Sunday, October 01, 2006

The Green Innovation

In Fortune magazine's Aug 7, 2006 issue, writer Marc Gunther talks about "The green machine". Wal-Mart's CEO Lee Scott says "he wants to turn the world's largest retailer into the greenest."

What is the Green Innovation?Green Innovation is any innovation that seeks to make our environment safer.

But what does this have to do with Ex Vice-President and Environmentalist Al Gore? Is Al Gore the new spokesman for Wal-Mart's move into becoming the green machine, hot on the success of his movie "An Inconvenient Truth"? Is Wal-Mart planning to adopt new business practices that are merely environmental friendly or is there a bigger Green Innovation brewing?


Beginning of the Green Innovation

Wal-Mart literally has put mechanisms and practices in place to "save the earth." CEO Scott wants to reduce or eliminate chemicals in the air and in the river water used in the Third World countries to create cheaper products. And he has setup ambitious goals to "increase the efficiency of its vehicle fleet by 25% over the next three years, and double efficiency in ten years, eliminate 30% of the energy used in stores and reduce solid waste from U.S. stores by 25% in three years." Further, Wal-Mart plans on investing $500 million in "sustainability projects" - for example, it has become the largest supplier of organic milk, biggest buyer of organic cotton, and has opened two new "green" supercenters.

Is this a drop in the bucket for a retailer that does over $300 billion in business each year? Or is this all a marketing ploy to create a friendlier image and brand for the largest retailer who has been often related with supplying "cheap goods built on cheap labor"? Is there any credibility to the Wal-Mart's environmental movement?

The real story behind this movement has to do with a loosely formed partnership driven by Rob Walton, son of Sam Walton but not an active management player at Wal-Mart, conservationist Peter Seligmann, co-founder and CEO of Conservation International (CI) and CEO Lee Scott. Previously, Rob's family foundation, with assets over $1 billion, had made a $21 million donation to Conservation International for ocean protection programs. Rob introduced Seligmann to Scott. And then they realized the simplicity of the plan:

"Wal-Mart could improve its image, motivate employees, and save money by going green."

And if there was a group that can help Wal-Mart get there, it was CI, whose board included former Intel chairman Gordon Moore, BP chief executive John Browne, and former Starbucks CEO Orin Smith.

Immediate Environmental impact and Sustainability Networks

Wal-Mart realized several opportunities after hiring more consultants tied to CI to measure the environmental impact:

"On Kid Connection, its private-label line of toys, for instance, Wal-Mart found that by eliminating excessive packaging, it could save $2.4 million a year in shipping costs, 3,800 trees, and one million barrels of oil.

On its fleet of 7,200 trucks Wal-Mart determined it could save $26 million a year in fuel costs merely by installing auxiliary power units that enable the drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, they'd let the truck engine idle all night, wasting fuel.

Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line."

These initial successes led Wal-Mart to go far and wide, with creative ideas from many consultants, NGOs, suppliers, and even eco-friendly competitors. And this led to the creation of "sustainable value networks" made up of Wal-Mart executives, suppliers, environmental groups, and regulators who collaborate on ideas, create goals, and monitor progress. Today, there are 14 such networks with focus on: facilities, internal operations, logistics, alternative fuels, packaging, chemicals, food and agriculture, electronics, textiles, forest products, jewelry, seafood, climate change, and China. The success of these networks has led to visits from the World Wildlife Federation, the Natural Resources Defense Council, and even Greenpeace to Wal-Mart HQ.

"Sustainability helped us develop the skills to listen to people who criticize us and to change where it's appropriate," Scott says.

Passionate Leadership

CEO Scott took the whole Green Innovation to heart with uncommon curiosity, indulgence and passion. Wal-Mart's efforts during Hurricane Katrina deeply moved him and he realized that he had to make Wal-Mart the leader of Green Innovation. Scott wondered: "We stepped back from that (Hurricane Katrina) and asked one simple question: How can Wal-Mart be that company - the one we were during Katrina - all the time?"

Scott realized that the environmental campaign that initially was somewhat defensive was turning out to be pro-active, creating a sense of higher conscience and better feeling inside the company, saving the customers even more money, and even motivating the suppliers to join in.

