 Hello, and welcome back to MBA 604, Innovation and Sustainability. We are in lecture three, still covering Unit 1, Finishing Out, Learning Outcome 1b, and heading into 1c. I am Joni Roberts. I'm Vice Program Chair and Consulting Professor for Sailors MBA Program. We are following the study guide and the course learning outcomes, and today with 1b, we are talking about the outcome of analyze how businesses transform themselves to advance socioeconomic and environmental well-being. So one way companies do this is by shifting from linear thinking to systems thinking. So linear thinking is also considered the linear economy. And you can see in this image that the process is about material extraction, taking the material, making something with it, and then the end game here is waste. So this has the profit-driven focus, and it only considers the material as individual components from the time you take them to the end of the life. And it also has that mindset of the earth is unlimited. There are unlimited natural resources, and we can use them all to make finite sources or using finite sources of energy such as fossil fuels. So this is short-term thinking, has a profit-driven agenda, and this represents the product design, development, and usage of the industrial revolutions of the 19th and especially the 20th century. So how is systems thinking different? So in systems thinking, it's a recognition that business exists within the context of society and the environment. So it's dynamic and complex, and the system is a set of components that affect one another and they form a larger pattern that's different from any of their individual parts. So sustainable businesses require a systems perspective to understand their impact on society and the environment. And this is an interdisciplinary approach that broadens perspectives when designing sustainable solutions. So one way of looking at systems thinking is by mapping relationships. And here's one that does this in the food system. And this is presented by Ningen University and Research. And we can see in the center, we have the food system activities. And because this is looking at creating more food for more people and ending hunger, we can look at this as creating prosperity more so than creating profits. So we have both of these words, prosperity and profits. And then we can look at the social economic drivers that affect the food system. And we can look at the environmental drivers that affect the food system. So we have things like agricultural production, food storage, transport and trade, food processing and transformation, food retail and provisioning and food consumption. So along that entire system, the food supply system, there are all these other socioeconomic and environmental drivers that are impacting that system. And there's an interplay and you really can't solve sustainability problems without diving in deeper. For example, environmental drivers are minerals, the climate, water, biodiversity, the fossil fuels that are being used, land and soils. Socioeconomic drivers are things like markets, policies, science and technology, social organizations, individual factors. And all of these things lead to outcomes for economic outcomes, for food security, food utilization, access, availability and also environmental outcomes. So you'll see that none of these individual components are working in isolation. They all affect one another. And one of our learning resources is this study by Wagonegan University and you can go even further and further into the systems analysis by opening up that particular document. So any food systems approach, what we're looking at here is a useful interdisciplinary conceptual framework for research and policy aimed at sustainable solutions for the sufficient supply of healthy food. All right, so it analyzes the relationships between the different parts of the food system and the outcomes of activities within the system, like we talked about in the socioeconomic and environmental climate terms. Feedback loops are a distinguishing factor in systems thinking. So they occur between the parts of the food change like production, processing, distribution and consumption, and from the socioeconomic and environmental outcomes of food production and consumption, such as food security, soil depletion and back to that production and consumption. All right, so why do we do this kind of systems thinking? Well, it sheds light on nonlinear processes and tradeoffs between policy objectives. It helps us make better decisions. It also broadens perspectives, you're including a lot more people and players and processes in the process of analyzing how to create a sufficient supply of healthy food. You're also getting to solutions for the root causes of problems, not just putting a band-aid on symptoms and the root causes are things like poverty, malnutrition, climate change. And they are interrelated. All right, so what's that? Another way businesses transform themselves is shifting from this linear economy thinking and business practices to a circular economy. And in the process of, let's say, biological materials, anything that can be broken down, growing plants, et cetera, so we can make these and consume them and then use the ways to actually enrich the very beginning process, creating a loop. So if we look at the food system, we can think about growing the plants and vegetables, then consuming the plants and vegetables, and then taking that food waste and composting it and putting it back into the soil. What's going on right now in food waste and major ways is that it's going into our trash and it's being wrapped in a plastic bag and it's being put in a landfill or it's just tossed in landfills and that food waste actually creates when it's decomposing methane gas. And methane gas is something that's impacting the climate and it's causing climate change and global warming. So if we just made some changes in our communities and picked up okay recycling, but also food waste, some cities like