The EcoInnovator

The leader of  Cisco‘s thriving Reverse Logistics business speaks with The EcoInnovator about how he sustainably transformed the program from a cost center to a growing revenue stream.

When Dan Gilbert joined Cisco Systems, the well-being of the technology company’s Reverse Logistics program was gauged in tons of scrap produced per year.  Three years later, the VP of Supply Chain Field Operations measures the success of his business in bottom-line impact.

The impressive results of Cisco’s Reverse Logistics turnaround have been recognized as a model for reuse and sustainability in other Global 500 enterprises. The EcoInnovator spoke with the Corporate Eco Forum Leadership Council member and Reverse Logistics leader about how he reduced scrap to less than 1 percent of product returns and contributed $100 million to Cisco’s bottom line in the process.

The EcoInnovator: Can you describe how the rebirth of Cisco’s Reverse Logistics program began?

Dan Gilbert: When I joined Cisco in 2005, the performance of the Reverse Logistics function was essentially summed up in one metric:  how many tons of scrap we recycled every year. So it’s probably not surprising that returned product was generating about 6 million pounds of scrap every year.  That’s the equivalent of 12 football fields filled knee-deep with product that was declared essentially dead.

Now, scrap is basically the lowest value you can recover from a product.  Shifting our strategy toward finding maximum value from returns required us to make two key changes in our approach. First, we had to be willing to challenge traditional assumptions about product returns. Then — as a result of Cisco’s intensified focus on environmental responsibility — we had to take a closer look at our recycling.  We realized we were missing a trick by making “Recycle” our default setting. While it was green to recycle, it was actually better and greener to reuse product as much as possible before having it responsibly recycled.

The EcoI: At what point did you realize the potential opportunity of the project?

DG: First we had to invest effort in rolling up our sleeves and digging into every detail of the reverse logistics process.  This process tends to be complex, but well worth the effort to understand and evaluate.   We physically traveled to our warehouses, opened boxes of trade-ins and ran them through the same suite of tests that would apply to a customer return.

What we found ran counter to the conventional wisdom. The assumption had been that product trade-ins were defective and only good as scrap.   But we found that upwards of 80% of product was in good working condition, needing at most a software upgrade or cosmetic work.   This told us that the product still had a lot of life in it – a second or even third career, if you will.  All we needed to do was match the product with internal Cisco functions that had a need for refurbished product.

The EcoI: As the project progressed, did you encounter challenges that you didn’t expect?

DG: The greatest challenge was convincing our colleagues that refurbished product could meet their needs as reliably as new product.  Demonstrating that refurbished gear had passed the same quality and compliance checks required of new product was critical for gaining acceptance for product reuse.

I’m very pleased to say that we’ve largely overcome early hesitation about internal product reuse at Cisco.  Whether for engineering labs, customer demos, spare parts or philanthropic purposes, Cisco’s reuse of returned product is growing very rapidly.  We’re currently reusing about 44% of product returns and we’re targeting further increases in reuse every year.

The EcoI: How did your supply chain react to the new initiative?

DG: As the business case for reusing returned product quickly spoke for itself, we’ve enjoyed strong support across our extended supply chain.

We did realize we needed to make the returns process easier.  We needed to help enable customers, and our distribution partners, to bring no-longer-needed products back to Cisco.  This would increase the pool of product we could potentially reuse, as well as help us ensure that any excess or obsolete products were disposed of in an environmentally responsible manner.

As an example, we launched the Cisco TakeBack and Recycle Program to enable customers to contact Cisco and arrange for pick up and recycling of product, even if it doesn’t qualify for warranty replacement or our trade-in program.

The EcoI: What were the specific goals of the new program and how were they measured?

DG: We had two objectives:   Drive profitable growth for Cisco and help Cisco deliver on its commitment to environmental responsibility throughout its operations and supply chain.

In 2005, the Reverse Logistics function of receiving and processing returned product cost Cisco over $8 million a year.   I’m very pleased that today this same function is making a net contribution of over $100 million a year to Cisco and its shareholders for our fiscal year ending July 2008. We calculate this figure using a virtual P&L to monitor our bottom-line results.

We use several metrics to understand how we’re minimizing Cisco’s environmental impact.  One is the percentage of product returns we’re able to put back to use, up to 44% as of July compared with less than 5% three years ago.  Another metric looks at waste avoidance.  Currently less than 1% of all Cisco product returns end up as scrap.  In other words 99%+ is reused or recycled.

The EcoI: Do you have any advice or best practices to share with other executives on how to retool their Reverse Logistics programs for maximum sustainability?

DG: In our experience, cultivating new sources of growth requires an ability to open the aperture and take a broad view of the opportunity. Operations teams can tend to focus on driving efficiencies and squeezing out excess.  That’s essential, but if that’s your only focus, you may miss the bigger win – the chance not just to shave costs, but to really drive value and growth.

A second piece of advice would be to run your operations, as much as possible, like a true business with P&L responsibility.  For us that meant two major themes.  One was working closely with Finance to be very rigorous and conservative in how we calculated value and how we monitored and reported on our performance.

The other was adopting a Sales-inspired approach that focused on making a market based on meeting customer needs.  We identified other Cisco functions as potential customers, developed solutions to address their specific pain points and assigned “Sales” teams with quotas and stretch targets.  This was the transformational part of our story – the most difficult, but also the most rewarding.

As traditional Sales teams do, we’re focusing on keeping our customers happy and we’re setting the bar higher every year.

An excerpt from a new Corporate Eco Forum report shares tips for organizational and operational success from Global 500 eco-strategy veterans.

By Ram Nidumolu, Corporate Eco Forum

An impressive sustainability brain trust gathered for the first Annual Meeting of the Corporate Eco Forum in September:  two hundred top executives from sixty Global 500 companies representing more than $2.3 trillion in revenue.

The latest report in the Corporate Eco Forum Research Series,  Bridging the Eco-Strategy and Execution Gap, synthesizes the ideas, strategies and best practices shared over the course of the two-day meeting. The report includes knowledge on a variety of eco-initiatives, from overall corporate strategy and the sustainability organization, to specific functional areas such as supply chain, marketing, technology and operations.

This excerpt shares insight on the sustainability organization itself, including ideas on how to successfully structure the eco-strategy team and how to improve its effectiveness.

