Recently in Product Stewardship Category

In their book, Blue Ocean Strategy, Chan Kim and Renee Mauborgne, emphasize the strategic move (or initiative) as the key to innovation strategy, with the majority of corporate growth (and later, profits) coming from new strategic initiatives rather than from the continuing development and improvement of existing businesses.

Consistent with this view (and a previous piece, "The Folly of Corporate Sustainability Ratings"),  I believe that refocusing attention on new, Transformational Strategic Initiatives holds the key to driving (and evaluating) corporate sustainability:  Rather than chasing the fantasy of rating entire corporations as to their "sustainability" let us instead shift the "unit of analysis" and spend more time fostering new strategic initiatives within corporations focused on leapfrog, clean technology and disruptive new business models that serve and lift the poor.  

While we will no longer be able to rely so heavily on secondary data and a consistent set of parameters (as we have increasingly with existing Sustainability Ratings), identifying and evaluating Transformational Sustainability Initiatives (both within existing companies, and as new ventures) is more consistent with our aim to recognize and reward what we aim to create--environmentally sustainable and inclusive business for the 21st century.

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This is exactly the focus of our new Sustainable Entrepreneurship MBA (SEMBA) Program at the University of Vermont.  SEMBA seeks to fundamentally reinvent business education and the MBA degree to address the daunting challenges we face in the 21st century--environment, climate change, poverty, inequality, ethics and entrepreneurship.  Experience-based learning is a central component of the SEMBA curriculum, with the Practicum Project forming the backbone of the program.  

The Practicum Project is a 3 month, full-time, hands-on experiential engagement with either existing companies or new ventures focused on launching transformational sustainability initiatives.  I briefly describe below a few of the transformational Practicum Projects that form the backbone of the SEMBA program.

Initiative:  Terragraph Business Model
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Facebook Connectivity Lab's mission is to do the fundamental research to connect the 4.2 billion people who are without access to the Internet or underserved with limited connections to the Internet. Using new technologies built by Facebook's Connectivity Lab, the company seeks to leapfrog traditional methods for connectivity and offer disruptive, innovative projects to connect the "last mile." 

The SEMBA practicum project will work with the Facebook team on project Terragraph; one of the Connectivity Lab's terrestrial internet solutions. The focus of the project will be on exploring the ecosystem in dense urban slums in India to better understand the value proposition of Terragraph technology. SEMBA students will be conducting on the ground interviews to uncover challenges and solutions associated with the use and implementation of the technology. These findings will assist Facebook in determining a viable business model for project Terragraph in India ad a framework for the rest of the world.  The goal of the project overall is to create mutual value for businesses and the communities they operate in, creating a truly sustainable venture. 

Initiative: Affordable & Sustainable Portfolio for the Underserved
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Low income consumers are greatly underserved in the green products marketplace. Due to the current reality of higher costs in development, sourcing materials, production and compliance, green products cost more than conventional products of similar efficacy. As a result, many families cannot afford high quality green products. As a mission-driven company, Seventh Generation believes that everyone should be able to clean safely, sustainably and effectively.  

The request to the SEMBA team is to develop a comprehensive go to market and long-term strategy to address the clothes laundering or other household cleaning needs of low income communities in an affordable and environmentally sustainable way. The team will identify options for new products or services and business models. The team will focus on understanding the target consumers' preferences and cleaning habits, identifying barriers to use of green products by these consumers, defining attributes that will appeal to the target consumer, and developing a value proposition uniquely suited to low income consumers while avoiding cannibalization of current products. 

Initiative: Hydraid Business for Base of the Pyramid in Africa
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NativeEnergy recently acquired the Hydraid® Biosand water filter technology to supply its Help Build™ clean water programs in developing countries. Utilizing NativeEnergy's impact investment model to seed-fund initial placement of filters could provide a powerful boost to establishing a profitable business that helps to meet the critical need for safe drinking water.  

The SEMBA project team will assess the potential for a water filter business and create a business plan for a venture to support under-served, low-income populations in one or more countries.  The team will utilize prior research conducted by TripleQuest and NativeEnergy on filter technologies and current experience across projects that were funded by NativeEnergy to install these filters in Ghana, Kenya, Ethiopia, India, Honduras, and Haiti. The SEMBA team and their findings will be central to NativeEnergy's strategy on investing in the Hydraid® Biosand business.

