by Ernst von Weizsacker, Amory B Lovins and L Hunter Lovins (1998, but still frequently reprinting). Earthscan London
Productivity needs to be redefined in terms of resources employed, rather than by reducing numbers employed. We need to "do more with less". In this way we can cope with the environmental threats posed by climate change, and the problems associated with the excessive consumption of the earth’s resources, while at the same time sustaining a market economy, making profits and maintaining a good quality of life. These hopes are justified on the basis of 50 examples in the areas of energy, materials and transport. The object in reviewing the book is to encourage businesses to look for ways of innovating that will protect them from disaster as consumption patterns change and, better still, help them to make a profit by contributing to resource productivity.
(Reviewed by Edgar Wille in March 2007)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)
The year 2007 is notable for the extent to which the media are paying considerable attention to issues such as the environment, climate change, world poverty, population growth, pollution and the using up of earth’s resources in an unsustainable way. There is no question of regarding this as the preserve of cranks and doomsayers. There are variations of interpretation, but there is no gainsaying that there is strong evidence that the Western way of life is facing serious threats and the tragedies of the less developed world are likely to worsen.
If even the less drastic scenarios were fulfilled, we live at a time when "business as usual" is not going to be an option. Many of the luxuries to which we have become accustomed may need to be restricted if greater disaster to the planet is not to overtake us. We have reviewed books on these areas of concern and it is high time for the business world to address the situation, to be ready for whatever may lie in the future and even enhance profit by being early in line.
The Stern Review gave alternative scenarios on greenhouse gases affecting the climate. Some of these could be manageable, given the will, but others would be stark disaster. Sir Jonathan Porritt in Capitalism as if the world mattered discussed how capitalism could become a system which delivered sustainability of earth’s resources and promoted the wellbeing of all. We also reviewed books by CK Prahalad and Stuart Hart which suggested ways by which businesses could alleviate the shocking poverty of two thirds of the world’s population, while making a profit for themselves.
We have avoided books which are negative and produce panic, but have felt it important to take a cool look at problems which, if not addressed, could drastically weaken the fabric of business and industry. Our aim in including such books in our reviews is to alert all business organisations to the need to accelerate the rate of innovation and creatively be ready to adopt alternative policies with which to replace some elements of their current activity and thus stay in business. And, of course, businesses which are first in seeing opportunities where others may see only threats are the ones that will prosper.
Factor Four is an outstanding book full of suggestions for this innovative approach. Its very sub-title shows that it is not purveying doom and gloom, but rather a well considered optimism based on radical steps. The keynote of the book is that "we can live twice as well – yet use half as much". This is applied particularly in energy, construction and transport – areas which are especially susceptible to the voracious human appetite for living beyond our means as a planet. The control of waste is a central issue and productivity is re-defined in terms of resource productivity, rather than worker productivity. Our ways of measuring profit are reconsidered, so that we should no longer regard air, water, soil and other resources of nature as free gifts to be used prodigally ("externalities" as economists term them). They must be husbanded and be accounted for in our financial sums. "Bads" should be taxed rather than "goods", so as to reduce activity that is wasteful of earth’s limited resources.
The theme of this book makes good business sense because the kind of efficiency it recommends produces cost reduction and therefore enhances profit opportunities. One of my MBA students in the Czech Republic is a senior partner in an energy saving consultancy. Their approach is not that businesses should consider energy efficiency simply as altruistic corporate social responsibility (CSR), but as a significant element in their profit making capacity – doing well at the same time as doing good. This is the opposite of the point of view which sees environmental protection and resource conservation as unwelcome costs.
"Doing more with less is not the same as doing less, doing worse or doing without". Whereas some environmentalists face us with the prospect of going back a century or two to a more primitive way of life, the authors of this book offer a resource efficiency which will enable us to see better with more efficient lighting systems, eat better with fresher food from more efficient refrigerators and enjoy safer and more comfortable travel in more efficient vehicles. And the road to this world is innovation, often in simple ways, and with a readiness to consider what we may previously have thought unattainable.
The way in which costs can be reduced is illustrated by minimising wasted resources which pollute air and water; resource efficiency means you don’t have to pay now for resources that are being turned into pollutants and you don’t have to pay later to clean them up. Technology is better employed by reducing the unproductive kilowatt hours, tonnes and litres than by defining productivity as reduction in people employed.
Architects and engineers tend to be paid by a percentage of the project cost, according to the size of their budget – what they spend - not according to what they save. If the cost goes down so does their fee! What kind of an incentive is that for exercising resource efficiency?