Organizing for Sustainability Success

• Create a dedicated team. Sustainability involves a complex set of issues and requires strong, focused teams that can provide strategic and functional guidance to the organization’s sustainability initiatives.
• Operationalize sustainability. If it is set apart or outsourced, sustainability is too easy to cut.
• Find the right home. Think carefully about where sustainability lives in the organization—and to whom it is accountable. One solution is for the sustainability function to be accountable to the lines of business—such as brands in a brand-centric organization—but to live at the corporate level.
• Avoid legal or PR placement. In organizing for eco-success, it is important to view sustainability as a strategic business opportunity. Companies should not view it in legal terms, which often results in a “risk averse” approach to sustainability. In the same way, sustainability should not be defined solely through the PR department, which can tend to over-promote initiatives.
• Work separately from compliance. Companies should ensure that the group responsible for regulatory compliance be distinct from the sustainability group that is focused on efficiencies and business opportunities. The former operates tends to be more reactive, lower on the radar screen, and not outward-facing in its communications.
• Organize according to existing culture and values. Winning strategies organize roles and responsibilities in light of predominant values and realities in the current culture.
• Push responsibility out. Many members suggest pushing ownership of eco-initiatives outside sustainability offices to the departments that ultimately will be responsible for execution. The sustainability leaders can give department managers a sustainability lens through which to view their activities. Companies should educate business units on how to make decisions by also thinking about their sustainability impacts.

Tips for Effective Operations

• Avoid becoming a corporate silo. The sustainability team members have to learn to play the roles of both salespeople for sustainability, as well as corporate diplomats.
• Identify key players. Understand how things work in the organization and identify the key players internally with long tenure and significant experience. Find ways to engage effectively with these people so that they help achieve the goals of the sustainability organization.
• Keep an open door. The biggest challenge for sustainability teams is to be practical, flexible, approachable and to provide expertise. The group should have an open door so that business units feel comfortable and trust that they can come to the group with problems and ideas.
• Become a consultancy of experts. When ownership of initiatives is given to the departments where they will eventually be deployed, the sustainability group needs to help network, create strategies, set policies and provide consulting services. The group needs to be advisors, not controllers.
• Reach out to the organization. Sustainability committees, forums, trainings and advisory councils can create and diffuse responsibility within organization. Engage key stakeholders by looking throughout the organization and creating networks of involved stakeholders.  This network should be involved in developing sustainability ideas, making decisions, and helping to roll out initiatives.
• Involve HR. The sustainability group must make sure to engage with HR and financial managers who oversee procurement, property management, construction, facilities management and marketing – all ripe areas for eco-initiatives.

Click here to read a preview copy of the report, “Bridging the Eco-Strategy and Execution Gap.” Email CEF founder MR Rangaswami at mr@corporateecoforum.com for more information on the CEF Research Series.

How America can revamp its energy infrastructure, recharge its economy and reshape its future by embracing three major green initiatives.

The financial meltdown has rattled the U.S. banking system to its core. The unprecedented increase in the price of oil this summer has wreaked havoc on household budgets. The presidential race has surfaced divisions of class, race and geography among the American people.

But a crisis is a terrible thing to waste. The presidential election taking place next week has the potential to set America on a new path. Embracing three massive opportunities presented by eco-related initiatives will help America move closer toward its goals of achieving energy independence, escaping recession and creating a sustainable lifestyle for its citizens.

1. Rebuild the National Grid.
The current power grid is outdated and inefficient. The majority of power plants are more than 30 years old. The aging infrastructure costs the economy between $25 to $180 billion in outages every year. More than 7 percent of energy was lost due to inefficient transmission and distribution methods in 2007 alone.

The problem stems from the massively complex network of power producers. There are more than 3,100 electric utilities in the country, run by either state or local governments, publicly-owned electric companies, or regional co-ops. That doesn’t include the 2,100 other non-utility power producers that contribute to the grid’s complexity.

The nation has successfully streamlined its infrastructure in the past. Think back to the early part of the 20th century when the automobile went from a play toy of the very rich, to a transportation method for the middle class. The nationwide maze of 75,000 miles worth of streets, country roads and dirt trails were organized into the  U.S. Highway System in 1925. In the 1950s, the federal government further modernized the system by funding the construction of major interstates and standardized numbering of the highways. The result was a tremendous improvement in commerce, travel and quality of life.

In the same way that the highway infrastructure was created, the nation must unite to build a new energy infrastructure. A new power grid is needed to allow for distribution of renewable energy sources. The grid needs to leverage digital technology to improve transmission efficiency and enable precise power management by both suppliers and consumers. The result will be a robust, secure, streamlined power distribution system which will help deliver energy independence to the American people.

2. Stimulate the “Green Collar” Economy
Alternative and renewable energy technology have the power to transform the U.S. economy. Creating an energy technology industry would help to solve two of the country’s major problems: an economy in recession and an expensive dependence on foreign oil.

Speaking at the Corporate Eco Forum meeting in September, Google CEO Eric Schmidt underscored the opportunity for energy technology to be an economic engine in the same way that Internet technology was during the last decade. By leveraging the same networks of innovation, technology, funding and talent that helped web-driven businesses to transform business and communication, energy technology will spawn hundreds of new companies and create hundreds of thousands of high-paying jobs in American cities and towns.

However, the green economy does not need to focus exclusively on energy technology. Experts have likened the job creation associated with rebuilding the energy grid to a “green New Deal.” New and established companies alike will tackle the next wave of offerings in the areas of pollution control, water conservation, recycled products, municipal regeneration — and many other areas that will help Americans live more sustainably and cost effectively. These green industries should be rewarded for their innovation and incentivized to prosper.

3. Move to a Sustainable Economy
Building a new energy grid and bringing the “green collar” economy to life will dramatically improve the U.S. economy. But in order to create a truly sustainable economy we need to move away from our current consumption-based economic model. Today, America’s livelihood is measured largely by its Gross Domestic Product (GDP). The only way for the U.S. to show growth is to increase consumption.

The alternative is Bhutan. The country is famous for its “Gross National Happiness” index. Rather than only measuring material consumption, the metric is intended to show Bhutan’s progress on factors such as spiritual, environmental and cultural values. What if the U.S. developed a “Gross Sustainability Index” to better measure our progress towards a eco-conscious future? If we continue to chase growth for growth’s sake, we will ultimately lose the race.

