12 elements to make resource recovery antifragile

In my last post about the fragility of the waste industry, I wrote about how attempts from the waste industry at resource recovery make for fragility, or at best, robustness (as used by Nicholas Nassim Taleb). This means that the best the industry can hope for is that major shocks ("black swans") do not cause too much harm.

Black Swans (with local Perth skyline). Source: PlanBookTravel

Looking to minimise harm doesn't really lend itself to thriving. To truly thrive, resource recovery needs to become antifragile. That is, to establish itself in ways such that it is strengthened by black swans.

Taleb (as summarised in John Hagel's review of Antifragile) gives a handy 12 point list of elements that go toward creating antifragility.

The fractal world of institutional innovation and waste

This post is built around a fantastic article called Institutional Innovation by +John Hagel and +john seely brown.

The article is such a rich source of ideas that it has had my head spinning for weeks. It has given me a vocabulary to clothe my ideas, along with some reputable sages who flesh them out. I've been thinking the ideas through in the context of waste, and as I explore I come to a fractal world where waste is dissolved down into its byproducts, a fractal process of looking deeper and deeper into details to extract ever increasing value.

It reminds me of the Mandelbrot set.

Mandelbrot set. Source: Wikipedia (jpg)

Reality stranger than fiction

Today sees a guest post from Alex Serpo, editor of Inside Waste, Australia's leading waste journal.

It is presented unedited (other than to sort out hyperlinks), but before we present the article, some background.

The key piece of information required for the story is that New South Wales has landfill levy in the order of $95/tonne. Neighbouring state Queensland has a landfill levy, but it was set at $0/tonne when Campbell Newman was voted into the Queensland government earlier this year. Finally, at 800 km away, Sydney is not close to Queensland.

So here goes Alex. After Alex, some of my opinions.

The tools through which waste will be revolutionised

I am a touch fanatical when it comes to charting a path for how waste might achieve the promised land of, well, no waste. I am especially excitable when it comes to coming up with different ways of approaching the question.

Why?

Because the way we are currently approaching the problem is barely keeping pace with the extraordinary development in waste production. The current systems are almost good enough for yesterday's problems, sorely lacking for today's, and irrelevant for tomorrow's. To me it is self-evident. We need to try something different.

In turning my ideas over and over, I keep coming back to four general strands of thought, four tools if you will, that will change the status quo. In no particular order, they are:

• Information surface area
• Diffused control
• Storytelling and culture
• Business models

Information surface area

Data is important, but not in the way it is currently conceived.

A lot is made of the regulator's need for data. A perpetually hungry beast, the regulator wants more and more data to be provided by waste managers. The problem is, the data then disappears into some silo or is aggregated to strip out any value there might have been.

This is pointless, only done to enhance the regulators feeling of control, and not what I am thinking of.

I am thinking of tools to capture and disseminate data on waste generation automatically, distributing that data broadly. The data is collected from the waste generator (not the collector). It is done so with a minimum of effort, and is broadly available. This data is then used by waste reprocessors to quickly respond in a customised service offering.

The point is to maximise what I'm going to call the "information surface area". The information surface area is the number of points that a given piece of information can touch, with each touch point enabling a decision to be made. A high information surface area is information that is broadly disseminated to people able to use it. Like a heat sink, it is highly effective simply because it has this high surface area. A low information surface area is reporting into a confidential data gathering body.

Information surface area. Source Azom.

This matters because the greater the information surface area, the greater the possibility that it will make the connection that is needed. In the context of waste, the right reprocessor will identify how a particular waste (including the time and quantity of generation) can become the feedstock for another industry. Opportunities will become clear to those who can do something with them. An efficient peer-to-peer system can be developed.

We see something similar in production right now, where inventory management systems are tightly integrated across suppliers to enable "just in time" production. To state the obvious, the suppliers do not expect their data to pass through the maw of a regulator. They provide it direct to one another.

Diffuse control

Having created a system that has a high information surface area, a diffuse (or distributed) system of control enables reprocessors to capitalise upon the information available. Being able to quickly swing into a new service offering once it becomes available will be the difference between winning and losing in this world.

