Wednesday, June 12, 2013

Final Thoughts: Part 5 of 5

The Great Disruption is such an amazing read. And while I have not even come close to doing the book justice I hope there were parts of this post that spiked your curiosity enough to read the book. If such is the case then I will deem this blog a success. If not, read it anyway.

I thought to closeout this blog with a post about my experience at the New Economy Summit in Spokane… it has something to do with growth.  

In March I went to the Spokane New Economy Summit. Our fearless BGI leader, Joel Williamson, won a grant to put this event on and I was showing up at the very least to show some team support. What I didn’t expect was to have my mind blown in Gabor Zovanyi’s presentation on The No-Growth Imperative: Creating Sustainable Communities under Ecological Limits to Growth. Turns out he has a book of the same title (Earthscan/Routledge). Gabor also has a Facebook site for the topic. Gabor is one of the most captivating, fascinating speakers I have witnessed. If his book is anywhere near as effective as his speaking style then we are all in for a good read. I have not read his book but intend to (it just came out). Gabor is a Professor of Urban Planning at Eastern Washington University.

“Anyone with a Master’s degree that uses the term ‘Sustainable Growth’ should have their degree stricken from them”. That is my favorite quote from Gabor at the summit. He passionately believes there is no such thing as ‘smart growth’ or ‘sustainable growth’ or any other human construct we come up with to further deny the simple fact that growth, by the laws of the universe, is self-consuming, exponential in nature, and completely not regenerative.

Gabor did a fantastic job helping me understand the power of exponential growth and how ‘doubling time’ and mathematics paint a sobering future. I asked if I could re-publish some of the literature he shared with us. He graciously accepted. I ask for all readers that find any of this information worthy of citation to acknowledge Gabor and his book as the source.


1950
2000
2012
Forecast
Global Demographic Growth
2.5 billion
2.5 billion
7.0 billion (2.8 fold increase)
UN projection of 10.1 billion by 2100

Global Economic Growth
$6 trillion
$43 trillion
$79 trillion (11.7 fold increase)
IMF projection of 3.5 % growth in 2013: doubling every 20 years: $140 trillion by 2033
Global Urban Growth
732 million in cities
2.8 billion in cities
3.5 billion in cities (4.8 fold increase)
Un projection of 7 billion city residences by 2050
US Demographic Growth
150 million
281 million
315 million (2.1 fold increase)
Census Bureau project 436 million by 2050
US Economic Growth
$294 billion
$9.9 trillion
$15.9 trillion (54 fold increase)
IMF projects 2.2% growth in 2012, doubling every 32 years: $32 trillion in 2045
US Urban Growth
96 million in urban
227 million in urban
258 million in urban (2.7 fold increase)
388 million in urban by 2050. Representing 30 new cities of 100,000 every 12 months



In 1991 the Ecological Society of America declared the existing scale of the human enterprise was “threatening the sustainability of Earth’s life-support systems”.

{Life-support services provided by ecosystems: maintenance of a benign mix of atmospheric gases; climate control; regulation of the hydrologic cycle; purification of air and water; decomposition of wastes’ regeneration of soil nutrients; pollination and pest control; seed and nutrient dispersal; provision of forest products and food from the ocean; create and maintenance of biodiversity; lessons in resilience; aesthetic and spiritual rewards}.

During the early 1990s noted ecologist Paul Ehrilich and Edward Wilson warned that under current trends fully 50 percent of the species on the planet could be eliminated by 2050.

By 1997 research on per capita ecological footprints revealed the current ecological footprint of humanity already exceeded the planet’s ecological capacity to sustain the size of the human enterprise at the time.

In 2002 an international team of ecologists, economists, and conservation biologist warned nearly all ecosystems on the planet are shrinking in response to expanding human needs.

In 2005 a four-year assessment of the state of global ecosystems conducted by 1,300 experts from 95 countries reported that some 60 percent of the ecosystem services that support life on Earth are being degraded or used unsustainably.

In 2007 the Intergovernmental Panel on Climate Change called for a reduction of 80 percent in global emissions from 1990 levels to avert “dangerous anthropogenic climate change”.

In 2009 a group of eminent scientists published findings indicating human activity had already pushed 3 of Earth’s biophysical processes beyond the planet’s ability to self-regulate, and warned current trends would lead to “catastrophic consequences.”

