Voice of the Planet

It has been 30 years since I completed my Ph.D. degree.  Over that time, I've served on the faculties at three different "top 20" business schools--Michigan (Ross), University of North Carolina (Kenan-Flagler) and Cornell (Johnson) and started Centers focused on sustainable enterprise and inclusive business at all three.   I've watched the "American" business school model--with its emphasis on scholarly publishing and functional core courses in the MBA program--spread across the world.  And as I start on my fourth decade of professional life, I have come to a conclusion:  The dominant model of business education and entrepreneurial development is broken.

Tragically, we have put the proverbial cart before the horse:  When the primary criterion for faculty promotion and advancement is publication in a select few scholarly journals, it should come as no great surprise that most of this research effort is directed at questions for which data are readily available,  providing little insight into what my colleague C.K. Prahalad called  "next practice."   With such intense pressure to publish, department-based faculty seek to minimize their "new preps" in teaching, making predictable loads in MBA core courses--finance, accounting, operations, marketing, strategy, organizational behavior-- highly sought after.

The result:  Rigidly defined and carefully guarded functional "turf" and a resistance to change that would shame most self-respecting government bureaucrats!  For most business school students, the MBA program experience has become synonymous with the first year core courses--a rite-of-passage not unlike military indoctrination.  By the time MBA students complete the core, they are so preoccupied with job search to repay the massive debt they have accumulated, that there is little time for elective courses which might broaden their bandwidth or allow for critical self-reflection. 

The time has come to put the horse back in front of the cart.  We desperately need new models of business education and entrepreneurial development appropriate to the challenges we face in the 21st century, which include epidemic inequality, ecosystem degradation, and a looming climate crisis.  We need transformative change and revolutionary new business models, not just adjustment around the edges.  We need a focus on the skills required to imagine, co-create, launch and scale game-changing new ventures that simultaneously lift the poor and leapfrog to new environmentally sustainable ways of living.

It is for this reason that I have become closely involved in the founding of the new Emergent Institute (originally the Indian Institute for Sustainable Enterprise), based in Bangalore, India.  The fundamental premise driving this new endeavor is that the world is on an unsustainable path and that management education, as currently conceived, is unprepared to address this. India, for many reasons, represents the opportunity and challenge we face in the coming decades.  Our hope is that a brand-new, independent, globally-oriented institution with deep ties in India can create a model for the disruptive changes necessary for a more sustainable world. 

For the past two decades, "sustainability" strategies have focused on eco-efficiency, stakeholder engagement, and social responsibility in existing core businesses. Now companies are being challenged to move "beyond greening" to develop breakthrough innovations that confront directly the two biggest problems facing humanity: growing inequity and accelerating environmental degradation.

The challenge--and the opportunity--is to harness technological and business model innovation to create new growth platforms that actually regenerate the environment and lift the base of the income pyramid--while growing and earning a profit.

One approach is to use the sustainable value framework highlighted in Beyond Greening: Strategies for a Sustainable World. While the article won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability, I fear that the message is still not getting through in the board room!

Here's why the sustainable value framework is still critical: it directly links the societal challenges of global sustainability to the creation of shareholder value by the firm.

The framework shows how the global challenges associated with sustainability - viewed through the appropriate business lens - can help identify strategies and practices that contribute to a more sustainable world while simultaneously driving shareholder value. This "win-win" approach is defined as the creation of "sustainable value" by the firm.

There are four core dimensions of sustainability strategy with different linkages to firm performance and value creation:

    Pollution Prevention:  minimizing waste and emissions from current facilities and operations;
    Product Stewardship:  engaging stakeholders and managing the full life cycle of today's products;
    Clean Technology:  developing and deploying "next-generation" clean technologies; and
    Base of the Pyramid:  co-creating new businesses to serve the unmet needs of the poor and underserved. 