Opportunities will bob up and be rapidly grabbed by the fast mover. The organisation that relies upon cascading approvals cannot work in this space. Arduous approvals processes suit systems where there is little change. In waste, they suit systems where the dumb, simple course is taken. Where waste is taken at its least useful and treated, rather than being taken at its most useful and reprocessed.

To have effective diffused control, you need organisations that empower and entrust their staff. You need organisations driven by values rather than KPIs, people who believe in the mission rather than chasing the next promotion.

I see a constellation of small, highly focused and nimble reprocessors all providing services in this space. Perhaps a better metaphor is a swarm. They may all be part of one overarching organisation provided the culture is right and they are free to respond. Because that is the key trait. The reprocessors are opportunistic.

Distributed waste handling systems. Source Wikipedia

This system works to assist in a broader economic change. It enables production to be shifted away from centralised systems working on massively global supply lines, and move to distributed systems where small, highly connected factories can be found throughout. With the artful work of innovative reprocessors, they have the materials  ("waste") they need, and can benefit from short, resilient, multi-path supply lines.

And so the revolution in waste will help to revolutionise production in general

Storytelling and culture

The stories we tell ourselves strongly determine the future we create for ourselves. We shape our future by telling ourselves about what it will look like

For this reason, the stories we tell ourselves of waste, the culture we create around it, is important. Not in the sense of Soviet social realism, where we command people to tell the stories that enliven our ideology. This change doesn't need that sort of total social control. Instead, it is the stories that the industry tells itself.

Rather than telling itself that economies of scale are necessary, and then forcing everything into this narrative, the industry could tell itself stories around how vital the raw materials are. Rather than telling itself that the object is to efficiently dispose of materials, it could tell itself that the purpose of the industry is reinvigorate materials and thus whole societies.

The story telling is most important within an organisation. It is an organisation's culture, and I think that the future of waste will be shaped by extraordinary organisations that have powerful cultures. These organisations will be driven by their mission, and will bend all efforts to the achievement of this mission.

Storytelling. Source: Wikipedia

To me I think that mission will become as large as total domination of the flow of materials through the economy. These organisations will shunt out the raw materials exploiters, the end of life treaters, and guide materials along each step of their way around and around the economy. "Zero waste" won't make sense in this context, just as unwanted cash makes no sense when you have bankers able to lend it out at a profit.

Still, that is just me. The point is less what the mission might be (though it will revolve around waste reprocessing), and more that it will be a strong narrative that brings a special focus to the organisation. This sort of organisation will prevail over those eking out market share in a commoditised waste disposal business.

Business models

The final of my four tools is the business model.

For the last few decades, the business model in waste management has been to build business by cutting costs. By and large, that has meant scale, which in turns reduces reprocessing. It is a linear, win-lose model.

A new way of approaching waste management will see these business models jettisoned in favour of more subtle ways of making money. Perhaps there will be greater vertical integration, with reprocessors taking their materials a long way down the value chain before they sell them on. Perhaps there will be approaches where a loss leading piece of equipment is provided for a long tail of revenue (ie the Nespresso model of cheap coffee machines that can only take Nespresso pods). Perhaps there might be a freemium approach to waste management (free for a basic service, and a premium for a desirable extra service).

In any event, the introduction of sophistication and subtlety into this world will see an explosion of business models. That is a good thing. It will also see the traditional business model suffer and ultimately suffer a collapse of its own doing.


These, then, are my four tools. You'll note that none of them rely upon central fiat, and all of them are related to each other. Once this path is started down, it will grow incredible change.

Zeronauts unite!

The term "zero waste" has been so misused in government parlance that it has become a term of gentle (and not so gentle) mockery. So Western Australia had the slogan "Zero Waste by 2020", which then became "Towards Zero Waste", which is atrociously at odds with the reality of this state that had to change again, this time to "Western Australia: Too good to waste".

"Zero waste" is clearly misused when there is nothing to back it up - a "zero waste" policy becomes zero waste policy. Nothing. Nada. Nix.

However, just because a term has been misused doesn't make it invalid. The German Democratic Republic (East Germany) did not invalidate the term democracy because it holds a fundamental core. Similarly, there is a fundamental and revolutionary truth to zero waste.