In 2010 the 8th Living Planet Report issued by the World Wildlife Fund declared the collective ecological footprint of humankind exceeds Earth’s biocapacity by 50 percent.

In 2012 scientists published a paper in the journal Nature warning that the global ecosystem was rapidly approaching a planetary-scale critical transition of “state-shift” as a result of human influence, and that this abrupt and irreversible shift would threaten the planet’s ability to sustain us and other species.

The final sentences from The Great Disruption:

Will we succeed? Yes, if we decide to. We must remember to do so, recognizing the threat but living with a lightness of heart and in the opportunity—the exciting, uplifting, civilization-shaping opportunity to make a difference greater than anyone since that ape worked out she could crack open the nut if she used the rock as a tool. So let’s do it. It is time.”

Monday, June 10, 2013

The Final Countdown: Part 4 of 5

Recapping where we are at in Paul’s story…

Recognizing the failure of growth: Our economic systems is founded on the principle that prosperity is obtained by growth. This mental model is crashing against the physical limits of this planet. And yet we continue to find ways to resist pivoting. We look to technology, efficiencies, conservation, and population management as solutions within the same paradigm. While we will accomplish herculean results in these arenas, it is not enough to prevent the crash. This leads to the recognition that our growth model is crashing because we have reached the planet’s physical limits. We understand this is not a temporary problem. First, we will attack, in a war-like stance, the problem by addressing climate change. Swift action will address reducing CO2 emissions.  New companies will form, practices will change, efficiencies gained, and all of this will seem like progress towards the goal. And as we always have done we will see our triumphs as a hallmark of success; which will result in putting growth back on track.  The cycle will regain its momentum, consumption continues to ramp and the problem gains velocity. That is because we did not address the true, underlying problem; rather we attacked the surface issue of climate change. Climate problems are simply a symptom of the root issue and will continue to surface until we attack the founding problem. “The problem is the delusion that we can have infinite quantitative economic growth, that we can keep having more and more stuff, on a finite planet. We cannot, and that is just a fact.”

A possible solution: Happiness

Chapter 15, titled The Happiness Economy, is where Paul takes the reader towards a lasting solution to the true underlying problem… how do we transform our mental models around consumption. Paul provides these references to preface the solution:

The increase of wealth is not boundless. The end of growth leads to a stationary state. The stationary state of capital and wealth… would be a very considerable improvement on our present condition… It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living and much more likelihood of its being improved, when minds cease to be engrossed by the art of getting on. –John Stewart Mill
The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems—the problems of live and of human relations, of creation and behavior and religion.  –John Maynard Keynes
The Gross National Product does not allow for the health of our children, the quality of their education of the joy of their play. It does not include the beauty of our poetry of the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country it measures everything, in short, except that which makes life worthwhile. –President John F. Kennedy.

Paul argues for a mental shift towards following happiness, the quality of our lives, as the metric we manage to. He reminds us that dramatic and fundamental change in our behavior and values is not just a possibility but the very essence that makes us human: “Our ability for conscious and deliberate evolution toward a higher organizational state.” He is suggesting a transformation to a Human-focused economy. One that leads our actions to include shifting towards a tax system based on material, not employment; encouraging part time work and less consumption, taking a society wide approach to change and leaving behind the personal focus.


The Happy Planet Index was developed by the New Economics Foundation and is Paul’s “favorite” index for measuring what our Human focused system should be managing to. The HPI incorporates life satisfaction levels, life expectancy, ecological footprint, and protecting our natural capital stock for the health of future generations. But can indexes like the HPI become a reality? Can we shift our mental models away from growth and towards quality of life? Paul argues this is no different than going to the doctor and the doctor says exercise is essential for good health. We would take that advice differently if we were already healthy as appose to when we just survived a heart attack. The conversation with the doctor is not that if we exercise more he would expect us to get healthier, the conversation is that if we don’t exercise he expects us to die. We are going through a heart attack because of our growth paradigm. We will survive this attack but whether we recover and live beyond is a decision we a facing today. Happiness is how we get healthy. We have to create behaviors and habits around this tenant. This is the mental model that will fill our sense of purpose and carry us to the next phase… life after shopping. 

