by Kate Pavao, July 2014
As demand for resources increases, so do breakthrough innovations that change the game.
For evidence, just look at the transportation industry, says Dr. Stefan Heck, author of the book Resource Revolution: How to capture the biggest business opportunity in a century. As concerns about peak oil accelerated, Brazil discovered new offshore wells and the United States tapped into its natural gas supply. At the same time, vehicles became more efficient, as did demand for walkable communities, which reduced the need for cars and gas.
Heck cites other examples as well: a start-up making products with “eggs” created from soy beans and vegetable materials, reducing the resources needed to raise a chicken; or a construction company that makes modular installations with parts that can be reused as the client’s needs change or expand.
“We were having the same conversation over and over again with different companies in different countries,” Heck tells Profit of the research he did for nearly a decade with co-author Matt Rogers. “We heard about dramatic shifts in productivity already happening in pockets of today's economy, and peak demand actually driving peak supply.”
Here, learn more from Heck about what it takes to win during the resource revolution.
Profit: Your book has a positive outlook on the future. What’s driving your hopeful outlook?
If you're an executive trying to do well in this environment, you have to evolve, because it's really the innovators that succeed here.
Heck: There's been a lot of reporting about how we're going to run out of resources of various kinds, whether it's oil, land, or food. But through our research, we found there to be enormous potential for increases in productivity, very similar to the first Industrial Revolution when factories, mechanization, and steam power unleashed a major wave of productivity. We have the potential today, but instead of labor productivity, it is focused on resource productivity.
Our thesis is that there's at least a tenfold increase in productivity of resources. So that means you get more gross domestic product, revenue, or profits out for the same amount of inputs, and inputs can be any kind of resource, from land to water or energy.
Tapping into these resource opportunities is creating the biggest business opportunity in a century. If you look back at previous industrial revolutions, the companies that first innovated new technologies that allowed a step change in resource productivity did extremely well, and wiped out a whole bunch of predecessor technologies.
Profit: How is IT helping business leaders succeed in this revolution?
Heck: IT is one of the major drivers. Just look at the way transportation is being affected as we get computing power in our vehicles. We've had electronics in cars for engine controls and entertainment, but now they're beginning to actually change how we drive and how the infrastructure is run. The biggest change is yet to come, as companies work on making cars drive autonomously.
This will increase the safety, much like autopilots in ships and airplanes, because nobody gets sleepy, and the car can continuously monitor every direction, all at once. It also increases the efficiency—on autopilot, you save between 20 percent and 30 percent of the fuel just from smoother acceleration and from optimized stopping time for the red light that's coming up ahead.
Once you get larger numbers of these vehicles, you can begin to do platooning to form a peloton, the way bike racers do, where the cars are at closer distance and drafting off each other. You get another 30 percent fuel savings roughly from reduced air friction.
Ultimately, we would go to a world where you wouldn't need stop signs and traffic lights anymore, because the cars would be communicating with each other, and scheduling themselves through intersections. So, we'd get another dramatic savings at that point. But we're talking about 20 years from now, not overnight.
Profit: What questions do executives need to ask about their own business in order to make sure they succeed in this revolution?
Heck: The key is to look at your existing business and ask some tough questions: First, where do you need to measure resource productivity? It could be your power, water, or building usage, or any other kind of fixed asset, such as a transportation fleet or factory equipment.
Traditionally, we measure productivity of the employee, and that made sense in a labor-intensive industry. But if you're at all resource-intensive—if you own a lot of buildings or you own a lot of equipment—resource productivity actually matters more. Southwest is the most profitable airline because they fly their planes more, and planes are huge fixed assets, so the number of miles they get out matters a lot.
The second piece is to look for emerging technologies, because by and large, these technologies are already developed and it's just a question of applying them intelligently. You can apply software, apply new algorithms, or look for other opportunities to optimize your operation, such as by using the Internet of Things’ deployment of sensors to get real-time data and manage things in real time.
Dr. Stefan Heck is co-author of Resource Revolution
Remember that with technologies with very steep learning curves, where the technology is changing very rapidly, you can't make the traditional assumption of “Next year will be like last year, except a little bit better.” If you look at power generation or LED lighting, for example, it's changing at the speed of Moore's Law. It's changing 20 to 50 percent per year in cost.
Finally, you need to really rethink your business model. Where can you take an existing product and turn it into a service? Where can you change the way you deliver your service or product? There are great examples now of companies moving service online, from content media to X-rays and MRIs.
If you're an executive trying to do well in this environment, you have to evolve, because it's really the innovators that succeed here. If you take advantage of these opportunities, you could create a tenfold shift in productivity or a tenfold reduction in your cost structure. That's the kind of thing most executives can only dream of, and that’s what's at stake.
Kate Pavao is a frequent Profit contributor.