Why efficiency alone isn't good enough

Recently the UN Intergovernmental Panel on Climate Change released a study that used its strongest language yet indicating human behavior is the leading cause of global warming. For most of us who follow climate news closely, this isn't really a surprise.

The real mind twister is this: Why, given the worldwide popularity of sustainability, energy efficiency gains all around us and record participation in global movements such as the UN Global Compact or the Carbon Disclosure Project, are we not making more progress? Why does the situation get worse, not better?

Put simply, the answer lies in the fact that business growth is connected to increased resource consumption. If you want to sell more goods or services, you will need to use more resources to create the goods or provide the services.

For this very reason, companies have optimized the consumption of resources by their products during production and use, so they can more effectively expand their margins and compete in the marketplace.

For example, the automotive industry has increased the fuel efficiency of passenger cars from 15 mpg in 1970 to more than 24 mpg today. This 60 percent increase, in essence, represents the industry's drive for more efficiency.

Efficiency isn't the sole solution

The problem is: Efficiency alone will not solve our challenges. The total number of cars in the world has quadrupled in the last 40 years, growing from 250 million in 1970 to more than a billion today. This growth in car ownership easily is eating up all efficiency gains made with respect to the resources consumed by a single car. Therefore, the absolute amount of greenhouse gases from cars has dramatically grown.

Unfortunately, most companies aspiring to become more sustainable are focusing on efficiency alone. That is understandable, because efficiency measures usually provide a short-term return on investment. However, given the sharp rise of the middle class in emerging economies and its drive for consumption, it is clear that we need to add another approach for more sustainable economic growth.

Transformation is the key

Business transformation is about making fundamental changes in how business is conducted in order to help cope with a shift in a market environment. At SAP, we see market environments change globally at an accelerating rate due to complex and related factors: the volatility of commodity prices due to increased demand and speculation, new government regulations and growing awareness among consumers of the consequences of their consumption.

But how can a company drive fundamental change while competing in an established market? It all starts with how your company creates value. If you define yourself as an automotive manufacturer whose mission is to "produce and sell cars," you will feel threatened by the fact that the younger generation in the Western world is not buying cars at the same rate at which their parents did.

The same car company can, in fact, elevate its mission to "clean mobility" and leverage the same situation as a source of innovation and differentiation -- without phasing out its current business (immediately). Automotive manufacturers have started to offer car sharing and ride sharing services, and in the future they will do so using electric vehicles charged with renewable energy.

This not only will detach the actual driving of the car from owning the car (which may reduce the amount of cars required to serve the same amount of people by an order of magnitude). It also would decouple the car company's own revenue growth from the consumption of non-renewable resources by their cars in use.

People make or break transformations

So why don't these transformations happen more quickly? Well, you and I stand in the way of those transformations taking off. Transformations don't happen because they are decided in some board room. They happen because a large enough population of people understand and act on the need for change. And for people to act there must be a strong immediate benefit, even if the impact on society and the environment only will materialize later.

Ride sharing is a perfect example. For many companies in urban areas, commuting is a waste of resources. At SAP, we developed a ride-sharing app called TwoGo. When we launched it internally, we advertised that our employees could use it "to reduce our carbon footprint." We had slow adoption until we changed to messages such as "meet new people," "learn new things," "improve your professional network" and "save some money" -- all ideas that delivered instant benefits.

Innovating across boundaries

The key to more sustainable growth is business transformation. Often these transformations cross industry boundaries. For example, car makers, cities and utilities need to closely work together to pull off the "electric vehicle on demand" concept described above.

These transformations are not easy to manage and require a visionary CEO willing to co-innovate. The reward? The chance of becoming the leader in a new business category that not only enjoys a wave of business growth, but also shows the way to more sustainable consumption.

Speedometer image by cglandmark via Shutterstock.com