Think Like a Technology Company

Why has the Chevron Corporation recently launched an ad campaign showing its commitment to the idea that it should think like a technology company?

The answer may lie in the fact that the growth and deployment of information technology over the last 40 years has had a transformational effect on the global economy. And transformational change is something oil companies - indeed all companies - will have to understand and embrace if they are to lead a global economy that will triple in size by 2050.

Chevron's ad alludes to this very important thread yet unfortunately it misses the mark. The fine print shows Chevron mistaking use of the latest technology for "thinking like a technology company." And these are not the same.

Any well run company makes use of the best tools available. But business-as-usual practices and simply deploying the latest technology is not enough. 2011 is the year when mining for new business models begins - and the tech sector provides the mother-lode of raw material about how to transform a global economy in four decades or less.

In the march towards a sustainable global economy, the most important lessons may come from the tech sector. The emergence of an information economy can be a powerful guide to transformation - and this is one economic transformation that is not optional.

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Is Moore's Law "Sustainable" ?

On August 30, 2010 a New York Times article revealed that researchers have been able to “overcome a fundamental barrier to the continued rapid miniaturization of computer memory that has been the basis for the consumer electronics revolution.” In short, Moore’s Law continues. Moore’s Law created the expectation of miniaturization around which the entire semiconductor industry organized itself. This drove investment into the burgeoning sector, resulting in the innovation that created what we now call The Information Economy.

Today we are at the dawn of a new age, requiring a new kind of economy, powered by clean, renewable energy. Getting this next industrial revolution right has huge risks but also enormous opportunities. While different from those of the information age, these opportunities are driven by the same fundamental principle – Expectation drives Investment which Leads to Innovation.

On Tuesday September 21st in New York City the conference BusinessClimate 2010 will bring together the world’s top business innovators and builders of a sustainable 21st century economy as we search for Moore’s Law for sustainability.

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The Climate Change Executive Coach - What Every CEO Should Know

In its Fall, 2009 issue, the MIT Sloan Management Review reported on a wide-ranging study in which 1500 business leaders were surveyed to ascertain their views on the new skills managers will need to address climate change and build sustainable enterprises in the 21st century. Results of interviews with experts in the field indicated that there were five management responsibilities that needed improvement: (1) the ability to act on a system-wide basis; (2) collaboration across conventional internal and external boundaries; (3) a business culture that rewards and encourages long-term thinking; (4) new capabilities in activity measurement, process redesign, financial modeling/reporting; and (5) new skills for engaging and communicating with external stakeholders. The survey results indicated that what is lacking in many sustainability initiatives is an overall plan. Efforts are often defensive and tactical rather than strategic; multiple initiatives are disconnected with one focusing on products, another on facilities, and perhaps others addressing employees, customers, or the general public. And sustainability initiatives as a whole reflect incremental rather than transformational change.

W. Edwards Deming – a giant of 20th century management thinking – spoke about transformational change. And even though he rarely used the term sustainability, Deming would have recognized his ideas reflected in each of the five areas that the Sloan Review cited: Deming taught (1) an appreciation for business as a system, (2) the importance of cooperation and collaboration as well as competition, (3) the need for managing for the long-term to foster a robust and durable enterprise, (4) new ways of looking at and understanding data and variation and the implications this has for management, and (5) an understanding of business in the broader context of community and society. The kinds of management approaches that sustainability experts today see as critical were being discussed – indeed urged – by Deming decades ago.
Today the issues facing top management are more daunting than ever. The economic well being of the business enterprise, and indeed the future of the entire planet are currently at risk from unsustainable practices such as the burning of fossil fuels leading to potentially catastrophic climate change. Executive leadership needs new ideas and approaches to the practices of management, the kind suggested by Deming years ago, in order to address this urgent challenge.