Taken together as a portfolio, these strategies and practices hold the potential to:

• reduce cost and risk (pollution prevention);
• enhance reputation and legitimacy (product stewardship);
• accelerate innovation and repositioning (clean technology); and
• crystallize growth path and trajectory (base of the pyramid)
  

-- all of which are crucial to the creation of shareholder value. The challenge for the firm is to decide which actions and initiatives to pursue, and how best to manage them.

Companies can begin by taking stock of each component through what I call their sustainable value portfolio.  This simple diagnostic tool can help any company or business determine whether its strategy has the potential to truly create sustainable value.

Programs in pollution prevention and product stewardship are well institutionalized within most corporations today, and have saved hundreds of millions of dollars over the past decade.  US-based companies have been especially focused on the efficiency gains and cost savings associated with pollution prevention.  Highly publicized crises -- like those of Monsanto and Nike that failed to successfully engage the views of stakeholders -- have also caused growing numbers of firms to explore strategies for product stewardship.

European companies have been particularly active in engaging in stakeholder dialogue, extending producer responsibility for products, and adopting more inclusive forms of corporate governance.

Research and consulting experience, however, suggests that few firms seem to recognize -- let alone exploit -- the full range of sustainable business opportunities available.  Most companies focus their time and attention primarily on the bottom half of the matrix (short-term solutions tied to existing products and stakeholder groups).  Focusing on incremental improvements to existing products and businesses is an important step, but it neglects the vast opportunities associated with clean technology, and the largely underserved markets at the base of the economic pyramid.

Indeed, addressing the full range of sustainability challenges can help to create shareholder value, and may represent one of the most under-appreciated avenues for profitable growth in the future.

What is your company doing? Is there a plan? Ask yourself "why?" and "why not?"

In his 1949 classic book, A Sand County Almanac, Aldo Leopold coined a phrase that would reverberate through history: Thinking like a mountain. He was the first to observe that the extermination of wolves, while solving problems for ranchers, led to explosions in deer populations--and trouble for the ecosystem as a whole. Focusing only on individual species in isolation, he observed, led to bad outcomes when it came to the natural environment. Better to "think like a mountain" by envisioning the holistic nature of natural systems and all their intricate interconnections.

Little did he know at the time that his observations about the natural world would one day provide a key insight in the development of sustainable ventures and economies at the base of the world income pyramid in the 21st century.

Like Leopold's single-minded wolf hunters, too many base of the pyramid (BoP) ventures and initiatives have been "rifle shots"--business strategies premised on the design and sale of low cost products to targeted low income end users. The landscape is littered with the remains of failed BoP ventures focused on the sale of such things as low cost water filters, solar lights, clean cookstoves, and myriad other household goods. Reasons for failure: product misfire, low sales penetration, high selling costs, and inability to scale.

As Tarun Khanna at Harvard Business School observed many years ago in his article Why Focused Strategies May be Wrong for Emerging Markets, such an approach can work well in developed markets where infrastructure and institutions are well-established. But in the developing world, such a "rifle shot" approach is a death sentence. That is why most successful corporations from the developing world are highly diversified "business houses"--they can supply the infrastructure and institutions (e.g. power, transport, distribution, education, health care) that are missing in the society itself. In short, they think (and act) like a mountain.

It is now becoming increasingly clear that the same logic applies to individual BoP ventures and initiatives--success demands that BoP enterprises create wide and compelling value propositions. For BoP innovators, thinking like a mountain means creating an entire business ecosystem that delivers value to local people and communities in multiple ways, not just through a single product.

Consider CleanStar Mozambique (CSM), a BoP venture that I have had a hand in helping to form. The company is a partnership between the Danish biotech powerhouse Novozymes, BoP venture pioneer CleanStar, biofuel plant builder ICM, and financier Bank of America. Sounds pretty complicated, right? Just wait until you hear about the business model!

