First Friday Book Synopsis

"…like CliffNotes on steroids…"

Andrew Winston on “The Competing Black Swans of Sustainability”

Andrew Winston

Here is an excerpt from an article written by Andrew Winston for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

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According the metaphorical story that opens Nassim Nicholas Taleb’s The Black Swan until the discovery of Australia, everyone in the Old World knew that all swans were white. Years of empirical evidence proved it — nobody had ever seen anything but a white swan.

It came as a shock then when the sighting of a single black swan destroyed such a simple theory. All it took was one example to overthrow the status quo.

The world faces some big shocks in the realms of sustainability and climate change, and the ways of thinking about the future described in Taleb’s book will come in handy. In Taleb’s view, a Black Swan event…

• Lies way outside the realm of regular expectations — it’s an outlier
• Carries extreme impact
• Seems explainable after the fact

The event that perfectly fits this bill, and the reason Taleb’s book is so vital today, is the financial meltdown of 2008. It fits all three definitions.

The subprime mortgage market was predicated on the idea that housing prices nationally would continue to go up; after all, they always had. This conclusion represents one of the logical fallacies Taleb shows we all fall into where we “preselect segments of the seen and generalize from it to the unseen: the error of confirmation.” Falling housing prices and subprime mortgage defaults certainly lived up to the “extreme impact” test, since they brought down the world economy. In retrospect, many pundits and analysts provide some explanations for the mass delusion that swept the financial world, the government, and homebuyers (see Michael Lewis’ The Big Short for a look at the few people who saw the collapse coming).

When I think about the challenges of sustainability, I see Taleb’s principles and dynamics all over the place. From this point forward, two Black Swans will shape our world. First, we face an extreme outlier with unimaginable impact in the reality of climate change — it’s the ultimate Black Swan. But we will require the appearance of another Black Swan to get us out of the hole we’ve dug.

Black Swan 1:
climate change itself. What really makes for a Black Swan is the fact that massive numbers of people are sure it can’t be true. Even in the face of overwhelming evidence of climate change and resource constraints vs. the two heavy-hitter forces driving sustainability — many people struggle with believing any of it.

And it’s not a big surprise that it’s hard to believe. In our entire human history since the last Ice Age, our climate has not changed enough to threaten the viability of the species. So we make the error of confirmation and assume that it won’t change that much going forward. We also make another of the logical errors that create problems: the narrative fallacy. We look for a story that makes sense of the facts in front of us. Look at this from a skeptic’s point of view. The resource-constraint doomsayers throughout history, such as Thomas Malthus in the late 1700s and many in the modern environmental movement, have, it seems, been wrong. So the predictions of devastation will be wrong again, right?

Unfortunately, we’re feeling the effects of the climate change Black Swan today. Russia burns, Pakistan and Nashville flood, and 2010 is the hottest year in recorded history. (Every climate scientist would, at this point, give the caveat that no single weather event can be ascribed to climate change, but the pattern is bad. Personally, I’m getting tired of the caveat, since it’s useless — of course long-range climate models don’t predict the weather, but the climate is changing before our eyes.)

So what will get us out of this mess?

Black Swan 2: worldwide action. We’ll need to change so much about the way the world works as to make it nearly unrecognizable. Imagine companies creating radically new energy supplies, entirely electric transportation systems, and non-toxic and completely recyclable products. Picture massive increases in resource efficiency, waterless manufacturing and agriculture, and everyone engaging in tough, heretical conversations about our consumption and what it means to live a good quality life.

The kind of collective will and action we’ll need to create not only new markets and products, but also new lifestyles, is unprecedented. In human history, when has any group faced limits and made the changes necessary to survive and thrive? I’d be happy to hear an example, but if you follow to the work of Jared Diamond of Guns, Germs, and Steel and Collapse fame, the answer is basically never (think Easter Island).

Taleb addresses climate change in the second edition of his book and answers those who want to use his theories to do nothing: “The skepticism about models I propose does not lead to the conclusion endorsed by anti-environmentalists and pro-market fundamentalists. Quite the contrary: we need to be hyper-conservationists ecologically, since we do not know what we are harming with now. That’s the sound policy under conditions of ignorance and epistemic opacity.” That’s his fancy way of saying that the Black Swan of climate change has so much downside, we need to be very careful. But to handle this challenge, we’ll need to do something we’ve never done and it thus seems impossible as well. That’s the second Black Swan here.

In that sense, though, Taleb’s work gives me hope — the unexpected not only can happen, he says, it’s really the only thing that ever changes history. Which Black Swan will hit first? Will it be climate devastation and resource shortages … or collective action to create more profitable, healthy, and sustainable companies, communities, and countries?

The first Swan has left the gate and we have some catching up to do, but I’m betting on the second.

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Andrew Winston is the co-author of the best-seller Green to Gold and the author of Green Recovery.  He advises some of the world’s biggest companies on environmental strategy. Follow him on Twitter at @GreenAdvantage.

Saturday, September 11, 2010 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , | Leave a comment

Andrew Winston’s “new tool for understanding sustainability drivers”

Andrew Winston

Here is an excerpt from an article written by Andrew Winston for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

*     *     *

I normally write about companies navigating their way toward sustainability, covering topics such as how to save money or drive green innovation. But I like to step back periodically and look at why companies need to go green. Besides the inherent business logic of creating value by getting leaner or innovating to solve customer problems, what are the forces propelling this movement? Understanding this explicitly can help companies think about solutions systematically.

I’ve developed a new tool to help myself, and I hope others, think about these forces in a way that helps drive strategy — and I’d like to get your feedback. The Sustainability Forces Wheel (see chart below) is an attempt to capture what I see as three big buckets of interrelated forces.

Along the outside run the big sustainability challenges we face as a species — these are the issues that society increasingly expects business to deal with and help find solutions for. They include climate, water, biodiversity, waste, and chemicals on the environmental side. On the social side, which could include a limitless list, I’ve boiled it down to the challenges of social equity, labor (both developing skills around the world and avoiding forced or child labor), and freedom (to associate, for example).

These issues affect companies directly of course, but importantly they also pass through a prism of magnifiers. These are the tectonic shifts in how the world works (think Thomas Friedman’s ideas in The World is Flat and Hot, Flat, and Crowded.) I’m including here three biggies:

•    Technology and the transparency it enables

•    Resource constraints, driven in large part by the rise of the consumer around the world

•    Globalization, which creates new forms of competition and forces companies to incorporate different cultures and mores into operations and strategy.

In the third wheel I’ve placed key stakeholders that pose questions about a company’s social and environmental performance. These people put a face on the larger forces and concerns. Of the long list of possible stakeholders, I highlight four here:

1. Governments at all levels and the regulations and pressure they apply

2. Business customers that are greening their supply chains

3. Employees who want more than a paycheck and expect to match their values to their employer’s

4. Consumers who want it all — sustainable products at the same price and quality

The way I picture using this framework is to “spin” the wheels and match up the forces. In this way, executives can think through what the combinations mean for an industry or company.
.

Follow Andrew on Twitter at @GreenAdvantage.

*     *     *

To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

Andrew Winston is the co-author of the best-seller Green to Gold and the author of Green Recovery. He advises some of the world’s biggest companies on environmental strategy.

Friday, July 16, 2010 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , , | Leave a comment

   

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