To achieve zero requires us to refashion how we do things. That might seem terrifying, but this sort of revolutionary change has happened over and over again. There was a time when oil and kerosene lamps were ubiquitous. They then rapidly blinked out to be replaced by electricity (and associated immense generation and transmission infrastructure).

Of course, it is easy to get hung up on "zero", to find reasons why some tiny amount will always exist, and then act as if this is a fatal flaw that prevents even contemplating the concept. That would be akin to arguing that people will always die in car crashes, so there is no point in trying to prevent fatal crashes. And so on.

In fact, the case for "zero" and zeronauts in particular is well argued by John Elkington in his book The Zeronauts, Breaking the Sustainability Barrier and associated Zeronauts website, and summed up by Maxine Perella in a post "the zeronaut: where others fear to tread" on her blog //greendipped:

Essentially, it is about rebuilding the status quo and transforming it into a ‘future quo’. Elkington argues that status quo capitalism lacks imagination and ambition. That there is a design fault within it and also those factors linked to it such as mindset, behaviour, culture, economics and technology. 

His approach is a game changing, experimental one. Where zeronauts will succeed in achieving large-scale sustainability improvements, he argues, is where there is a market price signalling scarcity. So if consumers face higher prices for water and electricity, this should stimulate entrepreneurial activity centred on economising those resources.

It is a notion that is very close to my heart. It basically asks the question "Why do we tolerate waste?", and seeks an answer to that question in stronger entrepreneurial activity. I think it's spot on.

So, thanks to //greendipped, I've learned another thing that I am not (yet) but wish to be (joining the ranks of maven from my "social media epiphany" blog). As for the term "maven", part of the comfort is realising that what I am striving for is not impossible. Hard, yes, but not impossible.

Infrastructure or disruption

There is an argument that waste management is about providing infrastructure that services economies.

Under this model, it is the responsibility of government to provide a core service that gets rid of waste as quickly and efficiently as possible. Cheaply too. There is an emphasis on planning, on making sure that you never get into a situation where you can't get rid of the rubbish.

The outcome of this sort of top down approach is that waste tends to get treated in aggregate, and the least bad outcome pursued. The approach tends to reinforce the position of established players, and reduce the chances for innovation. It is safe mediocrity.

An alternative is to see waste management as having ample scope for disruption. That waste is no different to any other industry in a free market, and that is, established players are on a permanent slide to being consumed by nimbler businesses around them.

If you see the potential for disruption, then planning is the last thing you will want to do. Not only are plans impossible, but creating the plan removes the ingredients for disruption. Disruption requires bottom up action, people and businesses recognising and acting on opportunities close to the ground rather than from the stratosphere of spreadsheets built on dodgy assumptions. Planning tends to create solutions that prohibit bottom up solutions.

It would be fair to say that I have a strong bias toward bottom up solutions. This seems more entrepreneurial, more innovative, efficient, alive. It seems to me to create the necessary preconditions for excellence. Nevertheless, there remains a role for base level infrastructure.

There needs to be somebody providing a safety net solution that prevents disease, but a net that can be built upon. I think that is what landfills are all about. They are imperfect but sufficient. They do not suffer greatly from waste being taken out and recycled, and indeed their existence is so repugnant that you feel obliged to do something. They do not demand large volumes to be viable. In fact, the existence of landfills might even be a necessary precondition for disruption in the waste industry.

Landfill, complete with compactor and seagulls. From Zerowaste SA.

And so, like so many things, you have to conclude that it is not a matter of either-or, but both-and.

That is not to defend landfills (though I've run many). It is simply to acknowledge them as an imperfect part of an imperfect world. A part we should not rest within but rather build upon.

Marginal thinking and waste

You would think that finance and economics were a little distant from waste management. Or at least, any theory beyond "get rid of this rubbish at the lowest cost".

You'd be wrong. Reading a summary of Clayton M. Christensen's book How Will You Measure Your Life, you might get some sparks of new perspectives.

Christensen looks at how marginal cost theory is misapplied - a series of incremental decisions based on marginal costs leads to a bad overall outcome. It inevitably leads to the status quo being maintained, even in the face of fatal changes in circumstances. The example used is nimble Netflix devouring the Blockbuster behemoth.

In private lives, according to Christensen, a similar "marginal cost" slippage in values can be catastrophic.