Initiative: China Recyling Strategy
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With Novelis' global recycling footprint, we want to have the capabilities to take and process scrap from anywhere.  Novelis has built an automotive finishing plant in China, but with rising volumes of aluminum scrap in China due to a growing middle-class and increasing levels of consumption, it seems like an obvious move for Novelis to next put a recycling center there. 

But there is an effective export ban on scrap leaving China and perhaps a very difficult scrap market to break into with many challenges.  How can Novelis develop a strategy to purchase and reprocess scrap from China?  What should be the immediate next steps to move the company forward toward a long-term, sustainable strategy for closed loop aluminum in China?  What are the risks?  How can they be dealt with?  This project would require a few meetings in Atlanta and trip(s) to China.

Initiative: Sustainable Entrepreneurship in Latin America
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An initiative has been launched to assess Pepsico's capabilities and readiness undertake Base of the Pyramid (BoP) business development.  The next step will be to launch an actual sustainable entreprneurship initiative to develop a new venture in Latin America focused on the underserved.  

This effort is focused on the creation and development of a new business focused on affordable nutrition, starting in Latin America.  The practicum project will engage students in the process of co-creating the value proposition and business model for a new venture in Latin America focused on the BoP.  It will involve travel to both Latin America and Miami.

Join us to help spawn the Transformational Sustainability Initiatives that will move us toward a more sustainable world in the years ahead.  

For more information about this completely new and redesigned MBA program, visit SEMBA >>

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Forty years ago, in 1975, Steven Kerr published a now infamous paper in the field of organizational behavior entitled "On the Folly of Rewarding for A, While Hoping for B."  The article drew attention to the fact that reward systems in organizations are often well-intended but misguided in that "behaviors which are rewarded are those which the rewarder is trying to discourage, while the behavior he desires is not being rewarded at all."  Tragically, over forty years later, the same unfortunate quality can be ascribed to the now burgeoning industry of corporate sustainability reporting and ratings.
 
Today, there are literally hundreds of corporate sustainability and ESG (Environment, Social and Governance) rating and ranking indices.  Some have achieved a high level of visibility and companies compete to be listed among the leaders on these lists, e.g. Dow Jones Sustainability Index, EIRIS Index, FTSE4Good ESG Ratings, and the Newsweek Green Rankings, to name just a few.  Like their sister industry of Corporate Sustainability Reporting, most ratings systems examine criteria at the corporate or company level--energy use, water use, waste generation, and greenhouse gas emissions, along with risk management, corporate governance, human capital development, labor practices, diversity, and expenditures on CSR projects and community relations.  The objective is to have a set of criteria with which to evaluate and rate all companies against each other.
 
To be clear, these corporate sustainability ratings serve an important function and have gone a long way toward continuously improving the social and environmental performance of corporations throughout the world.  But they have also inadvertently rewarded A, while hoping for B.  How?  In their quest to be consistent, comparable, and easily measureable, the Sustainability Raters have defaulted to quantitative metrics that can be easily aggregated and reported for the entire company.  Recognizing this, companies have staffed up to ensure that they can report healthy improvements in all the key dimensions that make up the rating indices.
 
But in so doing, we have inadvertently put most of our chips on continuous improvement in current businesses and largely forgotten about the critical importance of disruption, innovation and transformational change to corporate sustainability.  Large incumbents in unsustainable industries can rack up big rating points by focusing on incremental reductions in negative impacts from current operations and making positive social contributions through improved labor practices and CSR projects.  Lost in the shuffle are the harder to see and more nascent initiatives to commercialize new, sustainable technologies or develop more inclusive business models that may ultimately disrupt or even replace today's core business.  Yet, it is these more transformational initiatives that hold the key to moving us toward a more sustainable world:  We are, in other words, rewarding for A, while hoping for B.
 
What can we do about it?  In their book, Blue Ocean Strategy, Chan Kim and Renee Mauborgne, emphasize the strategic move (or initiative) as the key to innovation strategy, with the majority of corporate growth (and later, profits) coming from new strategic initiatives rather than from the continuing development and improvement of existing businesses.
 
Consistent with this view, I believe that refocusing our attention on new, transformational strategic moves (or initiatives) holds the key to evaluating corporate sustainability:  Rather than chasing the fantasy of rating entire corporations as to their "sustainability" let us instead shift the "unit of analysis" and spend more time understanding (and driving) new strategic initiatives within corporations focused on leapfrog, clean technology and disruptive new business models that serve and lift the poor. 
 
