Lessons for Living Businesses

Lessons for Living Businesses

Eight years ago, I found myself in a board room, meeting with the top executives of three major U.S. corporations. We were debating what to do about a boycott. An environmental group was attacking the companies, urging them to pressure another company to stop using timber from the rainforest. The standard operating procedure for responding to boycotts -- and this is the actual approach recommended by some public relations companies -- is to either ignore and isolate the activist group, or to fight back.

One of the executives in particular took a different approach, however. He saw the boycott, justified or not, as a form of feedback from the marketplace, a sign that the company’s stakeholders expected it to stand for environmental sustainability.

Tachi Kiuchi, the Chairman and CEO of Mitsubishi Electric America, had already visited the rainforest when I met him that day. He had videotaped his trip, and was there to show the video, and explain what the companies could do. I realized then that here was a CEO who got it – and someone I wanted to work with.

In the years since, Tachi and I visited rainforests in Borneo, Bali, the Galapagos, Hawaii, and Costa Rica. We toured Clayoquot Sound in British Columbia, and salt marshes in Baja California. We learned that the RF, and all complex ecosystems, are more than objects to save. They are models to emulate.

In the complex adaptive systems of nature, we find the new model for business. A model by which business can grow as creative, productive, resilient, and sustainable as the rainforest. A way for business to maximize the triple bottom line -- its economic, social, and environmental performance.

So for six years we have been torturing ourselves writing this all in a book. The core message in our book, What We Learned in the Rainforest: Business Lessons from Nature, is that nature provides a powerful model for business in today’s fast-changing economy.

But we learned more than how to maximize the triple bottom line. We learned how to awaken the business machine, to bring business to life. The rainforest teaches above all that the living business is a step in the evolution of business as momentous in its own way as was the emergence of life, thought, and self-awareness in evolution of nature.

We are at a pivotal moment in the evolution of business. The future of business is the living business, the business whose borders of interest don’t stop at its shareholders, but encompasses five stakeholders of the business ecosystem -- the corporate core, plus its workplace, community, marketplace, and environment. The business that is, at once, a machine, a learning organization, and a system of innovation and transformation.

To understand how businesses based on the machine model work, when I count three, everyone turn and shake hands with the person on your right: There’s no greeting, no connection, there’s just a turning away. This can be productive in the machine phase of business. By separating people from each other, into independent positions, the business machine can run most smoothly, with people acting as unconscious machine parts.

The extraordinary productivity unleashed by the machine model cultivates a worldview in which all value is material in form -- a worldview in which materialism is not simply an obsessive drive to accumulate things, but a belief system that defines the nature of reality.

We reveal this ideology of materialism even in the language we use. When something is important, we say it “matters.” When something is significant, we call it “substantive.” When we refer to the people in our communities, we call them by the generic term, “consumers.”

Some of us obsess on accumulating material things -- because this makes us bigger; some of us obsess on NOT accumulating things -- because this makes us better: we are living more simply, so others may simply live.

This materialist mindset creates a moral dilemma. Every waking moment, we consumers are drawing down on the gifts of nature. By seeing ourselves as consumers, we position ourselves as morally unacceptable. We endorse the idea of original sin. Our very species seems a plague on the earth.

But people are not merely consumers, any more than any other creature is. Think of the origin of the term creature, and you get a better idea of what we are. People are not mere consumers. People are creators.

When we think of ourselves as consumers, we wonder how we can diminish ourselves on the earth, reduce our consumption, minimize our ecological footprint, leave less of an impression, have less of an impact.

Alone, this is a dead-end path. No matter how slowly we consume the resources of the earth, if we are consumers only, eventually we will consume them all.

When we think of ourselves as creators, a whole new world of possibilities opens to us. We begin to sense how we are part of nature’s creative path, how we can apply nature’s gifts to us, to further nature’s design, as a positive part of the whole.

What would the world look like if we in the industrial world dropped the ideology that we are consumers, and began to see ourselves as creators?

We can’t know. How could a hunter-gatherer imagine life in the agricultural age, or a farmer in the Middle Ages conceive of the industrial world, after all?

But look to nature, look to the rainforest, and we can begin to sense that a dynamic, enriching, and sustainable culture is possible, if we walk a path defined by nature’s principles. When we begin to walk that path, we find, marked in the soil, that our ecological footprint is etched there right alongside the footprints of millions of other plants and animals.

Because in the rainforest we find the holy grail of creativity. The rainforest is the most effective innovation system in the world. The system of value creation deployed in the rainforest and in all living systems underlies and supports all profit in business, and all net gain, everywhere.

Nature is an innovation creating system that for 3.8 billion years has taken a finite supply of raw materials and a steady flow of energy from the sun, and created an ever-increasing array of creatures, qualities, and capacities.

Take any problem that anyone in business has, and one thing is certain: nature faced it, and probably overcame it, millions or billions of years ago. Because of this, there is no better business model than the rainforest.

'The rainforest is short of capital'

When we visited the rainforests of Borneo in 1995, something about the forest surprised us. It looks like it must be a place of great resource abundance, to feed all that growth. But in fact, the rainforest is short of capital.

