|Steering Business Toward Sustainability (UNU, 1995, 191 pages)|
Fritjof Capra and Gunter Pauli
As the century draws to a close, environmental concerns have become of paramount importance. The survival of humanity and of the planet are at stake. Concern about the environment is no longer one of many "single issues"; it is the context of everything else - of our lives, our business, our politics.
Today we are faced with a whole series of global problems which are harming the biosphere and human life in alarming ways that may soon become irreversible. We have ample documentation about the extent and significance of these problems. One of the best recent accounts is the book The Ecology of Commerce by Paul Hawken, which discusses the central role of business in global environmental destruction and, at the same time, the unique opportunity for business to become the driving force of ecological restoration. After a thorough review of the series of ecological catastrophes we face, Hawken reaches a devastating conclusion:
Quite simply, our business practices are destroying life on earth. Given current corporate practices, not one wildlife reserve, wilderness, or indigenous culture will survive the global market economy. We know that every living natural system on the planet is disintegrating before our eyes. The land, water, air and sea have been functionally transformed from life-giving systems into repositories for waste. There is no polite way to say that business is ravaging the world.
The great challenge of our time is to create sustainable forms of business, embedded in sustainable communities. Lester Brown of the
Worldwatch Institute, who has been one of the main advocates of ecological sustainability for many years, defines a sustainable society as one that is able to satisfy its needs without diminishing the chances of future generations.
How can we deal with this tremendous challenge? Where do we start?
The more we study the major problems of our time, the more we come to realize that they cannot be understood in isolation. They are systemic problems - interconnected and interdependent. Stabilizing world population will only be possible when poverty is reduced worldwide. The extinction of animal and plant species on a massive scale will continue as long as the South is burdened by massive debts. Only if we stop the international arms trade will we have the resources to prevent the many destructive impacts on the biosphere and on human life.
In fact, the more we study the situation, the more we realize that, ultimately, these problems are just different facets of one single crisis, which is essentially a crisis of perception. It derives from the fact that most of us, and especially our large social institutions, subscribe to the concepts of an outdated world view, a perception of reality inadequate for dealing with our overpopulated, globally interconnected world.
At the same time, researchers at the leading edge of science, various social movements, and numerous alternative networks are developing a new vision of reality that will form the basis of our future technologies, economic systems, and social institutions. So we are at the beginning of a fundamental change of world view in science and society, a change of "paradigms" as radical as the Copernican Revolution.
The paradigm that is now receding has dominated Western industrial culture for several hundred years, during which it has shaped modern society and has significantly influenced all parts of the world. This paradigm consists of a number of ideas and values, among them the view of the universe as a mechanical system composed of elementary building blocks, the view of the human body as a machine, the view of life in society as a competitive struggle for existence, the belief in unlimited material progress to be achieved through economic and technological growth, and - last, not least - the belief that a society in which the female is everywhere subsumed under the male is one that follows a basic law of nature. All of these assumptions have been fatefully challenged by recent events. And, indeed, a radical revision of them is now occurring.
The new paradigm may be called a holistic world view, seeing the world as an integrated whole rather than a dissociated collection of parts. It may also be called an ecological view, if the term "ecological" is used in a much broader and deeper sense than usual. This broader and deeper sense of "ecological" is associated with a specific philosophical school and, moreover, with a global grassroots movement, known as "deep ecology," which is rapidly gaining prominence. The philosophical school was founded by the Norwegian philosopher Arne Naess in the early seventies with his distinction between "shallow" and "deep" ecology. This distinction is now widely accepted as a very useful terminology for referring to a major division within contemporary environmental thought.
Shallow ecology is anthropocentric. It views humans as above, or outside of nature, as the source of all value, and ascribes only instrumental, or use value to nature. Deep ecology does not separate humans from the natural environment, nor does it separate anything else from it. It does not see the world as a collection of isolated objects but rather as a network of phenomena that are fundamentally interconnected and interdependent. Deep ecology recognizes the intrinsic values of all living beings and views humans as just one particular strand in the web of life. It recognizes that we are all embedded in, and dependent upon, the cyclical processes of nature.