Next Moves
The resolution of the presidential election next week will be an opportunity for a fresh start. The new president should appoint a “Sustainability Czar” to chart a course for the country’s future while keeping an eye on the business, social and environmental impacts of our current actions. The czar should immediately call for a national summit of business leaders, experts and public representatives to evaluate our options and to deploy a strategy that takes advantage of America’s many eco-opportunities.

M.R. Rangaswami is the founder of the Corporate Eco Forum. This piece originally appeared on Earth2Tech.

A veteran environmental expert looks at how U.S. companies have progressed in the field of sustainability and why it is now time to set challenging goals for the future.

Companies weren’t even thinking about eco-strategies thirty years ago. Coverage of environmental issues was so scarce that if there was an article in the newspaper, I would cut it out.  Today, you can’t read the news, listen to the TV or scan a blog that doesn’t have a “green” story.

The environmental community and business leaders didn’t used talk to each other. There was debate among environmentalists about whether to work with business. As the years passed, the conversation started to include the need for environmentalists to get on corporate boards in order to influence corporate environmental practices.

Fast forward to last month when I attended the Corporate Eco Forum meeting where senior executive were elaborating on the details of their corporate sustainability programs, and many of those executive were former or current members of what is considered the “environmental community.”  The lines are blurring in many cases, which is wonderful.  And there is a lot of partnering going on, with environmental and business interests collaborating on solving problems.  So a lot has changed.

Today, in fact, many companies have a more progressive attitude about executing eco-strategies than environmental groups do. Companies are not as afraid of change as environmental groups sometimes can be.  There have been great improvements in awareness and implementation.

However, despite this progress, we are still basically tinkering around the edges. We have not seen the revolutionary shift that we need to curtail environmental and human harm.

We can neither entirely produce nor shop our way to true sustainability.

Still Room for Improvement

In the US and other industrialized countries, we have largely succeeded in cleaning up most traditional sources of pollution in the water and the air. But on every other front, we are moving backwards at a rapid clip.  While corporate environmental practices have improved, they haven’t kept pace with the rate and scale at which humankind has changed the chemistry of the atmosphere, devastated habitats and decimated species.

Corporate sustainability in the US still does not embrace “the Precautionary Principle.”  It is possible to though, and to do it profitably. The City of San Francisco, for example, codified it in its purchasing guidelines.  We need it incorporated into commercial culture and accounting.

One ramification of ignoring the Precautionary Principle is that is that we haven’t paid sufficient attention to the human consequences of what we  buy and sell, including in service companies.  We continue to expose people to compounds harmful to our health.  For example, we should not be making things that are known or highly suspected to be harmful to babies.  As a new mother, I shouldn’t have to even think about the possibility of a baby bottle or toy containing lead or endocrine disruptors, yet I have to be constantly vigilant, including with products made in the US.  Just about all of us have someone dear to us who is dying of cancer, and we say that we would do anything to help them.   Yet we still make and buy unnecessary weed killers, air “fresheners,” and other products that contain known, synthetic carcinogens.  It’s almost pointless to make these things in a slightly more environmentally-sound way, with renewable energy or in more “eco” packaging.  We haven’t done enough to include people - worker safety and consumer safety - in the sustainability equation, and that will be an area of increased focus.

The Evolution of Success Factors
The definition of “eco-strategy success” is still a topic of debate. I take that to mean both measurable environmental improvements and the organizational strategies needed to achieve them.  Yes, things have changed over the past 30 years.  As I said before, despite the success we’ve had primarily in the waste/pollution/energy reduction arenas, and the tremendous changes with companies in incorporating environmental concerns into their operations, we are still causing tremendous harm to the environment on which all our commercial activity depends.

Early on, companies were driven almost exclusively by external pressure, from environmental groups and the public. Corporate responses mirrored this – environmental concerns were addressed, but largely with superficial tactics such as marketing.

As the years passed, companies realized it would be in their best interest financially to develop more eco-sensitive products and processes, for a variety of reasons, not just to please green customer demand.  For example, companies like DuPont started engineering substitutes for ozone-depleting products — the company could help change the market and capture more of it.  The condition of the environment has only increased in its potency as a driver, and the opportunity to profit from remediating environmental problems has as well.

Obviously certain drivers differ from company to company, but what constitutes risk has changed pretty much across the board.  Today, companies that don’t take environmental and human consequences into account are taking on real financial risk.

Taking Sustainability to the Next Level
If you look at the individual company level, business has made tremendous strides in eco-strategies.  We always used to hear, “You have to get the CEO engaged… You have to drive environmental awareness to business units… You have to change the corporate culture… You have to make eco-impact part of financial incentives for managers…” All of these mandates have become commonplace in many large companies.

Now we need to take “sustainability” to a whole new level.  Though many companies, both those that have sustainability initiatives and those that have integrated sustainability throughout everything they do, can quantify the associated dollar savings and profits, we still have a ways to go in solidifying the business case.   This is in large part because we haven’t addressed fundamental structural challenges that can’t be solved at the individual corporate level and must be addressed at the broader economic level.

We need to do to “continuous improvement” on our economic system.  Like companies, it, too, has to shift to rewarding environmental and social benefit and penalizing harm.  Capitalism remains the best game in town but it still needs tweaking (as it blatantly obvious right now in the fall of 2008).  The fact that our economic system doesn’t account for “externalities” such as environmental and human health impacts, and doesn’t value the ecosystem services that nature provides, is catching up with us, and we are starting to have to come up with real money to compensate for that omission.  “We need to put a price on carbon” has become a cliché, but we actually need to do it.  It would be a significant step in the direction we need to go to changing market signals.

We also need to improve the activities of small and mid-sized businesses. Over 99 percent of businesses in the US are small, under 500 employees.  The environmental impact of this sector and therefore the potential for improvement is huge.  Large companies can help through their supply chain initiatives, by sharing information and encouraging or, if appropriate, requiring, sustainable business practices.

Local, state, and federal government also has a role to play in making a giant leap forward in sustainability, primarily by changing incentive structures that help “level the playing field”and enacting standards that clarify sustainability goals.

New Places to Start
Companies typically begin by eliminating waste. It isn’t a new story but it is surprising what a ripe area this remains – even if you think your company has already picked all the low-hanging fruit.

In Germany, an escalator does not run until a person steps on it. In a hotel corridor, the lights are off until a guest walks in.  However, in this country, we tend to think that eliminating waste and conserving energy is old-fashioned, unsophisticated.  But in Germany and other parts of Europe, we are talking about sleek, modern societies.  We have barely scratched the surface here.