If the principle can be transferred out of economics and into private life, it can also be transferred to waste management. Indeed, on reflection, it transfers very well.

After all, what is waste other than a long series of marginal cost decision that lead to an outcome that is illogical and undesirable, even for the decision maker? 

Only in a marginal cost world can it make sense to recover only 15% of the estimated $21 billion of gold and silver incorporated in electronic goods, leaving the remaining 85% to go to landfill in concentrations 40 to 50 times the concentration of the ore originally mined for the metals.

It is a world where each decision is a little disaster, where the benefits are small and barely realisable by the decision maker, but the path embarked upon is stupid for society. 

It is a world that suggests the standard economic theory unravels, where even if people did make individual decisions in perfect knowledge (which they don't), the aggregated decision would still be dumb because each self-optimised marginal cost decision slips further and further from a sensible outcome.

Christensen suggests that the way to overcome the outcomes that arise from marginal cost theory is to look at things from a sort of "Ground Zero". Consider the world as if you were a disruptor. Ignore your "assets" on the ground. What would the decision be then? If it would be different to what you are doing, change what you are doing.

This has powerful resonances with waste management, and reinforces why entrepreneurs (and perhaps intrapreneurs if they can find the necessary internal support) are so important to overthrow the status quo.

What will the IT revolution look like when it hits waste?

I often wonder about different perspectives on something I'm looking at.

One perspective that has been bugging me lately is the IT revolution and how it might affect waste. Specifically, the sort of hyper-innovation that has ripped computing from the basement and lab coats into smartphones and cloud computing in the space of 50 years.

This is not a question of how computing per se is affecting waste. Of course, there are some interesting things going on with data management and so on, but it is fundamentally a business built on people circling big and expensive plant: lab coats circling big, expensive machines. Computing has not changed this, and isn't really what is bugging at me.

What bugs me is how and when waste will make the shift from mega-machines to become personalised. When will it become something that we can all find out self-expression through? It is the shift in attitude that interests me.

It sounds absurd to even propose that something like waste could ever become personalised, ever be a medium for self-expression. Just as a basement full of wires and punch cards and blinking lights could never be the genesis of an awesome flowering of personality. But it is, and so too waste might not only be disrupted forever, but might even disrupt everything forever.

How? Imagine first a series of business models that permit the citizen to easily take control of his or her waste for financial reward. The resource value within the waste drives this new perspective, and you start to see the sort of massive reverse logistics that so characterises scrap steel. You start to see a self-reinforcing loop, not needing capitalism to be overthrown for it to make sense.

Imagine this then driven by high-tech. You can imagine little bins that don't just store your rubbish, but deconstruct it for sale of the components, pocket sized units that deconstruct your rubbish when you're on the go. Tiny micro-factories at every street corner replacing the vending machine, taking materials in from people walking by and using them to make your next purchase as you wait, bleeping out little calls to people who have the stuff they need. Credits automatically credited for this, the end of bulk logistics, the ushering in of personalised consumption.

But it doesn't need high-tech, and it certainly doesn't need this high-tech, for the disruption. All it needs is a disruptive business model to start us down the path. That little disruption, that upstart, will set us on the path to changing everything. Just like the clunky mini-computer led us to the PC to the smartphone and cloud computing.

I wonder about this stuff. I'm not so egotistical to think I need to make it happen, but I can't help feeling it is about to happen and now is the perfect time to be involved. I am sufficiently egotistical to think I can be part of the happening.

Government in waste - help or hindrance?

Whenever there is talk of waste and recycling, there is talk of how the Government can assist. Should it?

On the plus side, Government obviously has loads of cash, and can make all sorts of laws to reinforce the business model of a recycling business. It can mandate recycling of particular materials, put in place landfill bans, impose landfill taxes and subsidise recycling business.

But should it? Perhaps, under certain circumstances, however this is going to naturally lead to a certain type of industry. It will favour the large and established over the small and nimble. It will favour those who control the market over those who would disrupt it. It will favour the bureaucratic over the free-wheeling. It will favour monumental infrastructure over human scale business model innovations.

Government will take a risk averse approach and channel money to organisations that, whilst they might lead to significant improvement, will not lead to great improvements. Organisations that are exciting and disruptive, that might make massive changes, won't attract support because they could equally fail hugely. Government will look to minimise downside, not maximise upside.