Ultimately, deep ecological awareness is spiritual or religious awareness. When the concept of the human spirit is understood as the mode of consciousness in which the individual feels connected to the cosmos as a whole, it becomes clear that ecological awareness is spiritual in its deepest essence. It is therefore not surprising that the emerging new vision of reality, based on deep ecological awareness, is consistent with the so-called "perennial philosophy" of spiritual traditions, whether we talk about the spirituality of Christian mystics, that of Buddhists, or the philosophy and cosmology underlying the American Indian traditions.
In science, the theory of living systems provides the most appropriate scientific formulation of deep ecology. It is a theory that is only now fully emerging but has its roots in several scientific fields that were developed during the first half of the century - organismic biology, gestalt psychology, ecology, general systems theory, and cybernetics. In all these fields scientists explored living systems, i.e. integrated wholes whose properties cannot be reduced to those of smaller parts.
Living systems include individual organisms, parts of organisms, and communities of organisms, such as social systems and ecosystems. All these are irreducible wholes whose specific structures arise from the interactions and interdependence of their parts. Systems theory tells us that all these living systems share a set of common properties and principles of organization.
In our attempts to build and nurture sustainable communities we can learn valuable lessons from ecosystems, because ecosystems are sustainable communities of plants, animals, and microorganisms. To understand these lessons, we need to learn nature's language. We need to become ecologically literate. Indeed, one of the main reasons we are destroying our natural environment is our ecological illiteracy, our ignorance of the principles of ecology. It is a sobering thought that the average adult in the industrialized world can recognize one thousand brand names and logos but fewer than ten local plants.
Being ecologically literate means understanding how ecosystems organize themselves so as to maximize sustainability. This is the lesson we have to learn to build sustainable human communities. We need to revitalize our communities - including our educational communities, business communities, and political communities - so that the basic principles of ecology become manifest in them as principles of education, management, and politics. Today, this is especially important for business, which has been designed without any attention to the basic principles of ecology. As Paul Hawken puts it, "what is good for business is almost always bad for nature.''
The first principle of ecology is interdependence. All members of an ecosystem are interconnected in a vast and intricate network of relationships, the web of life. They derive their essential properties and, in fact, their very existence from their relationships to other things. Interdependence is the nature of all ecological relationships. The success of the whole system depends on the success of its individual members, while the success of each member depends upon the success of the system as a whole.
The principle of interdependence implies a shift of perception from objects to relationships. In business this includes, among other things, a shift from products to services. For example, the managers of a car company should say: We are not in the business of selling cars; we are in the business of providing mobility. This will include cars, but also trains, bicycles, buses, and above all - integrated systems of these means of transportation. Similarly, the managers of an oil company should say: We are not in the business of selling oil; we are in the business of satisfying our customers' energy needs. The path to sustainable business begins with this focus on relationships, rather than objects or products.
Another important principle of ecology is the cyclical nature of most ecological processes. The interactions among the members of an ecosystem involve the exchange of energy and resources in continual cycles - the water cycle, the CO2 cycle and the various nutrient cycles. Communities of organisms have evolved over billions of years, continually using and recycling the same molecules of minerals, water, and air.
The lesson for business here is obvious. The present clash between business and nature, between economics and ecology, is mainly due to the fact that nature is cyclical, whereas our industrial systems are linear, taking up energy and resources from the earth, transforming them into products plus waste, discarding the waste, and finally throwing away the products also after they have been used. Sustainable patterns of production and consumption need to be cyclical, imitating the processes in ecosystems. To achieve such cyclical patterns, we need to fundamentally redesign our businesses and our economy. Such a redesign of business organizations is currently under way in Sweden, where an eminent cancer researcher, Karl Henrik Robért, has unified the country in moving from linear to cyclical processes in a remarkable nationwide program, called "The Natural Step. "
Solar energy drives all ecological cycles, and green plants play a vital role in this flow of energy. In the marvelous process of photosynthesis, solar energy is converted into chemical energy and bound in organic substances, while oxygen is released to renew the air. Again, the lesson for business is obvious. Solar energy in its many forms is the only kind of energy that is sustainable and economically efficient (if we count the costs of energy production honestly!). By disregarding this principle of ecology, our political and corporate leaders again and again endanger the health and well-being of millions around the world.