CSM is creating a business ecosystem that:

1. Brings clean cooking solutions which eliminate indoor air pollution in urban households which are;

2. Fueled by affordable biofuel which is;

3. Produced in rural Mozambique by subsistence farmers who:

4. Convert to a multicrop system of sustainable agriculture which;

5. Dramitically raises farmers' incomes and food security while;

6. Producing excess Casava which is used as the feedstock in the;

7. Biorefinery which has been constructed near the small city of Beira which;

8. Has the potential to dramatically reduce the production of charcoal in cookstoves which;

9. Accounts for a significant share of the deforestation and greenhouse gas emissions in the region.

Conventional wisdom would suggest that CSM is too complicated and has too many moving parts to be successful. But this is conventional wisdom from the established markets at the top of the pyramid. Such logic does not apply when it comes to the BoP. The truth is that natural systems are complex but resilient at the same time: Stress in one part of the system can be compensated for in other parts. The whole is greater than the sum of the parts. CSM has already proven their ecosystem concept in Mozambique and is now preparing to scale the model up across Africa, and eventually the world.

What is the lesson for aspiring BoP entrepreneurs?

Create a wide value proposition with multiple, complementary sources of benefit and revenue generation embedded throughout the entire business ecosystem.

Escape the tyranny of the single product "rifle shot" in favor of an umbrella business concept that simultaneously reduces environmental burden, generates livelihoods, and produces profits for the investors. Think like a mountain.

The world is stuck in a prolonged downturn--growing inequity and a spiral toward environmental meltdown--and we can't seem to find a way to turn the corner.  Not surprisingly, there is much talk these days about job creators--in US politics as well as geopolitics. 

Two camps seem to dominate this debate.  The first camp advocates cutting taxes for the rich, under the assumption that their investment and spending will "trickle down" to everyone else.  The second camp wants to focus attention on the little guy--the small and medium enterprise (SME) sector, under the assumption that assistance for "mom and pop" enterprises will enable them to grow and flourish from the "bottom up." 

The reality, in my view, is that neither the "trickle down" nor the "bottom up" perspectives will get us out of the hole that we are in.

Some years ago (1978 to be exact) Filley and Aldag published a wonderful piece in the Academy of Management Journal entitled "Characteristics and measurement of an organizational typology."  In this article they empirically classified organizations into one of three types:  Administrative, Craft, and Promotional.

Administrative organizations are established enterprises that are run by professional managers using formal systems of reward and incentives.  At best, they generate slow, linear growth since they typically compete in established industries where unsustainable practices and bureaucracy reign supreme among incumbents.  And they produce few jobs, since their focus is on increasing labor productivity rather than employment.  Indeed, the corporate sector (the largest of the administrative organizations) makes up fewer than one percent of the world's enterprises and has actually shed jobs over the past decade, at least in the developed world.

Craft organizations comprise the vast majority of the world's enterprises which are created by their owners for the purposes of convenience or survival.  Most "mom and pops" fit into this category and their defining characteristics are informality and a desire for stability.  It should come as little surprise that the small shops and microenterprises of the world produce little in the way of job or employment growth since they are seldom started or run by real entrepreneurs.  Indeed, those at the low end of the income scale are typically entrepreneurs by necessity rather than choice:  Given the option, most would prefer a good job for a decent wage. Expecting the world's craft enterprises to somehow rescue us from our current malaise is therefore a false hope a best and a shibboleth at worst.

That leaves us with Promotional organizations, which constitute only a small fraction of the world's SMEs.  Promotional enterprises are started by entrepreneurs whose intention is to get big.  They are driven by a passion for achievement and will stop at nothing to realize this dream.  Most fail.  But the few (less than 10%) that succeed are the real job creators and growth engines for the future.

The good news is that promotional enterprises can come from anywhere in the world and need not be focused exclusively on the development and commercialization of new technology.  In fact, entrepreneurs focused on solving social and environmental problems through enterprise are some of the most passionate and driven people on the planet.  Our challenge (and the leverage point for the future) is therefore to devise ways to multiply the number and success rate of this new breed of promotional enterprise.  