While we will no longer be able to rely so heavily on secondary data and a consistent set of parameters (as we have increasingly with existing Sustainability Ratings), identifying and evaluating Transformational Sustainability Initiatives (both within existing companies, and as new ventures) is more consistent with our aim to recognize and reward what we aim to create--environmentally sustainable and inclusive business for the 21st century.
 
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This is exactly the focus of our new Sustainable Entrepreneurship MBA (SEMBA) Program at the University of Vermont, where we aim to launch a new SEMBA Transformational Sustainability Award in the coming year.  For a better idea of the types of high-leverage strategic initiatives that we aim to catalyze, read more about the Practicum Projects that form the backbone of the program.  These include new, transformational initiatives with companies like Pepsico, Novelis, Facebook, CEMEX, Seventh Generation, Novozymes, Interface and Native Energy.
 
Transformative change is also the aim of the Base of the Pyramid Global Network, and you will be learning more about the up-coming events and Summits associated with the BoP Global Network. 

Let us end the folly of Rewarding for A (incremental improvement to existing businesses) while hoping for B (transformational change to inherent sustainability and regeneration) by focusing our attention, once and for all, on the new business initiatives and strategic moves that actually have a chance of moving us toward a more sustainable world.
As we witness growing inequality and accelerating environmental degradation around the world, commercial attention in the years ahead will inevitably come to focus more on breakthrough and disruptive innovations that directly confront these challenges.  Increasingly, competitive advantage will hinge on innovations incubated at the base of the pyramid (BoP)—the ability to create tomorrow’s sustainable enterprises from the bottom up, by commercializing new, disruptive technologies through innovative business models focused on the underserved at the base of the world income pyramid. 


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With this theme in mind, Enterprise for a Sustainable World (ESW) and The University of Vermont’s School of Business Administration, in collaboration with the BoP Global Network, are organizing the second BoP Global Network Summit. The event will be held July 16th and 17st, 2015 at the UVM Davis Center in Burlington, VM - USA.

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The 2015 Summit’s main objectives will be to provoke, discuss, and then act. This will not be your typical conference filled with talking heads and plenary presentations.  Instead, the focus will  be on Challenge sessions (e.g. financing,  scaling, assessing impact) and action-oriented Domain sessions focused on Food & Agriculture, Materials, Inclusive Health, Housing, Mobility, Energy, and ICT.  The Summit will also bring together entrepreneurs, executives, financiers, change agents, and the BoP Global Network Lab leaders representing more than 20 countries from around the world and will engage leading edge examples of bottom-up innovation from around the world, including some right here at home in the US.

Three “Provocation Plenaries” will aim to jog creative thinking around the following themes:

BoP Innovation: Where Will the Disruptive and Leapfrog Technologies Come From?  Significant attention has been paid to the challenges of business model innovation, co-creation, and organizational innovation in facilitating BoP business venturing.  Less attention has been paid to where the technologies and innovations that drive such ventures come from and how they might be best developed.  This session focuses on the three primary sources of new technology for driving inclusive and sustainable business development and how they are best driven from the bottom up:  Exponential technology, shelf technology, and grassroots/indigenous technology.

Can BoP Business Logic Be Applied to the Developed World?  For the past decade the primary focus has been on the challenges of building successful BoP businesses in the impoverished rural areas and megacity slums of the developing world. Comparatively little attention, however, has been paid to how innovation from the bottom up might create opportunity and better serve the growing underclass in the US, Europe and other parts of the Rich World.  This session focuses on some innovative new “homegrown” models from Vermont and the US, with potential for applicability around the world.

Beyond Silos: Systems Thinking for BoP Sustainability.  Most BoP ventures to date have been focused on the sectors and industries that define business at the top of the pyramid: water, energy, transportation, telecommunications, food, housing, health, and education, to name just a few.  Yet increasingly we see that the world’s challenges, particularly those at the base of the pyramid, do not fit neatly into traditional sectoral or industry compartments. Instead, they cross boundaries and require broader ecosystems of partners to succeed. This session focuses on the challenges and opportunities of systems thinking, boundary spanning, ecosystems and interconnections in creating and scaling BoP innovations.

Join us in Burlington for the 2nd BoP Global Network Summit!

