Wal Mart Saves the World
Editor | On 31, Jan 2008
Cass PursellWal Mart is being complimented and criticized in equal measures for its Green Innovation program. As one of the most polarizing business entities in modern history, Wal Marts ability to elicit this kind of dueling reaction is hardly surprising. The “Wal Mart” effect aside, though, innovation that is aimed at addressing cultural issues can be inherently controversial, and is therefore an interesting addition to the general innovation conversation.
Jack Hipple pointed out in a recent commentary that innovation isn’t always about new products or businesses, but it is always about dramatic positive change, and the green innovation programs that have sprung up over the past few years are both an embodiment and a proof of that idea. In Wal Marts case, if we set aside for the moment the argument against the retailers ability to participate in true green innovation (it goes something like this: when it comes to sustainability, big-box retailing is to goods distribution as clear-cut logging is to harvesting trees) and accept that big-box retailing is a modern reality, then it can be informative to look at its green innovation program.
The green market space is today one of the most financially attractive, and the fact is that Wal Mart believes that it needs to be in it. Its same-store sales growth has slowed down. Its stock price, after rising 1,205% during the 1990s, fell 30% from the time Lee Scott took over as CEO in January 2000 through 2006. Add to that concerns illuminated by a McKinsey & Co. study that found that up to 8% of shoppers had stopped patronizing the chain because of its reputation, and Wal Mart had a legitimate crisis to respond to. Thus was born the Wal Mart green innovation intention – an innovation strategy aimed primarily at re-positioning the Wal Mart brand in the marketplace.
Wal Mart defined its green innovation intention specifically and publicly – the company announced plans to eliminate 30% of the energy used in stores, reduce solid waste from its U.S. stores by 25% within three years, and invest up to $500 million in sustainability projects. Its also working with suppliers to figure out ways to cut down on packaging and energy costs and has already opened two “green” supercenters. The program is basically designed to reject the false choice between the environment and the economy, and to strategically position Wal Mart as not just the worlds largest retailer, but also the greenest.
Its also designed to be measurable: acting with unusual transparency, Wal-Mart published a benchmark calculation of its carbon footprint. The company estimates that its U.S. operations were responsible for 15.3 million metric tons of CO2 emissions in 2005. About three-quarters of this pollution came from the electricity generated to power its stores. It is in this kind of analysis, which has happened in direct support of the organizations innovation program, that the benefit of a green innovation intention is defined; after the green innovation program was implemented, Wal-Mart spent nearly a year measuring the companys impact. Fairly quickly, the environmentalists spotted waste that Wal-Marts legendary cost cutters had overlooked – for example, Wal-Mart determined it could save $26 million a year in fuel costs on its fleet of 7,200 trucks merely by installing auxiliary power units that enable drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, drivers had let the truck engine idle all night, wasting fuel. Another example: Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line.
Two lessons jump off the page: there is innovation gold to be mined by practicing the art of identifying heretofore generally accepted false choices and re-examining their merit, and innovation programs can be used as much to strategically reposition an organization as to develop new products or businesses. Dramatic positive change, indeed.