Sustainability as the New Business Paradigm

Speech by Ulrich Golüke, San Francisco, March 20, 2002

Successful Scenario Planning Conference.

Embargoed until March 20, 2002, 10 am Pacific Time

Slide 1

Dear Chairperson, dear participants, I am pleased, though jetlagged, to be here and to have an

hour or so to talk to you. I‘ll leave some time at the end for questions, and I will be here

today and tomorrow if you‘d like to seek me out and talk some more and you can always

reach me via e-mail.

So let‘s start.

Slide 2

First, let me applaud your courage to come to a speech with the word ‗paradigm‘ in its title.

And on a Wednesday morning, no less. I am sure, many of you hope that I am joking – I think I would if I were sitting in your place.

Slide 3

Unfortunately, I am not. In one way it is actually worse: I‘ll be talking about a new class of paradigm.

But in another way, it is much better – because I will talk to you about – forgive the jargon – a meta-paradigm. Not a run of the mill Theory X or Theory Y, or Re-engineering, or Sigma

Six, but a big and powerful change, one that can organize our lives for some time to come – and certainly longer than our current CEOs term of office.

Slide 4

The paradigms we know – and suffer from – are all cost reduction efforts: how to do more

with less: Less inputs, less raw materials, less capital, less – and here it hurts the most – people. It‘s become a mantra, and once a round of cost cutting is successfully done, the

‗reward‘ is usually another one for the next budget cycle.

And while it may be mathematically true that you can cut X percent from something

indefinitely, in the real world you cannot – and all you get is burn-out.

So why keep on doing it? You know the answers: because the others do it, and because we

are leaders!

Slide 5

Beyond the jargon, why is it really that all we do is cut costs?

Because essentially, we look at the world in this way. All our products, services – even portfolios of offerings – are judged, by us, by others, by four attributes: availability, price,

quality and, lately, mass customization.

You have probably seen, even used, these spider diagrams yourself. They are great for

benchmarking, for summaries, for justifying the next round of cost cutting. What they mask

is that you allow yourself to be part of a game of ―Hare and Tortoise‖. No matter how fast

you run, by the time you get there, someone else has already won the race.

Slide 6

That is because we live in a very tightly networked worked, in real-time (as the Economist put

in a recent survey of manufacturing). We are all global players, and if we aren‘t, our

competitors are.

If this is our view of the world, then all we can do is compete in the end on price. Any gain

on availability, quality and mass customization is instantly matched (just ask Compaq, Dell

and Gateway), so the end is that we, as customers, get high quality products and services,

instantly available. And all I ask is ‗who has the better deal‘?

The consequence is that cost cutting becomes not a ‗one-time cleaning out the stables‘ affair, it is a never ending story. Round and round it goes.

Slide 7

What if we changed our view of the world?

What if we introduced a fifth attribute, besides availability, price, quality and mass-

customization, on which our products and services are judged – and selected!

If happened before. If you think back 50, 60 years, our products and services were judged

on merely two attributes, availability and price. It was the Japanese after World War II,

when they had no raw materials, no markets, no friends and customers who changed

everyone‘s view by introducing quality as an attribute to be used for selection.

Personally, I am old enough to remember that ‗made in Japan‘ was in the beginning cause for

laughter. Some of us never stopped laughing – and have been spending quite a bit of time

with their families ever since.

The advantage of a fifth, differentiating, attribute is obvious – it allows us to have a much more nuanced conversation with our customers, suppliers, employees, you name it. Because

the conversation about how cheap your product is and how much you have cut inventory

down is, after a very short while, actually quite boring.

Slide 8

In fact, we in business have already started the search for the new differentiating attribute that

lets us break away from the pack. The usual gurus peddle their favorite wares:

th— Reputation: look at www.reputationinstitute.com – you can attend its 6 conference

in May in Boston!

