The Disappearing Line

Swim through the overfished oceans, connect the dots, and you will get to a bigger picture. Think of the global economy in which we are living today as one long line. The line starts with all the companies that are mining, growing, or raising something—those are our only options when it comes to raw materials. The line finishes with all the companies managing a not-very-sexy but increasingly lucrative business: waste. All other businesses—large and small, products and services—are between these two poles. That is our entire global economy. One giant supply chain.

It is linear—there is only one straight line from the beginning to the end. It is throwaway—as, generally speaking, we use what we mine only once, throwing away most of the resources just the way you throw away a plastic fork after a onetime use. And it is collapsing—as we are running out of things to mine and places to trash.

We are in the midst of the transformation of a lifetime.

For most businesses, this transformation is invisible. For those bearing its crushing impacts, it is disastrous. Yet some see it as the greatest opportunity of the 21st century.

TerraCycle is one such business. Known as the company that produced the world’s first product made from 100 percent postconsumer garbage, TerraCycle has “outsmarted waste” by engaging more than 20 million people in collecting waste in over 20 countries and diverting billions of units of waste. Now a company that turns waste into over 1,500 different products, TerraCycle was once a laughingstock of the entrepreneurship competition. The first product of the company, founded by a barely 20-year-old Princeton dropout, Tom Szaky, was far from glamorous but made up for it with a great name: Worm Poop. An all-natural fertilizer, Worm Poop is packaged in recycled plastic bottles, which the company collects in part through a US-wide recycling program. The New York Times’ Rob Walker wrote:

You don’t hear much about worms, or their waste, from the various big-box retailers, globe-trotting pundits and good-looking guests of Oprah Winfrey who appear to be leading the conversation about environmental concern these days. But TerraCycle’s plant food is actually a mass-oriented variation on something that hard-core eco-people talk about all the time: the worm bin. Containers filled with shredded newspaper and worms, such bins are used for composting food scraps. Worms eat this waste and digest it, and “compost exits the worm through its tail end,” one online guide explains. These “castings”… happen to make good plant food.

TerraCycle now sells at major retailers ranging from Walmart to Whole Foods Market. Look who is laughing now!

There is no question that turning the challenges of the overfished ocean into a vibrant business opportunity is much easier for a startup than it is for a corporation with a history. Don’t get me wrong: I have nothing against the sweethearts of disruptive innovation for a resource-deprived economy, the Body Shops and the Whole Foods Markets of our world, built from the very start on a solid foundation of Overfished Ocean Strategy principles. Yet with all due respect, I often feel that they almost have it easy, and it is the traditional companies striving to transform into a more competitive version of themselves that are up against a real challenge. Of course, it is an immense task to build the world’s best vacuum cleaner, but just imagine what it would take to transform that working vacuum cleaner into the world’s best TV set? That is the scale and complexity of transformation required here.

Bayerische Motoren Werke AG—also known as BMW—is one such company navigating the murky waters of the resource crunch.The company moved well beyond selling products to selling services—and from a car company transformed itself into a mobility company. Focusing on mobility—a service rather than a product—allows the company to power up radical innovation and open doors to a completely new business opportunity. Take, for example, the DriveNow car-sharing service, employing BMW i, MINI, and Sixt cars, which allows people in densely populated urban areas to enjoy the benefits of a personal car without owning one. The idea, as BMW explains, is simple: “The mobility concept is based on the motto ‘pick up anywhere, drop off anywhere.’ Billing is per-minute, fuel costs and parking charges in public car parks are included. Users can locate available cars using the app, website or just on the street. A chip in the driving license acts as an electronic key.” Now, that is a service I am ready to explore!

ParkatmyHouse—a strategic investment by BMW i Ventures—is another example of BMW’s remarkable resource intelligence and ingenuity. A simple online marketplace, powered by an app, allows people who own private parking places to connect with people who are searching for one. Imagine the savings of time, fuel, CO₂ emissions, and more—and money made—on this simple solution. And for BMW itself, having a stronger parking infrastructure is essential for future sales: if we have good parking, we are ready to drive cars, right?

