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TheResourceRevolutionTrainer:CouplingSustainabilitywithExcellenceSession5Reading:OrganizingyourselftobecometheResourceRevolutionEnterprise

WorldResourcesForum(WRF)2016

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5. ORGANISATIONHowtogetyourselforganizedasaResourceRevolutionEnterprisetakesustotheEnterpriseandEcosystemstagesofthe5-stageZeronauticstransformationprocessdescribedbyJohnElkington(2012).Thisinvolvesmovingfromtheproductandservicefocustoenterprise,itsprocessesandoverallperformance.ThesessionusesasreferenceaselectionfromtheOrganizingPrinciplesidentifiedbyHeck&Rogers,(2014).TheEnterprisestageinvolvestakinginnovationtotheenterpriselevel,orsettingupanewenterprise.Thisincludesthechallengesoffinancing,growingandoperatingnewbusinessventures.SuccessfactorsforZeronautsinthisstageincludetacklingefficienciesearlyonbutmovingontogreaterscaleopportunitiesassoonaspossible.AnexampleisthecommitmentPepsiComadeinrecentyearstotakingtheiroperationsfossilfuelsfree,theirlargest

factoriesachievingzerowaterintake,sendingnothingtolandfillacrossitsentiresupplychainandmakingitsproductpackagingformrenewablematerials.TheEcosystemstageoftheZeronautsiscriticalintakingthingstoscale.Thisincludestheuseofthebusinessecosystemorclusters,forexamplegeographicalorsectoralclusters,horizontal(cfparks,networks)orvertical(cfvaluechain)clusters.Indoingthis,linkswithresearchcentresoruniversitiesmaybeoneofyourkeysuccessfactors.Let’sstartwiththeoperatingprinciples,whichincludenetworkorganizationandtalentmobilization.

5.1 StandardOperatingSystemsStandardOperatingSystems(SOSs)helpacompanytoavoidre-inventingwheelsandensurethatmanagersthroughtheorganizationdepartfromthesamestandardofalreadyestablishedknow-how.Theresultisimprovedsafety,

reliability,stewardship,lowercosts,highquality,fasteremployeedevelopmentandmoreconsistentresults.TheassociatedqualityresultscanbeseenfromtheoperationalsystemsofknownqualityinnovatorssuchasToyota.ItcanalsobeseenintheexamplesofenterprisessuchasAlcoaandDanaher,whohaveusedSOSstoradicallyimproveitsoperatingmarginsandreturnoncapitalemployed(ROCE).Ithastobeaddedthatthisisnotonlyaboutstandardization.Providingplug-in-and-playsystems,SOSsalsocreateopportunitiesforinnovation.ConsidertheexampleofApplewhorequiredthousandsofindependentAppdeveloperstouseacommonstandardincoding.ImportantinnovationsopportunitiesexistinthesmartapplicationofICTsacrossindustries.ConsidertheKaggleonlineplatformforpredictivemodelingandanalytics,whichcanbeusedbynaturalresourcecompaniestofindcompetitivestatisticalanalysisonforexamplewheretodrillormine.Importantly,effectiveuseofSOSs

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inthiscontextrequirestheabilitytoformalliancesandpartnerviaextendedvaluechains.ThisimpliesabroaderemploymentandaccessibilityofSOSsbetweencompanieswhocollaborateasbusinesspartnerstoimproveperformanceandreducewaste.

5.2 NetworkOrganizationBecominganetworkorganizationimpliesnewapproachestoverticalintegrationthatcombinescentralized/decentralizedmanagementthroughuseofadvancesinICT.AclassicalexampleistheSpanishclothingretailerZarawhosefounderAmancioOrtegawhowasconvincedwastecouldbegreatlyreducedthroughwhathecalled“instantfashion”.Afirstimportantdecisionhetookwasinfavourofverticalintegration,whichisoftennecessaryforresourcebreakthroughs.SimilartotheverticalintegrationthatSteveJobspursuedthoughApple,Zarawastoinvolvethewholeprocessfromdesign,procurementandmanufacturingtosalestores.Thenextimportant