I recently rented a car in New Mexico from a major car rental company. The office was  essentially glass box, sitting on black asphalt in the desert.  Obviously the air conditioning was blasting. Think of money that company could have saved if it sited and designed a building appropriate to that hot climate!  Just minimizing the south-facing windows and a adding few drought-tolerant shade trees would have made a huge difference.

But we cannot continue to think about environmental strategies in a piecemeal, company-by-company fashion. We need to entirely rethink commerce.

Producing zero-calorie soft drinks in virgin aluminum cans, transporting them vast distances and keeping them cold doesn’t make a lot of sense, even if the company is admirably reducing the amount of aluminum and taking other environmental protection measures.

Instead, we need to completely embrace “life cycle analysis” and ensure maximum “cradle to grave” integrity – on the environmental and human fronts, while mimicking nature to the greatest extent possible in everything we do, i.e., employ “biomimicry” concepts.   And our economic system has to support that.  It has to reward activities that enhance sustainability and penalize those that don’t.  “Ecological economics” will allow business to profit from protecting, restoring and maintaining human and environmental health.

Yes, this may seem like radical thinking – but the same was true of calls for environmentally-sensitive business practices in the 1970s. What seemed “fringe” then is the status quo now, and, makes solid business sense.

Final Thoughts
We have to be honest with ourselves, not fool ourselves about what we are doing regarding sustainability.  We have indeed made so much progress, yet the gap between what we are doing and what is needed is huge.

It is easy to see “the writing on the wall” now about the tremendous global financial turmoil we are in.  What lay ahead was obvious, yet no one really wanted to pay attention, to put the brakes on and change course.  The same is true for the environment and everything we are doing to it that is ultimately only hurting ourselves, as people are an integral part of it, not separate from it.   The good news is that we have a choice.  Companies can’t solve all the pieces of the problem, but they have done a lot, and they can do so much more.

Holly Kaufman is founder and president of Environment & Enterprise Strategies, a consultancy that specializes in the design and management of projects that integrate business, human and environmental needs. Representative clients include Procter & Gamble and the White House Council on Environmental Quality, where she developed President Clinton’s twenty-fifth anniversary report to Congress on environmental trends.

Strategy expert C.K. Prahalad says driving sustainability in emerging markets requires a new approach.

“Most discussions in the U.S. about eco-issues and innovation tend to be very U.S. centric. When we talk about China or India, it is mostly accusing these countries of polluting the Earth instead of saying ‘Maybe there is a solution there – and not just a problem.’”

C.K. Prahalad sees a big opportunity for eco-innovation in the rapidly growing and increasingly affluent populations of India and China. The noted business strategist and author of The New Age of Innovation and The Fortune at the Bottom of the Pyramid urged attendees at the Corporate Eco Forum Annual Meeting to rethink their preconceptions about sustainability in emerging markets. (Watch the complete keynote on the CEF video page.)

“It is my job to ask ‘Is there a more level global playing field to find solutions for our pollution problem?’” said Prahalad. “Pollution does not know any borders. It is useful to think of a solution that transcends borders.”

Prahalad shared his insight with corporate eco-strategists, including frameworks for what factors will determine sustainability success in emerging markets, and why marketing’s “Four Ps” will give way to the “Four As” in these important regions.

Extraordinary Growth
“Every minute, 30 Indians leave rural India for urban India. For the next 20 years, that migration will take place. That means 300 million Indians will go to urban India. There is no more space – 40-50% of large cities are already shantytowns – so Indians will have to build 500 new cities, at a minimum, in the next 20 years.”

Prahalad outlined a corresponding increase in the need for energy: “If all Indians consume 25% of what the U.S. consumes in 20 years, [India] would create another U.S. – that is the amount of energy that will be needed.”

As affluence increases in emerging nations, consumption of water, processed foods, meat and sugar increases. Prahalad cites one example. “If all Indians change their diet just a little bit –adding meat 2 times per week, for example – it will require a doubling of agricultural output.” The energy footprint of packaging is a major consideration.

Transportation is another consideration. With roads already crowded to capacity, the new Tata Nano, $2,500 car is set to hit the Indian roads shortly compounding traffic and pollution problems.

Innovation is the Solution
Prahalad explains three potential responses to rapid growth in emerging markets. 1) Keep the people poor and avoid the problems - not realistic. 2) Pressure India and China to minimize their ecological footprint – not possible. Or 3) look to emerging markets as fundamentally new sources of innovation – a real solution.

Home-grown, breakthrough innovation in emerging markets is already happening. Prahalad attributes this innovation to several factors. “The mental models in India are very different from here. We have not had 100 years of socialization. [The Western world suffers from ‘legacy mindsets.’ Indians don’t.”

“India lacks a large infrastructure. When you start with a clean sheet of paper, you only have a learning curve. In the U.S. and Europe and Japan, the bigger problem is the ‘forgetting curve.’ I spend a lot of time worrying about the forgetting curve. I believe the learning curve may be steep but the forgetting curve in most countries is flat.”

But to make eco-innovation successful in emerging markets it must be “constrained innovation.” While the idea of “innovation” in the developed world involves keeping minds and options open, eco-innovation in a country likes India start with constraints.

“Think of yourself as starting with a sandbox bounded by four sides,” explains Prahalad, outlining the following four factors as innovation constraints:

1. World Class Quality - “We must have world class solutions. The assumption that ‘just-okay’ solutions are okay for China and India is not going to work. In order to solve these problems, you must apply the most advanced technology.”
2. Affordability - “You have to create a level of affordability that fundamentally changes the value equation. The price performance levels have to be totally different from what they are in the U.S.”
3. Scalability - “A billion people is a large market by any standard.”
4. Sustainability – “ All solutions must be ecologically sustainable.”

The “Four Ps” Become the “Four As”
Can this be done? Prahalad says yes and offers the cell phone market as an example. “India represents 10 million new subscribers per month (If you are from Scandanavia, we can take over the whole market in two months…). The cost is 1 rupee (2 cents) for an overseas call. A local call is almost free... Do you know how much you pay for Verizon and Sprint here? None of you know… There is a message here: [customers in developed countries] don’t care about those costs. But if you are poor, you do.”

“Therefore the [Indian solution uses the] same cellular technology, the same device makers, and the costs are 1/10 of what they are in the U.S. - and the market is exploding.”