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The recent release of the 5th Assessment Report from the Intergovernmental Panel on Climate Change (IPPC), and last month's shattering of the 400 parts per million carbon dioxide milestone in the northern hemisphere reminded me once again of the perilous times that we live in.   The data reveal that the process of change in our climate system is happening even faster than predicted five years ago in the last IPCC assessment report:  more rapid melting of ocean ice in the arctic, accelerating loss of the Greenland and West Antarctic ice sheets, faster melting of the permafrost and mountain glaciers, rising ocean levels, dying coral reefs, more extreme storms and floods, more severe droughts, and longer and more intense wildfires.  

And we should keep in mind that, despite claims to the contrary, the scientific process is inherently conservative--it takes strong evidence for any results to be statistically significant and replication by others in order for any single study to stand up to scrutiny.  At the end of the day, science is really about rejecting competing hypotheses that might explain a particular phenomenon--a sophisticated game of "Last Man Standing," so to speak.

In a strange way then, science is a competitive process. Biased or poorly designed studies do not make it through the peer review process. Only the strong survive. As a Ph.D. who has spent most of the past three decades in academia, I can attest to this!  So, the claims made by some that the thousands of climate scientists from around the world involved in the IPCC process are either: 1. conspiring together; or 2. swayed by their left-left leaning political or ideological persuasions (a hypothesis yet to be tested), are simply preposterous: the scientific process itself mitigates against such tendencies.  This realization makes the most recent IPCC report even more foreboding.

Yet with a few notable exceptions (e.g. the current initiative in the US to issue carbon dioxide regulations for coal-fired power plants under the Clean Air Act), the release of this report has generated barely a whisper among the political leaders, policy makers and corporate executives around the world in a position to take real action.  The periodic issuance of these assessment reports from the IPCC has become the scientific equivalent of Chicken Little proclaiming that the "sky is falling."  Few still outright deny that the climate is changing.  Instead, the art of denial has now morphed into assertions that such changes are either: 1. Part of a natural cycle (i.e. not caused by human activity); 2. Not very significant; or 3. Potentially "beneficial" for humanity (see below for further explanation).

The first assertion simply does not hold up to scientific scrutiny.  Suffice it to say that the evidence is overwhelming that human activity is driving the bulk of the greenhouse gas loading of the atmosphere that we are experiencing.  Combustion of fossil fuels, emissions of methane from leaking natural gas pipes and wells, livestock, and melting permafrost, and deforestation (land clearing) for agriculture are clearly the culprits.

The second and third assertions simply reflect a lack of proper time perspective.  The problem is akin to the proverbial crash test dummies that we have all witnessed on television:  Seen in slow motion, as the car gradually crashes into the test wall, the dummies appear to be gently and peacefully moving forward into the steering wheel, airbags, and windshield as the front end of the car is gradually turned into an accordion.  It all seems innocuous enough to make one think that perhaps such a crash isn't so bad after all--until you see it in real time.  Viewed regular speed, the crash appears to be the abrupt and violent event that it really is--sudden, jolting, and catastrophic, for the car and the dummies!  

Given our short tenure on this planet, we humans are a bit like the crash test dummies in slow motion:  The changes that we see around us seem gradual enough that they do not seem particularly out of the ordinary--we've always had hurricanes, tornadoes, floods, droughts, and wildfires.  So, maybe we are just in a bad stretch.  Or even if this is the new normal, perhaps it won't be that bad:  warmer temperatures means longer growing seasons...etc.

But when we view this video in "real time"--that is in geologic time--then the changes that are happening are occurring in the blink of an eye, like the actual crash of the dummies.  As far as we can tell, the atmosphere and the climate of the earth have never changed this quickly before, in the history of the planet.  Not even close.  Sure, the climate has fluctuated wildly over the billions of years that life has thrived on our planet.  But the changes took place over millennia, not decades.  There was time for life to adapt.  We, unfortunately, are driving ourselves into the proverbial wall, but we can only see it happening in slow motion.  Time to clean out the head gear, humanity, or the next generation of dummies will not like how this crash video turns out.
For some time now I've been advocating ways for businesses, institutions, and individuals to heed the "Voice of the Planet."  Indeed, the future depends on it. Here's what we said a while back:

How do profit-seeking companies listen to the Voice of the Planet?  As my colleague, Sanjay Sharma and I suggest, start by drawing a clear distinction between "core" stakeholders--those visible and readily identifiable parties (like current customers and suppliers) with a stake in the firm's existing operations--and "fringe," or peripheral stakeholders.  Core stakeholders encourage us only to continuously improve what we already do.  Yet, answering the question of our time calls for disruptive, leapfrog innovation, which requires divergent thinking.  This means reversing the traditional stakeholder management model by learning to actively engage previously excluded voices from  the fringe-- the rural poor, urban slum dwellers, and advocates for nature's rights, just to name a few.

