Produce locally what’s physical, export what’s virtual

John Robb on building resilient communities in a still fairly mainstream way:

[Jane Jacobs showed that a city produces wealth] by finding ways to locally produce the things it is currently importing. Within a global environment where physical distance is becoming increasingly expensive (fuel and overhead) and virtual distance is becoming increasingly free (bandwidth and scale factor), the imports to replace will increasingly be food, energy, and manufactured products.  Produce these locally.  The most valuable exports will be virtual.

…These communities should be specifically designed to attract two types:

  • the globally competitive telecommuter that will draw in wealth from global sources and
  • the food, energy, and micro-manufacturing entrepreneurs/workers that will build the innovative economic ecosystem required for local production.

Fascinating take on how “glocalization” should work. Wondering and how would this apply within a sector – such as food, where one of the biggest questions now is what the right combination of local and global systems should be – and for those communities where the vast majority are in food production and wealth comes from exporting food?

[via David Hodgson of IFF]

Collaboration, production, transparency, networks…

Shoshana Zuboff in BusinessWeek:

I spent a quarter-century as a professor at the Harvard Business School, including 15 years teaching in the MBA program. I have come to believe that much of what my colleagues and I taught has caused real suffering, suppressed wealth creation, destabilized the world economy, and accelerated the demise of the 20th century capitalism in which the U.S. played the leading role.

…a return to real prosperity and long-term growth [will] require a rebirth of business based on new rules for a new era. The old rules that most B-schools have preached were invented a century ago for supplying mass consumers with affordable goods and services. They are poorly suited to the values of today’s new consumers, who want help to live their lives as they choose, with personal control, voice, and a practical sense of connection.

She proposes three rules:

1. Race to I-Space. Operate from the perspective of the individual consumer – not the product, and certainly not the company. [She notes that business school students are trained in the “administrative point of view.” The manager’s job was to oversee and control what was inside organization space, or what they were trained to view as “my company” – a world of boundaries and adversarial relationships.

2. Advocate, Don’t Alienate. Speak not of your products and selling them to your customers, but ask your customers what they need and how you can help.

3. Collaborate and Federate to Compete. Collaborating and “federating” means learning to manage what you don’t control or own, in other words, building economies of trust. You cannot serve individuals on their own because these needs don’t conform to existing boundaries. “The emphasis shifts from contracts and legal sanctions to trust and transparency as companies work together, aligned with their customers’ interests—sharing core values, business practices, infrastructure, and systems.”

Paul Krugman in Friday’s NYT re Goldman’s record quarterly profits :

Goldman is very good at what it does. Unfortunately, what it does is bad for America. … Let’s start by talking about how Goldman makes money. … The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff.

Tracing both ends of the supply chain, from forest to landfill.

Helveta … is tracking a million trees in southeast Asia, Africa, and South America … gives every tree in a plantation above a certain size its own barcode. When a tree is chopped down, workers use a handheld computer to scan processing and export data into Helveta’s database. Helveta’s system can’t stop determined criminals from selling illegal timber on the black market, but it does make it more difficult for them to sell or export the wood, as any timber processed without tags is considered illegal.

MIT’s Trash Track program … will use electronic tags to track waste in its trip through the disposal systems of New York and Seattle. The initial goal isn’t to track every piece of waste that passes through–it’s to raise awareness of urban disposal costs and the impact of trash on the planet.

As the economy becomes more highly networked, it must also become more transparent in order to remain resilient, says an article on networks of trust on NESTA’s website:

…connections between financial, health, government, education and other institutions have always existed but there has been little transparency about these relationships. She cites the recent financial meltdown as a clear consequence of the highly networked but non-transparent economy.

… the challenge of creating a new transparent networked economy [is] “a gargantuan problem”… the answer won’t be found by looking to the past. “Organisations are connected and interconnected in ways for which there is no precedent in human history. The solution has to come from people on the ground. It certainly won’t come from academics – the disciplines haven’t even been created for the problems we’re now facing.”

