A Tipping Point for a Resource Revolution
Lately we’re seeing a wave of seriously scary forecasts. Predictions of billions of dollars in coastal assets at risk, dwindling supplies of important minerals, and diminishing fresh water supplies are sparking movements to focus the world’s attention. As rising voices call for change from “business as usual”, solving these dilemmas will require tackling them as resource management problems.
Have global awareness, rapidly advancing digital technology, and creative business designs brought us to the tipping point for a revolution? Not the people in the streets variety (though that may be starting), but instead what Stefan Heck and Matt Rogers call a Resource Revolution. Their central tenet is that businesses which deliver the most dramatic resource-productivity improvements will become the great companies of the 21st century, reap trillions of dollars in profits, create jobs and improve lives.
By combining information technology, biotechnology and nanotechnology, the authors foresee “an unprecedented opportunity to use resources far more imaginatively, revolutionizing business and management in the process.” Rather than resource scarcity, they envision a world economy revitalized by new business opportunities and “technologies that are equally as large as the invention of the airplane.”
This could finally shift the sustainability conversation from feel-good public relations to strategic imperative.
What’s needed for this to happen?
In a recent blog and article, strategy adviser and author Andrew Winston argues for a shift he calls The Big Pivot; “a profound change in strategy, operations, and business philosophy” to help companies create new value in a world of scarce resources. By pursuing heretical innovation, setting big goals based on science, and changing investment incentives organizations will get a jump on what’s needed for future competitiveness, and even survival.
Meanwhile Heck and Rogers lay out the following five approaches for the revolution in resources:
- Substitution – replacing of costly, clunky, or scarce materials with less scarce, cheaper, and higher-performing ones.
- Virtualization – moving processes out of the physical world.
- Circularity – finding value in products after their initial use.
- Waste elimination – greater efficiency, achieved by means including the redesign of products and services.
- Optimization – embedding software in resource-intensive industries to improve, dramatically, how companies produce and use scarce resources.
Do we have the right skills?
Heck and Rogers don’t think so, and cite the growing complexity of our electrical grid. Homeowners now generate large amounts of surplus power. Electric vehicles will soon demand large, mobile loads. Meanwhile, the number of data points collected by the average utility is on its way from 60 million per year to 5 billion per day.
The challenge, they believe, is that companies lack the integration skills required to embed software into all the devices, appliances, and vehicles in the complex networks that will emerge. Without this integration, it will be impossible to achieve the radical optimization and that’s the promise of the Digital Economy.
They also point to new leadership skills, such as business model innovation, required to achieve annual productivity gains of 10-15 percent versus the 1-2 percent common today. In addition, front-line workers will need the skills of knowledge workers; data analysis, statistics, root cause analysis, and global collaboration will be essential.
Measure, Measure, Measure.
Changing incentives is critical. Though one could argue that “trillions of dollars in profits” should be incentive enough, those will come in the longer term. In “Resource Management as a Competitive Edge, Boston Consulting Group describes Seven Principles of Total Return on Resources. Arguably most important is “Measure, measure, measure” because, according to BCG, “what gets measured gets managed—and everything else falls off the radar when people get busy.”
Finally, the critical role for Enterprise Resource Planning systems cannot be overstated, but different thinking is needed here as well. ERP systems have always been great at helping companies use resource efficiently. However, SAP’s Thomas Odenwald and Christian Berg make a strong case for thinking about ERP systems more broadly (see A New Perspective on Enterprise Resource Management), in ways that account for the needs of people as well as the environment. They believe that the changing business and global environment is creating an incentive for management to do just that.
What must follow, accordingly, are new methods of corporate reporting that integrate financial with non-financial measures, and that actually show the cause and effect between them. An effective illustration is the Integrated Performance Analysis interactive diagram in SAP’s annual Integrated Report.
So what do you think? Are we at a tipping point for a revolution in resource management? It’s something to get excited about, if we are.