For companies to deliver on the four factors, executives need to begin with a new framework for marketing.  “We have to start with the ’Four As’– not the ‘Four Ps’ that you all learned [as the essentials of a marketing mix.]” Prahalad described the Four As as follows:

1. Awareness – How do you create awareness on a massive scale?
2. Access – How do you provide universal access to all people?
3. Affordability – How do you create world-class technology at a fraction of the price?
4. Availability – How do you make it available to billions of consumers?

In closing, Prahalad underscored the value of technology as a facilitator for eco-innovation in emerging nations.

“Information technology will be the single most important facilitator of innovation in these countries. It is not how to reduce the use of energy in server farms but how to use information technology to fundamentally change the dynamics of innovation and get people energized.”

To green or not to green? That is the question facing Global 500 companies as they develop their product sustainability strategies. Here are two approaches.

In our recent CEF study, “Driving Eco-Innovation: Best Practices in Execution from Global 500 Leaders”, we talked to many executives who were struggling with how to incorporate sustainability initiatives in their company’s product strategies. The companies we spoke to represent a combined $1.5 trillion in annual revenue – so the product challenge is not an insignificant one.

The study found that innovation is critical to eco-strategy success. There are several industries — including consumer products, computer technology, and apparel — in which consumers have become major drivers of eco-innovation, influencing the content of the end products. Executives described two major alternatives for “greening” their product portfolio.

The Global 500 companies surveyed in the CEF study described five types of eco-innovation overall:

1. Compliance - Activities or innovations related to eco-compliance and risk mitigation
2. Efficiencies – Innovations that increase efficiencies related to energy, carbon, water and waste
3. Existing Products – Innovations that make existing products and services more eco-friendly
4. New Products – Innovations that introduce new eco-friendly products or services
5. Game Changers – Eco-innovations that radically change business or industry dynamics

In the study, executives rated their company’s ability to execute on each type of eco-innovation. The chart below illustrates that respondents were far more comfortable with their ability to deploy compliance and efficiency-related innovations than they were with their ability to “green” their existing product lines or develop new green products.

Two Approaches to Product Eco-Strategy
There are two different types of strategies pursued by the firms in our sample to address this market trend: 1) eco-innovations focused on making existing mainstream products more eco-friendly, and 2) eco-innovations that create a whole new line of eco-friendly products. The strategic considerations for each of these strategies are different and often contradictory. The following excerpt from the report illustrates the challenges of each approach.

1. Greening Existing Mainstream Products
An example of a company that follows the “mainstream greening” strategy is represented by a large corporation with global brands in the consumer products industry. Its eco-innovations are currently focused on products, since the company in the last decade has already reduced by 50 percent the environmental footprint of its plants. There are two eco-innovations in particular, the use of cold water for washing and the compaction of detergents, which illustrate its new approach.

As the head of environmental initiatives told us, “In our industry, there are probably less than 10 percent of consumers who are willing to [buy] green products for a higher price. The remaining 90 percent will not.” Consequently, he said, “There have been several consumer products that have claimed to be eco-friendly, but they have not gained much traction, because there’s only a small niche of people buying these green products. As a result, the impact of these products has not been significant and they are not sustainable.”

The company therefore pursues a strategy it calls “sustainable innovation products,” which the company defines as innovations that make meaningful changes to mainstream products, so that consumers do not have to make tradeoffs in terms of price or quality versus environment. As the head of environmental initiatives told us, “Since these mainstream products sell in large numbers and have large market share, their impacts are huge.”

2. Creating New Green Product Lines
The alternative strategy is creating new product lines that are significantly more eco-friendly than existing mainstream ones. Another consumer products company is focused in that direction. As the head of environmental initiatives at this company told us, “The big strategic decision is whether we should create separate product lines that are all the way to green or whether we should only build green into existing mainstream products. Our competition chose not to put out separate product lines.”

The implications of these different strategies are vital, “We think that their strategy is incomplete. By creating separate product lines, we are not just about being incremental. It becomes a stake in the ground that we are serious about being green.” In this company, the “stake in the ground” is made clear in the company’s one-page summary of corporate strategy which clearly articulates leveraging sustainability for both cost savings and growth.

The strategy of creating a new line of green products made from plant-based ingredients is coupled with an alliance with a large and influential grassroots environmental organization whose logo is now on this new line of green products. This alliance is expected to reinforce the firm’s reputation as a green company, since company leaders emphasize that the partnership was preceded by tough questions by this environmental NGO about its product portfolio and eco-initiatives.

While there are apparent merits to each strategy, their comparative effectiveness remains an area of research. More data need to be collected, and more experience needs to accumulate, before a performance comparison can be made between these two approaches.

Register now to become a member of the Corporate Eco Forum to receive a copy of the full report, “Driving Eco-Innovation: Best Practices in Execution from Global 500 Leaders” and all of the upcoming reports in the CEF Research Series.

The founder of Better Place explains why the time is right for electric vehicles to become a mainstream reality.

When Thomas Friedman calls you the “Jewish Henry Ford,” you better be ready to pull off something big. Shai Agassi plans to do just that.

The former SAP executive and current CEF Advisory Board member plans to bring the dream of electronic vehicles to reality. His company, Better Place, will provide the energy and infrastructure that will enable consumers to begin to view “transportation as a service.”

Better Place is working closely with governments. The firm is launching its efforts in Israel and plans to launch a program in Denmark as well. The electricity will be provided by renewable sources such as solar and wind power.

Agassi spoke with The EcoInnovator about the four factors that will enable adoption of electric vehicles and why this time, consumers are ready to plug in.

The EcoInnovator: Why do you think efforts to launch the electric car have failed before?

SA: To this point the adoption of EVs has been slow because the consumer has always been asked to sacrifice on something with regards to the car: price, performance, design, etc. For electric cars to be adopted by the masses they need to meet specific requirements so that the consumer does not have to sacrifice anything. The cars need to be full size, high performance, affordable and convenient to keep charged.

Consumer demand for sustainable transportation has never been stronger than it is today. With skyrocketing oil prices and an increased awareness of global climate change, consumers are acutely aware than ever of the role they need to play in end oil addiction.  In addition, advanced battery technology now exists, which wasn’t the case years ago. This makes electric cars less expensive and able to drive up to 120 miles without a charge which makes them practical for the general population.

The EcoI: How will your initiative differ?