The purpose of the book is to offer practical examples of new and significant ways which by halving resources and doubling wealth can quadruple efficiency. But radical thinking is required. It is a matter of leapfrogging, not slow incremental improvements. Inertia has to be overcome by taking action to change the way things are. It means getting rid of obsolete practices to which we are used, but which actually impede progress.
The fact that the examples are taken from the 1990s does not detract from their value. The basic principles are established. That reprints are still taking place is evidence that the book is still very topical. However, we might want to know whether this was just a temporary flash of genius or whether it has continued. A look at the web pages of the Rocky Mountain Institute in Colorado will show that the work continues unabated. Two of the authors of this book, Amory and Hunter Lovins, founded the Institute in the 1980s.
Part One of the book is devoted to some 50 case studies which illustrate the possibilities of significant innovation which were already revolutionising energy productivity, material productivity and transport productivity, when the book was written.
Whatever the field of readers’ businesses, some of these examples are bound to strike a chord and suggest similar innovations, perhaps in totally different areas. Never was it more essential to "think outside the box".
The phrase "energy productivity" is preferred to "energy saving". It redirects technology for positive purposes. Where reducing labour was the main purpose of technology, people lost jobs and were reduced to penury, while others found benefit if prices were reduced. When energy is made to go further at less overall cost, everyone benefits. Getting twice as much for half as much gives us the Factor Four.
Here then is a selection from the twenty energy examples. Inevitably, technical details can only be sampled here, just to give the flavour. You can get fuller detail by reading the examples that interest you or by looking at the Rocky Mountain Institute website.
Wuppertal Institute’s Division for Material Flows and Eco-restructuring have developed a system known as MIPS – material inputs per service unit – which determines or estimates for any well defined service the kilograms or tonnes of materials that must be moved about anywhere in the world to provide the service.
A given requirement might need tailings from a copper mine in Chile, water and other materials used in manufacturing in, say, Mexico, packaging done in, say, Chicago, plus materials moved in the final sales process. The impact on the environment of all this movement can be included in the calculations. Durability of the output will reduce the total cost, but it is affected by factors beyond this, "from cradle to grave", or "from cradle to cradle" when recycled material starts a new life span. The externalities to which reference has been made are taken account of. It is claimed that this approach can reduce resource usage by a factor of ten.
The Product Life Institute in Geneva supports the MIPS approach and suggests a strategy which:
All a matter of common sense, but very effective.
The authors ask how many widgets need to be made if we each require one. Just enough to replace breakages or wear, plus as many as we need to keep up with population growth. This would mean that a lot fewer ceramic mugs would be needed for our drinking than if we drink out of styrofoam cups, which have no durability. Almost unbreakable ceramic mugs would last several generations, whereas "consumer ephemerals" are thrown away after one use.
A number of examples are given of items which could be produced with minimal MIPS, to be almost eternal or, if not, taken back by the producer for remanufacture.
Some of these methods have been around for a long time. They just need to be brought onto more agendas and to be developed further. Many of the products our way of life seems to demand use up resources in the manufacture and especially in the initial mining or growing processes, to say nothing of the transport across the globe.
Every journey, by whatever transport medium goods or people are moved, involves energy and material consumption. But in addition there are habitat destruction (by roads), noise, the effect of mass tourism, interference with wild life, all with some effect on the environment and human behaviour. The examples suggest ways of reducing the extent to which physical transport is used.
It is not expected that readers will necessarily be inspired by our very brief review of these examples to seek the implementation of any of the specific instances. They are given to encourage similar approaches, maybe in entirely different areas. We are seeking to encourage the business world to greatly accelerate the rate of innovation and to rule nothing out as impossible, whether for technological or social/human purposes.
Bringing myself up to date by searching websites, such as the Rocky Mountain Institute’s, I have been impressed by the amount of exciting experimentation that is going on, some of it already yielding results. It would be better for businesses to be getting on with it now, rather than facing the need with their backs to the wall, if some of the worst scenarios for the future were to be realised.
In evaluating the whole picture, the authors of the book stress that economic benefit must be assessed by net profit, not by total revenue. Moreover, the type of activity described is fully compatible with market expansion, but without resource expansion. It is essential to count all the costs, not only the direct ones which ignore "externalities".
A change of perspective is required which will not be concerned to ensure labour shedding, but to reduce capital and resource intensity with benefit to employment opportunities.
