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April 15, 2010

Going green: Taking the ‘green leap’

greenkeynote_HartA sustainability expert offered his strategy for “Taking the Green Leap” in his April 8 keynote address.

“The green leap has to take us to a whole new place. It’s all about reinvention,” said Stuart L. Hart, a noted author and Cornell University management professor.

Hart views the world as being squeezed toward the neck of a funnel with pressures of pollution, depletion and environmental degradation on one side, and mounting social problems of rising population, poverty and inequity on the other.

“It can’t continue,” Hart said. “The trick is how to make our way through the neck of the funnel onto the other side.”

The “clean tech” revolution and the growing notion of the “base of the pyramid” (BOP) business strategy that targets the world’s poor as a business opportunity offer some reasons for hope, Hart said.

However, the two camps are “tribal” and have developed as two separate communities that rarely communicate, he said. He views them as a modern representation of the classic C.P. Snow essay, “The Two Cultures,” which laments the gulf between science and the humanities as a hindrance to solving the world’s problems.

“I think it’s a real lost opportunity,” Hart said.

The clean tech side focuses on getting money to develop technology with less thought about making that technology a commercial reality.

The BOP side is more geared toward poverty issues, focusing on how to extend distribution of their technologies into the world’s rural areas and shantytowns. For them, Hart said, the environment often is left behind. “It’s as if creating all this activity at the base of the pyramid will magically create a sustainable form of development. It won’t. If, as [author] Tom Friedman says, we get 6.7 billion people consuming like Americans, it’s ‘game over.’”

Converging the clean tech and BOP movements: “That’s the green leap,” he said.

Hart pointed out that the leap differs from eco-efficiency and is more than taking actions such as reducing energy use. “I’m not diminishing that … but this is a different type of innovation,” he said.

“I think of clean tech as what comes next, what will make what we’re currently doing obsolete,” Hart said. “It has to be transformative, not just eco-efficient.”

Green giant vs. green sprout

Hart draws a distinction between large, centralized enterprises such as big solar or wind farms, nuclear power or centralized water treatment and the small-scale distributed, point-of-use enterprises.

Both get lumped together as green technology, and both are important, but Hart sees the need to focus more on the small-scale operations.

The so-called “green giants” typically rely on some sort of centralized capital-intensive facility and a distribution system. They take root most naturally first in the United States, he said, because the process is “institutionally aligned with the way we do things.”

While the “green sprouts,” such as decentralized solar technologies, small wind farms, microturbines, fuel cells and point-of-use water treatment may have some centralized elements, they are “disruptively innovative,” Hart said. They take root and find their ways into the commercial realm by paths other than the established mainstream market.

“Often the underserved at the base of the income pyramid turn out to be the best place to take up these first,” he said, citing the sprouts’ need for less infrastructure and lower reliance on political incentives and disincentives for success.

Regulation-dependent and scale-driven, the green giants represent a top-down strategy that needs a large guaranteed market from the start.

In contrast, green sprouts can construct strategies that don’t depend on any particular piece of public policy such as a government incentive to succeed, Hart said. “If the incentives are changed, it turbocharges the strategy, but it doesn’t depend on it.”

For example, Hart said small, decentralized solar power companies are succeeding even in India where there is a subsidy for kerosene and a tax on solar power.

India’s poor use kerosene and dangerous torches for light, Hart said, adding that the poor pay the equivalent of $1 a kilowatt hour for electricity, in contrast to about 8 cents per kilowatt hour here in Pittsburgh. A marketer of technology that can create power at 50 cents per kilowatt hour may find few takers in Pittsburgh, but could compete against the more expensive electricity costs in India — offering an alternative to the so-called “poverty penalty” that forces those least able to afford it to pay high costs for poor products.

Later, with added features, the technology could grow to compete in the top-of-the-pyramid markets.

Entrepreneurs, particularly technological ones, “are the perfect people to think that way,” Hart said, adding, “But if you’re an engineer, you might have to leave Pittsburgh to do it.”

“For the last 50 years, we’ve been laboring under a military metaphor in thinking about development,” he said.

Americans with the big footprint are at the top of the pyramid with assets and aversion to change. Poverty at the base of the pyramid represents a separate camp.

“We’ve tended to view them as well-defended hills,” Hart said, adding that the top of the pyramid has been attacked via regulation, incentives or even guilt trips (against driving big cars, for example) to motivate change.