decisionwastouseICTandhaveongoing,bottom-upfeedbackfromcustomersviastoremanagers.Thismeansthatanindustrytraditionallyprogrammedintermsofannualseasonaltrendssuddenlyhadaproducerthatadaptedclothingthroughouttheseasonbasedonconsumerpreferencesindifferentcountries.HeckandRogers(2014)arguethattheneedtotailorproductsisevengreaterinresource-intensiveindustries,sincedifferentlocalgeologies,infrastructureandenvironmentalriskfactorsrequirelocalsolutions.Considerthelocalcontextofdifferentcities.Acombinationofresourceproductivityimprovements,increaseduseoflocalrenewableresourcesandre-useofwasteproductscanallowcitiestobettermanagetheflowspassingthroughtheminpursuitofdecoupling.Doingthiseffectivelyatcitylevelrequiresakeenawarenessofthelocalbioregionalconditions.BeinganetworkorganizationimpliestheabilitytouseICTandfacilitateinformationexchangeinamannerwhere

front-officeemployeesdownstreamcancommunicatenewdataeasilytofunctionalexpertsupstreamindesignandmanufacturingdepartments.Variouspossibilitiesexistfordiversesectors.Intheextractivesindustryitmaybeaminemanagermonitoringtheoperationoftrucks.Inthechemicalsandwhitegoodsindustriesitmayinvolvemonitoringtheperformanceandmaintenanceofinventories(forexamplegascylindersmonitoredfromoff-sitebyAirLiquide)andequipment(forexamplethemaintenanceofwashingequipmentbyBosch).ThenetworkedmaintenanceexamplecanalsobeseeninthecasesofKomatsuandCaterpillar.

5.3 ResourceProductivityMetricsFacingdiversesourcesofpublicinformationonresourceuseandimpactsatvariousscales,youmaywellwonderwheretostartasyouseektomaketheconnectionwithyourenterpriselevelinformationsystems.TheIRPWaterUseReport(2012)givesagoodoverviewofdifferentinformationsourcesandhowtheyrelate.Theseare:

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• publicregisters,animportant

sourceonforexampleafairdistributionofaccesstowater;

• nationalaccountingsystems(forexamplenationalsystemsofenvironmental-economicaccounting/SEEA)usedbygovernmentstomakethelinktothenationaleconomyandsocietalwell-being;

• footprintassessments,whichprovideatoolforawarenessraisingtohighlightresourceissuesinproductionandconsumption

• lifecycleassessment(LCA)withassociatedstandardsandhotspotstudiestoprovideforexampleproductlevelbenchmarkingforindustries;and

• stewardshipinitiativestoimprovequantification,measurementandreportingatbusinessorcorporatelevel.

Theaboveinvolvesthreecomplementarymethodsofmeasurement–statisticalaccountingatmacro-economiclevelwithinput-outputanalysis,footprintassessmentandLCA

withassessmentofuseandimpact–aswellasapproachesusingasreferenceresourceunits,organizationalunits,commoditiesandproducts.ArecentstudybyTrucost(2014)comparedCradle-to-CradleCertifiedproductsandnon-certifiedbenchmarkproducts.ItassessedperformanceagainstthefourCradle-to-CradleCertifiedProductStandardcategories,namelyhealth,materialre-utilization,renewableenergyandcarbonmanagement,aswellaswaterstewardship.Indoingso,itconsideredarangeoftoolsthatexisttoassessenvironmentalimpactsanddependenciesassociatedwithproducts:

• environmentalLCA,• environmentalprofitandloss

accounting(EP&L),• environmentalproduct

declarations,• input-outputmodeling(using

modeledsectordata),and• NaturalCapitalvaluation.

Theabovesignalsthearrivalofnewtoolstointegratenaturalresourceusewithbusinessaccountingandreportingsystems,includingenvironmentalfinancialorfinancialenvironmentalaccounting.ThisisalsoofspecialinteresttothenewIntegratedReportingFrameworkoftheLondon-basedInternationalIntegratedReportingCouncil(IIRC),whichseekstobridgethegapbetweenannualfinancialreportingandannualsustainabilityreporting.TheIIRCstandardrequiresreportingontheuseofSixCapitals,oneofwhichis“NaturalCapital”(seeits“ValueCreationProcess”modelbelow).Figurex:TheValueCreationProcess,includingbusinessmodelanduseoftheSixCapitals(IIRC2013)