The profit motive is not derided. One powerful paragraph declares: "So effective is the profit motive that perhaps markets headed for unsustainability can best be redirected by the creative use of market forces themselves, to harness their ingenuity, rapid feedback and diverse, dispersed, resourceful, highly motivated actors". Involved in this is finding the cheapest way to do the job; investing in saving resources, wherever that is cheaper than investing in harvesting them: making markets in saved resources: using prices to tell the truth: fostering competition on a level playing field between all options; rewarding the behaviour wanted, not its opposite; taxing the undesirable, not the desirable; scrapping inefficient devices prematurely and replacing them with efficient ones. This would be a recipe for a different world, but still market based.
The latter part of the book, in a balanced way considers methods of using the innovative potential of market forces to meet the current and future global problems and to turn them into profit opportunities.
It is proposed that we need to move on from the philosophy which assumes that consumer preference is expressed through purchasing decisions and that if people wanted something different the demand would have been evident. But this assumes that perfect information is available about available options and because of this we go on paying too much for inefficient energy, goods and transport. The current battle in the energy field in the UK is beginning to correct this as gas and electricity companies regularly compete in offering attractive cost saving options.
The market economy is itself, by offering cost reduction, highlighting ways of saving resources. A major change will take place as people realise the obvious fact that saving fuel could cost less than burning it. It doesn’t have to be true that appliances that use energy efficiently have to be more expensive, as we are often led to suppose. It is not true that inevitably if saving energy involves substitution of equipment and material, then the cost will rise. Yet often government inspired subsidies are based on this assumption.
How can efficiency be sold at a profit? The marketing perspective recognises that essentially people buy a service, not goods per se. They do not want to buy kilowatt hours per se, but efficient, reliable, convenient services at the cheapest possible price. There is nothing new about this approach; but such market principles, properly followed, could transform the planet’s prospects. And business needs to remember that it is a sound strategy to sell customers what they want before someone else does. The story is told of how the Pacific Gas and Electricity Company stopped building power stations, disbanded its engineering and construction divisions and aimed to get 75% of its savings by leading customers toward more efficient use of energy and making up the remainder with renewable provisions.
New information provision and new financial devices all enter the innovation equation where this attitude is adopted. Companies following this line will be rewarded with more customers by cutting our bills rather than selling us more electricity. It’s called "trading in negawatts". No longer will companies make more profit when they sell more of something and decrease profits when they sell less. And as some of the examples illustrated, designers will be rewarded not for what they spend, but for what they save. These principles apply in all the activities of business, from materials to transport as well as to energy and other limited resources.
Implicit in this approach is making prices tell the truth. This is illustrated by the fact that many of the costs of motoring are not reflected in the motorist’s direct costs. Someone has to pay for smog, congestion, lost time, accidents, roadway damage, land use and the side effects of driving itself. But the connection with driving is not immediately apparent. The price of driving as perceived does not tell the truth about its cost.
The book also sets out ways of using taxation, rebates and pricing positively to help stop the world overexploiting resources and under-using human labour. The day has passed when we could see environmental protection, resource efficiency and nature conservation as meaning economic sacrifice. They are social assets which will be worth paying for, but which if the innovatory activity proposed in this book is followed will not in the end cost us more. The lean thinking on which management books have been written, and which companies like Toyota have applied, will divert us from the path of prodigal waste
This is the message of the last part of the book. If it was urgent in 1999, how much more so is it now apparent that there is no time to be lost. In eight years much more information has come to light and research is widespread, whose findings cannot really be gainsaid in principle, though there may be disputes about specific elements and the interpretation of some statistics.
The Rio Summit of 1992 left a mark on awareness of the problems, ranging from the likelihood that the gold ring on your finger will have needed three tonnes of material to be moved and processed, to the statistic that 1000 Germans consume roughly ten times more resources than do 1000 Filipinos, Egyptians or Argentinians.
One issue which remains topical is the tendency of the prosperous nations to look to the poorer part of the world to provide the answer to sustainable use of resources. But the latter can reply: "You have had your time of unlimited resource exploitation which made you prosperous. Why should we go without our share now". This feeling is understandable, even though the latecomers will suffer with the early comers in the resultant over exploitation of earth’s resources.
And the problem remains that if the poorer nations caught up and consumed and polluted at the same level as Canada, the example given, it would take three globes to accommodate us all. Urgency is accentuated when we recognise the difficulty of expecting governments to ration air miles, auto miles, heating oil or water for our kitchens and bathrooms. They dare not do it if they wish to continue in office, which makes it difficult for them to insist that China, for example, should desist from following the path that has made us relatively rich.
Chapter Eleven of the book is entitled: "We may have fifty years left to close the gaps", but as the Stern Review and IPCC reports on climate change have shown, this is only true if we start now. And the message of this book is that innovation by business is the way ahead. But business should not wait for disaster before putting innovation in resource productivity at the top of its agenda.