At the start of the new millennium, Microsoft and Nokia were riding high as the world’s biggest software and mobile phone companies respectively. By the time Microsoft announced it was buying Nokia’s phone business in September, both former giants were struggling to recover from their failure to grasp the implications of the shift to mobile computing and smart phones. They are not alone: corporate history is littered with companies which have failed to grasp the implications of change, from Kodak to Borders to Blackberry, and a host of regional newspaper groups.
The pace of change is accelerating. The internet is undermining long-established business models and creating new ones at a rapid pace. Less visible but even more significant are social and environmental issues like climate change, food shortages, rising populations and increased demand for consumer durables. The challenges are so significant that they affect all areas of industry; and, just as Microsoft and Nokia decided they needed to solve their problems together, so collaboration and co-operation – not just between businesses, but involving all the various entities that play a role in our complex systems for communications, or energy generation, or food production – will be vital to the future of both business and society.
That is the inspiration behind the Forum for the Future’s #theBIGshift initiative, which aims both to encourage cooperation between multiple organisations and to provide a toolkit to put them on the path towards sustainable innovation. “If we are to get to a sustainable future we need to be more sophisticated and joined up in the way we act”, says Stephanie Draper in a paper entitled ‘Creating the Big Shift: System Innovation for Sustainability’. The approach she advocates involves diagnosing systems – such as energy and food – and identifying the optimal places for focus. The aim, she says, is “to address the barriers to change as a collective, rather than as separate individuals or organisations. We don’t have time to make the same mistakes over and over again, so we need to learn from others and help others to learn from us.”
There are some good examples of what can be achieved through industries working together: Unilever was instrumental in the creation of organisations like the Marine Stewardship Council and the Round Table on Sustainable Palm Oil; B&Q, the DIY chain which is part of the Kingfisher group, was a key player in the establishment of the Forest Stewardship Council; Nike is working with its rivals in the industry to encourage more sustainable practices in its supply chain; the collapse of the Bangladesh clothing factory earlier this year has sparked similar moves among clothing retailers. These initiatives are a useful start but there are huge issues still to be addressed: for example, the growing demand for palm oil for use in food and other consumer products is causing massive deforestation in Indonesia, adding to global warming and exacerbating the pollution which is blighting Singapore. Sustainable palm oil supply addresses only one small part of the interconnected issues.
“We face a series of enormous, inter-related challenges which are too big for [one organisation] to address alone”, says David Bent, the Forum’s Director for Sustainable Business. “For a business to be successful, it needs a world to be successful in – a political and social framework, a thriving community, scale and dynamism – as much as it needs to offer long-term returns to shareholders. Business as usual will not work.”
Some of the most successful businesses already realise that they are part of a bigger ecosystem and that others play a key role in securing their profitability. Apple recognised this in its hugely successful app-based iPhone model. As Anna Birney, leader of the system innovation lab at Forum for the Future, points out, the huge number of apps which the iPhone can host is key to its appeal: ‘Apple recognised that the iPhone model does not work without apps, so it needed those app developers to make its product work,’
Other innovative companies are taking similar steps: Avis acquired ZipCar, the car-sharing business which could have posed a threat to its car hire interests; Google has acquired an average of one company a week since it launched 15 years ago, including companies like Beat That Quote, which it used to leverage its own price comparison business; British Gas invested in the AlertMe home monitoring business to beef up its own smart meter interests.
Julie Meyer, the Founder and Chief Executive of Ariadne Capital, calls these examples of entrepreneurial digital Davids being sought out by business Goliaths. “Companies can no longer think of themselves as a silo or a stand-alone firm”, she argues. “They are part of a network and they must think like a “business-model architect”, building up their natural allies and partners. That takes deep thought, careful market analysis, clever deal-making and digital, cloud-based infrastructure.”
The Technology Strategy Board, the government body charged with stimulating business-led innovation, uses a digital tool called Horizons, developed in partnership with Forum for the Future, and similar to its Big Shift Framework for Change. Mike Pitts, the TSB’s lead specialist for sustainability, recognises “a common desire between the Forum and TSB to identify challenges which are too big for anyone to tackle on their own”. Its series of industrial ‘Challenge’ programmes involve bringing together consortia, representing disparate interests, which are required to come up with collaborative solutions. Issues they tackle include those created by an ageing population, or the potential for collaboration across the digital sector, or supply chain efficiencies. The results, says Pitts, have been good – once the participants realise the benefits of embracing cooperation rather than pursuing their own agendas.
One of the biggest challenges currently facing Western governments is the financial crisis, which highlighted the complexity of the economic ecosystem. The Forum’s Bent points out that the proximate cause of the crisis was a serious, but apparently manageable, issue of overextended mortgage borrowers in the US; the explosion in the creation and distribution of complex financial instruments meant, however, that the pain of these over-extended mortgagees was magnified throughout the global financial system. One false move – in the form of the collapse of Lehman Brothers – caused a virtual economic meltdown. Bent argues that financial regulators are still spending too much time developing rules for individual parts of the financial system rather than recognising the effects of intermediation and the intricate connections throughout the financial ecosystem.
Some in the financial industry do recognise the need for change. The Institute of Chartered Accountants in England and Wales (ICAEW), for example, is involved in a range of projects including the Finance Innovation Lab, in conjunction with the WWF, aimed at stimulating change in the financial system. “The crash shows that the financial system failed”, said Richard Spencer, Head of Sustainability at the ICAEW. “If we do not get it right in the future, we face the real prospect of a perfect economic, social and environmental storm, all occurring at the same time.”
Bent believes this interconnectivity in the financial system is at the root of many other societal issues, and will be key to solving them. He points to the oil industry’s carbon bubble. When the implications of burning the remaining reserves upon the atmosphere are finally accepted, there is a risk that the value of oil companies could fall sharply, with a knock on effect on pension funds – and thus on the fortunes of the workers and pensioners which rely on them. “It can take a long time for financial markets to recognise something as big as this but, when they do, they act as a herd, and bubbles pop when they should deflate.”
The Forum’s Big Shift recognises the urgent need for collaboration on these issues. “To be pioneers, we need to change systems, to change the external environment”, said Birney. “You can either work with disruptive influences or be destroyed by them.”
Heather Connon is a freelance journalist specialising in finance and business.
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