As I've explained before, the dominant model of business education and entrepreneurial development is broken.

Now, I'm happy to announce that I've joined forces with the University of Vermont to create a new Sustainable Entrepreneurship MBA  program (SEMBA). In essence, we're doing something about the "saddlebag" approach to sustainability that has permeated academic world for so long. Together with my colleague and friend Dean Sanjay Sharma, who I first met more than 15 years ago, we're taking action on our article, "Beyond 'Saddle Bag' Sustainability for Business Education" (Organization & Environment). It chronicles the history of how business schools have incrementally added courses in sustainability, corporate social responsibility and ethics in response to evolving societal demands.  What we're doing represents a bold new venture where a major university has sought to fundamentally reinvent business education and the MBA degree by addressing the environment, ethics, entrepreneurship, poverty and inequality.

SEMBA Director Willy Cats-Baril redesigned the traditional MBA program by focusing the new 45-hour credit program on sustainable business and entrepreneurship-focused curriculum. SEMBA consists of five modules: Foundations of Management; Building a Sustainable Enterprise; Managing Growth; Focusing on Sustainability; and a practicum on Sustainable Entrepreneurship in Action. We've called it the Sustainable Entrepreneurship MBA and, it's different - not an MBA-as-usual.  Here's why:

Accelerated: A one year program designed to get students back out there, inventing or reinventing their BoP enterprise as soon as possible.

Vermont DNA: Learn from, and develop relationships with, leaders from a master class of sustainable enterprises, including Ben & Jerry's to Burton Snowboards, Cabot, Green Mountain Coffee Roasters and Seventh Generation.

Global Access: Students will enjoy access to business and entrepreneurs around the world through our connection to the BoP Global Network.  The BoP Global Network includes Enterprise for a Sustainable World, India's Emergent Institute, and the BoP Global Network - a  vibrant community of academics and practitioners in 18 countries that engage in knowledge creation and dissemination about the theory and practice of creating sustainable businesses at the base of the economic pyramid.

Real World Immersion: Do meaningful, high-impact work with international partners that have on-the-ground access in emerging markets and the developing world. For example you can spend your practicum experience in India working with our partner The Emergent Institute in Bangalore, India. You will also be working with the Office of Technology Commercialization to bring the latest clean technologies to market.

Cutting-Edge Thinking and Practice: You'll be interacting with some of the leading thinkers and doers in the field of sustainable enterprise including professor Stuart Hart, Gustave Speth, and the Dean of the school Sanjay Sharma among others.

Multi-disciplinary: We've designed a unique curriculum delivered by passionate faculty from our School of Business, Department of Community Development and Applied Economics, and nationally ranked Rubenstein School of Natural Resources as well as the Gund Institute and Vermont Law School

Affordable, High-Value Investment: We're offering substantial scholarships to increase accessibility and opportunity at UVM, a school Bloomberg BusinessWeek calls "a top school for high salary grads."

Our aim is to build a global, action-learning ecosystem, enabling us to develop the next generation of leaders who will build, disrupt, innovate and reinvent sustainable businesses and enterprises in a world that demands it. 

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Will you join us?

The Road to Rio +20

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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.

Since the dawn of the Industrial Revolution, economies of scale have ruled the day, with massive investments in power plants, pipelines, factories, transmission lines, dams, and highways to more efficiently serve the burgeoning consumption needs of the rising consumer classes. Industrial-era technologies (such as electricity, petrochemicals, and automobiles) were also closely associated with mass production, the assembly line, and centralized, bureaucratic organization, resulting in the rise of organized labor, worker alienation, and growing social stratification.

As we enter the second decade of the new century, however, the "dark satanic mills" of the Industrial Revolution are giving way to a new generation of technologies that promise to change dramatically the societal, economic, and environmental landscape. The information economy powered by the microchip has already begun to revolutionize society by democratizing access to information and empowering the repressed. Indeed, You-Tube, Twitter, and the rapid emergence of the "blogosphere" have spawned a bottom-up revolution in user-generated content.

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Increasingly, the technologies of tomorrow will be decentralized, distributed in character and disruptive to incumbent firms and institutions. It is much cheaper and more energy efficient, for example, to treat drinking water at the point of use, rather than transporting massive quantities of clean water through pipes from treatment plants only to have much of it leak out or be re-contaminated before it reaches its final destination.