Saturday, May 25, 2013

Prosperity without Growth: Part 3 of 5

Continuing where we left off…
Paul suggests applying logical, linear thinking to clearly identify the problem at hand. You might react to this as I did… “I understand the problem, we are screwed. All we can do is hold on as the ship sinks and pray for a quick and painless death”. Thing is, Paul has hope that we (the people of Earth) can take action that will significantly reduce our speed before we hit the wall. He believes we will have a fighting chance if our ricochet is not so violent. Slowing down could result in saving millions of lives and lessening the time it will take for humanity to rebound. But humans have a track record of missing the key issues and actually worsening situations in our efforts to remedy. To ensure we take proper aim at tackling the problem while simultaneously avoiding ‘artificial hope’ Paul recommends using the Paul Ehrlich equation: [I = P x A x T]. For those BGI readers who recognize this formula but can not place it, most likely you are remembering the Ray Anderson (Interface) TedTalk we watched first quarter. In brevity, the environmental impact (I) of human activity is a product of population size (P) times the per person affluence (income) (A) multiplied by the technological intensity of each dollar spent (T). The Ehrlich equation is stating only population, affluence and technology drive environmental impact. These are the “three levers” we can pull to change environmental impact.

Paul addresses the Ehrlich equation as a primer to examine the most common questions around the problem.  “So the problem is population, isn't it? There are just too many people, so we should just fix that!” Paul states this question as one of the most frequent responses he fields in his public speaking. In a nutshell, population reduction will not solve the problem; although the impact would help. It does not solve the problem because the 2.5 percent economic growth on a per capita basis nullifies population as the fix. Simply, if the world did not grow in population from today’s figures we will still hit the limits at a devastating speed based on current production and consumption rates; we will over consume. The book states a 50% reduction in population growth rates, which would require an unprecedented, herculean effort, will have little impact on current trends. The only substantial impact would occur if we actually reduced the global population by significant percentage from today’s numbers. To clarify… reducing actual population, not the population growth rate is the only possibility of significant impact. While the notion is mathematically possible it is highly erroneous. Individual nations, most notably China, have effected their own populations but this came about through politically questionable practices… like drowning babies and other forms of extermination. What are the people in our communities willing to do? Stop having children and euthanize a select population??? Unlikely.

So population is a lever we can pull but its effects will not meet the change required. It is necessary, but not enough. What about technology? Doom and gloom scenarios have been fixed by technology in the past. Right? Technology is remarkable and limitless. Paul argues he is not a person “opposed to technology or to markets…the answer to the question of whether markets and technology can save us from the crisis… No, not this time.” His primary argument is that “even if technology could fix the underlying problem, it cannot prevent a major crisis from happening first.” However technology has the potential to significantly slow us down before we hit the wall. Well… if it were not for the Jevons Paradox: the more efficient we become the more we consume. As I mentioned in an earlier post, recent data around CO2 emissions and energy efficiency add weight to this argument. While we are ever more efficient due to technology advancements we are emitting CO2 and consuming energy at higher rates. This is the effects of our mental models around resources and growth. “We live and work in an economic system of annual targets, quarterly profits, and twenty-four-hour news cycles, the planet works in longer and more complex cycles.” This is the mental paradigm. Although some leaders are seeing it otherwise. U.S. senator Gaylord Nelson is quoted as saying, “the economy is a wholly owned subsidiary of the environment, not the other way around.” Paul does not go into mental models until later in the book… this is still Chapter 4, however; I feel it is worth mentioning at this point the potential for impact if we could combine a shift in mental models, ones that lead to a reduction in consumption, while gaining resource efficiency, we might make a significant impact. A cocktail of Leadership and Personal Development with Energy Management could be a potent serum. This is an example of the possibilities, be that extraordinary, it is what MUST be done. In summary, Paul argues it is not that technology is not crucial, it is. Rather, it is highly unlikely new technologies will manifest and be adopted fast enough to overcome the inertia for ecological change already in the system.


What about decoupling material and energy growth from economic growth? Paul cites this approach as the ‘holy grail of corporate sustainability experts’ and until the recent years had been an advocate. Examples of this approach, back to Ray Anderson and Interface, include leasing carpet in office buildings: tenants want nice carpet to decor their offices; they don’t necessarily want to own it and be responsible for its upkeep and maintenance. So, Interface rents the carpet. Now the onus is on Interface to ensure its durability, performance and life cycle costs. It makes a lot of sense for OEM’s to bear the responsibility of LCA (Life Cycle Analysis). Same goes for heating and cooling buildings: owners just want tenants to be comfortable not necessarily own complicated HVAC equipment. Paul argues this is a fantastic approach to incentivize efficiency. However; the math simply does not pencil. “given that decoupling is about every resource that feeds the modern economy and we’re operating at 140% of capacity now, there is no conceivable decoupling scenario involving economic growth that sees us bringing the situation under control in time to avoid a crisis.” The long term solution can only be achieved by confronting the structure of market economies. How do we create prosperity without growth??? 

