By Stefan Heck and Matt Rogers, Authors, Resource Revolution: How to Capture the Biggest Business Opportunity in a Century
The prophets of doom are wrong. They believe the rapid rise over the next two decades of a new 2.5-billion-person urban middle class—and the unprecedented demand this growth will generate for oil, gas, steel, land, food, water, cement, clean air, and other commodities—must inevitably slow the global economy and foment environmental crisis. Our new book, Resource Revolution, takes that challenge seriously—but comes to exactly the opposite conclusion. Instead, we believe, the chance to meet soaring demand in a sustainable way by transforming how companies and societies prosper represents nothing less than the biggest business opportunity in one hundred years. The combination of information technology, nano-scale materials, and biotech with traditional industrial technology can unleash a step-change in resource productivity and generate enormous new profit pools. It also means that good business and sustainability are working hand-in-hand on capturing these new opportunities as lower resource use drops to the bottom line in profits. However, capturing these opportunities—and avoiding the disruption they bring–will require an entirely new approach to management.
Today, it’s worth remembering that the first Earth Day was a bipartisan event co-chaired by Senator Gaylord Nelson (D-WI) and Representative Pete McCloskey (R-CA) in Philadelphia in 1970. The progress over the last four decades is encouraging: lead emissions down 99%, carbon monoxide emissions down 80%, SOx emissions down 70%. Throughout this period the United States has experienced strong, sustained economic growth. We have demonstrated that countries have a great ability to eliminate waste and innovate, allowing the global economy to drive down pollution and sustain economic growth. The Resource Revolution argues that we have a great opportunity to build on this foundation, but that we require a new approach to management to take that next step.
What do Devon’s shale gas development, Elon Musk’s Tesla, the seed company Kaiima, and the global apparel chain Zara share in common? In Resource Revolution, we describe how each in its own way exemplifies the management practices required to win in the industrial revolution now underway—an approach to producing and using natural resources so effectively that it defies conventional wisdom and enables breakthrough performance where others see only limits and shortcomings.
Take the century-old car industry. Its mature production processes and well-established ecosystems remain nonetheless wildly inefficient in their use of resources. The average car is on the road only 4% of the time, and nearly half of that looking for parking or stuck in congestion. Less than 1% of the energy used in a car actually goes to transporting the people in it. Operating at maximum efficiency, a highway is only 5% covered by cars. By taking a different approach, Tesla and Toyota have built better cars by using high torque, low waste electric motors. Idle time can be slashed by sharing cars, through services such as Zipcar and Uber. Driverless technologies, pioneered by Google and being rolled out by major car makers by 2017, will both save lives and turn a 4-lane highway into the equivalent of a 32-lane superhighway. Integrating these techniques holds the potential to reshape the world’s transportation system as convenience, safety, comfort, access for non-drivers like kids and senior citizens, cost, and environmental footprint all improve simultaneously.
We argue that finding breakthroughs in resource productivity begins by looking at five key possibilities:
- Finding opportunities to substitute away from scarce resources and into new, higher-performance materials. For example, Hampton Creek Foods has developed a plant-based egg substitute called Beyond Eggs that uses peas, sorghum, beans, and other plants to make a product that tastes like, and has the same nutritional properties, as eggs. The product can be used in baked goods and mayonnaise at lower cost, less risk, and better performance.
- Eliminating waste throughout the system. The guiding principle was made famous by Toyota as kaizen—to drain the swamp so the rocks become visible. This means measuring inputs (materials, energy, and water), outputs (pollution and effluent), and waste factors in between (scrap, idle machines, changeover time, or other interruptions). For example, EcoMotors is redesigning engines to increase efficiency and improve fuel economy.
- Increasing “circularity”— upgrading, reusing, or recycling products. The rule of thumb is that the tighter the loop, the greater the value captured and the stronger the competitive differentiation. Reusing a phone is more valuable than reusing a microchip, which is more valuable than extracting gold and silver. ATMI has turned e-waste recycling into a highly competitive gold mine. Boeing and Alcoa have developed a high-return, closed-loop system for airplane parts.
- Optimizing efficiency, convenience, safety, and reliability. The guiding question should be “What expensive assets are used only a small portion of the time, or what energy-intensive equipment is active without performing a function?” Komatsu and Caterpillar are turning traditional heavy-duty construction equipment into services. All lend themselves to IT solutions that optimize routing, timing, loading, preventive maintenance, or sharing.
- Moving products, services, and the processes that develop or deliver them out of the physical world and into the virtual realm–as Apple has done by turning music, movies, newspapers, bank statements, cameras, and flashlights into apps. General Atomics took the pilot out of the airplane and opened up the world of drones. The opportunity is not to use innovation in an incremental way, but rather to reinvent the product and the industry, making things ten times better, delighting the customer in wholly new ways, and creating whole businesses in the process.
Similar disruptions are roiling businesses from oil and gas to power, water, agriculture, transportation, buildings, and even healthcare. We explore the key ways far-sighted managers are rewriting the rule book by substituting high-performing new materials for traditional ones, integrating software into industrial equipment, reducing resource waste in manufacturing, and expanding the circularity of production systems. As these new forms of manufacturing and service delivery take hold, systems engineering, modular design, and front-line analytical talent will become critical tools. When great managers apply these tools to old-school processes and markets, they can tap into opportunities for 10x improvements in performance and seize radical new opportunities for wealth creation. Resource Revolution explores how companies from GE and Samsung to Cree and C3 are meeting this 21st century productivity imperative and offers practical steps to guide managers in any industry.