Appreciation for a System

When CEO’s first think about climate change, they often view it as a problem. Yet if studied at length, it becomes clear that climate change is not a problem, but a symptom – an indicator of a lack of alignment between two highly complex and adaptive systems - the planet earth and the global economy embedded within it. From this perspective, addressing climate change requires an understanding of systems.

A system can be defined as a grouping of interrelated and interdependent components in the service of an aim. Lack of alignment of components to overall aim can lead to sub-optimization, decay, and the ultimate destruction of the system. As a system, a business is made up of many interrelated and interdependent parts each of which must ultimately be aligned with the aim of the system – i.e. the mission of the enterprise. On a larger scale this is true of businesses within the global economy; each business is an interconnected and interdependent part of the global economy. The global economy in turn is a part of an even larger system: the earth and its biosphere.

Climate change has revealed that humanity has misunderstood the systems relationship between the global economy and the earth. Since the dawn of civilization, mankind has seen the earth as a vast resource to be put in service of the human economy. This is akin to the tail wagging the dog – and now the dog is beginning to get annoyed. A new systems model sees things the other way around, the human economy in service of the earth - that is, the economy as a subsystem of the earth, requiring alignment with the aim and workings of the earth and its biosphere. Successful CEOs today are those who are beginning to understand that sustainability is simply another word for seeing business as a system in alignment with the global economy which in turn is in alignment with the biosphere. The implications of this systems model will be the driving force behind 21st century commerce, including renewable energy, resource efficiency, information intensity, and closed loop production.
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Knowledge about Variation

Since CEO’s are surrounded by variation, how do they make sense of the numbers that come their way? What do the fluctuations in the numbers mean? Do they ascribe too much meaning or too little to the fluctuations? Can executives use the numbers to predict with a high degree of belief what the future holds? What kinds of actions should business leaders take to change the future? These kinds of questions have great importance to leaders of business and some understanding of variation can be helpful to answer those questions.

Variation that shows a clear pattern can sometimes be modeled and theories can be constructed about the causes of the pattern. Variations in the level of atmospheric concentrations of CO2 show clear patterns. Recent changes in the variation are causing scientists to predict that unless human industry radically changes course from business-as-usual, the concentration of CO2 in the earth’s atmosphere will be higher by mid-century than it has been in over fifty million years – a time when the earth’s climate was very different and much hotter.

Business leaders today have an immense influence on society. The meaning CEO’s ascribe today to the variation in atmospheric CO2, the predictions they make, and how they choose to address them may well determine the fate of our planet for centuries to come.


Theory of Knowledge

Executive leaders know that above all else, management is prediction. But rational prediction requires theory. And by comparing prediction based in theory with observation, new knowledge can be created. (A great practical form of this is the Plan-Do-Study-Act Cycle that Deming developed from the work of Walter Shewhart.) When there are competing predictions, as there are in the case of global warming, the soundness of the work that has gone into development of each prediction must be evaluated so that degree of belief in different predictions may be assessed.

Today, some CEOs and others who continue to question the validity or urgency of human-induced climate change often dismiss it as “just a theory.” Yet, human civilization has been built on theory. The greatest achievements of Newton, Darwin and Einstein were their theories – and those theories reshaped mankind and our planet. Climate change theory is already shaping the future and changing the ways humans interact with our surroundings – and for CEOs it is opening the door to new knowledge.

Psychology

Addressing climate change will take transformation. Deming knew that transformation could not take place without driving fear out of the organization - fear that saps people of energy, takes their focus away from the organizational aim, damages cooperation and constancy of purpose, and leaves people thinking about their own self-preservation. Driving out fear and building trust can unlock the creative potential that will lead to innovation and sustainability.

As climate change transforms the human systems that are corporations, psychology will play a key role in determining whether and how these corporations succeed. Given the mountains of scientific evidence, the decades of peer-reviewed vetting, and the magnitude of the threat posed, one may question why American society has not acted sooner and more swiftly. The answer is, in part, bound up in human psychology. CEOs that understand the psychology of individuals and groups can put that understanding to work to improve the lives of people and the effectiveness of organizations. On a larger scale, in understanding of psychology, corporate leadership can help to design approaches that will help society at large become more knowledgeable of the effects of climate change and the human population’s role in acting to prevent further damage to the biosphere.