— Attention: You‘ve probably all read or heard about the attention economy:

http://www.attentionbook.com/

— Corporate Social Responsibility, increasingly part of reputation, but also taking on a

life of its own; see the UN Global Compact http://www.unglobalcompact.org/

— Simplicity, Edward de Bono wrote a very thick (!) book on this

http://www.amazon.com/exec/obidos/ASIN/0140258396/ref=ed_oe_p/102-6011032-

5782541

— High Tech, High Touch – the latest from Mr. ‗Megatrend‘ John Naisbitt

http://www.amazon.com/exec/obidos/ASIN/0767903838/qid=1016196490/sr=1-

1/ref=sr_1_1/102-6011032-5782541

— Fashion, it is amazing what gets sold these days on its fashion attribute alone: cars,

computers, network time, you name it.

But before we put our money down on any one, let‘s look at two very deep trends, because

for the attribute to be lasting, to have a strong organizing capacity, it needs to connect to

something deep and important.

Slide 9

The first deep ‗trend‘ I want to look at is our impact. What is it? And I am thinking big here: The impact of humans on the planet.

This is not a scientific meeting, so I tried to visualize what I am taking about by this slide.

The big circle is the ‗planet‘ or ‗nature‘. The little dot on the left of the drawing is the sum

total of human impact. Any impact, of whatever kind and size is absorbed by the buffers,

the built-in resilience of the ‗planet‘.

That is how things were. Our impact was – nothing. And in such a world, certain things could and were being taken for granted. Most notably, I believe, the ‗truths‘ that events

were independent, that they were self limiting in time and that they were self limiting in space.

Those ‗truths‘ gave rise to two things: the insurance industry as we know it today and our

habit of learning from trial and error. Whatever happened, enough of us were left over after

any disastrous event that we could spread the costs and learn our lesson.

Sustainability as the New Business Paradigm page 3 of 11

Slide 10

Since the last few generations, the picture has changed. Our impact, relative to the ‗planet‘

or ‗nature‘ we are part of has become significant. We matter – on geophysical scales. I am

not sure whether the picture on the top or the one on the bottom is a better visualization of

where we are.

But that it is huge, I have no doubt – and that with it the built-in resilience is something we

can no longer from granted, I am also sure of.

Slide 11

To give you only two examples of how we matter, consider that 20 % - one fifth – of all

human lives lived on this planet were lived in the last century.

Not surprisingly, in those last 100 years we humans used as much energy as in all the roughly

4 million years before that put together.

We matter – and relying on built-in buffers to bail us (or at least enough of us) out, becomes

an ever more risky proposition.

Slide 12

The second deep ‗trend‘ I want to look at is how we spend our time.

The slide on the screen is a stylized version of some data from Lebergott and Grübler. The

sources are at the bottom of the slide. It simply asks how we have spent, over the last few

hundred years, our time. Initially, it was farming as the red line depicts. That is now down

to 3 to 5 percent in all developed countries. A development that any farmer a few hundred

years ago would have absolutely disbelieved. Yet it is true.

Next came manufacturing that we spent our time on. But even that is way below 50 percent

in all the OECD countries.

The rest is what? Certainly service takes up a lot of our time, but even that is declining,

leaving room for those question marks again. It is the shaded white space in the top right

corner we will increasingly spend our time in.

Why is that?

Slide 13

Lebergott‘s data is a result of what I call ‗the triumph of technology‘ combined with

Maslow‘s hierarchy of needs.

In one form or another, you are all familiar with this hierarchy that he first postulated in 1943.

In essence, it says that at the bottom are basic needs of food, shelter and security. As you

Sustainability as the New Business Paradigm page 4 of 11

move up, you eventually reach self-actualization – and some of us even transcendence. Maslow meant this hierarchy applied to individuals and their lives. I believe, it equally

applies to societies. And as societies, we correctly used our attention on the bottom, basic,

needs: food, shelter, security.

But it is in the nature of things that applying oneself diligently, consistently and continually to

a task, that effort alone will eventually transform whatever it was that one worked to

overcome: water carves riverbeds through granite; a flower breaks through the asphalt and

one cell becomes a living person. We find ourselves in a new world simply and disarmingly

because we have applied ourselves – at least since we have left the caves of our ancestors – to

meeting our subsistence needs. Quite relentlessly and obsessively so that Bertolt Brecht, a

German playwright tried to summarize human nature once by saying ―Erst kommt das Fressen, und dann die Moral‖ – ‗First comes food and only then morality‘.