As a co-founder of the new Indian Institute for Sustainable Enterprise, I aim to do just that--dramatically increase the number and success of entrepreneurs and intrapreneurs focused on socially inclusive and environmentally sustainable business development for the 21st century. 

To realize this vision, IISE has assembled a complete innovation ecosystem to foster the creation of tomorrow's distributed and sustainable infrastructure, including an education platform, incubator, investment fund, technology bank, cluster (social) network, learning laboratory, and field support system.

The flagship offering is the Post-Graduate Certificate Program in Sustainable Enterprise which aims to create nothing less than a new model of business and entrepreneurial development appropriate to the challenges we face in the 21st century.

I've just returned after a full week at the Rio + 20 UN Conference on Sustainable Development. 

As everyone knows by now, the "main event"--the official negotiations among government leaders--was a disappointment.  The general consensus among participants was that the official agreement, spelled out in agonizing detail in a document entitled "The Future We Want," would not produce the future we want.  It is, at best, an exercise in rearranging the deck chairs on the Titanic.

As the week wore on, it became clear to me that the so-called "side events" (organized by companies, NGOs, and consortia) had really become the main event.  At the Rio + 20 Corporate Sustainability Forum, organized by the Global Compact, for example, there was an air of excitement, commitment, and resolve among the business leaders present.  Statoil, the Norwegian oil giant, advocated the elimination of fossil fuel subsidies (totaling in excess of $600 billion each year), and setting a price on carbon.  Bank of America made a $50 billion commitment over the next decade to renewable energy and a low carbon future.  Siemens announced a corporate goal of $40 billion in sustainable technology by 2014 and stated emphatically that it's a race to save the planet--and their own future.



At the Business Action for Sustainable Development (BASD) "Business Day" organized by the World Business Council for Sustainable Development, session after session focused on the importance of leapfrogging to clean technology solutions and accelerating private sector initiatives aimed at eradicating poverty.  Indeed, the theme for the meeting was "Scale Up." Paul Polman, the CEO of Unilever, delivered an impassioned keynote address stating that "never before in history have we been so forewarned, and forearmed at the same time."

In short, the contrast between the upbeat, well-organized side events, and the resigned, chaotic nature of the official negotiations could not have been more stark. 



One day, while trapped in a 2- hour long traffic jam amid heavily armed but confused legions of Brazilian soldiers, it hit me: the official negotiations have really become little more than symbolic cover for the side events, where the real commitments are being negotiated.  

Without the burden of "main event" status, the side events were able to focus on getting things done.  No protesters, traffic snarls, media circuses, or distractions. While thousands gathered in Flamengo Park to raise their voices for the legitimate concerns of the 99%, the side events proceeded at hotels in Barra without interruption--and focused on how to address the root cause of their concerns.  And while hundreds of women protesters would not allow Iranian President Mahmoud Ahmadinejad to leave his hotel in downtown Rio, side event organizers were busily making things happen and getting things done. 

On the way back, I noticed Richard Branson was on the same plane as me. I left Rio feeling hopeful--that I had participated in something important; that there is a growing recognition that incremental greening will not deliver global sustainability; and that the leverage point for achieving this transformational change is the enterprise sector.

Twenty years ago, in 1992, the first Rio Earth Summit took place in Brazil.  While it was convened amid great fanfare and high expectation, the only really lasting legacy was the creation of the World Business Council of Sustainable Development (WBCSD) and the christening of "eco-efficiency"--doing more with less--as a key private-sector based strategy for sustainable development.  The governmental negotiations produced a massive volume--"Agenda 21" but little concrete action.

Next week, the Rio + 20 Summit will convene, again in Brazil.  The past twenty years has produced some good news and some bad news.  First the good news: Eco-efficiency has become standard practice in large corporations everywhere and is now spreading to the world's small and medium sized enterprises as well. This is a major accomplishment and has significantly reduced the impact per unit of output in economic activity. 