San Francisco do this, that helps for sustainability. And then we create that compost, then we put it back into our, we can also look at this with tech, technical material. So we're looking like at computer equipment and cell phones, imagine the amount of waste being created with the number of cell phones and billions of people on our planet. That happens when we're finished with these things, they just go to a landfill, unless you actually are making these, then the consumers are using them, and then they're bringing them back in some way to be returned and recycled and so those individual components can be broken out and isolated from one another and they become components that go back into making new. So that is the circular economy. The more we're creating this kind of process, the more sustainable our world is. All right, so from our breakthrough from innovation to impact volume to a circular economy, we have a couple of case studies there and they say it's a new way of innovating. So capital is not only represented by money, but also by social, human and natural values. There's also a focus on co-creation and collaborating rather than on competing. So we're seeing some shift in values there as well. We're moving from a higher article market-based model to society and value-based business models. This leads to multi-value creation through cross-sectoral cooperation and international knowledge networks. So when we just step back a second and go to the food systems analysis, we can see that cross-sectoral cooperation, right? And even international knowledge networks, because you're sharing this knowledge because the global issue food supply. All right, also reduced raw materials through recycling processes put forth in the design phase. I ordered a book from Europe and I think it came from the Czech Republic and I was so impressed because it came in a bubble wrapper with paper, but the paper could be completely separated from the bubble wrapper. So I could take that bubble wrapper, put it in a store drop-off for plastics and then the paper could go into the recycle bin. But it was separable. So you put that into the design phase, whereas most bubble wrappers with paper coating, they're all merged together and you can't separate them so they can go into trash and landfills. That's some ways that we can start thinking differently in this process and making products more circular. This results in less pollution and energy consumption. It takes a lot less energy to recycle paper than to make paper. From growing the trees, harvesting the trees, turning the trees into pulp and paper. That process is incredibly energy-intensive. If you take the paper that's already been made and recycled, well, okay, less pollution, less energy consumption. So the design process takes into consideration the needs of all stakeholders. This is a stakeholder, multi-value creation, not just shareholders, not just profits. So the circular economy should stimulate or drive industrial innovations and value creation in the 21st century. So this is where we are now. And we need more and more of this. All right, so new perspectives on values. So we're shifting from and we're moving towards. This is an evolving time in the way that we do business is shifting. It needs to shift. All right, so from that focus on financial profit to values, financial, ecological, social. This is what we've been talking about in our lectures so far. From maximization as a driver to optimization as a driver. So instead of always just taking value, driving value from, we're actually looking at ways of creating value. It's a different mindset. So harvesting from a perspective of scarcity to take. And instead, harvesting from a perspective of abundance. Scarcity, abundance is a big part of how we create a better world. Is knowing that there is enough for everyone. And if we create better economic systems, we'll have greater abundance for more people. And this creates more stability in our world amongst other things. So again, from that shareholder value to social value. From the exploitation of natural and human resources to cooperation with nature and humans. Maybe even learning from nature, right? Stepping back and realizing that nature is genius, like we talked about with biomimicry. Shifting from that linear value chain of the industrial eras of the 1900s to this circular value network. And instead of being led by price, led by quality, that's a big thing. And instead of this individualistic self-reliance, we're going to focus internally on our own company only. We're going to look more to reciprocity and more cooperation with others. All right, instead of shifting responsibility for problems elsewhere, right? So fossil fuel companies are an ingredient into plastics. Look where the plastic ends up in our oceans, in our water, etc. In our air, do fossil fuel companies pay for that? Do they factor that into their prices, their cost of doing business? Nope, they sure don't, not at all. So they shift those problems elsewhere, then they become everyone else's problems to solve. That needs to change where we're all solving problems and we're actually making products. And in the process, we're not causing more problems by doing so. Some other ideas are shifting from have and own to share and maintain. So we see a lot of sharing models now, like ride sharing, sharing part of your home and renting that out. All right, in this whole idea of throwaway culture, shifting more towards co-ownership. All right, so how did this really come into place? How did we get where we are today? Part of it is the adoption of this mindset and also the way it was practiced and expressed in the business world. So we have Milton Friedman, who was a Nobel Prize-winning economist, and he created the Friedman Doctrine in 1970. And this doctrine states that an entity's greatest responsibility lies in the satisfaction of shareholders. And that became the absolute fiduciary duty of CEOs, drive, shareholder value. He's known for this famous