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BasedinAmsterdam,theGlobalReportingInitiative(GRI)hasbeenpromotingastandardlistingofsustainabilityindicatorsforreportingbyorganizationssincethelate1990s.Yourbusinesswillincreasinglybechallengedtoemploytheseinawaythatpresents“context-basedmetrics”and“science-basedtargets”.TheGRIenvironmentalindicatorsaregroupedunderAspectsthatincludeMaterials,Energy,Water,Emissions,EffluentsandWaste.CorporationssuchasRioTinto,LafargeHolcimandMondithathavetakenonamorecompleteaccountingoftheiruseofecosystemserviceshavehadtorelyondiversesources,typicallycreatingproject-basedteamsthatinvolveexpertsfromuniversities,consultancies,publicresearchbodiesandNGOs.Itisaprocessthatinvolvesacombinationofbottomup(e.g.atownoperations)andtopdown(e.g.modelinganduseofindustryaveragesforupstream,tier3/4/5operationsofsuppliers)datacollection.AnexampleofatooldevelopedforbusinessuseistheInVEST(IntegratedValuationof

EcosystemServicesandTradeoffs)setofcomputer-basedmodels.Thesearescenariodrivenandfollowsamodular,multiplelevelortieredapproachtodealwithdataavailabilityandstateofsystemknowledge.

5.4 ProductivitytalentCompaniesseekingtotakeontheResourceRevolutionwillneedtomapthelikelynewskillstheywillneedandconsiderwhethertoobtainthesefreshfromschool,otherindustriesornewbusinesspartners.ConsideringthesmartusageofICTacrossindustries,softwaretalentislikelytobeakeyrequirementforallindustries.Manycompaniesassociatedwithtraditionalhardwareproductiontodayneedmanymoresoftwareengineers,companiesmanufacturingproductssuchasairplanes,vehicles,constructionequipment,trainsandindustrialmachinery.Increasinglysoftwareplaysakeypartinthevalueadditionthatahardware

productoffers.Electronicscontentincarsalreadyprovideupto50percentoftheirvalue.Andwithintelligentuseofsoftwarecomesthegrowingdemandfromconsumersforhighqualitygoodsatlowprices.Thisrangesformtheabilityofagiantretailertoofferqualitygoodsatlowpricestotheabilityofanelectronicsmanufacturertooffermoderntelephonyatlowprices.Findingtherighttalentmayincreasinglytakeglobalcorporationstoemergingmarkets,wherethefamiliaritywithscarceresourcesandabilitytoestablishadvancedsystemsfromscratchpresentsleapfroggingopportunities.InordertofindanewpooloftalentinareassuchasITengineering,statistics,chemistryandmechanicalengineering,companiesareturningtoeducationalinstitutionsinforexampletheBRICScountries.TheinnovationabilitytodevelopnewtechnologiesmeetingbottomofthepyramidrealitiescanbeseeninnewproductssuchastheChotuKoolUS$70refrigeratordevelopedinIndia(seehttps://www.chotukool.com/evolution_chotukool.aspx).Forcoolingitusesa

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battery-poweredheatexchanger.DesignedwithvillagewomenandintroducedbytheIndianconglomerateGodrejandBoyce,thisportableunitweighsonly7.8kg,useshigh-endinsulationtostaycoolforhourswithoutpowerandconsumeshalftheenergyusedbyregularrefrigerators.Inanotherexample,alowcostsonogrammachinedevelopedinIndiaisnowbeingmarketedworld-widebyGE.ThelatterhasmanufacturingfacilitiesinBangalorethathavestartedtoproduceanextendedlineofproducts,includingultrasoundmachines,electrocardiography(ECG)units,maternalandinfantcareequipment,tomarketsinAfrica,Europe,LatinAmericaandAsia.Theseareupto40percentcheaperandexpectedtoaddressupto15percentoftheglobalhealthcareequipmentmarket.ThisformspartofwhatTuckbusinessschoolconsultantshavecalled“reverseinnovation”(basedonhomegrownsolutions,versustop-down“glocalization”)inwhichGEisdisruptingitself.