Now for the bad news: we have not yet begun to actually slow or reverse the level of human impact on the planet.  Indeed, over the past twenty years, we have tripled the size of the global economy, added nearly two billion people to the world's population, and further intensified our ecological footprint on the planet.  Growth swamped eco-efficiency.  Today, the science is clear: we have overshot the carrying capacity of the planet and serious repercussions are now inevitable.

In 1997, I wrote an article that appeared in the Harvard Business Review entitled Beyond Greening: Strategies for a Sustainable World. The piece won the McKinsey Award in 1997 as the best article in HBR.   The article stressed that corporate eco-efficiency (greening) strategies aimed at incrementally reducing negative social and environmental impacts, while important, would not be nearly adequate to the challenge of global sustainability in the decades ahead.  Even then, it was clear that "beyond greening" strategies--leapfrog clean technologies, and business models that included and lifted the four plus billion poor in the developing world--would be essential if we were to fundamentally change the course of the global economy, and set it on a course to sustainability.

In the 1990s, people spoke in terms of the need for fundamental change over the next decade or two.  Indeed, the title of the WBCSD's inaugural book was "Changing Course."  Unfortunately, all we got was continuous improvement through eco-efficiency. 

As I prepare to leave for Rio next week, my hope is that this Summit can plant a new stake in the ground--the Beyond Greening Stake.  I will do everything I can to drive this agenda.

We are running out of time.

The time has come to end the ideology wars. 

For too long, discussion about environmental and social challenges has been divided into two camps:  The Neo-Malthusians (here and here) and the Cornucopians (here and here).

The former forsee gloom and doom--an imminent global train wreck driven by climate change, resource depletion, ecosystem destruction, and a combination of growing population and inequality.  The latter forsee an unprecedented boom driven by the creativity and innovation of an increasingly sophisticated and interconnected global economy with millions of new, well-educated people from the emerging markets of the world.

The Neo-Malthusians are the ultimate pessimists ("limits to growth"); the Cornucopians are unabashed optimists ("growth of limits"). The Neo-Malthusians project current trends into the future and see disaster.  The Cornucopians assume that technology will always produce the necessary substitutes and solutions when we need them (because scarcity means higher prices and higher prices signal opportunity for innovators).

It turns out both are probably right:  We face unprecedented environmental and social challenges.   Markets get distorted by perverse subsidies and incumbent resistance so that the price signals that should drive innovation are delayed or deferred.  Humans have difficulty perceiving gradual, slow-developing changes and tend to wait for crises before acting (the "boiled frog" syndrome).  So there probably will be major disruptions and unpleasant surprises in the years ahead.

That said, humans are also infinitely adaptable, resilient, and able to mobilize rapidly when a real crisis is finally perceived.  The level of creativity and inventiveness is astonishing, and we are adding millions of creative people to the stock of potential problem solvers every year.  The internet enables connectivity and exchange on a scale that we could not have previously imagined.  The engine of entrepreneurial capitalism is powerful and should not be underestimated.  So, there is every reason to believe that amazing things will happen that totally change the landscape for the better in the coming decade or two.

Just like the Democrats and Republicans in the United States need to set aside their petty ideological differences for the good of the country (and the world), it is also time for reconciliation and synthesis between the Neo-Malthusians and the Cornucopians.  

Such reconciliation means that we need to learn how to become "skeptical optimists"--optimists because of the potential for new, sustainable technologies to grow exponentially in the coming years (see, for example, Singularity University); skeptical because of the scale and scope of the challenges we face. Skeptical optimism gives us the perspective we need to solve the world's social and environmental problems through a new form of sustainable entrepreneurship and enterprise.  And the time is now.