quote that says, there is one and only one social responsibility of business to use its resources and engage in activities to increase its profits. So long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. All right, so what happened with these statements is that it became, or they became highly influential in shaping business practices that are focused on the drive for profits by decreasing costs and increasing sales. It was an individualistic approach versus collaborative or cooperative. And it led to business practices with low to no consideration of the impact of decisions within the context of sustainability, within the context of the impact on people and on our planet. Yeah, so anyway, this left out so much or so one dimensional. And the problem with this thinking and not thinking about the impact beyond just make those profits and get a good return and do well on the stock market, that very narrow focus is what we are seeing changing a lot in business right now. So the current economy is based on values such as growth, efficiency, effectiveness and wealth. And a sustainable economy is based on different values such as quality of life, diversity, well-being. We see so much of that talked about in business today more than ever before. We're shifting from that shareholder-centric approach to a stakeholder approach. Everyone that can be impacted by the activities of this business is a stakeholder. And then you make the consideration of your business decisions and the impact systemically across all of them. And that changes things. It changes the quality of your business decisions. All right, these stakeholders definitely include people and the planet. The planet has a seat at the table too. All right, so what are we changing towards? What are the changing structures? So we are at a turning point from this hierarchical top-down society into a sustainable bottom-up networking society. We see this so much today. It's driven by individuals and young people. They're the ones pushing for sustainability and innovating for change. And we've talked about the evolving design of commerce and I would just like to say that we are in the process of developing an evolving design of commerce where people and the planet thrive in the process of creating products and services. So we have a much more rich view of what it means to be in business, what it means to do business. We are creating things that are much more meaningful than just simply driving for profits, which we all know runs out of steam for a lot of people. And it's not that exciting after a while. So the real satisfaction is in life satisfaction is designing something of meaning and quality that makes a difference. It's just where we are today. Right, next, how do businesses respond to changes and become more sustainable? Another way is innovating across their supply chain, so not just directly in their own internal business, but also with the suppliers that they're working with to take those products or take those materials and turn it into a product and deliver it. So how can businesses take action to advance social and environmental well-being across its supply chain? What is a supply chain? We can just think of the coffee example, right? From the coffee trees in Colombia to the cup of coffee being consumed. That's your supply chain. We can think of it from a vine planted in a field to a bottle of wine sold in the store. So this is from our supply chain video. And the considerations here are, what are the number of lengths? So how far down in your supply chain should you go? It's easier to work with your first year than the fifth year. How many suppliers do you work with? The more suppliers, the more difficult to manage. Maybe you want to reduce your number of suppliers and develop more engaging relationships with them. Another is reputational vulnerability. What incentive do your suppliers have to become more sustainable? And that reflects a company's reputation. So companies that really care about their reputation, like Apple, for example, very carefully select their suppliers because Apple's reputation is highly vulnerable to a supplier in their supply chain. Should that supplier be shown to be unsustainable or have poor working conditions? Another thing to think about is power. How much control do you have over your supply chain to ask them to change anything? All right, so if you're like a small account with a supplier where they have your accounts worth $100,000, where there are other suppliers that work millions, you may not have that much power over that supplier to ask them to change much. Maybe you don't. All right, so what are some examples here in innovating across the supply? You can look at a furniture company in Denmark called Skavarat, and they pay partially or fully for the sustainability certifications they request from their suppliers. And this is a long-term investment in supplier relationships and sustainability practices. And it leads to higher quality products and more responsible work conditions. So they get their suppliers to have shared values with their values. And so therefore that improves the supply chain and the sustainability along that supply chain. Both clothing company out of Spain, they have outdoor hats and different outdoor clothing, and they created a 100% recyclable polyester four-way stretch fiber that required a new supplier and machinery to make the material. It also required that they change their dyeing process and a few other things. So this change in their fabric, they needed to make some other changes in their supply change. So using these innovative materials for sustainability created a differentiated product that is in alignment with the company value. So that circular thinking where they're taking polyester fiber that's already been made and using it again in their new products. So recycling polyester fiber. All right, Raima winery in Spain, they invested in solar power, they invested in biodiversity and efficient use of natural resources. So