One Planet Value Chain

Everyone at SustainAbility has a particular lens through which they see the world that is our work: mine is value chains. I have other colleagues who see everything in terms of brand, or change management, or markets, or converted particles of energy…

Last spring, when we were writing ‘Unchaining Value‘, I became obsessed with an idea I dubbed ‘One Planet Value Chain’ – appropriately named after WWF’s One Planet branded advocacy program (including a report on One Planet Business co-authored with SustainAbility), one of three inspirations for OPVC – the other two being Yasmin Crowther’s framing of the major sustainability challenge for supply chains as one of managing resource ‘pinch-points’ between competing supply chains (e.g. the food-energy struggle for crops and land, the shared need for water and human resources by every industry), and UNEP’s Cornis Lugt’s deep interest in product service systems.

Here’s the idea: that there is just one set of resources and one set of societal needs (food, energy, transport, shelter, etc. but also things like freedom), linked by global human economic activity (i.e. the creation and allocation of value).

So what we are trying to do is redesign our global economic activity so that value is replicably created and equitably allocated. Seeing business through such a lens could lead to:

  • at the supply end, to new ways of sharing the global resource commons through collaboration and healthy competition
  • in the middle, to scrapping existing industries altogether (goodbye big auto or pharma?) or to collaboration between existing sectors (healthcare & food meeting wellness needs, electricity distributors and auto meeting energy needs through smart grids) or to new ways of organizing businesses (alternatives to the shareholder corporation, different supplier-company-distributor configurations…)
  • at the demand end, to new ways of defining needs (e.g. via human-centered design thinking) and aggregating needs (e.g. via product service systems and use communities).

We are saying that the world is experiencing “spectacular market failure.” Well, why does a market fail? Because a whole bunch of companies are unable, for whatever reason, to make the business case for sustainability. That is because this business case needs to be a systemic business case, not the old-school individual company business case. The “systemic business case” says that the creation of societal value is a necessary condition for the continued creation of business value.

Had an invigorating brainstorm with my colleague Alex Nick on the limits of the business case for sustainability. Here’s what we saw as some of the dimensions of the systemic business case vs the old-school business case:

  • the creator and beneficiary of value (OLD: the company; NEW: the company, the suppliers, the consumers, the industry, society, the environment….)
  • the time horizon (OLD: short-term; NEW: long-term)
  • the quantifiability of value (OLD: tangible, stuff-related; NEW: intangible, need-related)
  • the source of value (OLD: transactions; NEW: relationships and interactions)
  • the goal (OLD: efficiency; NEW: resilience)

The systemic business case for sustainability

The notion of “the business case” for sustainability has been bothering me for some time, and it wasn’t till right before Christmas that I was able to put my own finger on why: Traditional attempts at identifying the business case for sustainability are doomed to fail, because they focus by and large on short-term, (relatively) tangible value created for the company. But sustainability initiatives intrinsically create value beyond the walls of the company, for the long-term, and thus outside the measuring capabilities of traditional financial accounting.

The limits of the 'business case' for sustainability

The limits of the "business case" for sustainability

What’s needed is a broader notion of business case. So, not the usual sort of business case like the opportunities to make money from environmental efficiencies / manage risks / capture new market demand, but the systemic, big-picture business case, which is that business is a part of society and the environment and therefore the sustainability of business depends critically on the sustainability of both. (For example, SustainAbility’s working vision for the food sector is that it deliver safe, nutritious, accessible and affordable food in such a way that the two resources on which the food sector depends – the environment and the farmers – can sustain themselves.)

It may seem obvious, but I do feel that with so much of the wider sustainability advocacy discourse still placing business in opposition to society and to the environment, it is critical to:

  • spell out the argument that environmental and social sustainability are a necessary condition for the long-term sustainability of business, and
  • be really clear about why the old ways of doing business no longer work for businesses.

Luckily, if there ever were a time when business was ready to hear that, that time could be now. Alan Greenspan: I was wrong.

There is certainly opposition and tension, but not between business and society/environment so much as between different mindsets:

  • the short-term at the expense of the longer-term,
  • the pure self-interest at the expense of relationships,
  • the narrow competitiveness and secrecy at the expense of ultimately more value-creating collaboration and transparency, the “more for just me” versus “enough for everyone”,
  • the stubborn fetishization of deregulation versus an approach that understands that individual decision-makers (and hence the market) cannot always know best – an approach that understands that human rationality has its limits.

