Nadya Zhexembayeva on Innovation in a Resource-Deprived World
Friday October 31st, 2014
I met Nadya Zhexembayeva at the Flourish and Prosper conference in Cleveland. Nadya, who received her doctorate at Case Western, is the co-author, with Chris Laszlo of “Embedded Sustainability.” Her latest book is “Overfished Ocean Strategy.” I attended one of her workshops, and then arranged to speak with her, by phone, after the conference.
Triple Pundit: Hello Nadya. The sub-title of your book is “Powering Up Innovation For a Resource-Deprived World.” Talk to me about declining resources. When I saw your workshop you showed a graph of steadily decreasing commodity prices.
Nadya Zhexembayeva: That graph is from the Economist which has been tracking commodity prices since 1864. For the majority of the 20th century, other than a sharp spike in the 1920s those prices have been falling significantly — until now. When you think of the fact that these are limited resources and that the population has increased by a factor of four during that time, driving demand up dramatically, this is a bit of an economic miracle. And this miracle has informed the mindset of most managers. They simply assume that prices will continue to fall forever. That is the basis of many of their growth models. However, what many people haven’t recognized is the fact that in the first 10 years of the new millennium, these prices have shot up a whopping 147 percent.
3p: Wow. That’s pretty dramatic. You say in your book that this new scarcity is here to stay. But how do we know that it isn’t just another temporary blip? After all, much of this decline had to do with productivity and economies of scale, as well as the accumulation of knowledge. Aren’t we still learning and innovating?
NZ: Yes, of course we are still innovating and learning. But if we look at the trend, although much of the price decline was from productivity improvements, we can’t overlook geopolitical trends either. Particularly after the Second World War, we have developing countries essentially being exploited by the former colonial powers to provide commodities at prices well below those that reflect their true costs, often as the result of corrupt arrangements.
3p: So, now those artificial factors have been largely eliminated, and we’re getting closer to “true” pricing. Time to get off the bubble?
NZ: Yes. We’re catching up to the reality. There are only this many molecules. Now new geopolitical forces are bringing in increased demand from rapidly growing new economies that are turning around that long term trend and driving prices up.
3p: So how do companies respond?
NZ: Well, for one thing, companies must renew themselves much more regularly. The life cycle of a business has shrunk from 50 years to seven years. That means that a company today has three years to refresh their business model before they go into decline. That’s why they need to learn to go from planning to modeling, because planning assumes a level of stability that no longer exists.
3p: So, companies have less time to do whatever it is they are going to do. But what should they be doing?
NZ: Well, first they need to get over believing that this is just temporary and begin to prepare themselves for the reality of today’s world. Let’s take a look at some of the points in the book. Principle Three talks about the growth of value as opposed to the growth of goods. Look at Adobe, for example, which has taken to offering their Creative Suite on a monthly subscription basis instead of selling it. So, it’s more about accessing the value instead of ownership. This has worked very well for them.
3p: So, they’ve become the Zipcar of software.
NZ: That’s right. Another company used to make air conditioners, but they were driven out of the market by competitors with lower costs on one side, and higher quality on the other. But they recognized the fact that they were very good and making motors. Now they are successfully making motors for the auto industry.
3p: So, that’s a matter of learning to mine your own enterprise for the highest value elements within it. Let’s talk about the other principles.
NZ: Principle One is ‘Line to Circle.’ That’s a very simple one. It’s essentially Cradle to Cradle. But in order to implement it, companies need to learn some other principles. It’s too much of a change in mindset. You can’t get there until you understand your value chain. That’s Principle Two: ‘Vertical to Horizontal.’ Who is near you? Who might benefit by utilizing this material? How do we eliminate the disposal cost? And what is the inherent value of the materials being discarded? When companies go through a transition like this, they need to find some low-hanging fruit to generate some revenue or cost savings to keep the initiative going.
3p: We already talked about Principle Four: ‘Moving from Planning to Modeling.’ Let’s talk about No. 5.
NZ: Principle Five is ‘Moving from Department to Mindset.’ If you separate execution from strategy you fail already. And if you don’t, execution is a job of the whole company.
3p: How do you develop a new mindset that will succeed in this new reality?
NZ: What I tell people is to look at the value that is being generated. What is the value generated by this meeting, or this email, or this hour of work? And if we can’t answer that question, maybe we should stop doing it. How can you create new value when, for example, you advertise for new employees, or if you rewrite a meeting agenda into a series of questions?
3p: Will we be looking at new metrics that capture value that isn’t necessarily monetary?
NZ: Yes, we are looking at new metrics. Volvo Aero, for example, measures flight hours for their engines, which can be offered as a service. Another example is a company that sells cleaning supplies, now measures the square feet of surface cleaned rather than the amount of product sold, which again, really changes the mindset.
3p: Very interesting. Thank you.
Image courtesy of Nadya Zhexembayeva
RP Siegel, PE, is an author, inventor and consultant. He has written for numerous publications ranging from Huffington Post to Mechanical Engineering. He and Roger Saillant co-wrote the successful eco-thriller Vapor Trails. RP, who is a regular contributor to Triple Pundit and Justmeans, sees it as his mission to help articulate and clarify the problems and challenges confronting our planet at this time, as well as the steadily emerging list of proposed solutions. His uniquely combined engineering and humanities background help to bring both global perspective and analytical detail to bear on the questions at hand.
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