Indeed, we are witnessing a dramatic reversal of the logic of scale--the new diseconomies of scale.

Think about it: Over the past decade or so, we have witnessed the rise of: distributed generation of energy, point of use water treatment, community supported agriculture, microbreweries, point of care healthcare, microfinance, and sustainable construction, to name just a few. Indeed, the term "nano" has become de rigeur.

Because existing players in the utility, energy, transport, food, water, and material sectors have so much to lose, however, it is enormously difficult for the entrepreneurs developing such distributed solutions to gain traction in established markets. Yet given their small scale and distributed nature, such clean technologies hold the potential to creatively destroy existing hierarchies, bypass corrupt governments and regimes, and usher in an entirely new age of capitalism that brings widely distributed benefits to the entire human community.

And rather than depending on national governments or paternalistic social engineers to design the future for the aspiring masses, these disruptive new technologies may be best brought forward through the power of capitalism--not the capitalism of the Industrial Revolution, which enriched a few at the expense of many, but rather a new, more dynamic form of global capitalism that will uproot established elites and unseat incumbents by creating opportunity at the base of the economic pyramid on a previously unimagined scale.

newcomen.gifWhen Thomas Newcomen pumped water out of an English Coal Mine with a makeshift steam engine for the first time in 1722, little did he know that he was giving birth to the defining characteristic of industrial capitalism for the next two centuries--the relentless quest for greater labor productivity.  By substituting coal for manpower, the English textile industry drove the industrial revolution and established the template--and "rules of the game"-- for all industrial enterprises to come.  From cars to chemicals to computer chips, the very concept of "productivity" came to mean producing more product with fewer person-hours of work.

This metric made sense in the 19th century, when coal (and other raw materials) were plentiful and people were relatively scarce.  Now, however, exactly the reverse logic applies--fossil fuels and other raw materials are increasingly scarce and people are relatively plentiful.  We now live with the paradox that increasing business productivity means fewer jobs (especially when economic growth slows), precisely at the time that we need productive employment the most.

Occupy Wall Street, the Arab Spring, the corruption crisis in India, the rural revolt in China--all of these growing social protest movements originate from the same source--a growing "opportunity crisis" driven by unemployment, underemployment, alienation, and humiliation.  The time has come, therefore, to overthrow the tyranny of labor productivity and graduate to a new definition for what it means to be "productive" in business.

wepeople.jpgIn the emerging economies of the world, this revolution has already begun.  ITC in India, for example, prides itself on creating livelihoods for the poor in the rural areas as part of its strategy for wasteland reforestation and agricultural productivity improvement.  Indeed, as commodity costs rise, it may make sense to redefine productivity--from capital intensity and labor efficiency to labor intensity and capital efficiency.  In the 21st century, "sustainable" enterprise must define success by the extent to which they create productive and fulfilling employment for the people of the world. 

Is business up the challenge?

On Creating Smaller Problems

malaria.gifMy colleagues Amory and Hunter Lovins tell a wonderful parable:  In the early 1950s, the Dayak people in Borneo experienced an outbreak of malaria. To combat this terrible problem, The World Health Organization sprayed large amounts of DDT to kill the mosquitoes carrying the disease.  As expected, the mosquitoes died and the malaria declined.  Problem solved.

But wait--there were unexpected side effects:  The roofs on peoples' houses began to cave in.  It seems that the DDT was killing the parasitic wasp that previously controlled the thatch-eating caterpillars.  Even worse, these DDT-poisoned insects were eaten by geckoes, which were then eaten by cats.  The cats died, allowing the rat population to explode, exposing the local people to even more vicious outbreaks of plague and typhus.  To cope with these new problems, which were the result of the original solution, the WHO was obliged to parachute 14,000 live cats into Borneo...

merton.jpgThis parable illustrates one of the most difficult challenges facing the initiators of any purposeful human action:  That any new solution or innovation will always create new problems.  Sociologist Robert K. Merton identified this phenomenon in the 1930s as the "Law of Unintended Consequences." While unintended consequences can be positive (e.g. taking aspirin for pain also appears to reduce the risk of heart attack), it is the negative ones that necessarily concern us the most--precisely because they are unforeseen!

Thus, a key criterion for determining if a given human endeavor is "sustainable" (or not) is whether or not the problems it solves are more significant than the new problems it creates.  Tragically, many of our most notable technological and industrial innovations of the past century do not appear to have passed this test.  