Conclusion
Two decades ago, W. Edwards Deming called for new ways of management to address America’s competitive decline. He knew that tweaking business-as-usual practices would be ineffective and indeed counterproductive. Transformation was needed, and it had to be informed by knowledge. Today’s CEOs are living in a new era, where the term ‘business-as-usual’ refers to the continued practice of burning fossil fuels. Some business leaders are advocating sticking to business-as-usual or perhaps tweaking it around the edges. But such action will be ineffective and indeed counterproductive. A great transformation is required to avoid the worst consequences of a warming world – a transformation that aligns the global economy with the workings of the earth’s biosphere. It will require skillful management informed by new knowledge – using many of the very same ideas Deming introduced to transform management years ago

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Is America Failing the Marshmallow Test?

At the dawn of the 21st century America is facing a most urgent decision – what to do about climate change. We have before us two basic choices – (1) continuing with business-as-usual or (2) transforming our economy for the future. The fundamental priorities that guide this decision remind me of something called the Marshmallow Test.

The Marshmallow Test is an unusual exercise for testing children that has become regarded as a strong predictor of a child’s future success in school and in life. Originally conducted by Stanford psychology professor Walter Mischel in the late 1960’s, the Marshmallow Test presents a 4 year-old with a choice: he can have one marshmallow now, or two marshmallows in a short while. Mischel was interested in learning what enabled some young children and not others to forego immediate gratification in favor of a larger desired but delayed reward. What is most interesting was the follow-up years later. According to a study in 1990, the marshmallow test was more predictive than IQ of future SAT score.


Discipline and Trust

Researchers believe that the marshmallow test is an indicator of two important characteristics for future success: discipline and trust - the discipline to defer gratification in the present and the trust that a pledge of greater reward in the future will be fulfilled.

In the face of the daunting problem of climate change, is America reacting in a business-as-usual manner, satisfying our immediate needs, and grabbing the marshmallow before us? Or are we showing discipline by carefully considering the implications our current decisions have on the future, and trusting that we can influence that future to our greater benefit?

Discipline

Addressing climate change requires discipline - the discipline to maintain constancy of purpose, to invest in the future, and to understand the true nature of our problems. Maintaining constancy of purpose means having a sustained focus on our long-term problems even as their short-term symptoms rise and abate. That means we need an energy strategy not based on the spot price of oil, which sees us running to fuel efficient cars and mass transit only when oil spikes, and then abandoning them after it falls. The discipline to invest in the future means not only taking advantage of win-win investments with short-term returns like energy efficiency, but choosing investments that align our actions to our overall aims and that take into account long-term consequences even if the payback may be farther out than five years. Understanding the true nature of our problems means taking a systems view and seeing those problems not in isolation, but as interconnected and interdependent with other issues. Seemingly disparate events such as rising CO2 levels, China’s emergence as a renewable energy superpower, and increasing threats from climate-stressed failed states are all interlinked with American economic, social and environmental security. Understanding this and figuring out what to do takes measured and thoughtful discipline.

Trust

If America is to pass the Marshmallow Test we have to restore trust in our institutions – in government, in business, and in the sciences. U.S. government gridlock on climate change is exacerbated by the lack of trust between the two parties which feeds into a public confusion about the urgency of the problem. Lack of trust in the leaders of global finance is hurting the prospect for a carbon market in the U.S. Even if the economics make sense, the vision of Wall Street enriching itself from the climate crisis is almost too much for Main Street to bear. And sowing lack of trust in the underlying science is perhaps the best way to diminish the sense of urgency needed to address a public hazard whether it be climate change or cigarette smoking. Today’s whipped-up email “scandals” over climate science serve the same intention as found in a Brown and Williamson Tobacco Company memo from the 1960’s. It stated, “Doubt is our product.”