As the nutrients and other resources are passed along through an ecosystem, the organisms along the ecological cycles are engaged in various forms of cooperation. In the nineteenth century, the Social Darwinists saw only competition in nature. Today we know that all competition takes place within a broader context of cooperation involving countless forms of partnership. Indeed, partnership - the tendency to associate, establish links, live inside one another and cooperate - is an essential characteristic of living organisms.
A sustainable business organization will apply this principle to cooperation and partnership along product cycles and in countless other ways, both internally within the company and industry-wide. Here we encounter again the basic tension between economics and ecology that we need to overcome. Economics deals with quantity, competition, expansion; ecology deals with quality, cooperation, conservation.
Principles of Ecology
All members of an ecosystem are interconnected in a web of relationships, in which all life processes depend on one another.
The interdependencies among the members of an ecosystem involve the exchange of energy and resources in continual cycles.
Solar energy, transformed into chemical energy by the photosynthesis of green plants, drives all ecological cycles.
All living members of an ecosystem are engaged in a subtle interplay of competition and cooperation, involving countless forms of partnership.
Ecological cycles have the tendency to maintain themselves in a flexible state, characterized by interdependent fluctuations of their variables.
The stability of an ecosystem depends on the degree of complexity of its network of relationships; in other words, on the diversity of the ecosystem.
Most species in an ecosystem coevolve through an interplay of creation and mutual adaptation.
The long-term survival of each species in an ecosystem depends on a limited resource base. Ecosystems organize themselves according to the principles summarized above co as to maximize sustainability.
The general shift from domination to partnership is an essential part of the shift from the mechanistic to the ecological paradigm. Whereas a machine is properly understood through domination and control, the understanding of a living system will be much more successful if approached through cooperation and partnership. Cooperative relationships are an essential characteristic of life.
The principles of ecology mentioned so far - interdependence, the cyclical flows of energy and resources, cooperation, and partnership are all different aspects of the same pattern of organization. This is how ecosystems organize themselves to maximize sustainability. Once we have understood this pattern of organization, we can ask more detailed questions. For example, what is the resilience of these ecological communities? How do they react to outside disturbances? How do they develop and evolve? These questions lead us to three further principles of ecology - flexibility, diversity, and coevolution.
Flexibility is manifest in the fact that the network structure of an ecosystem is not rigid but is constantly fluctuating. When changing environmental conditions, e.g., an unusually warm summer, disturb one link in an ecological cycle, the entire cycle acts as a self-regulating feedback loop and soon brings the situation back into balance. And since these environmental disturbances happen all the time, the variables in an ecological cycle (nutrient supplies, population densities, etc.) undergo continual interdependent fluctuations. These fluctuations represent the ecosystem's flexibility. The more variables are kept fluctuating, the more dynamic is the system, the greater its flexibility, the greater its ability to adapt to changing environmental conditions.
All ecological cycles are feedback loops that have the tendency to maintain themselves in a flexible state, characterized by continual fluctuations of their variables. When changing environmental conditions disturb one link in an ecological cycle, the entire cycle acts as a self-regulating feedback loop and soon brings the situation back into balance. And since these disturbances happen all the time, the variables in an ecological cycle fluctuate continually.
These fluctuations represent the ecosystem's flexibility. Lack of flexibility manifests itself as stress. In particular, stress will occur when one or more variables of the system are pushed to their extreme values, which induces increased rigidity throughout the system. Temporary stress is an essential aspect of life, but prolonged stress is harmful and destructive to the system. These considerations lead to the important realization that managing a business organization means to find the optimal values for the systems variables. If one tries to maximize any single variable instead of optimizing it, this will invariably lead to the destruction of the system as a whole.
