The Ecology of Waste and Why It Matters to Business

The Economics of (Un)Sustainability

When a business creates waste, it steals value from someplace. Sometimes it’s stolen from partners. Sometimes  from customers. Sometimes from communities. Traditional economics teaches business leaders to push the cost of waste outside the firm – to “externalize” it in order to maximize returns to shareholders.

Despite whatever veneer of corporate sustainability and Corporate Social Responsibility a firm might wear in public, this is the responsibility that holds sway in boardrooms, and it is this responsibility to shareholders that ultimately determines how most companies process their waste.

Waste and the Ecology of Business

The idea that businesses can externalize costs, that they can simply dump their wastes on others, is a holdover from another era; a time when industrial engineers designed industrial processes as though they were giant machines. Resources poured into the machine one end. Products and waste flowed out the other. The scale proved so mind-numbingly large that these ‘machines’ have gradually overwhelmed our planet’s ability to respond.

While it is obvious that businesses and the economy do generate waste, it’s important to note that waste is completely absent in nature. Corpses emit cadaverine, which attracts flies and maggots that accelerate the breakdown and reabsorption of nutrients into the earth. Deciduous trees drop massive quantities of leaves every fall, none of which turns to waste thanks to the hardworking fungi, bacteria and  invertebrates that turn this valuable material into rich, life-sustaining soil. Without these natural partnerships, our world would drown in a sea of dead tissue.

In nature, waste equals food, and embedded in this simple truth lies the key to truly sustainable business practices.

Externalized Waste Destroys Stakeholder Value

When we pass waste onto external stakeholders of the firm, it always has a cost – an externalized cost that we give to others. Sometimes the negative consequences of that waste are hard to see. Sometimes they are difficult for external stakeholders to avoid.

As an obvious example, parents might not know that the flame-retardant pajamas they bought a few months ago are now leaching toxins into their child’s skin. Less dire is my recent personal experience wasting countless hours dealing with some forty cans of paint left in our garage by previous homeowners who bought too much paint for the job from a local paint store.

Waste is tricky that way. It can lurk hidden in places other than the brown sludge that comes out of industrial pipes. When customers have a hard time learning to use a product, it wastes their time, and that may ultimately lead to their disposing of the product in landfill. Waste has a cascading effect in that way, destroying value as it ripples through the firm’s network of external stakeholders.

When we pass waste onto external stakeholders of the firm, it always has a cost. It may cost them time. It may cost them money. It may cost them lost opportunities. It may cost them their health, and maybe even their lives.

Towards an Ecology of Green Business

When firms design their operations to be less mechanical and more ecological, they learn to create value through collaborative processes that blur traditional organizational boundaries. Just as biological ecology focuses on the relations and interactions between organisms and their environment, business ecology focuses on the relations and interactions between firms and external stakeholders.

Rapid advances in information technology today enable a kind of “radical connectedness” that replaces the vertical integration and independence of old with a new focus on powerful networks of partners, each contributing to a networked value-creation process. What’s more, in today’s world that value-creation process extends to customers and numerous other stakeholders.

For these value creation networks to work, their participants must trust one another. Firms can fool themselves into believing, over the short-run, that their market power gives them the ability to dump their waste on customers and partners to take on their waste, but over time that behavior is not sustainable. Eventually, partners and customers lose interest. The wasted time, money and opportunity will force them to look for other ways to create value.

That Which Does Not Create Value, Creates Waste

One of the most powerful ways to find waste is to look for the absence of value. Paint sitting in rusty old cans in my garage creates no value, and as a result it wastes space in my garage, wastes my time when I eventually get around to opening all those lids to dry out the paint so that I can dispose of it all in Seattle’s landfill – again, more waste. A poorly-written user manual for my new alarm clock creates no value for me, and wastes my time. A poorly conceived advertising campaign creates no value, and as a result it wastes money, customer time and business opportunity. A poorly conceived idea for a startup creates no value, and wastes investment dollars, customer attention and time and the engagement and energy of employees.

Waste can take many, many forms. Seeing waste as the absence of value helps to identify waste in whatever form it might take and wherever it might get dumped.

Minimizing waste for customers, partners communities and other important stakeholders creates value for them, which builds relationships and loyalty to the firm. Minimizing externalized waste to stakeholders isn’t just about being nice or doing what’s right, it’s about building sources of long-term, sustainable competitive advantage over other firms that continue to foist waste on their stakeholders. Removing this waste requires effort, but once done, the benefits continue to accrue to both the firm and its stakeholders in perpetuity, which creates a powerful multiplier effect.

Eliminating waste means looking deeply at all of the stakeholders affected by the firm’s offerings. It is a collaborative partnership aimed first at identifying the sources of waste in all their forms, and then working together to develop solutions that eliminate the waste and leave increased value in its place.

Minimize Waste to Minimize Costs – for Everyone

Seeing cost as waste is a powerful tool for developing efficiency in a firm. It helps frame the firm’s operations as  two primary activities: maximizing value and minimizing waste. Maximize the value of what the firm creates and you grow its earnings potential. Decrease the waste generated by this creation of value, and you reduce costs at the root rather than pushing it out to others.

Waste Equals Opportunity

In contrast, waste that creates value is not actually ‘waste’ at all. The metal trimmings from my production processes can be melted down and used as inputs for your production processes. The difficulty in learning how to use my product or service, which might otherwise waste my customers’ time, creates an opportunity for your company’s training services.

This is what William McDonough and Michael Braungart have been saying for years, that “waste equals food.” Or, put into business terms, “waste equals opportunity.” What was once waste becomes a valuable resource for partners – a resource they will take off its hands at no charge and maybe even pay for, if there is sufficient value to be had. This is the economic impetus for partnership.

This is the sort of collaborative network of relationships one might expect to find in nature, rather than within a company and its customers and supply chain. This is an ecological view of the firm and it is decidedly post-industrial. By relying on an increasingly rich, dense web of stakeholder relationships to enhance its value-creation processes, this new model move the firm slowly and profitably into a new mode of business that by its very nature deuces waste and the negative impacts of its footprint in the world. That is good for business, good for stakeholders, and good for all life on the planet.

One of the most important contributions we will see from modern value-creation networks is their ability to turn waste into value in ways that not only increase the profitability of participating firms, but that also bring us closer to the kind of sustainable value-creation processes we see in nature.

Technology Ecology: Connections that Sculpt Our World

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