Tuesday, May 7, 2013

Hitting the Wall: Part 2 of 5

Chapter 4 in the Great Disruption by Paul Gilding can be summed as realities’ proverbial slap in the face; we all suspected, in our heart of hearts, and some smart dudes even warned us, that our passion for consumption and unabashed growth was going to catch up with us one day.  Well… that day has come. It was yesterday. Now we are screwed. 

The Fly Wheel Effect has us now. Even if we had a magical Regenerative Brake and could slow if not stop altogether greenhouse gas emissions for example, there are some consequences this world simply cannot avoid… the board has been set and the pieces are in motion. We are going to hit the wall. The wall is the limits of the system. Beyond this point, systems fail, they disassemble. The question is do they explode with downstream magnifying effects catastrophic in nature or do they decompose at a less than catastrophic rate? Paul argues this depends on our velocity, our speed when we hit the wall. I found Paul’s message a bit tough to chew on because his argument will not save us from the hell on the horizon, just make it less painful when we arrive.

Paul states: It is not to say that we won’t try hard to grow and in fact many economies will grow and grow at faster rates. This is the effect of running into the “wall.” Velocity is increasing at an exponential rate at the same time our resource depletion is gaining proportionally:  A linear relationship and a positive reinforcing loop; the perfect cocktail for crashing into the limits.  The faster we hit the limits the harder we will bounce off of them… such is Newton’s third law of physics: For every action there is an equal and opposite reaction.

This is an attribute of any natural system facing the limits. Stakeholders within the system either shift to a higher order of existence or breakdown to lower order. Some, like James Lovelock, believe in the later, our terminal decline is inevitable.  Paul states his belief: the confrontation on the horizon is inevitable and will lead to chaos in geopolitical, economic and environmental systems. At the worst it will lead to the termination of our species and at best, he states, “I expect we’ll tragically lose a few billion people”. OUCH! 

Okay… at this point in the book I am not feeling very good about what I am reading (or listening to). Paul’s writing style leads me to believe his message. In the book, Paul exactly describes my reaction to his forecast; he details the common responses of despair, anger and hopelessness. His ability to articulate my feelings towards this information with an uncanny accuracy reinforces my perception of his truth. As a reader I felt comforted in Paul’s cognition for my feelings. And yet he brings the reader back to the paradigm that science is hard to ignore. Even conservative approaches inevitably lead us crashing against the limits.


Next blog… applying logical and rational thought processes to identify and address the true problem. 

Sunday, April 28, 2013

STOPPING SHOPPING: Part 1 of 5

“I’m on Spring Break” are words I never thought I'd hear myself say again. Hearing those words this March brought an ear-to-ear grin to my face. I thought back to memories of undergraduate annual spring break fishing adventures in Montana.  I and my buddies, in the storm, staying alive by the sheer will to pursue elusive monster trout in miserable conditions.  And what a wonderful coincidence that again I found myself driving back to those very waters for yet another 7 days of extreme cold and joy.

The Great Disruption by Paul Gilding was recommended by BGI facility “in case we were looking for a good read over the break”.  I decided the Audio book might be good company on the 19 hour road trip. Nailed it! Wow, one of the most fascinating audio books I’ve heard to date. This fact packed and beautifully paced narrative is precisely complemented by Mr. Gilding’s talent for spelling out interconnected data. And he never takes us too far down the rabbit’s hole. He masterfully led me to one concept while connecting another; and with just the right balance of objectivity to assure me that I wasn't being “sold” on his opinion. Paul’s style combined with the urgency and importance of the content results in a powerful cocktail. Paul’s message carries the force of a whale slapping the sea.  He states, rather matter-of-factly, several possibilities all which will likely lead us straight to a possible hell. I have no doubt my words here seem fantastical, rest assured, Paul’s do not. That’s the real catchy thing with Paul’s delivery.