We accept it almost without question—prognostications about the future which begin with the phrae: “if present trends continue…”  Extrapolating present trends into the future has become a stock technique for both those on the political left (e.g. “if present trends continue, the gap between rich and poor will continue to widen”) and on the right (e.g. if present trends continue, GDP will double again within the decade”).

Consider the following trend:  China consumed more energy in the past ten years than it did in its entire history, spanning thousands of years.  The vast majority of this energy was in the form of fossil fuels.  If this trend in energy consumption continues, then by 2020, China would consume virtually all of the oil currently produced for export in the world today.  And, by 2030, China’s oil consumption would exceed today’s total global production of petroleum.  What is the likelihood that this trend continues? 

Even if we set aside the obvious implications of this trend for climate change and assume that the world embarks on the all-out development of unconventional oil reserves (in the form of shale oil and tight oil), to compensate for the now declining world production of conventional oil, it is not clear that production could be ramped up at a sufficient pace to meet this exponentially rising demand.

It is important to note that similar projections of current trends into the future are commonplace in virtually every domain, including the production of food, consumption of water, and emission of greenhouse gases into the atmosphere.  The reality, however, is this:  it is highly unlikely that any of the current trends in the world can or will continue into the future for very long.

Nor should we expect them to.  History is filled with game-changing discoveries and events that fundamentally alter the trajectory of society and civilization.  Consider for a moment how future projections for energy and food production appeared in the 1890s, just prior to the explosive growth of the oil industry, automobile industry, and the rise of mechanized agriculture.  No one could have anticipated how radically the world would change in a relatively short period of time.

So expect a very bumpy and exciting ride over the next decade or two.  Nothing will stay the same.  We are approaching a time of unprecedented turbulence, change…and opportunity. 

Schumpetarian creative destruction will reign supreme.  Many incumbents will fall, and entirely new industries will be born.  An age of entrepreneurship on a scale that we cannot yet imagine is about to be unleased.

There is only one trend that we can really count on:  Present trends will not continue.

The 1930s are best known as the time of the Great Depression, brought on by the Wall Street crash of 1929.  Most point to speculation, excessive debt, and an ensuing stock market bubble as the "cause" of the depression.  The Great Depression was accompanied by the Dust Bowl--a time when much of America's agricultural "Heartland" dried up and blew away, leading to massive unemployment, homelessness, and social upheaval (remember the John Steinbeck classic, The Grapes of Wrath?).

Few remember, however, that the so-called "Roaring 20's" were the time when the agricultural economy in the US actually began its steep descent.  In fact, the period immediately following World War I, represented the first large-scale application of mechanized farming practices in the World.  This was uncharted territory:  Never before had farmers used tractors and fossil fuels to cultivate increasingly large tracts of land to grow commodity crops for a burgeoning urban population.  Not surprisingly, there were unintended consequences.   In the free-for-all that ensued, farmers plowed and over-cultivated their way to oblivion, causing widespread soil erosion, loss of fertility, and ultimately, the Dust Bowl.

Some would say that the collapse of the farm economy was what made the Great Depression the decade long debacle that it became.  Only with the advent of the Soil Conservation Service and a whole set of other institutions aimed at regulating and improving industrial agricultural practice, did the situation turn around after the Second World War.

Fast  forward to the 2000s.  In 2008, the financial crisis, and the Great Recession struck.  Most point to speculation, excessive debt, and an ensuing housing bubble as the "cause" of the recession.  Few remember, however, that the 1990s were the time when academic finance and the financial services industry really took off.  Driven by deregulation and the rapid develop of distributed computational power, exotic financial products such as CDOs and derivatives became possible for the first time.

Just like mechanized farming in the 1920s, these new tools got out of hand.  In the free-for-all that ensued, financiers securitized and arbitraged their way to oblivion, causing widespread misery and wealth destruction. 

The question is:  where is the financial equivalent of the Soil Conservation Service? 

When will we create the global institutions required to regulate and improve the functioning of this new force of nature?  Until this happens, expect the New Dust Bowl to continue.