Be this as it may, I would argue that the question is posed the wrong way. Instead, the better question is "should waste and recycling businesses seek Government support?" And I suggest that the answer is resoundingly "No!"

Chasing Government support takes a lot of effort. More importantly, the things you have to do to your business model to meet Government funding requirements will also cripple your business. You will start as a nimble organisation, reliant on none, and end up gummed up with a bureaucracy that you never believed possible. And certainly never needed.

In this field that is ripe for disruption, ready for upstarts, primed for somebody to change everything, you don't need to be wasting your time convincing the Government. Use that time to surround yourself with investors who get what you are trying to do and will help you get there.

What would a Silicon Valley for waste look like?

We are all familiar with the awesome reputation of Silicon Valley as a hotbed of entrepreneurship. It is a classic example of the synergistic effects of an ecology of excellence growing up around an industry. Ideas attract brilliant minds attract venture capitalists.

More important, however, is the prevailing ethos that you have a crack. Trying and failing is better than never trying for fear of failing. Or trying to cover yourself against all risks before you begin. Business is risky. Good business people accept that, minimise their risks and then begin.

This sort of culture is sorely missed in waste management. It is a field that has managed to convince itself that it needs government support, that it is only able to succeed if it is big. An enormous risk averse edifice that grinds out incremental improvement only when led by the nose by government. An industry that leans heavily on public underwriting of private profits, and even then manages to get it wrong (no names here, of course).

Imagine if the norm in waste management was for entrepreneurs to get out there and start creating little eruptions of businesses. Or, more accurately, little disruptions. What might that look like?

You might see some very nimble companies focusing on serious product differentiation in otherwise bog standard markets. This would be great for customers. You would certainly see exciting solutions to avoid the capital intensive and largely monopolised landfill. Indeed, clever ideas would sidestep high capital requirements and barriers to entry across the board. I reckon you'd also end up with an ecosystem that drove landfill close to its deathbed.

A Silicon Valley of waste would emulate the start-up process for technology companies, starting as bare bones business that delight their customers, and growing into business that are so prevalent that you can't imagine the world without them. It would also provide the space for ideas to be tested and abandoned without disgrace.

To get to this point will be a tricky chicken and egg problem. Some sort of venture capital is required to get this off the ground, but that won't happen until there is a track record. And a track record is hard to achieve without funding. And, finally, brilliant minds are especially tricky to attract in the absence of a track record or funding.

I think it is a nut that can be cracked, and will be cracked by innovation in business models. I will blog on this in a later blog. I will also blog on what a constellation of small waste businesses might look like.

Thanks for following this tale, and I welcome any comments or suggestions you might have.

Scrap steel - the greatest recycling story ever?

When we think of recycling, we tend to think of plastic, glass and paper. The sort of stuff we see around the home and put out into the recycling bin. This is important, but the real story in recycling is scrap steel.

Global trade in scrap steel, 1998-2010

The chart above shows immense tonnages of scrap steel used annually - over 500 million tonnes per year. The whole report "World Markets for Recovered and Recycled Commodities: The End of the “Waste Era”..." is fascinating, and well worth a read.

This is obviously not the same as the 1,000 million tonnes plus of iron ore traded each year, but not grossly less. A bit sobering for Australians accustomed to feeling that they are building the world out of the Pilbara.

So why is this? Why is scrap metal so successful when we can't do the same for plastics, rubber or all the other commodities. I don't quite know, and would love to hear ideas, but my take is:

• Steel is integral to industrial societies, and useful in so many applications. As a result, there are likely to be many buyers
• Scrap steel makes high quality steel with lower energy requirements through the Electric Arc Furnace
• Steel is a cornerstone of the American economy, and formed the basis of its industrial revolution. This in turn led to a massive eruption of energy and innovation which characterises the American economy
• Steel is easily extracted, being magnetic.
• Steel is dense, and so easily transported
• It's high value, and this value can be passed down the line to a network of collectors

The trick, and a problem worth considering, is how can this be translated into other commodities? 

What is the shift that is needed to make other commodities roar like steel? 

How can Garbologie disrupt the status quo to make new industries form and grow?