Mid-way through the first chapter I had as many bookmarks as there were pages. The following chapters in sewed in a similar cacophony.  I knew I would need to get my hands on the eBook to write this blog; too much mind-blowing information.  My intention was to write a five part blog on The Great Disruption immediately upon my return to the third quarter of my first year at BGI. Now I find myself closing down the 4th week of the quarter, behind schedule—per usual, and pressed to knock this out.

I begin with an introduction to the 4th chapter. Appropriately titled, and sharing the books’ name, Beyond the Limits—The Great Disruption is where the rubber meets the road… the road to… well, somewhere none of us can look forward to. Paul drops the proverbial bomb and would leave us bereft of all hope would it not be for his final words of a slight possibility. The following is my squeeze of Chapter 4, in brevity.  
Can we avoid a systems wide crisis? The debate is no longer relevant… we did not change. So now change will be forced upon us. It all comes down to math and the lag in systems; particularly unintended consequences. The kind bound by the laws of physics, which are arguably unarguable.  The facts Paul lays out are the exact ones us C11’ers were exposed to in one of our recent Blackboard sessions: The economy is tightly integrated in an ecosystem that is currently operating at 140% capacity. We are spending well beyond the interest of natural capital and currently chewing through the Earth’s principle at an increasing and alarming rate. Later we learn this multiplier effect is inherent to the very nature of growth and indeed a function, an undeniable function of a system premised on growth as a solution to our needs.  Paul defends that growth was not always a bad thing. In fact it was fantastic, glorious in its speed and miraculous accomplishments. The world experienced truly amazing products of human growth.  However, growth could only do what it is designed to do…grow; we consumed at a rate egregiously beyond the Earth’s interest. And now that has caught up with us in very real-time ways; the “future” was yesterday. Paul maintains we are experiencing the consequences from our decisions decades ago. There is nothing we can do to change our behavior 30 years ago.

Now we want to run economy faster and harder. This has always been our solution to crisis. Here are some fun facts Chapter 4 introduces (and they come from folks like the UN, Goldman Sacs, and the IMF)
§  Increase in population to 9 billion in 2050
·         That is an average annual growth rate of about 0.7%.
·         Roughly a third more people on the planet in 35 years.
§  EVEN IF OUR POPULATION DOES NOT GROW: Global output per capita will be three times the level of 2005. Or stated more effectively: Triple the economy by 2050 from 2005 levels regardless of population (more about that later).
§  And yet the World’s population will almost certainly rise… consider this fact in concert with the dizzying statistic that per capita income is projected to grow faster than population growth rates.
§  Each year every individual, on average, will consume 2.5% more than they did the prior year.
§  Goldman Sacs predicts per capita GDP at 2 times its current level in G7 developed countries. But by 2050 in certain large developing economies like the BRIC (Brazil, Russia, India and China) they predict more than 10 times GDP per capita growth.

So now we have a very big problem. If we are at 140% capacity currently… by 2050 we will be at 500-700% capacity. Paul argues that is simply not going to happen. Why? Because it is physically impossible; the world is bound to the laws of physics and there are no systems found on earth that can exist at 700% capacity. But what about the effects efficiency gains has on the natural limit? It is absolutely true humans will improve efficiency gains through technologies and waste reduction. The problem is efficiency gains will not even come close to complimenting the consumption growth rates ahead.  For thirty years prior to 2009 world resource use per unit of GDP decreased by 30% or 1.2 % annually. This means we got significantly more efficient and consumed less per unit. Energy use, for example, between the years of 2000-2007 decreased 1.1% per year, per unit of GDP. If we stay on this trend, we will be using resources 38% more efficiently by 2050. This seems like good progress however counter effects (unintended consequences) shows that efficiency promotes consumption. The trend is clear the more efficient we are, the more we consume. For example, GHG emissions efficiency has been the focus of much research and technology and while we have produced and implemented highly effective technologies to address the problem, since 1990 (Kyoto) Emissions have risen 40% despite those impressive efficiency gains.


