Natural Capitalism suggests practical methods to improve the performance of your company or the quality of life in your country by accounting for natural capital. If you want to read success stories of better cities, more profitable businesses and more productive factories that reduce flows of energy, materials and waste, this book is for you. Below are some of my most important take-aways:
“What might be called “industrial capitalism” does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employs – the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.”
The book introduces four strategies that enable countries, companies, and communities to operate by behaving as if all forms of capital were valued.
- Radical resource productivity. Using resources more effectively has three significant benefits: it slows resource depletion, it lowers pollution, and it provides a basis to increase employment. Companies and designers are developing ways to make natural resources – energy, metals, water, and forests – work five, ten, even one hundred times harder than they do today.
- Biomimicry: redesigning industrial systems on biological lines that change the nature of industrial processes and materials, enabling the constant reuse of materials in continuous closed cycles. Spiders make silk, strong as Kevlar but much tougher, from digested crickets and flies, without needing boiling sulfuric acid and high-temperature extruders.
- Service and flow economy: a shift to an economy wherein consumers obtain services by leasing or renting goods rather than buying them outright. This will entail a shift from the acquisition of goods as a measure of affluence to an economy where the continuous receipt of quality, utility, and performance promotes well-being.
- Investing in natural capital: reinvestments in sustaining, restoring, and expanding stocks of natural capital.
Resource productivity in industry
According to Natural Capitalism, the methods to increase industry’s energy and material productivity can be classified into (1) design; (2) new technologies; (3) controls; (4) corporate culture; (5) new processes; and (6) saving materials. An example of improved productivity through controls is found in distillation columns:
“Distillation columns use 3 percent of total U.S. energy to separate chemical and oil products, but most operators instead of continuously monitoring the purity of product as it emerges, test only occasionally to make sure samples meet specification. Between tests the operators, flying blind, often feed the same material back through the column more times than necessary to be really sure the products will pass the test – using 30-50 percent excess energy. Better controls that measure the purity actually coming out and keep fine-tuning the process for the desired results could cut waste in about half.”
We only need to look at chickens for improved productivity through new processes:
“There are three ways to turn limestone into a structural material. You can cut in into blocks, grind it up and calcine it at about 1500 Celsius into Portland cement, or feed it to a chicken and get it back hours later as even stronger eggshell. If we were as smart as chickens, we might master this elegant near-ambient-temperature technology and expand its scale and speed.”
The next time you design a manufacturing process or building, limit yourself using this framework:
“If a company knew that nothing that came into its factory could be thrown away, and that everything it produced would eventually return, how would it design its components and products?”
Elimination of Muda
Muda is Japanese for “waste”, “futility” or “purposelessness”.
A central thesis of the book is that large-scale centralized production is not more efficient than localized small-scale production. The benefits of decentralized production – lower capital investment, greater flexibility, higher reliability, lower inventory cost and lower shipping costs – often far outweigh the benefit of centralized production – a lower price per pound of material or cubic foot of machinery. In decentralized production, all the different processing steps can be carried out immediately adjacent to one another with the product kept in continuous flow.
“From a whole-system perspective, the giant cola-canning machine may well cost more per delivered can than a small, slow, unsophisticated machine that produces the cans of cola locally and immediately on receiving an order from the retailer.”
“The whole system comprises classical central sewage-treatment plants and their farflung collection sewers – each piece optimized in isolation – is far costlier than such local or even on-site solutions as biological treatment. That is the case because even if the smaller plants cost more per unit of capacity (which they generally don’t), they’d need far less investment in pipes and pumps – often 90 percent of system investment – to collect sewage from a greater area to serve the larger plant.”
Business models for a service economy
Together resource productivity and elimination of muda (lean thinking) offer the foundation for a powerful new business logic: Instead of selling the customer a product that you hope she’ll be able to use to derive the service she really wants, provide her that service directly at the rate and in the manner in which she desires it, deliver it as efficiently as possible, share as much of the resulting savings as you must to compete, and pocket the rest.
An example of this “new business logic” are Energy Service Companies (ESCo’s). ESCo’s privately finance and install energy saving measures (insulation, energy-saving LED lighting, solar panels) in a client’s building, and charge a monthly fee to the client that is typically less than the energy saved. In a not-so-distant past, engineering firms would charge for the product (insulation materials, solar panels and labor costs for installation) upfront, because of which many potential clients did not become clients because they could not afford the capital expense.
Another not-so-earthly example is Elon Musk’s SpaceX. In stead of selling NASA a rocket, SpaceX charges NASA for the service to bring weight into the stratosphere. Through a different design perspective – building reusable in stead of disposable rockets – SpaceX is able to deliver NASA their service for one-tenth of the cost, winning a $1.6B contract.
Other examples are Schindler, a Swiss elevator-manufacturer that makes 70 percent of its earnings by leasing vertical transportation services, and Amazon Web Services. In stead of selling server-racks, AWS provide the service of storing bits. With this new business logic, Amazon created the industry of cloud storage (for which no server-manufacturing-expertise was needed!).
“At first glance it is tempting to regard a company crazy for striving to sell less of its product. If you sell a service, however, you have the opportunity to develop relationships, not just conduct a one-time transaction. The business logic of offering continuous, customized, decreasing-cost solutions to an individual customer’s problems is compelling because the provider and the customer both make money in the same way – by increasing resource productivity. Service providers would have an incentive to keep their assets productive for as long as possible, rather than prematurely scrapping them in order to sell replacements.”
A “service economy” has important macroeconomic implications. In a “goods economy”, purchasing and thereby orders fluctuate vigorously depending on the economy. In a “solutions economy” this volatility is dampened, because access to a solution does not require large investments, only annual service-fees. This would lead to an enormous reduction in the cycle of jobs being created and destroyed.
The shared economy is one incarnation of the service economy. The shared economy – an economy in which people receive service from the unused capital of other individuals – has started to take shape in recent years because technology has enabled fast and efficient distribution of goods and connection between individuals. With smart door-locks and iPhones with internet access, you can reply to a tenant on airbnb, approve her stay and give her digital, 24-hour access to your front door all in a matter of minutes. Before, this was not possible.
- Why is the idea of “centralized production leads to maximum efficiency” deeply rooted in our minds if it is incorrect?
- Why has the “service economy” or “solutions economy” – the concept to sell access to a product in stead of the product itself – been adopted by companies only in the last 20 years?
- Why do product companies – Apple, Philips, Dyson – choose to sell a product in stead of access to a service, if selling a service allows them to build long-term customer relationships?