Mobility services are not the only radical innovation coming out of BMW. In an effort to protect and defend profits, the company decided to harness winds thrashing across eastern Germany to secure power as costs rise as a result of Germany’s EUR 550 billion ($740 billion US) shift away from nuclear energy. BMW’s transitions seem deceptively simple. Yet when the market forces inspire you to shift your focus from designing cars to designing mobility, disruptive innovation follows; any designer and engineer will tell you that most innovation happens on the verge of the impossible.

Similarly deceptive is the move toward control of the entire energy value chain—but the numbers and the endorsement of business analysts, such as those quoted in Bloomberg’s 2013 review, speak volumes.

At BMW’s Leipzig plant, the four 2.5-megawatt [wind] turbines from Nordex SE will eventually generate about 26 gigawatt-hours of electricity a year, or about 23 percent of the plant’s total consumption, said Jury Witschnig, head of sustainability strategy at the Munich-based manufacturer. The automaker seeks to eventually get all its power from renewables, compared with 28 percent in 2011—both to cut its carbon output and to benefit from falling prices for wind and solar energy. “There will definitely be more such projects” from renewable sources, Witschnig said. “Energy prices are part of the business case,” and in Leipzig, wind power was cheaper than other options.

But that is not all. BMW’s rapid marriage with the energy business is a sign of remarkable foresight. As legislation continues to press for fewer and fewer emissions (Euro VI requirements being one such pressure), the movement away from combustion engines appears inevitable. Electric vehicles are one alternative—and judging by the fast pace of model launches in this domain, it seems to be a viable option. Yet when you manufacture combustion engines, the emissions are fully in your control, as your engineers are the ones designing an intelligent (or not so much) motor. When we move to electricity, however, that control disappears, as emissions are now dependent on the efficiencies of power plants. And that is exactly why BMW’s tango with energy production is so ingenious: it puts control back in the hands of the company—way ahead of the competition.

Swiss Re is another giant riding ahead of the wave and turning disappearing resources into a thriving business model. The primary product of Swiss Re, a 150-year-old reinsurer with over $33 billion in revenues as of 2012, is insurance for insurers, so the company can hardly be equated with coal-burning plants or methane-producing industries. A company rooted in Swiss rationality and conservatism, the reinsurer surprised the entire industry by taking on the increasinglack of climate stability as a business risk—and opportunity—as early as 1994. By 2007, Swiss Re had introduced a number of financial tools for dealing with the risks associated with climate change. As Nelson D. Schwartz of Fortune magazine explained,

Buyers can bet on future heat waves or cold snaps with puts and calls on specific periods of time and temperatures, much as conventional options have a preset strike price for a stock. So a farmer in India might be able to buy insurance from a local insurer in case the usual monsoon rains fail to arrive, or, conversely, his fields are flooded.

In the following years, the company upgraded its entire portfolio and pricing to respond to the rising costs of climate change. Speaking to Bloomberg TV in 2009, Swiss Re’s senior climate advisor, Andreas Spiegel, took no prisoners, estimating weather-related losses at $40 billion annually:

Weather-related insured losses are rising, and the intensity of weather-related events such as hurricanes is going up as well. We are integrating these risks in our pricing, trying to quantify certain aspects of climate change and integrating them into our models. Climate-and weather-related risks are a part of our core business. More and more, we see this as a business opportunity, as adaptation to climate change is about managing risks in the long term. And that is our business.

Whether red, blue, or rainbow colored, whether made of resources, waste, or ideas, our oceans are running dry. We can continue to ignore this trend, falling deeper into the coma of denial along with millions of other businesses. We can run and hide, pushing it to the bottom of the corporate agenda, waiting for a better time to make a move. Or we can turn the overfished ocean into the driving force for radical renewal. So what should business do?