The Hard Part is the Transition
March 12, 2009 by Daniel Rose
I had a great lunch with some very smart people on Wednesday: Nabil Harfoush, Joe Dee, Mark Kuznicki and Sean Howard and with this bunch of people the conversation is going to get good. (Even though it started off with 3 out of the 5 complaining to Mark that he brought vegetarians to a dim sum lunch.)
Nabil brought up a point that sits with me long after I digested the tofu. We were talking about innovation that is required to set the planet on a course that isn’t destructive. We were talking about how product innovation to “reduce greenhouse gases” or ” reduction of fossil fuel consumption” is still a path to destruction. He was saying that the real innovation is required on the business model side. We have to collectively come up with models for creating wealth and health that don’t rely on CONSUMPTION as its core tenet.
When you think about how many business models require the consumption and repurchase of things as the basis for existence, it’s quite obvious that a system of those models is not sustainable.
The good news is that there are lots of people out there who are trying really hard to come up with solutions to these problems and are doing a good job with renewable power sources, food sources, transportation, etc. Being a bit provocative, I suggested that it would be a lot better to let companies like GM die and let new, sustainable companies take their place. Even use the bailout money to fund those startups. In fact, I bet a lot of startups could use the sort of expertise that GM has because the people at GM are probably pretty good. It’s the business model that is screwed up and if you took good people and let them thrive in new business models that are struggling to get going, there might be a fast path to planetary rejuvenation.
Nabil then brought up the point that I found very interesting which is in a lot of cases people have innovated around the answer to these most vexing problems. The really wicked thing is how to manage the transition. How do we get from here to there? We have an idea of what the “there” is, we just haven’t figured out how to do it without mass poverty, famine, war and disease. Good luck getting a politician to commit to a program that has the right answers with the aforementioned unpleasantries being a necessary effect.
This bodes well for my business seeing as I help people work through transitions. Maybe Capitalism 5.0 (or wherever we are) is a big business opportunity but maybe the transition to it will be my $3 exa-trillion line of business. I better start hiring!
[...] The Hard Part is the Transition : Omakase Group "We have to collectively come up with models for creating wealth and health that don’t rely on CONSUMPTION as its core tenet. [...]
Hey Dan,
Worth checking out are theorists on “steady state economics”. Consumption is not necessarily the problem with our economy – after all, some degree of consumption is critical to sustain life (think: eating). The core problem is growth. A system predicated on perpetual growth in a system with a set carrying capacity is bound to fail. For infinite growth, we need infinite resources.
The hard part may be the transition, but even harder might be the end point of the eventual transition. What if we’re peaking? And what if it’s not new business models that would fix this, but new models for living?
I’m sure he’s above saying “I told you so”, but the Buddha kind of called this one.
Cheers,
Aaron
Aaron…great points. Obviously I have to agree with you that consumption on a certain level is fairly important. I like your identification of “living” models. Business models are a necessary subset of living models. People need a way to house, dress and feed themselves while generating wealth and not destroying the planet.
To your point on growth, typically the idea of non-stop growth is known as “cancer” which usually doesn’t have a positive outcome.
I like the living model approach as it encompasses more than the traditional business definition as for-profit, although “business model” today is being used to describe the generic system by which a certain set of activities produces value to certain parties of that system. Of course no disagreement about the irrational expectation of unlimited growth on a planet with dwindling resources and increasing population!
There is a difference in my view between consumption for the purpose of sustaining the system and consumption for the purpose of maximizing value (usually wealth) for a limited group of participants. I think we can agree that the fine line separating the two must be sustainability, taking into account the natural capital involved in the system we’re describing, whether it is that of a for-profit organization or the economic system of an entire industry.
I support the transformation model consisting of (a) enabling technology, (b) new business model, and (c) new value networks. I do believe, however, that among those 3 complementary elements (b) is the one needing most attention. Technology innovation is happening at a high rate and accelerating. But technology innovation is usually driven by expressed or perceived needs. Business model innovation has the potential to drive technology innovation in the right direction to support the transformation and build new value networks.
To take the example of the auto industry. If it switched from a product to a service paradigm, the self interest of the auto industry would suddenly be directly opposite to what it is today. As a service provider, it would be interested in long lasting reliable and efficient car that can be updated in a modular way. No need for new models every year to drive sales of new cars etc. The efficiency and modularity requirements would drive technological innovation in the entire ecology of the industry: parts, fuels, materials, batteries, etc. while keeping the current system participants employed and surviving. This transition by itself allows for higher acceptance of the necessary transformation because people would be part of the solution instead as part of the problem.
We need many more of these new “business” or “living models for almost all spheres of our activities today. One core element must be sustainability. Another could be a broader sharing of system benefits, i.e. designing the system taking into consideration the interests of a broader set of stakeholders.
That is 8 different flavours of awesomesauce.
I just read Clay Shirky’s post about the newspaper industry, clearly an industry in a state of transition. He wrote that we don’t need newspapers, we need journalism but the two are inextricably linked.
That’s similar to Nabil’s argument about the auto industry, ie. we don’t need cars, we need transportation. Rethinking the automobile as a service model instead of a product model is an example of a radical “business” or “living” model shift.
Letting the automakers die doesn’t necessarily mean shutting everything down and kicking the workers into the street. Declaring bankruptcy might allow a wholesale change in business model that might be painful for some but wouldn’t necessarily cause the demise of the automobile industry, parts industry and advertising industry but it might cause the birth of a more sustainable TRANSPORTATION model.
To drive towards zero waste systems and closed loop manufacturing, I really think we need to see a fundamental shift in financial governance…particularly in how companies are obligated to assess costs. That would be a worthy catalyst for new business models.
A local auto maker who focuses on modularity and reusing & recycling car parts could lower margins and provide more jobs while still improving overall profits, but I’m fairly confident that building throw away products in overseas countries is still a better financial decision today (i.e. more profitable).
Companies are not held accountable for external costs due to pollution, resource usage, and degradation to living conditions or human health. These costs are paid for by the environment or other people. If that changes, companies change.
Great video by Annie Leonard sums up this entire conversation in a neat 20 minute package: http://www.storyofstuff.com/
I came across a blog post today here: http://www.arthurmag.com/2009/03/16/let-it-die-rushkoff-on-the-economy/ that talked about the nature of the banking system and how the notion of big banking came to be. Essentially banks were started as a way of securing the aristocracies’ power against a rising middle class. Banks were designed to keep merchants and people in debt in order to serve the monopolies that the king appointed and took a stake in.
The point that the author brings to the fore is that it has been 50 years since any REAL economic value has been created in our system. The credit swap scheme came about because banks had to find a way to create a false sense of value (and trade that value) in order to prop up the debt fueled house of cards that had been created over the past 500 years. I’m not doing the argument justice. Read the post.
Getting back to this discussion about models, I think there is a close link to the idea of healthy, natural consumption and carrying on sustainable, valuable economics where things of value are being traded for currency. Maybe the discussion isn’t about whether GM lives or dies but at least giving the market a legitimate say as to whether or not it feels as though GM is providing a good product in exchange for real currency instead of debt.