[MUSIC] This is Mike Rosenberg, with the second segment in session six, session six is about developing a sustainability strategy, and then section two has the title, do the math. Which my MBA students know very well, because I say that to them all the time. And then at the heart of this is that the science behind environmental sustainability is a little bit complicated. If you look at all the academic journals and all the things that people write about any one of the topics which we've touched on so far in this course, or any other one which you're interested in. You'll find essentially two piles of of academic research. You'll find a very large pile written by people who care deeply about the natural environment and go into some depth about why these things are problems. And you'll find a smaller pile by people who say that none of this is really important and there's really no problem at all. And finding the truth between this two piles is sometimes very difficult. There's a lot of biases, there's a lot of political bias and even bias from the researchers themselves who tend to look at things the way they want to look at things because that's what they believe. That's one part of it, another part is the assumptions you have to make to do anything to some degree, condition your response. And there's a large number of assumptions that one can make as you start to diving into this kind of material. And finally, there's issues of framing, about how we define the problem itself. So looking at reality, and finding work that is done in a rigorous way, which is somewhere in between Is sometimes challenging to even find let alone understand. Now one example of all of this are electric cars. So this is a Tesla's Model 3, the Nissan Leaf. A Tesla has to date about 400,000 reservations, 400,000 people who paid the $1,000 to receive a car, which is not going to even made for a couple of years. So there's significant demand for these kinds of cars, and Nissan has sold about 200,000 makes around the world since they introduced the car in 2010. So an interesting question is, for example, are electric cars good for the planet? Are they sustainable? Which is a fairly fundamental question, and you would think that it has an easy answer, but it doesn't. And I've looked at this in a lot of different ways. The first thing you have to look at is where is the electricity come from. So if you're driving an electric car in France, 70% of electric power will come from nuclear power. And it'll have a very low carbon foot-print but then you have to decide what you think about nuclear power. If you drive an electric car in Australia or China, on the other hand, most of the power will come from coal plants. And you might actually have a better, cleaner environmentally foot-print driving a new, brand new gasoline powered car. Than driving your electric car, depending upon where in those countries you're actually driving. So this is the first thing which gets complicated. Then you have to think about what kind of use do you give to your car. Are you driving up mountains, are you commuting, are you commuting a long distance or a short distance? Do you use the air conditioning? How does the power get from the power plant to your house or to the garage where you're charging? Are there losses in the grid? How do you charge your car? There's something called Vampire Loss which is what they call when you park your car at the airport, and you come back in 2 weeks and there's less power than when you left because actually the cars use a little bit of power to keep their batteries warm enough, and to keep things running. So you have to start taking all of this stuff into account. As well as production issues. What's the carbon footprint of making the device? My Toyota Prius, for example, has many many kilos. I think 25 kilos of rare Earth metals in the magnets. Which make the car go on electric drive. Tesla does not have magnets in it's drive. It's got induction motors so it's slightly different technology but if you're using rare earth metals do you have to think about how those metals are mined and the processing implications of that. What's the battery chemistry? The lithium ion batteries have a slightly different chemistry. Where does that? Where do those compounds come from? Where are they going to go when the batteries are disposed of? How are you going to get, recycle the car as a whole? All of these issues become very complicated and you can imagine how much math and how much assumptions you have to put into all this to answer a fairly simple question. Which is, are electric cars good for the planet? I have my own answer to the question which is, yes, they are. But, again, it's a little bit debatable, which gets kind of crazy when you think about all the different issues. And what you need to do is what's called lifecycle analysis. So, how does a product or service get used from the time you create it to the time you dispose of it. And again, there's lots of assumptions you have to make and lots of calculations you have to make when you do this kind of analysis. To calculate the carbon footprint of a company, for example. And this is the Global Greenhouse Gas Protocol as developed by the World Council for Sustainable Development. And the mathematics involved are serious. And to calculate the carbon footprint of a company, you might have to hire another company just to do the math because it takes awhile. And at the end what you're struggling with is to develop the business case because again if you want to make good strategy you have to have the business case and that's to balance costs and benefits. Sow what are the costs of reporting? What kind of investments do you have to make in infrastructure? And improving operations, developing new products and services, communications. If you're going to do a show and tell strategy, you're going to be spending money on communications, on public relations, and on marketing. Where's that go? Training to develop people's' sensibility and awareness, etc., etc. All of those costs can be calculated, can be known, can be estimated. Now one of the challenges in this space as well. Many of those costs can be known fairly well. When we start talking about benefits, there's a mix bag, so something is like energy saving is can be calculated and can be known. Other operational savings in terms of waste reduction and stuff can be calculated. But then in other question is, can the company charge slightly higher prices for goods and services which are made in a sustainable way, it's not so clear. Will customer loyalty be increased if we do that? Maybe. How much? It's hard to say. Will we avoid future costs as legislation changes? And again, it's hard to say. A liability, because there might be legal challenges in the future. So when you look at costs which are fairly clear, and benefits, some of which are clear, and some of which are not so clear. That creates a challenge. How do you calculate the return on investment? How do you calculate the new present value? So this makes it very, very difficult to fine-tune the business case in this whole space when we start thinking about what to do at a strategic level for a specific business. [MUSIC]
