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Gunter PauliGunter Pauli has the air of the revolutionary about him. It is easy to imagine him in another time and place with a six shooter on his hip and a half smoked cheroot hanging out of the corner of his mouth. But this is not the wild west, this is 1999, the last year of the millennium, and Gunter Pauli’s fight is not about death, it is about life – the life of planet Earth.

Surprisingly Pauli is not a narrow minded idealist but is the former President of Ecover, a manufacturer of environmental detergents based in Belgium. He holds a Masters Degree in Business Administration from INSEAD and is a visiting professor at Universities in Asia, Latin America and Africa. Back in the early 1990’s, as President of Ecover, Pauli took responsibility for the construction of the first ecological factory in Europe. In his own words he, ‘pretended to be able to change the world by setting an example (and) had the arrogance to believe that he knew what he was doing: promoting environmentally friendly detergent derived from tropical vegetable oils’.

But all that changed in late 1993, Pauli recalls ‘One day I hit a brick wall and realised that the extracts my company was using represented less than 5% of the total biomass generated by the palm and coconut plantations that produced the oils. While I may have made a marginal contribution to reducing the contamination of detergents in a few European rivers, I had to accept responsibility for massive amounts of waste, generated through my demand for this biodegradable surfactant. Most of the waste was simply incinerated. I just did not know. I was a Homo non sapiens. I concluded that I could only be a real pioneer if I found a way of using all the biomass, not just the 5% of immediate interest to my industry, but also the 95% waste.’

In 1994, Pauli founded the Zero Emissions Research Initiative (ZERI), which was launched by the United Nations University in Tokyo. ZERI was founded to undertake scientific research, involving centres of excellence from around the world, with the objective of achieving technological breakthroughs that will lead to manufacturing without any form of waste. All inputs are either to be used in the final product, or have to be converted into value added ingredients for other industries. In this sense ZERI is unique as an environmental organisation as it is really a programme to improve productivity. Pauli explains, ‘What we have realised is that we have probably come to the edge of the levels of productivity for labour, there are few people in Australia or Japan or Europe who would imagine another five fold increase of productivity of labour. We have already gone so far. There are also few who expect that we can go for another ten fold increase in the productivity of capital. So, we need to turn to that part of our manufacturing systems that have not yet succeeded in reaching high levels of productivity and that is raw materials.’

Pauli makes a compelling argument based on facts, ‘In terms of raw material usage, I think there is no company around the world, except perhaps the petro-chemical industry, that is on average using more than 10% of their raw materials, 90% is discarded. For example, when we harvest coconuts for their oil, we can only use the oil; the rest is considered waste. When we ferment barley and hops into beer, we only extract 8% of the sugars; the fibres and the protein are considered waste, and given almost free of charge to the cattle farmers. So, if we realise that basically we are only using 10% of what we have, there is great room for improvement.’

What Pauli and ZERI are proposing is that businesses should not see zero emissions as an imposition but as a distinct competitive opportunity. In today’s business environment of low inflation and global competition it is being recognised that to be competitive a business must learn to think creatively and innovate continuously so that it can respond better to the needs of its customers. Pauli sees the wasted raw materials as hidden assets that have not been capitalised on, ‘any corporation that is not using its hidden assets to their fullest extent to generate better cash flow is a company which is at sub optimal levels.’

So, how do we do it ? Pauli says that the concentration of companies on economies of scale and core business strategies has got us into a box.

‘In business now we see corporations taking different options. Some companies really go for maximum use of economies of scale, meaning that we are continuing to search for an ever lower marginal cost of our additional unit manufactured. There is a lot of logic to that and that logic really belongs to mathematics. However if we look at corporate strategic decision making and we have gone for a Just in Time system then we know that we need fast response times to changing market conditions. Now if you have gone for an economy of scale driven to extremes you have no fast response times because then you will be forced to manage changes in the market by advertising and promotional campaigns. If there is a slow down in sales and you have your operations systems driven to the edge then you have no other way than to keep on producing.

If on the other hand we look at the food and beverages market, which is a fast moving consumer good, we know that a totally different strategy has been approached. In the food and beverage industry no one is thinking about centralised production and going for economies of scale, actually everyone is looking for smaller units and multiplying them. The two largest beverage companies in the world all have a thousand plus production units. Why do they choose that? Because they want flexibility, they want to be able to address production capacity, so that if tomorrow the weather is going to be very hot they want to be ready to supply within 24 hours an additional 30% of products. Now if you have one central factory, which is to cater for the whole of Asia & Asia Pacific, you can’t do that. That requires massive planning and detailed information gathering, that requires a masterful intelligence system in order to that. If on the other hand through Asia Pacific you would have 40 to 50 production units all this will organise itself quite quickly, quite adequately without having to bother anyone. So I think today companies operating in the market require a high level of flexibility, fast turnaround in decision making and if we want flexibility and fast turnaround in decision making then we need to look at other options than the economies of scale.

An alternative is what I would like to call economies of scope. Economy of scope basically means that if we have a main raw material, which we are using, that main raw material offers the opportunity to produce multiple goods. If we are producing multiple goods the question is going to be which ones will we do under our own control and which ones will we not do. The total business that these four, five or six different elements would generate may be as big as a huge operation. But we’re going to have a portfolio where we master the raw material for ourselves and where we have the opportunity to generate and direct the value added in different directions, into different markets which will give us exactly that flexibility.