Earth Day was last week. I was at the grand opening of the Bullitt Center, the first Living Building Challenge project in Seattle. The Global Footprint Network claims we will be running over 200% of the Earth’s capacity by the 2030’s. If they are right, what will Earth Day look like when we are at 200% capacity in just 15 years? The Bullitt Center will undoubtedly be there, standing in its glory as the first of its kind. But will there be tenants? What businesses will be thriving to the extent they can afford the rent let alone stay in business if the world’s resources have been consumed? What kind of things are customers looking for? Are they looking for engineering services or do they want/need basic things like food and water.  I digress. While these projections are just that, projections, the underpinnings behind the behavior of growth are deeply engrained in practically all human cultures. For example nearly every government believes they are charged to deliver economic growth opportunities to their citizens. Growth is almost always the go-to solution; the holy grail of human systems. The real scary thing about growth is its compounding nature. While seemingly small numbers like 3.2% consumption growth each year, today’s figures produces a global economy that doubles in size every 22 years. So, in 2009 we hit 140% capacity. Following the trend, within 22 years we will be at 280% capacity, 560% capacity in 44 years and so on. This is not going to happen because this defies the laws of physics and biology…. This will lead to the great disruption. 

Monday, February 25, 2013

Eco Efficiency vs. Eco Effectiveness

Last week's HBR case study, Cradle-to-Cradle Design at Herman Miller, introduced me to the Eco-efficiency/Eco-effectiveness paradigm. This paradigm is one of the two underlying tenets of Cradle to Cradle,  the other being Waste Equals food. While eco efficiency and eco effectiveness are material flow systems somewhat analogous to one another I personally had never given much thought around what attributes and mindsets separate these approaches. This post is designed to go a bit further into eco efficiency vs. eco effectiveness paradigm  than what was provided in the HBR case.   

Let us begin with defining the terms. I found a post in the Ellen MacArthur Foundation website that describes and contrasts these approaches.

Eco-efficiency begins with the assumption of a one-way, linear flow of materials through industrial systems: raw materials are extracted from the environment, transformed into products, and eventually disposed of. In this system, eco- efficient techniques seek only to minimise the volume, velocity, and toxicity of the material flow system, but are incapable of altering its linear progression. Some materials are recycled, but often as an end-of-pipe solution, since these materials are not designed to be recycled. Instead of true recycling, this process is actually downcycling, a downgrade in material quality, which limits usability and maintains the linear, cradle-to-grave dynamic of the material flow system.

Linear progression is at the heart of this definition. The board has been set and once the pieces are in motion all one can do is alter the motions (speed, direction, and volume) of the pieces. 

Furthermore eco-efficiency is a concept that has found large diffusion in managerial practice and can be defined as “the delivery of competitively-priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at least in line with the earth’s carrying capacity” (DeSimone and Popoff, 1997, p. 47)

DeSimone and Popoff's definition is rather more aggressive than the MacArthur cited definition. However both descriptions speak to a mind set: This is how things are done and all we can/should do is work within that boundary to improve efficiencies such that we are "doing less bad". 

Conversely...
Eco-effectiveness proposes the transformation of products and their associated material flows such that they form a supportive relationship with ecological systems and future economic growth. The goal is not to minimise the cradle-to-grave flow of materials, but to generate cyclical, cradle-to-cradle ‘metabolisms’ that enable materials to maintain their status as resources and accumulate intelligence over time (upcycling). This inherently generates a synergistic relationship between ecological and economic systems, a positive recoupling of the relationship between economy and ecology.

The theme of eco effectiveness speaks to the relationship between ecological and economic systems and how that relationship can be symbiotic if not regenerative. This concept is a shift in mindset from eco efficiency. It speaks to looking at the system as a living system with all parts serving a symbiotic purpose. Biomimicry the incorporation of natures approach to systems is a tenant of this approach. 

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Polluter Pays Principle
The first assignment we were charged with at BGI was to report on a Sustainability principle we could choose from a list provided. Polluter Pays Principle was my topic. PPP is an emerging trend and is finding its way into regulation and industry leadership in the European Union. There synergy between PPP and eco efficiency/effectiveness. As PPP gains momentum eco material flow systems will play a big role in the bottom line for manufactures. PPP is a cost driver for manufactures. As manufacturers pivot from eco efficiency to eco effectiveness they will see trade off in costs. And to be expected there will be manufactures who play the game. I'm speaking of the laggards, the manufacturers who operate at the base level of Bob Willard's Five-Stage Sustainability Journey. These are the organizations that address sustainability at a compliance level. They will evaluate the return on eco effectiveness in contrast to paying the fees; if the fees/costs are less than the net value for changing to eco effectiveness they are likely to continue operating at status. However, for the early adopters and industry leaders. PPP provides additional leverage to pivot. These organizations will utilize eco effectiveness as a function of business strategy. They will be prepared and effective when the regulation comes and capitalize on market opportunities. My hope is when the regulatory agencies determine fee rates they consider the laggards propensity to evaluate fees as the resistance to change as a return on their investment. The larger the fees, the greater the impact.    