Does America Want to Pass the Marshmallow Test?

Imagine America as that 4-year-old child facing a choice: a sure, reliable and comforting marshmallow right now, or the potential for even greater marshmallow opportunity if we adjust our behavior. Which are we going to chose?

The one-marshmallow-right-now means business-as-usual i.e. continuing to base our economy on fossil fuels echoed by the mantra “drill-baby-drill.” It means avoiding expensive incentives for new forms of energy generation. It means continuing to borrow from China, in order to pay the Middle East so we can drive to work. It means putting no price on carbon so that energy in the short-term remains the cheapest in the industrialized world. And it means ignoring the science and continuing to put CO2 into the earth’s atmosphere, which frankly will not present serious problems for most of us in the next few years. Like that 4-year-old scarfing down that single marshmallow, we will be just fine - in the short-term.

But if we listen to those who have dedicated their lives to the study of these issues - if we trust the most informed of us – there is a significant probability that the future will be either much better than the present or disastrously worse depending on the choices we make now. Other countries are setting examples. Spain is making huge investments in renewable energy and high speed rail. Japan continues to make great progress with energy efficiency. Denmark has repowered entire communities with renewable energy. Germany and China are becoming world leaders in the solar and wind technology. And Abu Dhabi is building the world’s first completely self-sustaining zero-carbon city called Masdar. These countries are displaying the discipline to adjust current practices with the trust that there will be a long-term benefit. Like the 4-year-old who defers eating the single marshmallow for a more beneficial result in the future, these countries are all adjusting current practices to build economies that will bring more opportunity for even more people. They realize that building a sustainable economy today is key to leading the global economy of tomorrow.

The Marshmallow Test is telling us we need to be disciplined in our decision-making and we need to trust in each other. But what it is really saying is “Think about the future.” When following up on 4-year-olds many years later, those who waited for the second marshmallow were found to have scored 210 points higher on SATs than those who grabbed the first; they were also in general more successful and better adjusted to the challenges of life. The decisions made by this generation in this new decade will shape the future in ways more profound than perhaps any before us. America must pass the Marshmallow Test, because if we are not about the future, what are we about?

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More Davos, Less Denmark - Shaping a Global Approach to Climate Change

It is interesting to compare the goings-on in Davos, Switzerland this week, less than two months after the close of the climate conference in Copenhagen. First, as a follow-up to “How Important Is Copenhagen” it might make sense, after some breathing space to understand what really happened in the Danish capital from Dec 7th - 18th of last year. Will this event shape the future of a global agreement on climate change or will it be forgotten in a few years?

Predictions

In the earlier piece I wrote that for Copenhagen “to be a success it must produce a politically binding agreement that makes compulsory emissions reductions -- from industrialized economies and developing ones – inevitable. An eventual treaty must create a global system for trading carbon as a commodity, with liquidity and price transparency. It must provide compensation to those countries that avoid deforestation and thus preserve important carbon sinks. And it must ensure that emission reductions can be verified.”

Surprisingly, the final two points – deforestation and transparency – were met with much greater attention and success than most would have predicted a priori. In some sense the REDD agreement on reforestation compensation and the movement by China to accept some level of MRV standards were the two clear bright spots in an otherwise murky two weeks. Less clear were the fates of legally binding emissions and a global carbon market.