Its soils are thin. Minerals are leached quickly by the flow of rain. Even water is in short supply on the forest floor; it is captured by the plants and animals above. Up there in the canopy, plants jockey continuously to capture a stream of sunlight. The rainforest’s energy crisis never ends.

Yet the rainforest is the most creative system on earth, home to two thirds of the planet’s biodiversity, and the simmering cauldron from which advanced life emerged. That teaches us the first lesson from the rainforest that I will present today: limits are the catalyst to creativity. They are the springboard that triggers the creation of value.

How does this happen? The rainforest -- and all living systems, including all businesses -- create value over a four-phase cycle: Innovation, Growth, Improvement, and Recession, or Decline.
  • In the phase of Innovation, nature designs and plants seeds.

  • In the phase of Growth, nature replicates the seeds.

  • In the phase of Improvement, nature differentiates the seeds, creating three things: increasing quality, efficiency and variety.

  • In the phase of Decline or Recession, nature releases the parts, so that they join together in new combinations.

Occasionally, these disparate parts join together in momentous combinations, moments of synergy, when two different parts join to create something totally new, a quality that did not exist in the parts. And the system begins a new phase of Innovation.

This suggests a second lesson from the rainforest: information is the fundamental resource.

'Every seed is an idea'

Every seed in the rainforest is an idea, waiting to be born. The information in the seed is defined by its structure. Deep within the seed, the structure is further defined by its DNA, a code that conveys what the seed, in the proper environmental conditions, can become.

But the seed does not simply spring into a tree -- and an idea in you does not simply spring into form -- automatically. It proceeds from concept to application over four seasons of development.

That brings us to the third lesson: master the four seasons, the four phases, and you master the creation of value. This is perhaps one of the two most practical lessons business can learn from the rainforest.

An example from our most recent trip to the rainforest: We arrived in the Tortuguerro region of Costa Rica by small plane, and landed in a tiny field that we could tell was the airstrip only because there was no place else to go.

We boarded small boats and began our journey downriver. The river was a patchwork of wide and narrow stretches, dividing and reconverging continuously.

Around every turn, birds were standing, perched almost like statues, in the mangrove swamps along the edge of the water. The birds fed on the rich array of insects and fish that populated the swamps.

The swamps were created at first by mangrove plants. Mangroves are fast-growing pioneers. Ecologists call them r-Strategists. Their survival strategy is simple: high fertility, and fast growth.

The mangroves build the foundation for the rainforest. They take root at the verge between the forest and water. Because of their fertility and explosive growth, they have voracious appetites. In fact, pioneers are among the least efficient plants on earth. They grow and spread quickly, never pausing to adapt to the subtleties of their environment, the way successor plants do. They grow and spread like Microsoft.

As they spread, the pioneers create the outline of a web. In the spaces between them, they create niches, with their own unique characteristics of light, water, and resources. Into these niches, a myriad creatures begin to appear. Insects, fish, plants, and birds.

Oddly enough, though, a mangrove swamp is not a very friendly environment for a mangrove plant. Debris builds up to form soil, leaving the mangrove plants high and dry, atop the very ecosystem they helped form. There, lacking the resources they require, they die. But in the process, the mangrove create an ecological fabric, and a place for a rich forest ecosystem.

Mangrove to us is like today’s industrial economy. Left to their own devices, the machines of the pioneer industrial economy and the companies dependent on them would deplete the environment of all its resources, if they could. But like the mangrove, industry’s pioneer machines are creating a foundation for a richer, more resilient human ecosystem.

The imperative now, as we reach the apex of mangrove growth, is to populate those niches with a rich variety of human products, services, creations and cultures. To create an economic and cultural rainforest, as rich in its own way as the environmental rainforest.

Recession Leads to Transformation

In nature, times of recession precede the moments of breakthrough change, innovation, even transformation: The death of the mangrove plant signals the maturity of the mangrove swamp, and the creation of the forest.

If we think of ourselves as consumers, then recession is a time of failure. If we are creators, it is a time of graduation, and of new opportunity. A time to take ideas that lie latent in us, creative impulses -- and begin to make them manifest.

Every business applies nature’s principles -- but very few know it; every business navigates through the four phases -- but most are unaware when they move from one to the next. This puts them at great risk.

Look at companies in the news today -- Enron, K-Mart, Coors, Ford, H-P, and many others are beginning to learn the lesson.

Enron mastered first two phases -- it created a whole new business niche, energy management -- and grew explosively. But like many pioneers, it was highly inefficient in the context of its niche. When competitors finally entered the niche, copying its business model but cutting out the fat, Enron failed at the Improvement phase. Instead of using feedback to trigger adaptation, it hid the losses in subsidiaries, and blocked the flow of feedback. Literally, it blocked the flow of information -- the new fossil fuel, the fundamental resource, the source of profit -- into the organization.

K-Mart made the same mistake. It invented its retail niche, and was a master of the Growth phase, but it failed at improvement. In the 1970s, K-Mart had Sears on the ropes. But then WalMart entered the niche, copied K-Mart’s model, and cut out the fat. K-Mart failed to institute a system for feedback and adaptation, and today is talking bankruptcy.