I firmly believe that waking up in the new world is simply the result of the triumph of

technology, nothing more, nothing less. It is the free time a washing machine provides (and

which costs a minute fraction of our lifetime earnings) that allows us to put our feet up and

begin to ponder: who am I, how do I behave, what am I here for, what will I leave behind? In

the old days, there was only time, in a backbreaking manner, to wash the clothes. The

washing machine, the supermarket, the mail order business, the transportation

infrastructure… the list is endless because it is the list of technological progress throughout

the ages.

Contrary to Mae West, however, it is possible to have too much of a good thing: namely when

what you set out to do is actually done. Yet our habits tell us to work harder, doing the same

thing, more efficiently, over and over again. It is as if the feedback from a job well done does

not reach our brain. When your teeth are clean, give it a rest; when the days work is done, sit

back and relax, when your subsistence needs are met, do not go inventing new ones: instead,

develop your other needs – esteem, cognition, self-actualization, transcendence.

Why is this so hard to do? Simply because we have never done it. There was always

something lacking, something essential, something we needed to survive. If not for us, then

for our children. We all have to go back two, at most three, generations to meet people, our

ancestors, living their daily lives on the edge of want, of starvation. And all the generations

before them lived in similar dire straits. That is why my grandparents could learn very

practical lessons from their grandparents; but I cannot learn in similar ways from mine.

And now, we are done – which allows us to interpret the previous slide in a different manner:

Slide 14

Food, shelter and security have something to do with material things: land, space, building

materials. Hence we can say that the past of humanity was material constrained.

Sustainability as the New Business Paradigm page 5 of 11

The upper reaches of Maslow‘s hierarchy, esteem, cognition, self-actualization, transcendence are less, much less, dependent on materials: we are entering a world that can be called

meaning constrained.

What I am proposing is that we are tipping, from one world into another. All we learned and

hold for true from the previous world is less relevant – and often irrelevant. And yet all we have is our habits, words, tools, feelings and sensitivities of the past.

Slide 15

To get a feel for how different that new world into which we are tipping is, let me take you

through a few dimensions of this new world and contrast them with the past.

From linear connections to closed loops

A consequence of the world ‗tipping‘ is the need to see, understand and work with closed

loops. A material world is very slow: you prospect, dig a hole, get stuff, which needs to be

treated before it can be used, combine this stuff with some other stuff (sometimes lots of other

stuff), paint it, put it on the lot or the shelf, sell it, use it and then finally throw it away. All of

this takes time, lots of time, which is both good and bad. The good thing is that if you make a

mistake, more often than not you have time to fix it – the very basis of learning by trial and error.

The bad thing is that it allows you to avoid responsibility. There is often so much time

between steps, and so many steps, that it is easy to loose sight of the whole picture and only

pay attention to what is right under your nose. We do that – because what can you really do about those actions others took way up and way down this complicated value chain – and we

are tricked into simplifying the little portion of the large whole that we actually see and

influence into a linear causation: If I do this, then that happens. If I do a little more of this, well, then a little more of that will happen. In other words, we come to believe that A causes

B, proportionally.

If this is so bad, you may ask, how come we got away with it? Because our actions, as seen

against the vast backdrop of nature and the universe simply did not amount to much of

stanything. But remember the 1 trend: We matter. In the blinking of an eye – in historical

and even geographical terms – we took the step from being insignificant to becoming a

geophysical force. When we do something wrong today, the Ukraine, even all of Europe is at

risk – no matter how many steps there are in between. When we feed ground-up dead animals

to other animals, who throughout history have been vegetarians, we are all at risk, no matter

how many layers of irresponsibility there may be.

The medium of exchange in the new world is thoughts, not raw materials, not boxes, not

finished goods, not stuff, not even money. And thoughts travel very fast indeed – faster even

than the speed of light. Thus, the possibility to learn from mistakes is greatly reduced: Even if

I have no clue how my way of life contributes to climate change, I am still responsible. Hence

Sustainability as the New Business Paradigm page 6 of 11

we need to ‗think things all the way through‘, we need to replace our assumption of linearity

with how life really is: connected, arranged in closed feedback loops, non-linear and complex.