The Copenhagen Accord

If brevity is the soul of wit, then the Copenhagen Accord may be the most clever international climate agreement ever written. There are only 12 points to this political and non-legally binding accord, each averaging a mere 100 words. The 12 points include:
1. Commitment to < 2C temperature rise
2. Reaching peak global emissions ASAP
3. Funding transfers for adaptation
4. Industrialized country mitigation targets for 2020
5. Developing country mitigation actions
6. Forestry – REDD
7. Incentives for Action
8 – 10. Aid from the industrialized to developing world
11. Technology transfer
12. Next steps

Winners and Losers

Copenhagen refocused the climate conversation from the one taking place among 100+ nations to one happening among five countries, the U.S. and the so-called BASIC countries (Brazil, South Africa, India, China). These countries flexed their “climate muscle” at Copenhagen, usurping an international process that had been in place since Kyoto. In that sense they could be seen as winners, with the international process of negotiation and the smaller nations the losers. Barack Obama’s leadership to help salvage something out of Copenhagen made him look like a winner, with Europe losing influence after all of the years of diligent work leading the COP process. Lack of a clear path to a legally binding agreement on emissions must make oil and coal interests feel like winners, with carbon price predictability and the clean tech sector the losers.

But what about the public and the planet? Were they winners or losers? Having the U.S. and China front-and-center on climate change is indeed hopeful, but without legally binding agreements that align with the science and bring the rest of the world along the people and the planet may be the ultimate losers.

More Davos - Less Denmark

It is becoming increasingly clear that if one really wants to know how the 21st century is going to play out, the COP process may be a lagging rather than leading indicator. In many ways the COP process is mired in the past. China is still categorized as a developing nation yet emits more greenhouse gases than any other. Talk of technology transfer implies the world’s leading economies help developing ones, yet it is China again that is leading the technology race on clean green energy.

Only one month after the Copenhagen conference failed to give the world a clear picture of what the future holds, this year’s World Economic Forum may be doing just that. As reported by Katrin Bennhold from Davos in the New York Times February 1st "Topic A this year was the race to develop greener, cleaner technology.” The Times went on to say that the job-creating potential of green technology was “seen by many here as the next industrial revolution”, and a revolution in which China was moving ahead of the West. U.S. Senator Lindsay Graham was impressed, “… my concern is that every day that we delay trying to find a price for carbon is a day that China uses to dominate the green economy.” Graham is a not a Northeast Democrat, he’s a Republican from South Carolina. This is a hopeful glimmer in an otherwise dark landscape for climate legislation in the U.S. Senate.

Copenhagen’s successor, COP-16, is scheduled for Mexico this November. If the COP system is to stay important and relevant, it has to put that price on carbon that Senator Graham is asking for, and enforce a system of legally binding emissions reductions. Then to those Americans who think cap-and-trade puts their economy at risk, it becomes Senator Graham’s job to get them to stop looking at trees and instead see the forest. The risks to the U.S economy are infinitely greater if we don’t lead in the clean tech sector over the next decade – and without a price on carbon we will not lead.

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Is Greed Sustainable?

One of the greatest impediments to corporate management adopting sustainable practices is the belief that it can’t afford to adopt them. But the reality is quite different. Companies that take sustainable practices seriously are seeing the interconnectedness and interdependencies between different parts of their business. The view of their business changes, it begins to look more like a system - embedded in other systems – the local economy, the global economic system and the earth’s ecosystem. It becomes clear that for a business to be sustainable it must align with the workings of the systems of which it is a part and upon which it depends. When this begins to happen, the consequences of efficiency, lower costs, transformed organizations and increased profits emerge.

Recently however there's been a lot more said about greed and lot less about sustainability. Interestingly greed and sustainability are not unrelated.

Gus Levy, one of the legends of 20th Century finance and an icon in the growth of Goldman Sachs, in response to a question about his firm’s motivations once said “Yes at Goldman we are greedy. But we’re long-term greedy.” Levy saw Goldman as a process – a complex system of interrelated and interdependent parts in the service of an aim. While the system made its partners fabulously wealthy that was never the aim. The aim was to serve clients and do it better than the competition. Don’t just meet their needs, delight them and be loyal to them and provide them with the best advice - that was the roadmap to their success. Profitability was the consequence, not the aim - getting rich became the reward for managing well the system that was Goldman Sachs.

That appreciation for a system made Goldman a stand out - a very distinctive place to work, a place of excellence and of legend.