Sunday, February 10, 2013

B2B: Lettuce to Salad


Green City Growers operates in business to business (B2B) markets, only. This week's post is an application of my learnings from Flat World Knowledge readings pertaining to Green City Growers B2B operations. Prior to my readings I wasn't aware of the differences in B2B's from B2C's. This post is designed to help me process the learnings and cover some grounds with GCG research. I thank all readers in advance for any insights or thoughts around this subject.


Italicized text is sourced from Flat World Knowledge.
Blue text is my interpretation of  Flat World Knowledge readings relevant to GCG.
And Red text are questions and inquiries I should follow up with.

There are several types of offerings B2B's can participate in. As lettuce producers they are selling product to Anchor Institutions for them to use in salads, generally, as well as other foods typically found in restaurants. 

Raw material offerings are materials firms offer other firms so they can make a product or provide a service. Raw materials offerings are processed only to the point required to economically distribute them.  Raw materials are then used in the manufacture of other offerings. So, GCG makes Raw Material offerings with the local hospitals. I'm guessing  "processed only to the point required to economically distribute"... means GCG is will grow the lettuce to harvest and then deliver only the lettuce. This seems obvious however; I can understand how this would be increasingly relevant the more development stages a single product will experience in the value chain process. Lumber for example: trees must be processed to a certain degree before they can be shipped (they don't just transport entire trees with limbs and roots in tact). Likewise trees are left in longest lengths possible and are not further processed into smaller dimensions. Lettuce is a much simpler product with fewer value chain processes from start to finish. 

Raw materials are often thought of as commodities, meaning that there is little difference among them. Consequently, the competition to sell them is based on price and availability. 

This is where things get a little interesting... My belief is GCG must offer their lettuce at market price yet the purchasing decision by the Anchor Institution is not nearly as strongly based on price and availability as mentioned above. It is the overarching imperative for community development, embodied and institutionalized through their partnership with Cleveland Foundation that heavily influences their procurement decisions. If this is accurate then...
How is the market price on lettuce established? How does this strong relationship affect Buyer Power? 
Not only can business products be complex, but so can figuring out the buying dynamics of organizations. Many people within an organization can be part of the buying process and have a say in ultimately what gets purchased, how much of it, and from whom. Having different people involved makes business marketing much more complicated. And because of the quantities each business customer is capable of buying, the stakes are high. For some organizations, losing a big account can be financially devastating and winning one can be a financial bonanza. This is the very Weakness we identified in our SWOT. Our analysis is not 100% verified; however, the data we've surfaced suggest GCG's only current contract is with the Hospital Anchor Institutions. We are not clear as to how many contracts their hospital sales comprises however this does suggest GCG is vulnerable to the Hospital's Buyer Power: all of their eggs in one basket. Below is our SWOT analysis. It would be helpful to know how many contracts GCG has and the terms of those agreements. This information would better our analysis for how strong Buyers Power is. Additionally, our Porters 5 Force analysis was influenced by identifying this weakness. We do see this large account as a weakness which fuels Buyer Power. It is interesting to use SWOT and Porter's simultaneously; overlapping themes become more apparent using these tools in tandem. 
Strengths
What do you do well?
What unique resources can you draw on? What do others see as your strengths?
Weaknesses
What could you improve?
Where do you have fewer resources than others?
What are others likely to see as weaknesses?
1.     Anchor Partnerships: The start-up success of the enterprise is related to the willingness of GUC anchor institutions to nurture growth, especially in the early years. This willingness is important to create a barrier to entry to a typical entrepreneur or corporate venture. While the anchors are not interested in subsidizing these start-ups through higher operating costs to themselves, they are interested in selecting an Evergreen company over a non-local competitor. Also they trust an Evergreen company more than they do a local entrepreneur with a small balance sheet.
2.     Grant Funding: A grant to the Evergreen Cooperative Development Fund: $500 enables an Evergreen employee to attend Cuyahoga Community College’s Green Academy and gain training in green job skills. $1,000 provides an Evergreen employee on-the job training in worker ownership practices. $5,000- $25,000 helps fund feasibility and early business planning for the next generation of Evergreen coops.”
1.     Operational efficiencies: GCG is in the infancy of it's existence and is therefore has limited experiences.
2.     Competency of labor force: perspective labor force is untrained.
a.     doing their specific job
b.    managing
c.     ownership
3.     Operational costs: greenhouses consume large scales of energy.
4.     New equipment: buggs have not been worked out.
5.     Distribution: Has not actually happened yet
6.     Operating budget: have not yet delivered product.
7.     Customer feedback: quality as an example; again no product has been shipped.