Unfortunately, we still use tools and mindsets appropriate to a linear world: ―This is not my

problem‖, ―What can I do, I am just a little multinational‖. What if everything really is

connected to everything else? Then we need to find answers to questions like: What is

product liability in a closed loop? What is loyalty in world where lifetime employment is but

a quaint memory? How does a water engineer deal with issues of sovereignty? What is

insurance if you can no longer transfer risk? Or, in the words of a recent Shell advertising

campaign: ―How do you combine profits and principles?‖ Slide 16

From physical assets to network assets

The world we come from focused on physical assets: lands, mines, ports, canals, roads, and

power plants. It needed these assets to meet our subsistence needs with the technology

available at that time. Hence power struggles in this world focused on the ownership of those

assets, and what they produced.

As our world moves away from material subsistence needs – since they are met as a matter of course – our preoccupation with their enablers, physical assets, also shifts: towards networks.

The telephone is a good example of this. I value my phone not for its physical attributes, those

are all the same anyway, but for its ability to connect me to people, data and the internet.

Whenever the connection to someone or something matters more than the ‗connector‘ (i.e. the

thing that allows the connection to take place) the network effect dominates.

We have seen examples of that in the past: aqueducts, trade routes (often river based), canals

and train tracks all had great influence on where people and industries chose to locate – in

order to benefit from connecting to the network.

While seemingly innocuous, the shift from physical to network assets is dramatic: The former

favors the producer. If I want something, I need to find a way to get it from the producer. The

latter, on the other hand, favors the consumer: I am already connected to the network, thus it

is up to the producers to try to find, attract and hold my attention. This shift is an example

what Malcolm Gladwell calls a tipping point. When something shifts from being a curiosity to

being dominant. We have been building up to that point for a long, long time – in the case of

aqueducts for over 2,000 years – but we have not paid attention because the struggle for our

daily bread, rightly so, distracted us. Now that distraction is gone, network effects are

everywhere: from immigration to infections to distribution and, of course, terrorism and the

internet.

Sustainability as the New Business Paradigm page 7 of 11

Slide 17

From more is always better to what do you really need?

We have met ‗Maslow‘s hierarchy‘ before. The layers of his scheme, starting at the bottom, most basic, and then moving up are, physiology, safety, attachment, esteem, cognition, aesthetic, self-actualization and transcendence. Hence, low down on his hierarchy the answer to the questions of what humans (and customers) want is easy: it is more. The bottom of his

human hierarchy of needs is about physiology, material constraints: enough food, enough shelter, enough clothing, enough energy, enough water. When you lack any or all of these, to have more is not greedy, it is necessary for survival, for self-actualization and for your dignity.

As we move up Maslow‘s hierarchy our focus shifts. From ‗Can I have a little more‘ to ‗How can you, your product and your service help me realize my goals, my dreams, my very reason for being?‘ Neither question is right or wrong but clearly the latter one is much more nuanced. And companies that merely learned to cut costs and increase shareholder value will disappear from this world.

Slide 18

From being your function to who are you?

This is about identity, of both seller and buyer. In a material constrained world, with limited ability to move about, a very sensible strategy, if you lived for example in a mining area, was to call yourself a miner, become one, enjoy it and be real good at it. And if you were from Wales, to join a choir. When the constraints of material survival — and geography — are

removed, we can be anyone we want to be.

So instead of defining yourself by saying: I am Mr Shoemaker from Scotland, or Ms Miller from Georgia, you need to find an answer to who you really are. ―Who I am and how I behave is my market capitalization‖, as the Head of Investor Relations of a major oil company once told me. Patek Philippe, a luxury watchmaker, captured this spirit by running an ad campaign with the theme: Who will you be in the next 24 hours?

Fifty years ago, if I had told you that ‗I am a German‘, you would have known most everything about me. Today that same statement tells you next to nothing.

Slide 19

From adapting to learning to creating

A material constrained world rewards adaptation: There actually is a ‗best‘ way to extract gold from the earth; there is an ‗optimal‘ way to plant cassava in a given climate; there is a

‗best‘ way to raise sheep, independent of what you may think, or wish, or hope for. The task, under such conditions was to understand the ‗laws of nature‘ and adapt to them. Educational institutions of the past, though confusingly using words of creativity and innovation, exemplified the need to fit in and taught us how to do it.

