Last month, I had the opportunity to collaborate with the World Economic Forum's Sustainability Initiative team on a sustainable supply chain workshop, held as part of Summer Davos. Many issues that surfaced during the workshop focused on leadership — and they are the same issues that surface in my executive education teaching.
Business leaders have been talking about "closed loop, cradle to cradle" value cycling of materials for a long time. Materials in a value cycle stay inside a closed loop, revolving from the suppliers, where they originate, to the manufacturer and on to the customer, who at the end of their useful life passes them back to the manufacturer where they are reincarnated into next season's model. The vision is elegant and simple to understand, but we have only a few examples operating today. The challenge, as the WEF workshop illustrated, lies in the nature of value cycle leadership.
The leadership challenge stems from the anatomy of the beast. A supply chain is not a single organism but instead an ecosystem of multiple players (each with its own specialized expertise) that are linked, sometimes tenuously, by common interest.
Creating an economically viable value cycle requires coordinated changes among all members of the supply chain, and making progress calls for a unique kind of leadership. It is not a technical leadership challenge — where the leader knows the answer and harnesses the group effort toward executing the vision — but, to use a Ron Heifetz term, an adaptive leadership challenge where players need to first collectively learn what the goal is and then change in a decentralized but coordinated manner.
Historically, governments have taken this leadership role through environmental regulation, to mixed results. Bureaucrats sometimes know less about the whole supply system than the players, so they are unlikely to come up with the most cost effective solution. The high costs of "command and control" regulations are one of the reasons government has gotten "off of the backs of business." But this vacuum has forced leadership to shift elsewhere.
The most common form of leadership we're seeing today comes from a customer-facing brand with market power. The classic example is Walmart, which "incentivizes" partners to get on board with the value cycling vision. Likewise, Starbucks has recently led its cup supply network in a process for creating a fully recyclable cup. The leader here is not dictating the solution, but dictating the search for the solution.
In other instances, suppliers see an opportunity to take the lead through sustainable innovations that offer new value cycling options. Bio-based plastic manufacturer Cereplast, for example, produces biodegradable resins that substitute for non-compostable petro-based plastics. This supplier innovation enables sustainability advances in the rest of the value network in industries from automotive to consumer products.
Leadership can also emerge at the industry level through the creation of standards. Standard setting is already prevalent in wide swaths of the economy — building codes, engineering specifications, quality metrics, safety requirements — so the extension to sustainability is a logical step. As I show in a recent Harvard Business Review article, leadership around standard setting can be messy and political, but the outcome can have a wide impact when broadly adopted.
The shift toward value cycling is inevitable in most industries and at some point will draw most companies into the process. Taking a leadership position can make sense, especially when it positions your company to compete successfully in a value cycling world.
Gregory Unruh is the author of Earth Inc. and the director of the Lincoln Center for Ethics in Global Management at Thunderbird, a graduate school specializing in international management and global business. He is based in Glendale, AZ.