D investment to $1.5 billion for its suite of Ecomagination technologies, which include wind power turbines, energy-efficient appliances, desalination systems, and low-emission aircraft engines and locomotives. The company has since increased those investments substantially. It is well ahead of its growth plan to double revenues to $20 billion from $10 billion for that growing product category over five years, and by the first quarter of 2008, total orders since inception had surpassed $70 billion. A related investment division, GE Energy Financial Services, announced in early 2008 that it had raised its 2010 renewable energy investing target by 50 percent to $6 billion, and had just topped $3 billion in actual investments. It’s notable that many of the division’s investments in wind and solar power, landfill gas, electricity grid efficiency, and lithium-ion batteries go to a wide range of small and midsized companies, not just its own projects. GE’s investments are improving the overall growth prospects for the renewable energy and clean-tech sector.

All of these examples show that learning to live beyond the bubble can be exciting, profitable, and strategically powerful. However, it is not easy. In many industries, no clear guidelines for change exist. It is up to managers to figure out how to balance the long-range imperatives of technological and operational change with the day-to-day imperatives of short-term business. No one can take on a challenge like this alone, which means that an effort starts with talking to other people — and often ends there. What seems obvious to one person is far from obvious to another, and one group’s urgent necessities present questionable premises for others. Given the immense uncertainties and risks involved, the only thing surprising about such communication breakdowns is that we still view them as surprising. Sustainability innovators must learn to foster engaging conversations that build mutual understanding and the ability to work together.

Executives at GE, for instance, started by asking questions about how to expand their various businesses in the long term, a move that was closely tied to the company’s traditional emphasis on growth and innovation. After asking current and potential customers about their vision and needs for clean energy and clean water 15 years into the future, they saw that meeting these needs represented significant opportunities for GE. But they found they had limited credibility in selling high-efficiency electric motors, lighting systems, and equipment to customers unless they could answer with a resounding “yes” the question many customers asked: “Are you using these products in your own facil­ities?” That, in turn, led GE to a wave of rethinking its own processes and practices, new investments, and major remodeling.

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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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