Thinking of it in this way, it becomes clear that these are all tensions that are not unique to business activities, although that is where they are most powerfully expressed. Rather they are very human and appear in all areas of human activity and are rooted in the way we think and relate to the world and this is why they’re so hard to address… this is why we have had to have some form of the Golden Rule embedded in all religions going as far back as we’ve existed.

And our task becomes sharply and simply a task of shifting mindsets, both at a strategic level through all the various arguments and persuasions we have at our disposal, and at an implementation level through helping businesses to develop new vocabularies and tools to operationalize this way of thinking.

Of course there was a reason why the old way of thinking has thrived, and part of our work needs to be to understand this at a deeper level – it worked well in our old world where (a) natural resources appeared unlimited and (b) people and regions and individual businesses weren’t so connected as they are now.

When natural resources are abundant it’s easier to dismiss the tragedy of the commons because there are always new commons to exploit. But we’re now bumping up against the limit. (I can’t help but think of the last scene in The Truman Show where Truman is in a boat trying to escape and hits the tarp sky enclosing the aquarium that his seaside hometown is set in.)

Similarly, in a world of interconnections so deeply woven that we can’t know the full extent of global interdependency, it becomes clear that offloading risk to another party (as seems to have been the single aim of financial innovation over the last decade) doesn’t make the risk go away, it just hides it… as recent events have made rampantly clear. This interconnectedness has also made it clear that the prevailing “portfolio approach” to managing transactions – an approach that assumes that markets and events are independent – is ultimately flawed.

In an independent world you can reduce investment risk simply by diversifying your portfolio because if one stock goes down another will go up, and you can squeeze your suppliers because there will always be another one waiting for your business. But this is a world where a slowdown in the US retail sector causes Chinese toy factories to lay off workers, and where the collapse of the Icelandic banking system puts the supply of ready meals in the UK at risk, and where foreign gov’ts hold 25% of Fannie and Freddie’s agency debt….

The right words for the business case

Spurred to post by my friend Steph who may be, along with another webby friend Yai, the only person to look at this dormant site in some time. We are thinking of setting up a co-blog.

So somewhere in the last six months I’ve become obsessed with supply chains and value chains – obsessed as in spending too much time thinking about them while on public transport kind of obsessed. Just been at American Electric Power’s offices in Columbus, Ohio, for a roundtable my colleague JP coordinated on managing sustainability in supply chains.

Lately I’ve been thinking how much modern supply chain management thinking and design thinking have in common with sustainability thinking – SCM because of its focus on total cost of ownership and collaboration, and design because of the emphasis it places on understanding needs and innovating to meet them. One of the reasons making the usual cashflow sort of business case for sustainability investments is a challenge is because valuation tools have trouble with what’s hard to quantify or to predict, especially in the longer term.* Framing sustainability in the languages of SCM or design might be a compelling way to make another kind of business case that doesn’t rely so much on numbers or linear predictability.

Came across a fabulous example of the language of business and the business case in a Goldman Sachs investor research piece thoughtfully passed on by a friend of a friend. The research, on “Long-term opportunities in a changing world,” turns that pesky tendency to favor the short-term on its head – by pointing out that it’s precisely because financial markets are better at understanding (and arbitraging out) short-term investment opportunities that investors thinking long-term have a better shot at higher returns. Or as they analyst-ishly say:

Reflecting a disproportionate focus on nearer term profitability, the equity market is typically relatively indiscriminate in differentiating between companies’ abilities to sustain above-average returns over the long term. … This relative lack of discrimination between long-term winners and losers is consistent with a greater focus of many analysts and investors on nearer term performance and creates an opportunity for investors able to identify those companies that can sustain above-average returns over the long term.

You go, Goldman. So that’s what these folks are up to.

*Another challenge: incentive structures. BusinessGreen discusses why managers aren’t necessarily interested in initiatives that result in cost savings – they’re trying to protect their future budgets. I think this is yet another example of why spend isn’t a good metric when you’re trying to get to results, but need to think about this a bit