To build a sustainable enterprise, profitability is a necessity. But profitability itself must be sustainable, and can only be so if the enterprise is well managed from a systems perspective. Greed ruins an appreciation for business as a system and thus is not sustainable. There is a gap between the current ways of management and those that will be required to take a system for sustainable practices and nurture it into a long-term competitive advantage. Greed only contributes to the widening of that gap. Greed does not nurture, it destroys.

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The Sustainability Gap

Many issues can come up in a conversation around sustainability. The following 25 topics are just a few:

Climate Change • Cap-and-Trade • Carbon Sequestration • CO2 • Greenhouse Gases • Burning Coal • Peak Oil • Energy Efficiency • Clean Energy • Clean Tech • Green Jobs • Water Resources • Agriculture • Livestock • Fisheries • Waste • Pollution • Toxins • Health • Growth • Profit • Employees • Customers • Brand • Shareholder Value

The seemingly jumbled basket of issues being framed by sustainability puts the term itself in danger of becoming meaningless. Yet one consistent theme of sustainability is the idea that what someone does in one place and at one time has an impact – immediate or delayed, minor or major – on other people, places or things. Sustainability then has embedded within it the idea of interconnectedness and interdependence. Interconnectedness and interdependence are characteristics of systems. So sustainability is ultimately about an appreciation for business as a system.

Today most sustainability initiatives within corporations are characterized by multiple disconnected initiatives targeting products or facilities here, employees or customers there. These initiatives tend to be defensive and tactical rather than strategic. They bring about incremental rather transformational change to the organization.

This is The Sustainability Gap. Corporations know they have to act, they may even know what has to be done, but the training, incentives, habits and practices of management are holding back the achievement of sustainability in its fullest sense.

In order to bridge the sustainability gap and transform the organization into a fierce global competitor in the 21st century management must begin viewing the entire business enterprise as a system - an interconnected and interdependent system embedded in a global economic system, which in turn is embedded in the earth’s ecosystem. Adopting such a view will bring about the kind of transformation in management that will make genuine sustainability possible.

Some great resources for this kind of thinking include – The Ecology of Commerce by Paul Hawken, Mid-Course Correction by Ray Anderson, Biomimicry by Janine Benyus, Profit Beyond Measure by H. Thomas Johnson and The Fifth Discipline by Peter Senge.

But perhaps the granddaddy of all books on sustainability and management is an unlikely choice - The New Economics by W. Edwards Deming. Some may remember Deming as the man who taught Japan about quality, or as the father of TQM. But Deming never defined himself that way. He once said that rather than having taught the Japanese about quality “I introduced them to the principles of a system.” And the Japanese showed their appreciation – Deming was awarded the Second Order Medal of the Sacred Treasure from the Emperor. In addition, the highest business honor in Japan – The Deming Prize – was named for him.

Deming’s ideas included an appreciation for business as a system, the importance of alignment to system aims, the need for constancy of purpose, seeing profit as a consequence of the system rather than its aim, and understanding that what can not be measured is often more important than what can. Indeed the most urgent gaps in addressing sustainability – as reported in the Fall 2009 MIT Sloan Review – were the very issues that Deming had been urging management to consider decades ago.

But how does this relate to addressing any of the issues on the list above? Deming did not talk about issues of climate change or clean energy or cap-and-trade. He only began talking about the environment late in his life and mentions it in passing in his book. However his framework leads to the thinking that every business is a subsystem within the global economic system and certainly we are seeing all too clearly how the global economic system is a powerful subsystem of the Earth's biosphere. Every subsystem needs to in some way align with the aim of the overall system. The consequences of not aligning are sub-optimization, decay or in the worst case the ultimate destruction of the system. If sustainability is about aligning business and the global economy to the workings of the biosphere - then Deming may well have been the father of sustainability management.

The task ahead to bridge the Sustainability Gap is the task of transformation of the training, incentives, habits and practices of management. It will be the challenge of the next decade of global business.

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