for a winery, what does this mean? These investments and sustainability, it gives their wine a distinctive personality and flavor in this core of their business. It also made costs be better, especially in the long run and there were advantages there too. So there are a few examples of what we see happening in the real world. All right, to review your learning outcome 1B, these are your study guide resources and I also have some additional resources here. There will be a link to the slides below. So be sure to check that out. Okay, now we are moving into learning outcome 1C, the final learning outcome in our unit one, where we are analyzing the social and environmental ethical issues, such as equity, well-being, production and consumption. It has related to the relationship between innovation and sustainability. I like to say sustainable business is ethical business. These are your ethics. If you are doing social and environmental sustainability in the process of making products and services, you are immersed in doing business in an ethical way. There you go, there's your ethics program. All right, so we have this issue still has not been fully resolved. We're still figuring this out, which is the ethical issues related to the production consumption paradox. So traditional business growth, how do businesses grow? They reduce costs across the supply chain from material extraction to delivery of goods. What happens? These cost-cutting measures contribute to unsustainability by using cheaper ways to make goods leading to more pollution and lower wages. Thinking of people like expenses, just cut their wages instead of thinking of people as investments. Completely different mindset. All right, so another thing, you increase production and consumption by growing demand for products, right? That's how businesses grow, guess what? Overconsumption leads to more waste and landfills and throughout the global commons. So when I went to business school 20 years ago or so, that is the whole game in business, is increase production and consumption, grow demand for products, and that's not working out very well if we're doing that in an unsustainable way. That's the problem, that's the problem with Milton Friedman's doctrine. You're doing business in an unsustainable way, that's a problem for production and consumption. So the reliance on cheap and easy fossil fuels for almost everything. Fossil fuels have made their way into almost everything we do. And that contributes to climate change and more pollution. Another thing is consumerism uses tactics such as shortening the useful life of products as in single use plastics and fast fashion. So now instead of quality, we just got cheaper, faster and more of it. And it doesn't even buy out a grade. All right, so this leads to toxic business practices. And when we look around, we can see plastic is literally everywhere. So plastics are made of petrochemicals from the oil and gas industry. Single use plastic is widespread. It's one and done mentality. Use it once, throw it in the trash, go in the landfill. We can think of these as plastic bags. When we're shopping, we can think of these as plastic forks that are wrapped in plastic bags that are given every time you get a takeout that's also in your styrofoam or plastic container. Just go to a grocery store. It's overwhelming trying to shop without bringing home another cart full of single use plastic. It is extraordinary. It's everywhere. The problem with plastic is that it doesn't break down. It doesn't become compost, right? It doesn't go back into our soil as a lovely ingredient. No, so once we brought up these fossil fuels, turn it into plastic, we end up with micro plastics in the breakdown process, which by the way takes for many items, hundreds of years. And so these micro plastics, little tiny beads of plastic are everywhere. They're in the water. They're in the air that we breathe. We're breathing in micro plastics. They are in the rain and the snow. They're in the sand at the beach. They're in our bodies. They're in our food supply. They're in our fish and our animals. This is what's happened by using something that is not circular. It's not. And it doesn't become anything good once you're done with it, unless you find a way to recycle it. Another toxic business is the fast fashion industry. This is where you have, when I grew up we used to have two seasons per fashion. So the department stores would bring in the fall season, the fall and winter, and then all that would be cleared out and then they would bring in the spring and summer, and then all that would be cleared out. And it was basically two seasons. Wow, fast fashion has created like a 52 week a year fashion cycle. So the store turn of what's in the store is so rapid now. And so these clothes are made, they're cheap. You can't even, secondhand stores don't even want them because they don't have a secondhand opportunity. So they just start falling apart the seams and everything, but they look good for a short while and you look like you're high fashion, but you only paid a fraction of a high fashion price. So this fast fashion industry, this is how they drove production and consumption. Very resource and labor intensive, highly polluting, fashion anything as stretchy as usually made with plastics. Poor labor conditions in many developing economies and their exposure in these two hazardous effluents from dying and finishing is very high in these working conditions and the environmental threats as well from this fiber manufacturing and large landfill waste to the over consumption of apparel. So the more, more mentality has led us to these kinds of outcomes and we need to stop and reflect and think about what we're doing and why we're doing it and what is this creating in our world and do we really want this? All right, so these kinds of toxic business practices lead to toxic outcomes. I have a check mark by all of these because they're already happening and have been happening for a long time. So we have