If we focus on our portfolio solely on the basis of the assets we have already purchased these are in our custody then I believe we can very easily imagine a way to compliment the economy of scale with the economy of scope in this strategy.’

This portfolio management approach is very much in line with free market forces, Pauli says that we are doing injustice to the market system if we are throwing away materials that we see as waste when there may be other uses for them. One of the industries where ZERI has done a lot of work is the Beer brewing industry. Today there are breweries in Namibia, Japan, America and Germany that are finding new uses for what they formally saw as waste products. In Japan they are using the spent grain to make bread and at a brewery in Namibia they are using it to grow mushrooms which are then sold into the market for profit. The spent grain used to be sold to cattle farmers as feed for less than $200 per tonne. The brewery now sells the mushrooms that it grows on one tonne of spent grain for about $1000. As Pauli says, ‘The competitive position of the market leader is in danger if they ignore this opportunity’.

It is therefore no surprise that in a recent survey in the Nikkei, the largest business daily in Japan, all four major beer brewers of the country declared that they were fully committed to implementing the ZERI concept by the year 2001.

This message seems to be getting through and adoption of the technology is being driven by competitive forces in the market.

‘What is happening is that when any director of a brewery knows that this is working, he cannot permit himself not to look at it. Because the conclusion comes very quickly that it is advantageous in terms of cash flow. Instead of dumping the waste off at cost price to cattle farmer we are generating 5 times more revenue. Who cannot permit themselves to look at it? You have to do it!

But besides this there is also a popularity issue. Ask yourself, in terms of popularity with the public at large, who would be more popular? The producer who makes the beer they have been drinking and enjoying for the past 10/20 years, or this incredible local brewer who is making tasty beer and in addition is making bread and mushrooms, I think it will be the talk of the town. I think they will talk about, get a lot of free advertising, free publicity, it will be spread around the world so fast, that whatever advertising budget that has been thrown against by the bigger guys is going to be money down the drain. So that it is why I am saying we have a competitive issue at stake. If you not only generate better cash flow, better returns and if you capitalise on hidden assets, but on top of that you are going to be popular in town.’

ZERI’s message is clear, the way to emulate nature in an industrial context is to cluster industries on the basis of its waste content. Aside from the brewing industry, ZERI has also been working with the cement industry. Pauli explains the logic behind the project,

‘The cement industry has been castigated by the environmentalists for being such a massive producer of carbon dioxide, but how can you produce cement for which you need high temperature without putting any carbon dioxide in the air ? I have told the cement industry for years that you don’t have to worry about producing without carbon dioxide but just think what can you do with the carbon dioxide, how can you really balance it off.

So the project has started at the pilot stage in Indonesia, where we have combined the production and cultivation of bamboo with cement. When you look at bamboo it is totally unrelated to cement, but we know that one of the major uses of cement is to convert it into cement board as a major construction material. In order to make the cement board very practical we need to add asbestos, which was forbidden for obvious health reasons and has been substituted by synthetic fibres. Now we can substitute those synthetic fibres, which are very expensive, and as an alternative you can use bamboo fibres. We have demonstrated scientifically that it is perfectly possible to combine the bamboo fibres and have 70% cement with 30% bamboo fibres and we then have a cement bamboo board, which meets exactly all the specifications that are required by cement board. The advantages are:

  1. It is a much cheaper source of the fibre, so you are going through a sourcing cost reduction program.
  2. You have a natural fibre in which you are sequestering carbon dioxide.

So 30% of the weight of your cement board is going to be actually sequestered carbon dioxide, taken from the outside air into the product.’

Initiatives like the two detailed above are fuelling changes in Industries that seem new and radical but Gunter Pauli dismisses suggestions such as these and instead points out that examples of the logic behind the projects ZERI works on are to be found all around us.

‘We always ask ourselves the question how can we be the strongest and on one hand we can think in business how we can be the most competitive but if we want to secure our future markets and our future productive systems we will aim to be the strongest, not based on power, money, politics, muscle and balance, which I don’t think is really the driving forces of our market system, but based on the following logic which I again learnt from nature.

Why is a tree the strongest tree on earth or in the area? Well this tree is a tree which has the most leaves, and since it has the most leaves it has the most photosynthesis, if it has the most photosynthesis it has much more energy that it gets from the sun but at the end of the cycle it will drop many more leaves as well. If it drops more leaves there will be more food for earthworms and for the fungi and they will turn all of this into more humus. More humus will mean more food for the tree and if the tree has more humus it will be able to produce more fruit, and if it has more fruit there will be more birds and if there are more birds there will be more excretion of the birds which will improve the alkalinity of the soil which will stimulate the soil bacteria and if you have more soil bacteria you will have better nutrients into the tree and then the tree will have more flowers and if the tree has more flowers then there will be more birds and bees and more birds and bees means better procreation and you will be able to propagate many more trees.

What were the conditions, which brought this tree to this very powerful condition? Very simple, whatever the tree did not need it gave to someone else to make good use of it, so the tree didn’t give away anything from itself, it just gave away what it didn’t need. Second, the tree accepted in return all the contributions from everyone whatever size or whatever the type of contribution and I think this is really the type of message we want to give to the outside world and to our children, the same message is that. Whether you don’t need it in business in your core business give it to someone else who can generate something value added with it. Second, don’t discard any waste because you think its small or don’t discard any smaller contribution because you think its peanuts in the whole operation in which you’re engaged in. You accept the contribution of many small operators because you know that together the more of these you have the more respect for having these contributions as well the stronger you will be in the market.’


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