Take, for example, Fritz Haber's invention of synthetic nitrogen in 1909.  Until Haber figured out how to "fix" nitrogen from the atmosphere into a form useful to living things (i.e. plants), all the useable nitrogen on earth was fixed by soil bacteria living on the roots of leguminous plants.  Before Haber's invention of synthetic fertilizer, the amount of life earth could support--crops and humans, for example--was limited by the amount of nitrogen fixed by natural processes.  

omnivore.gifBut as Michael Pollan points out in his wonderful book, The Omnivore's Dilemma, having acquired the power to fix nitrogen, humankind was now liberated from biological constraints.  This enabled the creation of "modern" industrial agriculture--monoculture crops fed with massive quantities of chemical fertilizers and pesticides manufactured from fossil fuel.  Some estimate that two out of every five humans on earth today would not be alive if not for synthetic nitrogen.   This has clearly been a tremendous boon to humanity, to say the least.  But wait, there were unexpected consequences...

Today, it takes more than a calorie of fossil fuel energy to produce a calorie of food. 

In fact, industrial agriculture accounts for nearly one-quarter of all greenhouse gas emissions to the atmosphere.  In addition, most of the synthetic fertilizer applied to crops is wasted--it either evaporates into the atmosphere (acidifying the rain, and further contributing to climate change), or it runs off into streams, ultimately ending up in estuaries like the Gulf of Mexico, where it stimulates wild growth of algae that then dies and smothers marine life, creating "dead zones," and adversely impacting coral reefs and other fragile life forms critical to marine fisheries and ecosystems.

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Haber's process for manufacturing synthetic nitrogen is also what enabled less humanitarian industrialists to create the industrial munitions for modern warfare and terrorism--high explosives, defoliants, and poison gases.  Might it be that the new problems created turn out to be bigger than the problems solved?

Or take the case of nuclear power.  In the years following the Second World War (which was ended with the use of nuclear weapons), nuclear power was hailed as the solution to our future energy problems.  "Electricity too cheap to meter" was the slogan in those days.  Throughout the 1960s and 70s, the world pursued nuclear power with great vigor.  Until the accidents at Three Mile Island and Chernobyl put the brakes on.  

But these accidents only exposed part of the "new" problem--the potentially devastating consequences of a nuclear meltdown.  With the increased scrutiny these accidents brought, it also became clear that there really was no long-term, permanent, or safe way to manage the waste from spent fuel rods.  So, today we continue to store the material above ground in growing numbers of radioactive pools, which are potentially vulnerable to terrorist attack.  Even worse, the failure to secure all existing nuclear weapons presents the real danger that "loose nukes" will fall into the wrong hands, with potentially horrific consequences.

In recent years, the growing specter of climate change has brought nuclear power back to the forefront, since it produces no greenhouse gas emissions.  And then came the earthquake and tsunami in Japan and the Fukushima disaster.  In June, at the Tokyo Power Board Meeting, livid shareholders told the executives at the utility to "jump into the reactor and die."  

Might it be that the new problems created turn out to be bigger than the problems solved?

In the years ahead, we will face unprecedented challenges to design and develop "sustainable" solutions to our growing food, energy, water, and other problems. Of necessity, we will be forced to take action before we completely understand all of the unintended consequences.  The "precautionary principal" dictates that we pursue only those solutions that minimize the potential for massive negative unanticipated consequences.  

Experience over the past century teaches us that large-scale, centralized solutions typically fail the test for unanticipated consequences--most end up creating bigger problems than they solve.  Better instead to pursue the emerging wave of small-scale, distributed, point-of-use solutions such as distributed generation of renewable energy, point-of-use water treatment, and multi-crop agriculture.  Such solutions can "fail small and learn big," enabling technologists and entrepreneurs to fine-tune and perfect the model on a small scale before seeking wider application. In so doing, we can finally begin to create smaller problems...and begin the transformation to a sustainable world.
Oil painting of Franz Schubert, after an 1825 ...

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When Franz Schubert wrote the first two movements of Symphony No. 8 in B Minor in 1822 (what would come to be known as the "Unfinished Symphony"), little did he know that he was modeling the behavior and skills needed to successfully create the markets of the future at the base of the world income pyramid in the 21st century.

