At a recent executive education program on sustainability, I spoke about the many tactical ways to reduce environmental impacts and save money quickly in areas such as facilities, fleet, IT, telework, and waste (these are the main topics in a free special report I put out recently on green cost cutting). To fit the current economic climate, my focus was specifically on short-term, quick wins. After I finished my talk, an interesting challenge came from one of the program faculty: Given the scale of environmental challenges we face, shouldn’t we be talking more about systematic, disruptive changes in how we do business?
After the session, one of the attendees, Mike Desso, Head of the Operations Environmental Sustainability Council for Nestle USA, told me he wanted to ask the group a simple question: “Has anyone here done all the things Andrew suggested?” His point was basically that there are still many simple things companies can do — so why debate whether we’re doing the “big” things when we haven’t even acted on all the “small” ones yet?
The whole discussion got me thinking a lot about the perceived commerce offs between incremental and systematic approaches or, similarly, between incremental and disruptive change. The question is not an idle one given the legitimate concern about whether traditional eco-efficiency approaches will be enough to tackle large-scale environmental challenges.
It would appear on the face of it that incremental approaches won’t get us there. So after some thinking, I come down conclusively and firmly…in the middle. In essence, none of these ideas of change and innovation — incremental, systematic, or disruptive — are independent. Instead, they’re pieces of the same strategic and tactical puzzle. Arguably, the concepts are inextricably linked: Don’t incremental changes spur thinking about — and if they save money fast, perhaps even fund — the larger shifts we need?
When I talk about the incredible value in getting lean, of course I’m channeling Amory Lovins (and many other efficiency proponents). The big idea here is that there are not only low-hanging fruit, but fruit on the ground. Many companies that have aggressively pursued efficiency have found vast amounts of money waiting to be picked up, even if the large-scale savings result from adding up many small changes. For example, Wal-Mart improved the fuel efficiency of its entire fleet by over 25% in just a few years with a range of efforts — from new tires to aerodynamic improvements such as side ‘wind skirts’ to a larger investment in new auxiliary power systems that eliminate idling. (Note that all the improvements paid back in at most two years, the company’s internal hurdle rate for investments.)
So does an incremental approach really conflict with a systematic one? Not if it’s done right. An incremental improvement in packaging design, for example, will reduce costs and impacts throughout the value chain, from production to shipping to inventory and storage. One part of the business can make a moderate change that can create outsized effects. As much as we want to think holistically, companies are still organized around functions; the person designing packaging is not responsible for shipping and procurement. But coordinating between these functions and making sure people understand the larger picture will help inspire them to move beyond the incremental changes and drive toward larger, systematic improvements.
Moreover, you can’t always get to systematic without going through incremental. At another event I spoke at, during a talk by an exec from Frito-Lay about the SunChips brand, some attendees were on Twitter criticizing the company for saying it was solar powered when only one of seven manufacturing plants was converted yet. But what business is going to invest in seven retrofits at once? That’s just not the way companies operate. I quite often come back to one core, evocative image from Jim Collins’ Good to Great. Picture that heavy “flywheel” that everyone pushes a little bit until it really gets moving. A mass of coordinated, thoughtful incremental changes can create larger change than you think.
The best path is to operate on two levels. In some sense, business strategy is all about managing tensions — balancing investments in competing parts of the business. Do we optimize current operations and products or invest in R&D and future markets, even if it threatens our bread and butter business (the now-classic “innovators dilemma“)? Of course, successful firms manage this tension carefully rather than pursue any one aim with blinders on.
So go after disruptive innovations that radically change how you do things and leapfrog the competition. But at the same time, pursue the quick incremental wins — they may add up to something much more.