SA: Broad adoption of electric cars requires four things:

1. Electric cars produced by major car companies that are comparable or superior to what consumers are used to;
2. Safe and affordable batteries with a reasonable driving distance between charges;
3. Exchangeable battery stations and easily accessible charge networks; and
4. An affordable business model that makes electric car ownership affordable.

This is how Better Place will approach making electric vehicles a reality for consumers around the planet.

Critically, Better Place is forging close ties with governments, utility companies and auto manufacturers to make sure the right financial incentives and polices are in place to make electric transportation a reality.

The EcoI: What would be the benefits to society if the electric car were to become widely accepted?

SA: The dollars that leave nations to buy oil can now be funneled back into national and regional economies to create new jobs. The US, for instance, spends nearly $600 billion annually on foreign oil, which poses a threat to national security in addition to sending dollars out of the country.

Most importantly, the harm to our planet will be slowed. By taking cars off oil and fueling them with renewable or carbon free electricity, Better Place will significantly reduce the environmental impact of driving. Gas-powered automobiles around the world produce nearly three billion tons of CO2 into the atmosphere each year, an indefensible strain on the environment.

The EcoI: How is your company working with governments and established industry players to lay the foundation for electric cars?

SA: The Better Place model can absolutely be implemented without immediate government support. However the rate of consumer adoption will ultimately depend on government policies to make it more affordable. Governments can put in place tax incentives that reduce the price of the total cost of the electric car for early adopters.

Better Place also works closely with utility companies, such as Israel Corp. and DONG energy, and auto manufacturers like Renault-Nissan, to make the business model work.   Better Place is currently in talks with over 25 countries around the world and all of the major auto manufacturers to ensure the electrification of the automobile becomes more widely adopted.

The EcoI: How will your experience as a software industry leader help you in your new venture? Are there similarities between the two roles?

SA: SAP taught me a great deal about how to run a large business and scale on global level. There is a strong technology element to what we’re doing, and it certainly helps to have that background as we grow.

The EcoI: What has the response been from the public to your plans for a company?

SA: The outpouring of support for Better Place has been overwhelmingly positive from all corners of the globe. Using Israel as an example, citizens have expressed immense interest about using electric vehicles. In a recent Geocartography survey, nearly 210,000 Israeli households declared an open willingness to purchase an electric vehicle; one in six households in the country.

With oil prices rising and driving costs rising at an exorbitant rates, and with increasing commitments from governments for EV tax incentives, widespread consumer adoption of electric vehicles is close behind.

CEO Eric Schmidt chooses the CEF Annual Meeting to lay out Google’s 20-year plan to power the U.S. with renewable energy.

“What I see before us is the largest opportunity that I can imagine. It is an opportunity that solves energy security… and energy price. It will create jobs and investment. And it will solve the biggest problem facing the planet aside from nuclear proliferation - climate change.”

Attendees applauded loudly to the conclusion of CEO Eric Schmidt’s address as he debuted Google’s alternative energy plan at the inaugural Annual Meeting of the Corporate Eco Forum in San Francisco Monday night. The two hundred executives gathered for the two-day meeting represented companies with $2.3 trillion in revenue such as Coca Cola, General Motors, Microsoft, DuPont and Procter & Gamble.

The Google plan calls for the U.S. to use renewable energy to power all electricity and to cut automobile gasoline by half by 2030. If deployed, Schmidt says the plan would cut climate emissions by half. (Watch the complete keynote address on the CEF video page.)

The plan focuses on wind, solar and enhanced geothermal sources of energy. Google has already invested more than $20 million in wind and solar thermal development.

Other renewables (such as wave power, on which Google recently received a patent) will likely come online in the next few years as well but aren’t included in the plan because they aren’t yet as far along in their deployment and cost efficiency. The plan excludes nuclear power due to the “infinitely high” capital costs and energy security issues.

Schmidt underscored the potential for renewable energy development to boost the economy. Alternative energy will create thousands of both blue and white collar jobs domestically and will also create export industries for the U.S. “We have the best science and technology and research communities in the world. We can build export industries and get more revenue for our country.”

The price tag on the Google plan is a big one: $2.7 trillion. Yet Schmidt says the country will recoup $2.1 in savings. Estimating the present value of that savings would amount to $200 billion – a fraction of what the U.S. spends on oil.

“Even if you disagree with my methodology, there is a real opportunity right in front of us to actually solve this problem if people would stop arguing about all the minor issues and start talking about the fundamental opportunity which is to retool the energy infrastructure of the United States.”

Schmidt called for improved government support and understanding. He says federal R&D support is needed, as well as more state standards around renewable energy.

“We have a total failure of political leadership, at least in the United States and perhaps in the world on these issues,” Schmidt said. Instead of awarding the next U.S. economic stimulus package to the “usual suspects,” he urged officials to consider using the investment to rework the energy infrastructure.

Schmidt laid out the obstacles in the path of Google’s plan. He said a cap-and–trade system is needed. More critically, solving the “grid problem” is another tough challenge. Schmidt estimates the efficiency loss of the current grid at approximately 9 percent.

The keynote address capped the first day of the CEF Annual Meeting. The program featured general sessions with speakers such as Vinod Khosla, San Franciso mayor Gavin Newsom and Adam Werbach. Smaller, working groups tackled issues such as greening the supply chain, turning waste into profit and improving energy efficiency. The second day of the meeting featured more working groups, as well as speakers C.K. Prahalad, Mindy Lubber, Ray Lane and Tom Siebel.

Schmidt began his dinner speech with a display - both dazzling and concerning - by Google Earth. The display began by showing the room atop the Fairmont Hotel in San Francisco where attendees gathered, and then zoomed back into space.

The views from Google Earth looked at the current and future predictions for the polar ice cap. It also highlighted the difference in forest density along the Mexico-Guatemala and Brazil-Uruguay borders, where national policies differ. The potential for a climate crisis was easy to see.

“It is time for everyone to get off their rear ends and seize the moment… A crisis is a terrible thing to waste,” Schmidt said.

Schmidt urged companies to focus on energy efficiency. Adding capabilities to monitor energy usage, improve fuel efficiency, revise building codes, raise technology efficiency standards and invest based on total cost of ownership are all proven strategies in the corporate world. Companies today are accumulating cash at a great rate, according to Schmidt, suggesting that these funds could be invested in energy and efficiency projects.