In fact, a full decade after C.K. Prahalad and I first wrote the Fortune at the Bottom of the Pyramid (BoP), few large corporations have yet to realize the vast business potential of the world's four billion poor and underserved:  Most have either sought simply to sell stripped-down versions of their current products to the emerging middle classes in the developing world, or have abandoned the profit motive entirely and moved their BoP initiatives to the corporate social responsibility department or corporate foundation. 

Indeed, it is telling that, as we enter the second decade of the 21st century, the only real BoP business success stories come from the developing world itself--microfinance and mobile telephony for the poor.  Billion dollar companies like Grameen Bank and Grameen Phone in Bangladesh, Compartamos in Mexico, and CelTel in Africa still stand out as the few iconic examples of business success cited by BoP analysts and advocates from around the world.  In fact, no global conference on the topic is complete without significant reference to at least one of these "home run" examples.

This raises the question:  Is there something about microfinance and mobile telephony that has enabled such stunning success?  The answer is yes!  When you examine each of these industries closely, it quickly becomes apparent that each is really a means to an end, rather than an end in itself.  Indeed, microfinance and mobile telephony are not end products, but rather are enabling platforms that facilitate people to accomplish any number of tasks and deliver a wide range of functionalities.  They are, in short, the equivalent of "unfinished symphonies."

Microfinanciers and rural wireless service providers enable poor slum dwellers and villagers to figure out for themselves how best to weave these new services into their lives.  For these customers, this may mean mobile transfer of funds, communicating in code with a loved one, acquiring a third cow, accurate information on crop prices, or expanding a current micro-enterprise.  My colleague Erik Simanis calls these types of products and services value open since they enable people to complete the value proposition for themselves.

Unfortunately, most multinational corporations have chosen BoP strategies that effectively deliver finished symphonies with defined value propositions in the mistaken (though well-intentioned) belief that they know better than the poor themselves what their real needs are.  What works in the established markets at the top of the income pyramid, however, does not work so well in the emerging BoP space.

Time-tested marketing research methods (e.g. consumer surveys, focus groups, ethnographic studies) are excellent ways to uncover new opportunities in already established markets, where low cost or differentiation strategies rule and customers are already accustomed to paying money for service.  However, when it comes to serving the BoP, the challenge is not one of uncovering latent demand, but rather one of creating entirely new markets and industries, where only informality, self-provisioning or barter previously ruled. 

To effectively realize the vast business potential at the base of the pyramid, corporations must thus show a bit of humility.  Companies must come to view the poor more as partners and colleagues rather than merely clients or consumers.  Such an approach calls for deep dialogue (two-way communication) rather than just deep listening.  To realize this mindset shift requires the development of a new "native capability" which focuses on co-creating business concepts and business models with the poor, rather than simply marketing inexpensive versions of top-of-the-pyramid products to low income consumers.

The logic of co-creation does not, however, mean simply entering underserved communities with a completely open mind and no sense of business purpose or direction.  On the contrary, companies must clearly communicate what resources they bring to the table in the form of skills, capabilities, and technological potential; they must do so, however, without prematurely imposing a final product or technological solution.  The aim then is to marry corporate global best practices and technologies from the company with the local knowledge, skills, and aspirations of the local community--to complete the "unfinished symphony" together.

Done well, such an approach to BoP business development holds the potential to create entirely new product and service categories that are embedded in the actual context (rather than simply cheaper versions of existing products from the top of the pyramid).  Embedding also means creating "community pull" for BoP innovations, since they have been co-created with community members, rather than engaging in the expensive and time-consuming process of "social marketing" to educate and promote behavior change among the poor.

Over the past seven years, my colleagues and I have been focused on developing such an approach for companies to effectively co-create new markets in the BoP.  The approach is called the BoP Protocol.  We have now experimented with this approach in a half-dozen different business contexts in Asia, Africa, and Latin America, and have learned a great deal about how to engage local partners and communities in the dance of co-creation.

Many others have also embarked on similar learning journeys to unravel the keys to successfully creating the inclusive businesses of tomorrow that embrace all of humanity and end the scourge of poverty.  My colleague Ted London and I have gathered some of the most important emerging contributions in this regard in a new book, Next Generation Business Strategies for the Base of the Pyramid.

Our conclusion:  There is no "fortune at the bottom of the pyramid" waiting to be discovered.  Instead, the challenge for companies is to learn how to create a fortune with the base of the pyramid.  Franz Schubert's Unfinished Symphony in the 19th century may thus hold the key to a more inclusive form of capitalism for the 21st century.

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