Why traditional efficiency models are becoming outdated

Dr Allen Alexander, Senior Lecturer in innovation at the University of Exeter Business School, argues that we need to think again about efficiency-at-scale advice to businesses.

When start-ups reach scale-up phase – typically at around three to five years old – conventional business coaching steers them towards greater efficiency and productivity measures.

Often this creates tension over how to grow without compromising core values.

This dilemma has been brought into sharp focus by ethical consumerism. This questions the consequences of production, consumption and end-of-life disposal by companies.

When navigating this part of their journey, start-ups need to think differently about how they innovate and expand.

Spaceship earth

“Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”

The tension between efficiency and sustainability has been building for some time.

As far back as the 1960s, US Economist, Kenneth E. Boulding, painted a picture of the earth as a spaceship without unlimited resources. He argued that man needs to find his place in a cyclical ecological system which continuously produces new materials.

More recently, round-the-world yachtswoman, Dame Ellen MacArthur, has described how her boats are a microcosm of planet earth. For her, racing is less about sport and more a finely balanced resourcing challenge. One wrong move – too much food, or too little food onboard for instance – would destroy her chances.

The green agenda is now mainstream, but the issue of finite resources is not.

Unless companies look at the inputs into their business – for instance, raw materials or power – initiatives such as Net Zero or recycling are simply sticking plasters on a linear economy.

The scarce resource-based view

Start-ups, particularly those at scale-up stage, have no choice but to pay careful attention to where their resources are going to come from in the future.

It doesn’t matter if they are a product or service-based business.

A company manufacturing high-value printed circuit boards needs to know that there will be affordable and available supplies of copper in 7-10 years.

Service-based companies need to be confident that they will be able to supply heat, light and power to their employees.

Recent events have spelt out the consequences of inaction.

Research suggests that companies who present meaning to their customers and staff have fared better through the economic shock of COVID.

But decades of efficiency-based measures have left even these businesses, who enjoy a loyal customer base, vulnerable to supplier-led and scarce resource led issues.

A circular approach

Sourcing alternative resources alone will not be enough to solve the supply challenge.

To be truly circular, focussing on recycling is a good start, but businesses should move toward remanufacturing and reuse where they can.

In other words, how can they build products and services that will remain within the economy, delivering the highest value possible, for the longest time possible?

Moral arguments aside, there are sound business reasons for moving towards circular thinking.

Apart from responding to the needs of ethical consumers, people are willing to pay more for innovation. Ultimately, building sustainability into a business gives it an excellent competitive advantage.

A fork in the road

At its heart, this is a systems-level challenge.

But there are examples of companies managing to balance their values with growth.

British outdoor clothing brand, Páramo, for example, has managed to prove that that high-tech clothing and environmental sensitivity are not mutually exclusive.

Others are experimenting with the concept of ‘scale-out’, whereby they create a network of local distribution centres (or supply nets), under an umbrella brand. This means that they don’t have to compromise on air or road miles whilst staying true to their brand.

And some organisations have managed to take this one step further and create a truly circular ecosystem.

This is evident at BlueCity in Rotterdam, where a group of small businesses have taken over an old swimming pool complex to build a waste-free community.

What now for start-ups?

Conventional growth strategies promoted by business coaches tend to lock start-ups into a certain trajectory, driven by productivity or efficiency.

But as ‘renegade economist’ and author of ‘Doughnut Economics’, Kate Raworth says, this is at odds with the need to conduct business in a circular way.

It is easy to hold up ideas such as revenue growth without asset and resource growth (or ‘de-coupled growth’ as it is called) but implementing this is considerably harder.

Like any innovation capability, balancing growth, productivity and resource effectiveness is a learned capability.

The good news is that there is support available.

Peer-to-peer learning networks are available to start-ups who are starting to experience these challenges.

Register your interest

A new online course is now on offer through the Exeter Business School’s Exeter Centre for Circular Economy which has been developed for SMEs and their partners who are keen to work towards Circular Economy opportunities. Eligible businesses in Devon, Cornwall and the Isles of Scilly will be able to access the content for free.

Running for six weeks from October 2021 and again in April 2022, participants will learn how other successful start-ups have initiated and implemented circular economy solutions.

To register your interest please click https://lnkd.in/gK4tzvM.