Meanwhile, at the bottom of the pyramid, rapid industrialization, aid and structural adjustment have been used to attack poverty.

Neither has been a huge success.

While the number of people who earn less than $1 per day is declining, the population is growing. The global population of 2 billion in the 1960s has grown to 6.7 billion “and 4 billion to 4.5 billion of them are poor,” Hart said.

“That sort of inequity is increasing, not diminishing,” he said, noting that there are “fewer and fewer completely desperate people, but we have a massive and growing underclass.”

More weapons against poverty are needed, Hart said, suggesting the use of what management guru Peter Drucker calls “entrepreneurial judo” to use the opponent’s momentum to throw him.

“With judo you don’t have to be nearly as big as if you were making a frontal assault on a well-defended hill,” Hart said.

Rather than aiming at the big-footprint people at the top, the nature of green sprout technologies makes them ideal for a bottom-up approach. They can avoid direct competition and seek out early incubation markets. But that requires innovation, new business models, unconventional partners and new strategies and approaches, he said.

If numerous entrepreneurs adopt this approach, “some of these are going to work and they’re going to grow and take root and be copied,” he said. Gradually, as income is generated, poverty levels will be reduced.

“This is creative creation, new growth,” Hart said, adding that green sprout entrepreneurs can start with a low-cost platform and later add features that increase costs, creating trickle-up innovation that someday could compete in the United States with established companies.

“That’s when they’re going to change,” he said. “That’s when you begin to disrupt incumbents,” and can have an impact on them … then have a material impact on the “big footprint” problem. “It’s a judo move,” he said.

Using honeybee colonies as an example, Hart said success isn’t about the queen, but the worker bees that launch their own entrepreneurial initiatives in search of honey. Those who do well communicate the way and find that the next time they leave the hive, more bees follow them.

“I think that’s how the green thing works. There was no central director for the Industrial Revolution. There won’t be any central director for the environmental and sustainability revolution,” Hart said.

“At the end of the day it will be the environmentally, socially and competitively superior strategies that win out.”

“It’s not as simple as just figuring out how to tap into this huge market,” he said, blaming the structured nature of many first-generation BOP strategies for their general lack of success. Most efforts sought to lower costs, source globally, get extended distribution or partner with non-government organizations, for example, Hart said.

The green leap represents the coming together of green tech and BOP. People must realize it’s not just a technology problem — a “killer app” mindset won’t fix it, he said. Nor is it primarily a marketing problem that can be solved by finding the proper price points, he added.

“It’s more of a business process challenge,” he said. “How do we actually do this on the ground?”

Embedded innovation, rather than structural innovation, is needed, Hart said. “That’s where I think the future lies in terms of bringing these green technologies to life in the world.”

Becoming imbedded

“You just can’t airdrop solutions,” he said, arguing for engaging with marginalized groups, building trust and partnerships.

“It’s about two-way communications,” Hart said. “We have to be thinking of the underserved as partners, not just as consumers or producers.”

To succeed, entrepreneurs “must figure out how to creatively marry the skills, resources and technologies a company brings with the knowledge, skills, resources, fears, hopes and aspirations of people in the community, and together make a business neither could have imagined on their own,” Hart said.

“How do we bring the latest high tech we can imagine from the top of the pyramid and blend it with local knowledge … into businesses that come to actually blend those together; creatively fuse those together — that’s the opportunity — and then evolve them from the bottom up?” Hart said.

“To me this idea of the green leap is enormously exciting. It holds the potential to address the funnel problem,” Hart said, enumerating two large challenges:

“No. 1 is this corporate imperialism problem,” he said: Companies coming in, selling poor people things they don’t need and taking the profits. “The whole idea of embedded innovation and co-creation begins to address that in a rather direct way. The green leap is a vehicle by which we can do that,” Hart said.

“This is where all the problems are, all the people are and all the population growth is. It’s where the future lies if you’re interested in business.”

No. 2 is the environmental meltdown problem. “The green leap is an effective leverage point for us to address this mounting environmental footprint problem,” Hart said. “Using the entrepreneurial judo — trickling up — is a way to address that problem in a rather direct way.

“In order to do it effectively, it’s going to require that we develop new skills” in business co-creation processes.

“I’m utterly convinced that this embedded approach that I’m talking about really holds the key.”

—Kimberly K. Barlow

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