Google’s $5 million investment to reduce carbon emissions on its buildings only took 2.5 years to payback. Google is piloting a small fleet of hybrid cars that aims to prove that leveraging plug-in hybrid technology and e85 fuel can drive gas usage from 100 percent down to 3 percent.

The vehicle-to-grid potential was also cited as compelling. Schmidt believes that if plug-in car batteries could send their excess power back to the grid for peak power generation times, the model would be very similar to distributed computing, the Internet and the PC.

Schmidt challenged the room of Global 500 executives: “If you don’t like my plan, produce your own.”

An excerpt from the latest report in the Corporate Eco Forum Research Series looks closer at the importance of key innovation innovation drivers and shares one case study for developing a company-wide eco-strategy.

The Corporate Eco Forum conducted an in-depth study of 30 Global 500 firms to better understand the state of eco-innovation and to learn the best practices that are driving successful execution of these initiatives. Representing a combined $1.5 trillion in annual revenue, the companies surveyed will play a significant role in the evolution of eco-strategy.

The findings of our research are published in a new report to be released next week at the CEF Annual Meeting, “Driving Eco-Innovation: Best Practices in Execution from Global 500 Leaders.” The full 80-page report is the second in the CEF Research Series and contains findings from the quantitative survey of eco-executives and insightful case studies on execution of eco-innovations. (Click here to read the report preview.)

The study found that innovation is critical to eco-strategy success. Execution remains the challenge. As some Global 500 companies work to close the execution gap on key sustainability innovations, other leading-edge companies have experienced success. In this excerpt from the full report, we discuss the drivers of eco-innovation execution.

Our in-depth interviews with eco-executives led us to focus on execution of four key execution drivers:

1. Achieving a company-wide strategy for eco-innovations
2. Generating company-wide momentum for implementing eco-innovations
3. Aligning the corporate eco-team with the business
4. Creating a company-wide culture for eco-innovations.

The results from the quantitative survey confirmed that the above four drivers of execution were indeed very important. While other drivers were also identified, these four were most frequently mentioned in the interviews preceding the survey and are considered in greater detail in this report. As seen in Figure 3.1, more than three-fourths of the firms in the sample felt that they were all either highly or very highly critical to the success of eco-efforts in the company. The differences in importance among these drivers are not very significant.

Figure 3.2 shows that the Global 500 leaders have relatively middling abilities as a whole to execute on these drivers, even by their own assessment. For example, only around half of them have high or very high abilities to execute on momentum, shared culture and corporate eco-team alignment. Only four percent of them have very high execution abilities with regard to momentum. The percent of firms who have similar abilities is highest (64 percent) for achieving a company-wide coordinated strategy for eco-innovations. All this suggests considerable room for improvement for all the drivers among the Global 500 firms.

Achieving a Company-Wide Coordinated Strategy
The importance of developing a concerted effort towards sustainability has often been discussed by early deployers of corporate eco-strategies. Our survey found three-fourths of company leaders who responded to the question consider a company-wide coordinated strategy for executing eco-innovations as either highly or very highly critical to their company’s overall eco-effort.

Interestingly, the remainder of respondents consider such a strategy to be low or medium in criticality, suggesting indirectly that decentralized, uncoordinated efforts within business groups or company divisions may be preferable to them.

Based on the interviews with Global 500 respondents, we identify at least 10 different strategies for focusing on eco-innovations. These 10 strategies run the gamut from internal managerial processes and efficiencies in production to external customer-facing product innovations to innovations involving collaborative partnerships with other players in the industry. As a result, eco-innovation strategies focus on a wide range of applications, including activities processes, technologies, products, work partnerships, and even attitudes toward business and the environment.

The full “Driving Eco-Innovation” report takes an in-depth look at case studies and best practices involving 25 different eco-innovation drivers. In this excerpt, we share the following example:

Case Study: Corporate-Wide Environment Management Systems to Drive Eco-Initiatives
An important class of eco-innovation strategies relate to internal management systems and coordination/governance mechanisms for managing work in organizations. A good example of such managerial eco-innovations is an environment management system (EMS), one version of which has been documented in the ISO 14001 standards. The EMS of a global technology services provider that we talked to is a good example of such an eco-innovation strategy.

The senior manager in charge of internal environmental initiatives at this company told us about its eco-innovation focus: “For us, it could be summed back to our global environmental management system. It is a management system that basically drives the company’s strategy and focuses on goals and objectives, and roles and responsibilities, across the company — regardless of what business we are in at any given time and what may be the external requirements or expectations. It requires us to do a regular strategic analysis of this field. It is very important, since we avoid debate on who is supposed to do what to whom at any given time.” The executive further said that this is a unique source of eco-advantage to the company, since it is one of few companies that is able to register against ISO 14001 globally.

The key expectation in the company is that eco-innovations and other eco-efforts should be executed along a consistent management system. The manager emphasized that the company has “one policy in the company, one set of strategies and one set of goals” when it comes to eco-innovations and initiatives. The prerequisite to having an effective EMS is that company strategists understand clearly what the focus points are, i.e., which government programs and regulations necessitate implementation, as opposed to what is simply trendy.

Importantly, these management systems are relatively independent of the ISO 14001 standards.
The senior manager emphasized, “Our management system will be here with or without ISO standards. Even if the ISO standard goes away tomorrow, our management system will still be here.” Moreover, this company’s management system predated the ISO standard by several years, which enabled company strategists to register within one year of the standard being released. A core challenge in using such corporate-wide management systems to drive eco-efforts is in keeping up with regulatory change. The company needs to be constantly aware of this external influence and be able to adjust the management system to these changes. The senior manager emphasized, “Even in a field you think you understand, where the regulations have been around, our understanding continues to change [along with] our ability to measure changes, which adds to the challenge.”

Along with a strong emphasis on corporate-wide management systems, this technology service provider also targets a wide variety of other approaches to eco-innovations, including product and process “stewardship” in environmental principles, pollution prevention, energy conservation, and innovations related to carbon emissions and water consumption. Nevertheless, the underlying focus of all these areas is to ensure consistency with the management system, which is the company’s most important area of concern.

Register now to become a member of the Corporate Eco Forum to receive a copy of the full report, “Driving Eco-Innovation: Best Practices in Execution from Global 500 Leaders” and all of the upcoming reports in the CEF Research Series. Corporate members - from BT to GM to P&G to SAP - will attend the CEF Annual Meeting next week in San Francisco and discuss the findings of the report and their implications for future strategy.