Opportunities
What opportunities are open to you?
What trends could you take advantage of? How can you turn your strengths into opportunities?
Threats
What threats could harm you? What is your competition doing?
What threats do your weaknesses expose you to?
1.     Other organizations in the Cleveland community... next in line to Anchor Institutions. Such as restaurants, local distributors.
2.     Emerging purchasing preferences to buy local.
3.     Large unemployment: cost of labor
4.     Developing product mix/line to offer more products to Anchor Institutions.
5.     GUC Anchor Intuitions have committed to promoting local wealth growth.
6.     Access to in-house capital: low cost of capital.
7.     Access to grants an capital which does not need to be paid back.
1.     Leverage of Anchor Institutions (Buying Power)
2.     Leverage of Suppliers: Energy and Municipality as example
3.     Environmental attacks inherent to growing product.
4.     Other co-oops competing for grant funds.



Unlike many consumers, most business buyers demand that the products they buy meet strict standards. How does GCG measure quality standards? Do they have a postpurchase evaluation process in place? 

Another characteristic of B2B markets is the level of personal selling that goes on. Salespeople personally call on business customers to a far greater extent than they do consumers. Most of us have had door-to-door salespeople call on us occasionally. However, businesses often have multiple salespeople call on them in person daily, and some customers even provide office space for key vendors’ salespeople. Another interesting skew from the norm. We do not perceive GCG requires a strong sales force as again the partnership with Evergreen and the Cleveland Foundation are likely the mediums for relationship development. So while GCG is sitting at the community development table they are infact marketing to their customers. We need to verify this assumption: what does GCG's sales force look like?   

Fluctuating demand is another characteristic of B2B markets: a small change in demand by consumers can have a big effect throughout the chain of businesses that supply all the goods and services that produce it. Because consumers are such a powerful force, some companies go so far as to try to influence their B2B sales by directly influencing consumers even though they don't sell their products to them. This suggests an interesting opportunity for GCG. Is it possible for them to market to the end customer: in this case that would be the partons of the hospitals; their customers/patients are purchasing salads in hospital cafes and such. Is the hopsital influenced by their customer/patient purchasing preference for salads? in otherwords does the hospital percieve a greater value to their customers by providing GCG produce? In B2B situations like this it is difficult to draw a line in the sand when determining who is the actuall customer
Stages in the B2B Buying Process A need is recognized: In this case the need at a primary level is supplying patients with healthy salads. However the indirect need, which the Cleveland Foundation and GCG is focused on, are the needs of the Cleveland community. Needs analysis was not done by GCG. It is executed by Evergreen in their Anchor Institution analysis. Needs analysis was executed before CGC was ever conceptualized. The need is described and quantifiedPotential suppliers are searched for: Are GCG's suppliers also partnered/influenced by the Cleveland Foundations?  Our stakeholder analysis should address this query. Qualified suppliers are asked to complete responses to requests for proposal (RFPs)The proposals are evaluated and supplier(s) selected
As the partnership nearly negates competition, do the Hospitals use/require RFP's. We are not clear if the hospitals are private or receive federal funding. If the latter is true are there federal contracting requirements the Hospitals and thereby GCG must abide to? An order routine is establishedA post purchase evaluation is conducted and the feedback provided to the vendor. As mentioned above, does GCG have a post purchase protocol?  How are they monitoring and adjusting to quality requirements?  
A Straight Buy is a situation in which a purchaser buys the same product in the same quantities from the same vendor. A Modified Buy occurs when a company wants to buy the same type of product it has in the past but make some modifications to it. We believe GCG currently executes Straight Buy processes. However, as mentioned above how greatly does the Hospital demand fluxuate? Does the Hospital have an agreement to purchase a specified quantity for a certain time period? How does the Hospital's demand for lettuce fluxuate? 

Our analysis of GCG paints a picture of a B2B organization outside of the norm, or at least because of the community development imperative, GCG behaves outside the norm we are exposed to in Flat World Knowledge. Is this true for most Co-operative B2B's?