Sustainability as the New Business Paradigm page 8 of 11

As material constraints no longer play the defining role in our lives as they once did, we are at

last free to learn and create. But as any student of Dr. Faustus knows, the freedom to do so

implies the obligation, and at times the curse, to do so. Often we know better how to be

fearful, how to have excuses and how to be victims. If you are the creative type, it is great to

be judged by how many brilliant ideas you have spawned – but what if you are not? Even

Nobel prize winners are at times consumed by their fear of ridicule, rejection and humiliation.

What about mere mortals? We are only beginning to learn to trust being responsible for our

ideas, thoughts and actions.

Slide 20

In summary, we are tipping from scarcity to sustainability.

Slide 21

To preempt the inevitable ―yes, but‖ comments let me stress the obvious: Of course,

‗material constrained‘ and ‗meaning constrained‘ are not ‗either / or‘ nor ‗black or white‘;

they represent a shift, albeit a profound one, in emphasis. We already did create

meaningful stories in a material constrained world. But then they were created by a few

‗special‘ people: priests, poets, ‗story tellers‘, management (and other) gurus and they were

subordinated to the need of that world: i.e. to remove material constraints. Thus they were

stories of conquest, exploration, exploitation and of winning and loosing.

Similarly, in our meaning constrained world there will continue to be technological progress

and there will be continued removal of material constraints — but again, it will be

subordinated to the need of that world: i.e. removing meaning constraints. Witness the

subordination of the nuclear and biotechnology industries, which held so much promise only

a few generations ago, to one of the simplest stories of all: ―No, thank you‖.

It is that our center of gravity is shifting: from scarcity to sustainability. Slide 22

Unless you think that you have been listening to a philosophical treatise, in my previous job

as Head of Scenarios at the World Business Council for Sustainable Development in Geneva,

Switzerland, we ran a major scenario exercise with 35 large corporations exploring what this

new organizing principle – sustainability – might mean for business in the future.

I will not give a detailed briefing here – for one the stories are now over 5 years old, for another the summary is free on the web – but I want to use two slides to give you the essence of the work.

The 3 drivers that matter most, the ‗TINAs‘ in Shell‘s language, were the Many, the

Connected and the New.

Sustainability as the New Business Paradigm page 9 of 11

The space of the stories, the axis, were governance and carrying capacity; the paths, the

stories through that space were titled F.R.O.G. (First Raise Our Growth), GEOpolity and Jazz

and the whole thing looked like this:

Slide 23

Explain

Since then, 3 major public focused scenarios around the question of sustainability have been

done by us, 1 major proprietary one for a car manufacturer and we just started a major project

for a pharmaceutical company around ‗Sustainable Health Care‘.

Slide 24

I am coming to the end. I have four more wrap-up slides.

The first one is for those who like numbers: Often, the idea that we are tipping from scarcity

into abundant sustainability is dismissed by anecdotal evidence of poverty, near and far.

True – so far only 1.5 billion, 1 out 5 people - 20 % of humanity, live in material abundance, and for whom scarcity no longer organizes their lives.

But until 2 or 3 generations ago, only 1 out of 10,000 – 0.01 % of humanity lived this way.

A 2,000 fold increase in a time to short to measure historically.

Slide 25

We‘ve tipped before. We have changed paradigms at the meta level before. This slide is

adapted from the work of a good friend of mine, Betty Sue Flowers. Now she runs the LBJ

Library in Austin, Texas, and she used to be a professor of English and has, amongst others

things, written the Shell scenarios over the last 10 years or so.

She has also worked with Joseph Campbell and inspired by this collaboration, Betty Sue

made an attempt to list the myths, the archetypical stories, that have shaped us.

Explain.

All I have done is add a fifth column and tried to find answers to her headings for a world of

abundant sustainability.

I am not going to go into detail and explain or defend my choices. Have a look and ponder

yourself.

Slide 26

Whenever things change in a big way, there are definitely – pardon my language – many

ways to skin a cat.

Sustainability as the New Business Paradigm page 10 of 11

DOCSFORD

Sustainability as the New Business Paradigm