Enablingtheresourcerevolutionwillrequirenewapproachesbycompaniesandeducationalinstitutionsindevelopingtalent.Thisincludeslifelonglearningandgreateruseofonlinecourses,aswellaspracticaltraining(cftheGermantechnicalapprenticeshipsandtheKoreanknowledgeworkers)todealwithamongothersmathematicsanddatacommunications.Withrespecttonewskillsrequired,theInternationalLabourOrganisationinitsreportWorkingTowardsSustainableDevelopment(2012)haspredictedthatskillsandtrainingadjustmentwilloccurprincipallyamongresource-andcarbon-intensivesectors.Thereasonforthisisthatworkersinresource-intensivesectorstendtohavelowerskilllevelsonaverageandwillrequirethemostretraining.SuccessfulexamplesofinitiativesinskillsretrainingpracticesincludeFrancewheretheregionofAquitaineprovidedfundingforupgradingtheskillsofthoseintraditionalautomobileindustryoccupationstobeabletotakeupemploymentrelatedtowindturbine

production.TheILOalsorecommendedtargetingeducationandtraininginitiativestowardstheenvironmentalgoodsandservicessector(EGSS).

5.5 Participatoryinnovation

Oneofthekeyfactorsthattendtoholdbackaneconomyinreachingdecouplingisexpectedtobetheabilitytoinnovate(ateconomic,industryandcompanylevel).Innovativecapacityisinfluencedbyacombinationoffactorssuchastheextentofknowledgeavailable,thespeedwithwhichitisreplacedbynewknowledge,thenetworkingofactorswhocanlearnfromeachother,theavailabilityoffinanceandtherightincentives.Theseareagaininfluencedbyinstitutionalfactorssuchasculture,normsandleadership.

Helpingcompaniestofindtherighttalentarestart-upssuchasElanceandoDesk,whousethenetworkcumcentralized-decentralizedapproachtomatchfreelancersandemployerslookingforpart-timeorproject–basedservices.Thishelpsemployerstoleverage

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externalnetworksviatheInternet.Since2015thetwocompanieshavemergedtooperatefromtheUSandNorwayasUpworkwith4millionregisteredclients.Theapproachholdthepossibilityofrecruitingservicesworld-wide,relyingonthereachoftheInternet.OnlinestaffingplatformElancehadmorethan500.000businesseshiringthroughitby2013,some345.000peoplein2012.

Keyinsightsoninnovationneedtobeconsideredhere(Lundvall2007andIRPDecouplingIReport):

• Innovationsaredifferentfrominventions.Whilethelatterresultsfromanewideaforanewproductorprocess,theformeristhesynthesisoftheideawiththenecessarysetoffinancialandinstitutionalarrangementstoimplementtheideaonabroaderscale.

• Innovationsarenotrandomevents,buttheresultofspecificincentivesandinvestments.

• Innovationsdonotarisefromsingleindividualsorfirms,but

ratherfromwell-networkedeconomicagentsworkingcollaborativelywithknowledgeinstitutionsandinanopen,creativeandproblem/practicedrivenway.

• Innovationsarenotaboutbuildingupstocksofknowledgecapital(patentedideas)createdfortradeintheknowledgeeconomy.Itisratheraboutcontinuousprocessesinalearningeconomy.

Withthisprocessapproachratherthanquicktechno-fixapproachtoinnovation,ithighlightsthepossibilityofdifferentformsofinnovation.Thesecanbetechnologicalinnovations,institutionalinnovations(e.g.formanagement)orrelationalinnovations(e.g.forbenefitsharingandsharingvalue).The‘radicalness’ofinnovationsisdependentontheactorspresentwithinthesystem,thelearningthatoccurs,andbehaviouralchangesassociatedwithaprocessofsysteminnovation.

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EXERCISEQUESTIONS:1. Inhowfardoesyourbusiness

shareStandardOperatingSystems(SOSs)withbusinesspartnerstoimproveperformanceandreducewaste?WhatwouldyousuggesttoyourChiefOperatingOfficer(COO)tomakeimprovementswiththegoalofradicalresourceproductivityimprovements?

2. Inyourbusiness,isverticalintegrationrequiredformakingradicalresourceproductivityimprovements?Howeffectiveisyourcompanyinoperatingasanetworkorganization,combiningcentralizedanddecentralizedapproaches?

3. Doesyourcompanyhavethe

necessarymeasurementandreportingsystemsinplacetodealwithrelevantresourceusemetrics,includingecosystemservicesforwhichmarketvaluesmaynotexist?Howdoorwouldyou(andyourpeers)reportexternallyondecouplingandyouruseofNaturalCapital?

4. Prepareforameetingwithbothyourhumanresourcesandmarketingdepartmentstodiscussthein-houseavailabilityoftalentandpossibilityforparticipatoryinnovationindefiningResourceRevolutionopportunitiesforyourbusiness.