In ecosystems, this flexibility through fluctuations does not always work, because there can be very severe disturbances that actually wipe out an entire species. In other words, one of the links in the ecosystem's network is destroyed. An ecological community will be resilient when this link is not the only one of its kind; when there are other connections that can at least partially fulfill its functions. In other words, the more complex the network, the greater the diversity of its interconnections, the more resilient it will be. The same is true in human communities. Diversity means many different relationships, many different approaches to the same problem. A diverse community is a resilient community, capable of adapting easily to changing situations.
The loss of biodiversity, i.e. the daily loss of species, is in the long run one of our most severe global environmental problems. And because of the close integration of tribal indigenous people into their ecosystems, the loss of biodiversity is closely tied to the loss of cultural diversity, the extinction of traditional tribal cultures. This is especially important today. As the beliefs and practices of the industrial culture are being recognized as part of the global ecological crisis, there is an urgent need for a wider understanding of cultural patterns that are sustainable. The vast folk wisdom of American Indian, African, and Asian traditions has been viewed as inferior and backward by the industrial culture. It is time to reverse this Euro-centric arrogance and to recognize that many of these traditions - their ways of knowing, technologies, knowledge of foods and medicines, forms of aesthetic expression, patterns of social interaction, communal relationships, etc. - embody the ecological wisdom we so urgently need today.
Finally, let us turn to the time dimension of ecosystems. All living systems develop, and all development is learning. Therefore, a sustainable community is always a learning community - a community which continually changes, develops, and learns. At the level of species, development and learning manifest as the creative unfolding of life in the process of evolution. In an ecosystem, evolution is not limited to the gradual adaptation of organisms to their environment, because the environment is itself a network of living systems capable of adaptation and creativity. Organisms and environment adapt to one another- they coevolve. All forms of life on Earth have coevolved in this way as integral components of ecosystems for billions of years.
Coevolution combines the principle of partnership with the dynamic of change and development. Again, there is a lesson to be learned for business. As business partnerships evolve, each partner better understands the needs of the other. In a true, committed partnership both partners learn and change they coevolve.
These, then, are the basic principles of ecology - interdependence, recycling, the energy flow from the sun, partnership, flexibility, diversity, coevolution. and, as a consequence of all those, sustainability. As we go toward the beginning of a new millennium, the survival of humanity will depend on our ecological literacy, on our ability to understand these principles of ecology and live accordingly. (F.C.)
Sometimes it seems that it is not merely the environment that is at stake. If business does not change its strategy, business itself may very well be at stake. Many - if not most - consider industry as part of the problem. But many others realize that business is the solution. We believe that if the corporate world does not play an active role in redefining its own operations, moving toward sustainability, the world as a whole will never succeed in that task.
But, on the other hand, business alone cannot overcome the present challenges. The time has come to establish solid cooperation among policymakers, scientists, opinion leaders, the community, and business. And it is up to business executives to take a pro-active role in the definition of business's new agenda and the priorities it must share with the community. They know by now all too well that if the setting of the agenda is left to other players in society, business cannot get down to business.
Executives know too that doing more business the same way as in the past is a guarantee of failure. By the same token, the time is past when scholars, governments, or environmental organizations could hand down a doctrine from some high pulpit of academic certainty or from emotional distress and fears. Rather, cooperation among all those who have a stake in the future of society is critical.
The objective of defining strategies to steer business toward sustainability is not to invent new technologies. Much technology is really not new knowledge; it is, as Peter Drucker has said, ´'putting together things that no one had thought of putting together before." The reserve of untapped technological breakthroughs, either to be reinvented because we have neglected them or to be discovered because we have not bothered to study the great genius of Nature, must be brought into play, and the faster the better.
The days of the notion of "competitive edge" are numbered. Business will have to convert its strategic approach to the development of a "sustainable advantage." Traditional economic theory prescribes that the competitive edge of a company depends on the efficient combination of capital, raw materials, and labor. Over the past decades, economists have expanded this to the importance of technology and information.
Companies in crisis wonder how to improve their competitive edge. This was relevant in the sixties, it is relevant today, and it will be relevant in the 21st century. But while the questions remain the same, the answers change. In the sixties, when a corporation felt the pinch from its competitors and looked for a solution, the president was told to stop trying to just sell his products - he needed a marketing strategy. The need to listen to the clients' wishes and preferences was the first sign that we were operating in a market characterized by over-supply. If someone were not to adapt to the customer, he would be eliminated. It was the era of Philip Kotler and the "four P's." There is no company today that questions the importance of marketing.