pollution, we have poor health, pandemic was linked to biodiversity loss, disease spread, poverty, hunger, unsafe water. I'm from Flint, Michigan. Look what happened there. Inequity, gender and racial, poor working conditions, lack of access to education, devastation of homes and livelihoods due to environmental disasters and how many of those are we having every year in our own nations? And these are really causing a lot of people to become homeless and financially devastated and loss of life. And that also leads to human migration in our own country and from border to border people have to move. So that was related mostly to people and now for the planet, we have climate change. We have rising temperatures. We have glacier melt and sea level rise. Cities living along shoreline are expected to be underwater. It's an expectation that was already happening in many areas and small island nations and cities that are at or below sea level. We're having increasing weather events in storms and they're more severe. So we have more severe droughts, fires, floods. We're having deforestation, biodiversity loss. We're having species loss and extinction at a much more rapid rate than what could ever be considered normal. It's not normal. We have overfishing. We have ocean warming and acidification and we have species migration as they have to move to find the climate that fits their species or to find food, for example. All right, so let's go back to 68 when we talked about the book, The Tragedy of the Commons and let's ask that question again. How well have we done since 1968? We've had 50 or so years with really pretty powerful warnings. So how have we done with government policies, business practices, personal choices and our educational systems? What do you think? All right, another question is, what can we do in less than 10 years? In the 1960s, in 1961, U.S. President John F. Kennedy wanted to put men on the moon and in 1969 his wish came true. So it took less than 10 years and humans had walked on the moon and they left a sign on the moon which I think is so interesting. It says, here men from the planet Earth first set foot upon the moon July 1969 AD, we came in peace for all mankind. All right, so what can we do in less than 10 years for Earth, for a mission here? So what's our wish for our own planet for today and for future generations? We can think about some of the similarities between the 1960s moonshot and where we are right now with sustainability. And in the 1960s, there was some technology and scientific knowledge that already existed in 1961. Then there was this collective effort, a focused intention and the will to do the hard work to make something amazing happen. What about today? We have similar situation with sustainability. We have the technology, the innovations and know-how on what needs to be done. As a matter of fact, we have a tremendous amount of that. Excuse me, so now we need to bring this all together and mix it with new ideas and unified actions to create a better world. All right, what are some of the differences though? Between the 1960s moonshot and our current 2020s Earth mission. In the 1960s, there was only one government working on this particular moonshot in the United States, the United States government, but men on the moon. Today, we don't need just one government working on it. We need all governments, all of them around the entire world leading the way. So to achieve the moonshot in the 60s, there are only a few businesses that were participating. Today, we need all businesses everywhere and every country doing their part. The 1960s moonshot, there are only a few people on this mission. To achieve sustainability, we need everyone everywhere on the mission. A big difference is that people around the world when we sent men to the moon in the 1960s, respectators, people who were just at home watching on their TVs, which I'm sure was amazing. However, to achieve sustainability, people around the world have to now be participants, part of those who take action to do things differently to create a better world. So back in the 60s, there are only a few people with the education and expertise that could contribute to successful outcomes. Rocket scientists, for example, engineers. And today, we need one to have the knowledge and skills for sustainability and the abilities to take action for a better world. So this is big. This is the most ambitious project we have ever had to do here on planet Earth, is change the way we are doing things to actually save ourselves and save our own planet. And it will take everyone, literally everyone everywhere. And those are some of the profound differences and to give you the magnitude of what we're facing. All right, so to summarize unit one, we learned that the characteristics of sustainable businesses are ones that recognize the resource limits to grow, that apply sustainable production methods and circular product life cycles that promote sustainable consumption, that demonstrate a shift in world views and values for quality over quantity and that embrace collaborative, and creative mindsets and that make a net positive impact on people and the planet in the process of making products. So the ethical challenge for business is to do well by doing good. Where doing well refers to economic viability or generating prospects and prosperity. I merge those two words together. And doing good refers to promoting equity, inclusion, diversity, fair wages, health, wellness, biodiversity, clean air, safe water and more. And by putting sustainable innovation as the driver of business strategy. So we have choices and the choices we make create the future. And the question is, what kind of world do you want to live in? So I will leave you with those thoughts for today and to review learning outcome one, see here are the links to study guide resources which are available in the slide, link to the slides below. And next up, we will be heading into unit two, sustainability policies, practices and leadership.