Sustainability experts for decades have been exhorting managers to focus more on the function their products deliver and less on the product itself. Biosphere Rule #5, Function Over Form, is focused on fulfilling customers’ functional needs in ways that sustain the value cycle.
Biosphere Rule #5: Fulfill customers’ functional needs in ways that sustain the value cycle.
Biosphere Rule #5, Function Over Form, is focused on fulfilling customers’ functional needs in ways that sustain the value cycle. As we will see, this rule is an inevitable consequence of building out a Sustainable Product Platform, as discussed in the previous installment.
As always, the biosphere serves as our guide. Nature has been experimenting with a variety of species playing different ecosystem roles for billions of years. The diversity of the biosphere’s innovation is impressive. For example, there over 200,000 species doing some form of pollination — including moths, butterflies and bees; as well as bats, birds and bears. Nature is not fixated on the specific organism doing the work, but more on the function — pollination — being fulfilled. It's the functions that provide the ecosystem services needed to sustain the biosphere.
Sustainability experts for decades have been exhorting managers to focus more on the function their products deliver and less on the product itself. They call on companies to “servicize” their business — and one of the first executives to heed this siren song was Ray Anderson, the legendary founder of Interface carpet. In the 1990s, Anderson read Paul Hawken’s classic, The Ecology of Commerce — which called, among other things, for companies to stop selling products and start delivering the functional service provided by the product. Pioneering the approach, Interface launched the Evergreen Lease in 1995 under the slogan, “Selling carpet without selling carpet.”
There were a lot of good arguments for leasing instead of selling carpet. For example, carpet wear follows the 80/20 rule, where 80 percent of the wear occurs on the 20 percent high-traffic surface area. The carpet underneath desks and filing cabinets gets almost no wear at all. In providing carpeting service, Interface could inspect the carpet on a monthly basis, and just replace the handful of worn-out carpet tiles. Because less product is being replaced, it results in an environmental and business win-win.
While the arguments were compelling, the Evergreen Lease ran into problems — the biggest of which was the tax rules around leasing. Leasing is tax advantaged because you are allowed to deduct lease payments as a business expense. But there is a legal expectation that the leased product will have economic value at the end of the lease. If you are leasing a BMW, for example, the car is still valuable when the lease expires. The problem with the carpet tiles is they didn't really have any economic value at the end of their lease; there was nothing that Interface could really do with them — in fact, they imposed a disposal cost on the company. If at the end of the lease the product was used up, from a tax perspective you weren't leasing anything; you were merely financing the sale. For this and other reasons, the Evergreen Lease foundered.
Interface, however, was not staking its whole sustainability strategy on Evergreen and was, at the same time, actively pursuing a value-cycling strategy for its carpet tiles — developing series of technologies that would became one of the first fully operational product value cycles. The Reentry 2.0 technology allowed the company to separate the soft-face fiber you walk on, from the heavy backing material. The face fiber was then deep-loop value-cycled back into new fiber. For the backing material, Interface created Cool Blue, a system that would grind up old backing material and cycle it into fresh tile backing. These technologies comprised a sustainable product platform and changed the situation for Interface. Leasing became a possibility because the platform gave the tiles value at the end of the lease — they were valuable, and necessary, inputs for Interface’s production process.
But it was more than that: If your value cycle depends on a constant flow of input materials, and those input materials are old carpet that is installed at your customer’s office building, do you really want to sell that carpet at all? The tiles are an integral part of your value cycle, so who really owns that carpet?
This question is an inevitable outcome for any company building a value cycle. The materials in your product, like the carpet tiles installed in your customer's office, are actually part of your production system. A client’s office is serving as your warehouse, storing your input materials until they are needed for a new production run. Your customer is fully integrated into your production system. They are a customer, in that they are purchasing your product, but they also then become a supplier of production materials. You enter a new world where your suppliers and customers merge into custopliers and surplustomers.
This is an inevitable outcome of pursuing a sustainable product platform. You move away from the “sell it and forget it” model into an entirely new business system. Your company naturally moves to a servicized model, where the delivery of functional service, not the transfer of ownership, becomes primary: product function over product form.
Dr. Gregory C. Unruh is the Sustainability Editor for the MIT Sloan Management Review and author of the new book, The Biosphere Rules: Nature’s Five Circularity Secrets for Sustainable Profits*. For a limited time, Sustainable Brands subscribers can download a complimentary digital copy of the book* here.