Renowned futurist Dr. James Canton discusses the importance of sustainability to the future of global business.
Many goals of today’s corporate eco-strategies are aimed at achievements for 2020 and beyond. The next decade will undoubtedly set the stage for the leaders of the next business era.

Dr. James Canton agrees. As Chairman and CEO of the Institute for Global Futures and a member of the Advisory Board of the Corporate Eco Forum, Dr. Canton’s extensive experience advising the world’s leading corporations and governments involves his belief that sustainability will be the key transformation strategy for business success in the future.

Dr. Canton spoke to The Eco Innovator about why eco-strategy will disrupt business in the same way that the Internet did, why it doesn’t matter if you believe in global warming, and why 2020 will be “game over” for companies still on the sustainability sidelines.

The Eco-Innovator: Many Global 500 companies are launching eco-strategies today that have goals for 2020 and beyond. What factors should they be considering?

James Canton: First, the idea of an “eco-strategy” implies a concise standard of excellence. It sounds like we have a consensus, which has not been established yet. We are still very early in the game – the definition of an “eco-strategy” is still a moving target. Also, what may count as an eco-strategy for one company or one industry may be different from what counts in another.

Developing an eco-strategy is more art than science today. The definition of eco-strategy is still an evolving paradigm that needs to be evaluated and tested in the marketplace. Let’s not assume that there are strategies out there that have buy-in and consensus.

What I’ve found as I consult with governments and institutions is that it is very difficult for people to picture the right strategies for the future. It is still an evolving conversation.

Let’s make an analogy to the Internet. In the 1990s, the early adopters were considered radical. Most companies did not believe that the Internet represented a fundamental shift that would transform business and organizations – that didn’t happen until after 2000.

A similar phenomenon is happening with eco-strategy adoption. Many companies still think it is about reputation. They’re using their eco-strategy to prove to the marketplace that they’re on top of the right trends.

By 2020, we’ll have global agreement. We’ll have organizational leaders that have demonstrated the courage to deploy real eco-strategies.

Because by 2020, if we’ve not achieved a measured, significant reduction in emissions, sequestered carbon, developed carbon-trading exchanges, cut back on climate change so that we’re able to manage the risks associated with health and mobility, it will be a tragedy.

But as of today, we still don’t have a critical mass of change. There’s not so much happening that I can say, as a futurist, we will achieve these goals. At this point, by 2020, we’ll need to have developed more ideals and goals to make a sustainable future come to life.

By 2020, the global business community will have put the stake in the ground and created the goals that will transform their organizations – and it will be the corporations, not the governments – which will make the planet more livable for our children and grandchildren.

The Eco-I: What will separate the successful eco-strategies from the others?

JC: In every part of the organization, innovation around eco-strategy will need to be baked in. That’s where the real change will occur. Currently we’ve got companies with a green strategy for this service, or with investment in green initiatives, but overall, they’re still risk-averse.

That won’t be the case in 2020. Consumers will be brutally evaluating which companies are really green. Eco-strategy will be a systematic approach to the business.

Going back to the Internet example, the eco-movement is similarly a very disruptive business change. Green will be a natural evolution by 2020. The companies that get it right will be rewarded – by the marketplace, investors, consumers – and those that don’t will suffer. I forecast that 25 percent of today’s companies will not change fast enough and will be disrupted by the eco-strategy movement in the same way that the Internet disrupted the corporate establishment.

In many companies, the boardroom has not yet woken up to this reality. When it does, that is when things will really shift. Interestingly, you now have cases where companies like GE, which are out in front of this green movement, have had to deal with investors who are not on board.

The good news is that this won’t be the case in five – or even three – years. In a short time, you will see entire company boards replaced. The new members will be listening to the marketplace, which says green matters. Where the environment is primarily an identity issue today, eco-strategy will become a fundamental change in the DNA of business – and by 2020 we’ll see that.

The Eco-I: For today’s companies that are just launching their sustainability initiatives, is there still time to make real change by 2020?

JC: Companies should be baking in sustainability to their strategies today. Yet many don’t have any kind of real eco-strategy. They are de-linking green initiatives from their overall corporate missions. These companies still need to make the strategic link to where the marketplace is going and execute on that strategy.

I worked with GE on their “Ecomagination” strategy. The program began a decade-plus ago when the company was dealing with a lot of pollution problems. After a lot of hard work, they ended up turning a corner. GE had to make sure that product strategies included eco-considerations that were authentic to the market and sustainable for the planet.

To use the Internet example, if the Internet didn’t transform your communications, supply chain, ecosystem, customer interactions, then your company is not around anymore. Any sizeable company has embraced the Internet. What was a disruptive force in the 1990s is now the standard of business.

The company that is not working on its eco-strategy is planning its own death and demise. It is really a matter of smelling the coffee and getting moving.

Every business is facing the same transition. Rather than fighting the change, it will pay to embrace a good eco-strategy – to see where the market is going and get there before the competition.

By 2020, it is “game over.” It is critical for companies to cast their eco-strategy bets now and make changes as they go along. By 2012, they’ll otherwise have missed the opportunity to achieve a competitive advantage by having a business strategy that has the right sustainability components to establish them as leaders. Companies that can execute on eco-innovations today will be way out in front.

The Eco-I: What will drive eco-strategy success in 2020?

JC: Eighty percent of corporations have yet to realize that eco-strategies will create a new competitive edge in business. There are products and services that have yet to be created, which will drive bottom-line value.

This is a tremendous opportunity. Here are customers saying they want to buy these types of products. From a mercantile point of view, it pays to serve them. I’m in business to make money. Buying into the idea of climate change – it doesn’t make any difference. But if you like to make money and want your company to survive, guess what? Eco-strategies make financial sense.

It is the pure economic argument that is getting traction today. Those companies that are out in front don’t care about the metrics of eco-strategies because they understand that fundamentally, customers want this. Our surveys show that 90 percent of Europeans and North Americans view themselves as environmentally aware. The question is, can companies create eco-strategies to transform their organizations, so that they can benefit from these sentiments and improve their bottom line? That’s the real challenge.

When I work with companies, we don’t discuss the health of the planet. I don’t play the social-morality card to get clients to pay attention. Basically, I say, “Your customer will buy more goods and pay more money for green offerings. If you want to leave money and market share on the table, so be it. But if you want to understand these trends and use them to develop an eco-strategy that will lead to a competitive advantage in the future, then let’s talk.”