In the early seventies, when the first oil crisis devastated industry, the key question was how to regain a competitive position at a time when increased energy costs affected pricing and caused high inflation, undermining consumer confidence. The answer at the time was productivity. There was no doubt that those who could produce more with the same level of input in terms of raw materials, capital, or labor, were to win. It was the first time that Japanese industry was called in to serve as an example. Indeed, the Japanese overcame the first oil crisis faster than anyone else and integrated more robots and information technology, catapulting their production industries to the forefront of worldwide competition.
In the late seventies, the second oil crisis hit the West. Again, industries that lost market share searched for a renaissance of their businesses, and quality was identified as the cutting-edge factor that could enable a company to out-compete anyone in the market. It was the time of quality control circles and total quality management. Indeed, as the American management gurus Juran and Deming professed from Japan, bad quality is a cost and good quality leads to a leaner cost structure and higher customer loyalty.
In the early eighties, Western industry again faced decreasing market shares. After having invested massively in quality and productivity programs, it became obvious that more was needed to succeed long-term in the world competitive game. The concept of just-in-time was advanced as the next avenue to success. The Japanese were supposed to have implemented the kan-ban system first and foremost, and the West was advised to learn from the Land of the Rising Sun once again. It generated a third wave of industrial tourism.
In the late eighties service was presented as the next panacea for success. American corporations embarked on drastic outsourcing, giving rise to a most successful service industry, which is basically the result of shifting people from in-house service providers to outside, cutting employment on industry's payroll and boosting the "success" of services. It became clear that up to 75 percent of the value added created by industry were services to production. The Swatch was a prime example. It didn't matter if the successful watches of the seventies were made in Taiwan or Macao. Labor costs represent only three percent of the total value added involved in a sale and as a result, it is possible to pay considerably more, as it does not significantly affect the end price to the customer. Low labor costs did not matter anymore; they were replaced in the North by "no labor costs." The design factor and communication skills represented the real service to the customer.
In the early nineties, when industry was desperately searching for new ideas on how to compete, again a new theory was advanced: reengineering was the message promoted by the management guru Hammer. The message is simple: start all over again, and start from scratch! And, if someone is not willing to follow, "break a few legs."
Today, companies are expected to excel simultaneously in all six elements: marketing, productivity, quality, just-in-time, services, and re-engineering. Performance in each of these areas is considered a precondition for successful entry into the market. If a business integrates all these elements, then it will have the right to be in the market. If a company wishes to outperform the average businesses, if it is out to gain market share, more will be needed.
What more can be offered? In order to address this effectively, we have to leave supply-side management and study trends in demand. Actually, we are returning to the stage of marketing, to listening to what the customer really wants.
Over the past five years, consumers have enjoyed low levels of inflation. The market wants "more for less." This means that companies have to cut costs even further and offer more. The continuous drive toward better perceived value for less money is difficult to achieve today because we are at a time when business cannot hide increased value through price hikes, or hide increasing costs behind inflation. Today, something more is needed to perform well, to do better in the game. But what is it?
At present, economists cannot agree on any single issue that is to dominate. However, on the basis of thorough market analyses in Europe, Japan, and the U.S., it has been concluded that during the next few years, ethical standards, a moral commitment, and high environmental performance will not only become an integral part of the corporate strategy; these will become the way to outperform the industry and reestablish that unique marketing position so badly desired. It will be the only way to develop a sustainable advantage.
Today, more than 40 percent of consumers in the U.S. indicate that when the same price and quality are being offered, moral, ethical, and environmental issues considered important by the consumers will determine their choices. Of course, there is a very broad variety of themes that companies can address: biodiversity, AIDS, animal testing, minority rights, Third World development, fair trade, healthy and organic farming, and so on.
