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(originally published by Booz & Company)


How Green Is My Value Chain?

Mining companies could rethink their role in the value chain by “mining” the scrap flows in urban areas — such as cars, trucks, and other steel-rich equipment — and cutting out the recycling middlemen. This notion has already placed steel mini-mills in such scrap-rich locations as the suburbs of Sydney, Australia, where steel maker OneSteel has established a new plant devoted to just this kind of reclamation. Mining companies might also begin to sell reusable metals like “cyclic copper,” which they would lease to product manufacturers that would include it as an environmental feature in their products. When the product is not useful anymore, the manufacturers would take it back, retrieve and extract the cyclic copper, and return it to the mining company for recycling, putting it back in the value loop.

Another approach involves developing a service model for products that have traditionally been purchased and then thrown away. For example, rather than selling its products outright, Atlanta-based carpet manufacturer Interface Inc. leases them to consumers, agreeing to replace worn carpet when necessary and to remove and recycle carpets at the end of their useful life, rather than tossing them into a landfill.

Further out on the cutting edge is an Athens, Georgia–based energy company called Eprida, which has developed a complex process for recycling biomass such as wood chips and agricultural waste. Converting the biomass into charcoal releases hydrogen, which can be sold to make ethanol and biodiesel. Another by-product is ammonia, which can be recombined with the charcoal and waste from power plants to make nitrogen fertilizers whose high carbon content fixes them more completely to the soil, thus reducing runoff. In business terms, the process creates a closed loop for carbon, instead of releasing it into the atmosphere as carbon dioxide.

The energy required to maintain value loops must not be ignored, however, and to get the most out of this new closed value chain we need to both develop ways to use less energy and perfect more easily renewable sources of energy — hydrogen cells, for instance. And even if value loops can be made energy- and resource-neutral, the question of growth in demand, from both increased population and rising affluence, arises. Answering it means either finding new sources of materials to feed the growing demand or using fewer materials to make finished products. Dubbed “dematerialization,” this has already been taking place for some time: Compare the relatively miniscule set of materials required to make a personal computer today with the components found in an IBM 360 mainframe. Ultimately, for the concept of the value loop to succeed on a global scale, the rate of dematerialization throughout the system must exceed the rate of growth in demand.

Creating interlocking value loops throughout the global economy would be no mean task. It’s not impossible, but it would require significant technological advances, an acceptance of the severity of the environmental problems we face, and the will — on the part of both businesses and consumers — to make the shift from value chains to value loops. And, most of all, a strong business case will have to be made to show that there’s potential profit and long-term success in protecting natural resources. Without the economic incentive, nothing will change.

Author Profiles:

Hardin Tibbs ([email protected]) is a United Kingdom–based management consultant specializing in long-range thinking, strategy development, and scenario planning.
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  1. Amy Bernstein, “Janine Benyus: The Thought Leader Interview,” s+b, Autumn 2006: The biomimicry pioneer is teaching executives that the solutions to their most challenging problems lie in nature. Click here.
  2. Suzanne Charlé, “When Addressing Climate Change Is Good Business,” s+b Leading Idea, 2/20/07: Building the case for gaining first-mover competitive advantage through being green. Click here.
  3. Molly Finn, Gary M. Rahl, and William Rowe Jr., “Unrecognized Assets,” s+b, Autumn 2006: Hidden sources of value can be found in environmental liabilities. Click here.
  4. William McDonough and Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things (North Point Press, 2002): How to promote eco-effectiveness in design and product innovation. Click here.
  5. Peter Parry, Joseph Martha, and Georgina Grenon, “The Energy-Efficient Supply Chain,” s+b, Summer 2007: As concerns mount about fuel prices, long-term energy availability, and climate change, companies’ attention is finally turning toward one of the most pervasive places where energy can be conserved: the industrial supply chain. Click here.
  6. Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (Free Press, 1985): Where the phrase “value chain” began, in what some describe as the most influential strategy book of the last quarter of the 20th century. Click here.
  7. R. James Woolsey, “Gentlemen, Start Your Plug-Ins,” Wall Street Journal, January 1, 2007: This op-ed by a vice president of Booz Allen Hamilton and former director of the CIA argues for the use of plug-in cars as a replacement for fossil fuels. Click here.
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