H-P mastered three of the four phases of its life cycle. It has been a supreme Innovator, a talented Growth machine, and a legendary learning organization whose “H-P Way” drives continuous Improvement. But it stumbled when it reached a phase of decline. Time will tell whether it can ultimately learn and apply the principles of business success in times of decline.

Bill Coors is one of our favorite proponents of the living business model. His belief is that “all pollution and all waste is lost profit.”

'All Waste is Food'

This belief is the fourth lesson from the rainforest: All waste is food. In waste is a resource. Waste is a form of information -- it conveys the costs of an action -- and anything that imposes a direct cost is driven down in frequency, in relation to the size of the cost and adaptive capacity of the entity that pays it. Feedback takes waste and triggers adaptations in the rainforest, and business, to turn the waste into food. If that feedback is ignored, the waste builds up until it destroys the whole.

That is why Bill Coors came to advocate what he calls the Closed Loop System. According to Coors, the industrial economy is like a linear, open loop system: resources are extracted at one end, turned into products in the middle, then discarded back to nature in the form of air, water, and land pollutants at the end. The system is great for the people in the middle -- that’s where products are used and profits are extracted. But it leaves costs at each end. In the short run, those costs are perfectly affordable. But in the long run, they mount until they threaten the economy’s foundation.

The open loop system is a little like Enron’s practice of hiding losses in subsidiaries. In the industrial economy, we price resources like petroleum according to cost of extraction, not the cost of creation. That’s like valuing our life savings at the cost of driving to the bank to withdraw them.

Bill Coors countered that by establishing a simple addition to its internal accounting. He channeled the costs of pollution and waste to company units that could do something about it.

Thus almost every waste stream was systematically either eliminated, or converted. Spent grains became fertilizer and feed. Petroleum solvents were replaced with a citrus-based alternative. Toxic inks were replaced by an ingenious infrared marking.

But his best-known innovation was the recyclable aluminum can. When aluminum companies wouldn’t supply and recycle the cans, Coors bought new technology and set up his own can-making plants. Then in the face of vehement opposition -- August Busch even hired a professor who “proved” that Americans would never recycle -- Coors set up a national buyback system, and was flooded with cans.

To use them all, Coors again developed innovative new technology. The rest of the industry can’t make cans with much more than 65% recycled content. Bill Coors’s system can be 95% recycled.

'All value is created by design'

Another master of the living business is Gordon Moore, the cofounder of Intel. In the old, pioneer industrial model, companies scoured the world for pockets of complex resources, like hydrocarbons, extracted them, and sold them into the economy, which spent down their complex design. Moore’s company did something different. It took the most abundant metal on earth -- silica, simple sand -- and turned it into the microchip. The value in the microchip isn’t the physical resources. The value is the design, a product of human genius, patterned on the designs of nature. That is the fifth lesson from nature: All value is created by design.

Another master of the value-by-design principle is Bill Gates, whose company creates value in the instructions embedded in software. Microsoft was the pioneer species that laid a foundation for the information economy.

Once a driver of innovation, Microsoft is now building barricades against it, with proprietary standards intentionally designed to prevent and co-opt competition, and potentially destroying the world’s emergent economic rainforest.

If Microsoft succeeds in maintaining its monopoly, its dominance will place at risk the environmental rainforest as well, by preventing the emergence of an economy founded on rainforest principles.

To help grow living companies and a living economy -- to master the four phases of the business lifecycle -- to capture feedback and maximize the flow of information among the five communities of the business ecosystem -- the companies that apply these principles have formed a global business network -- the Future 500 companies

The book What We Learned in the Rainforest tells their stories. It illustrates how the lessons of nature work, in the rainforest and in the corporate world -- to maximize innovation and the creation of value.

I also want to say, since she is here in the audience, that my daughter Samantha and I have also written a book together. It’s much shorter, and much funnier, than What We Learned in the Rainforest. And in a way, it’s on the same subject.

It’s called “If the World Ran Out of B’s.” Both of the books are available on Barnes and Noble or Amazon.

So we have tools for business, for grown ups, and even for kids. But are these tools enough to enable us to grow living businesses and a sustainable economy? Or are they too little, too late?

When I think in materialist terms, I see no way out. I measure the pace of resource consumption and the loss of diversity, and the industrial world seems very short-lived. But when I think in rainforest terms, when I think of people as creators in a creative process, I sense there is a way out.

We can’t see it now, because new. It is as invisible to me as the industrial world was to the farmer in the agricultural age. And as invisible as the agricultural world was to the hunter-gatherer before.

So I move forward with a kind of informed faith, a sense that the human community is poised to undergo a shift into a new kind of world, a culture I call a rainforest culture, and a business ethos that moves beyond the machine, and beyond the learning organization to the living business, because that, to me, is the metaphor that suggests the mix of limits and abundance, competition and cooperation, innovation and growth and improvement and transcendence that awaits us.

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By Bill Shireman, president and CEO, Future 500 and Global Futures Foundation. Copyright 2002 Global Futures Foundation. All rights reserved.