Several companies have succeeded in setting an ethical or moral agenda and appealing to a large share of the market. These are concerns that attract the community and have to form an integral part of corporate behavior if business is to deserve long-term respect in society. What is most interesting is that consumers are increasingly well-informed and capable of seeing through marketing slogans that are not based on genuine commitment.
This does not imply that all companies today are unethical, immoral, or unconcerned with the environment. But companies will have to be thoroughly committed to doing more for society than merely playing a role in generating value added and creating profits for their shareholders. The company of the 21st century will have different responsibilities to assume in society from those generally expected today.
It is dramatic to note, for example, that on environmental issues not even ten percent of the public believes statements made by companies. In a recent survey in Europe, environmental volunteer organizations were identified as the most credible sources of information. This implies that if business does not take a proactive and really credible leap towards converting its operations on the basis of the concept of ecological sustainability, it will lose its legitimacy.
At the time when companies have to re-engineer their operations, it is timely to take the next step forward and retool the company, integrating the most rigid moral, ethical, and ecological standards. A company is a most efficiently organized structure, the only type in society that creates value added based on the principle of minimum input and maximum output. At a time when governments and NGOs are searching for more efficient modes of operation, business practice is welcome indeed. And, if ethical, moral, and environmental considerations are combined with the other cutting-edge factors, this will be a formidable force indeed.
The biggest weakness of industrial conglomerates today is that they have embarked during the last 20 years on programs to cut costs and remain competitive without taking considerations of the community and the limits of nature into account. Companies only looked at (1) cutting employees and (2) generating more money with less cash.
Productivity increases were first equated with a reduction in personnel. As the president of the Taco Bell restaurant chain remarked, "The ideal company is one where I work on my own with my 10,000 franchisees." All other people are to be considered potentially redundant. This is not exactly the bright picture of the future that communities project for themselves.
The logging communities in the Pacific Northwest have not heard of job creation for decades. The only story they have heard is that it is necessary to cut employment to save the other few jobs that are left. This strategy of business has generated a major weakness. Proctor & Gamble, IBM, and Chrysler have embarked on major cost reduction programs, cutting tens of thousands of job and closing dozens of factories. The support these companies have built up in their communities is fundamentally based on the provision of local jobs. The systematic loss of employment erodes the basis of trust on which business became established in the community. Whereas no one debates the need for an efficient organization, the narrow focus on people as the only one of the three critical input factors (people, capital, and raw materials) to bear the brunt of higher productivity is an anomaly.
The second drive toward cutting costs and improving returns is to seek more return for less cash. Corporations desire to maintain their financial performance and to continuously improve the return on their investment. The just-in-time program frees up a lot of cash previously locked up in raw materials, supplies, half-fabricated goods, and finished products.
"Tax technologies" were introduced, making use of tax havens through complicated holding structures spanning the world, with the objective that companies pay the least amount of taxes to the communities in which they operate. New investment commitments were made subject to bargaining over tax rebates and even straightforward subsidies.
How can a company that does everything to evade taxes - making use of the loopholes in the international laws, soliciting major subsidies, and cutting jobs - ever expect a relationship of trust with society? No loyalty will be generated through this type of behavior, certainly not loyalty sustainable for business over time.
While industry has rightfully been searching for productivity in labor and in capital, it has never sought with the same vigor a dramatically improved level of productivity in the use of virgin raw materials. If industry decreased warehousing of input factors from three months to fifteen minutes - as is the case in the automobile industry - why can't we imagine industry reducing the need for virgin materials by 90 percent? The redesign of the warehousing systems and delivery systems took less than five years. So, is it unreasonable to expect that industry will eliminate several of its waste streams in a few years' time and reduce the intake of virgin materials by 90 percent by the end of the century? It is urgent!
Industry will endanger its own future if it does not take this route. Industry can reinforce its critical role in society by firmly engaging in massive materials reduction with the same zest as productivity of labor was increased, quality was improved, and just-in-time was established. If in addition business succeeds in integrating moral, ethical, and environmental issues in its strategic approach, then it will become a formidable, respected, and sustainable presence in harmony with the community and the Earth. The companies which achieve this will be the winners, while those which neglect it will be the dinosaurs of tomorrow.