Building Sustainable Innovation

Wal-Mart took the Green Innovation to fishery by announcing that it will buy wild-caught seafood from fisheries that have been certified as sustainable by an independent nonprofit called the Marine Stewardship Council (MSC). Further, it took the green movement to the "corn farmers in Iowa (who want to sell more organic ethanol through Wal-Mart), coffee growers in Brazil (who are being promised higher prices for their beans), and factory bosses in China (who are being told to cut their energy and fuel costs)."

And soon, Wal-Mart began selling Organic clothes. When Scott learned about the environmental risks posed by conventional cotton farming, which uses more chemical pesticides and synthetic fertilizer than any other crop, it began purchasing organic cotton, a move that has eliminated millions of tons of chemicals. And organic cotton industry found its largest customer in Wal-Mart. And Wal-Mart is already becoming a huge seller of organic foods.

Wal-Mart is also influencing such big companies as GE, Kimberly-Clark, Pepsico, and Proctor & Gamble towards going green and creating environmental friendly containers and products. And finally, Wal-Mart has recently built two concept Green superstores to showcase the Green Innovation. For instance, dirty cooking oil from the deli and used motor oil from the lube department are recycled to heat the store - just few of the many innovations found throughout the store.

There are many critics and skeptics of Wal-Mart's Green Innovation, thanks in large part to the historical way in which Wal-Mart has carried out its business practices solely aimed at pleasing the customer by lowering the prices of the products, providing low wages (without insurance to many workers), and maintaining a very cost-effective organization, thereby putting tremendous pressure on the suppliers, competitors, and the employees.

However, CEO Scott is optimistic about the Green Innovation. Scott leveraged Sam Walton's legacy for this Green Innovation: "I think Sam Walton would, in fact, embrace Wal-Mart's efforts to improve the quality of life for our customers and our associates by doing what we need to do in sustainability." And Scott furthers his crusade with the expression: "We will not be measured by our aspirations. We will be measured by our actions."

Green Innovation Leaders

Wal-Mart is not a pioneer in the Green Innovation. Many Industry leaders have sought to employ practices to further their environmental impact, some planned, some forced about by events.

The Fortune issue talks about such leaders including:

Dupont
Dupont has brought down greenhouse gas emissions 72% from 1990 levels against an initial goal of 65%, and reduced its global energy use 7%, saving more than $3 billion.

GE
GE has created a new "Ecoimagination" initiative that will double GE's investment in environmental technologies to $1.5 billion by 2010. CEO Immelt claims to reduce the company's greenhouse-gas emissions by 1% by 2012, which would have gone up 40%.

Goldman Sachs
Goldman Sachs has invested $1 billion into clean-energy investments and is planning to purchase more products locally.

IntelBy 2010, Intel has promised to reduce emissions of the PFC chemicals (greenhouse gas) by 10% from 1995 levels.

UPS
UPS has assembled a fleet of 1,500 vehicles--all alternative-fuel based--under CEO Mike Eskew's leadership. Further it has placed an order for 50 new-generation hybrid-electric delivery trucks, which will reduce fuel consumption by 44,000 gallons over the course of a year.

Bottomline:

In California, the proposed Assembly Bill 32, sponsored by Núñez and Assemblywoman Fran Pavley, D-Woodland Hills, for the November 2006 elections would mandate cuts in statewide greenhouse gas emissions to 1990 levels by the year 2020 -- a roughly 25 percent reduction. A recently released University of California-Berkeley study predicts the greenhouse gas legislation would spur billions of dollars in economic activity and create thousands of jobs as companies invest in new energy technology.

Green Innovation is a win-win for the business, the environment and the community. The business creates a better image, saves money and potentially creates new revenues. The environment becomes safer and cleaner. The community benefits with better health and enjoyment from a cleaner environment. Of course, many businesses may claim to begin the Green Innovation or embrace it; what remains to be seen is how many actually execute on it, and show real results that impact the environment.

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Acknowledgements:
Fortune Magazine. Aug 7 issue. "The green machine" by Marc Gunther. For the complete article, click here.

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