INTRODUCTION

How Can Business Profit from Nature?

To profit in the forest, harvest the ideas.

Falling toward the limits of Earth, we learn how nature rises above them.

In midair, we stepped out the open door of the plane, or, more accurately, were pushed out by our guides—“three, two, one, go”—and began the long, quick descent to the ground more than two miles below. We were traveling at 120 miles per hour, but oddly it didn’t feel that way. We were so far above the ground at this point that we seemed almost to be lying motionless in the air, face down to the ground, the wind rushing up from below us, pillowing us in mid-air. Of course, we were free falling, through relatively calm air; the wind effect was generated by our descent through it, as gravity hurried us effortlessly toward the solid ground below.

As we looked around from our unusual vantage point, to the east we could see the mountains of Corcovado and to the west the vast expanse of the Pacific Ocean. Corcovado is an old-growth rainforest on the Osa Peninsula in Costa Rica, the one we would explore later that day. Far beyond our view, on the opposite (Caribbean) side of the country was another, younger forest that we would visit a few days later: Tortuguero.

Jumping out of the airplane marked the beginning of our expedition into the rainforests of Costa Rica, of our most recent exploration of the future of business and the principles by which it can profit, short term and long. Our adventures had previously taken us through Sarawak on the northern half of the island of Borneo in Malaysia; the Waipio and Waimanu Valleys of Hawaii and the volcanic northeast of the same island; the salt flats and wildlife sanctuaries of the Baja California peninsula; and the temperate forests of British Columbia, the Pacific Northwest, and the California Sierras.

Along the way, we also explored a different set of ecosystems, the industrial ecosystems of companies such as Hewlett-Packard, Coors Brewing, Xerox PARC, Coca-Cola, Nike, and Royal Dutch Shell. In both nature and business we began to discover the ecological principles by which living systems sustain themselves, as well as hints about how these principles can be applied to create more profitable, sustainable businesses.

What we learned became the thesis of this book: The machine economy is growing obsolete. A living economy is emerging to replace it. In this living economy, by moving beyond the industrial, machine model of business and instead emulating the dynamic principles of the rainforest, businesses can learn how to profit more than ever, not by consuming profit but by creating it.

IN THE RAINFOREST

NATURE TEACHES BUSINESS HOW TO PROFIT SUSTAINABLY

Before we set foot in the rainforest, we must cover some basic concepts that we will return to, again and again, throughout this book. We hope for your patience: These are not concepts usually found in a business book.

This is a book about ecology and economics—words with the same root and similar meanings. Both “ecology” and “economy” derive from the Greek oikos, which means “home.” Economics studies the management of the home. Ecology goes beyond that, to study its underlying logic. For example, economics explores the interrelationships of producers and consumers in a marketplace, the dynamics through which supply meets demand and value is delivered to people. Ecology does the same but goes a step farther. It explores the interrelationships of all living things and all elements of their environments, the dynamic interconnections that animate life and create value, in business and nature alike. In studying ecology, we learn an advanced form of economics, more complex and dynamic than any conventional economic model.

Ecology is such a complex science that it cannot be easily understood using the simple cause-and-effect model most people use to analyze how things happen. A complex ecosystem encompasses so many causes and so many effects that isolating one from another is just about impossible. Only vast oversimplifications enable cause-and-effect analysis. Unless these oversimplified models are carefully matched to the crucial factors in the reality they describe, they are of limited use. As a result, it is often more useful to talk about the principles common to nature’s complex systems. In a way, studying ecology is like studying business theory. Studying economics is like studying business management. You can’t build sound management practices on flawed theory. Theory is fundamental; sound management depends on it. If you get the theory fundamentally wrong, you can’t manage the business right. That is why, in each chapter, we focus on theory before practice—specifically, we focus on the systems principles and dynamics that create value in nature. Then, given this foundation, we can better understand how to leverage the fundamental principles of nature in ways that create profit for business.

Neither ecology nor economics studies living organisms in isolation. Both focus on the dynamics of living organisms with air, water, and other resources in a community. In ecology, these communities are called ecosystems.

What is an ecosystem? Is it a forest? A business? In this book, the term ecosystem doesn’t mean just the natural ecosystems we usually think of; it refers to any dynamic and interdependent community of living things. A forest. A human family. A business. A city. All these are ecosystems, as natural in their own way as anything we find in what we usually mean by “nature.”

The distinguishing characteristic of these ecosystems is their resilience. Arthur Tansley, the British ecologist who coined the term ecosystem, said that ecosystems have the capacity to respond to change without altering the basic characteristics of the system. They face the same limits that human economies do—finite physical resources and a limited flow of energy from the sun—yet develop and evolve continuously over time in a process that has carried on successfully for 3.8 billion years. Think about that: All the complex systems of nature are constantly falling toward ground zero, constantly consuming resources of limited supply, yet they continue to survive, evolve, and even advance.

How does nature slow its “fall”?

ON THE VERGE OF THE COSTA RICAN RAINFOREST

After less than a minute of our own fall toward earth, the ground was now just over a mile away, and we were approaching it a bit too rapidly if we desired to retain the capacity to explore it later. Of course, we planned to use our parachutes to slow our descent and make a soft landing. But, as we looked around us, we were reminded that in the forest, there were other ways, even better ways, to slow or stop a fall.

Stretching out for miles beneath us to the east was lush forest, in an extraordinary array of colors, mostly shades of green but every other color as well. From our bird’s-eye view, the rainforest looked rich in resources. There was obviously plenty of water; a tropical rainforest receives at least 200 centimeters of rain a year. The temperature was high—25°C or higher—but it didn’t vary much, so the climate was stable. Because the forest is near the equator, lack of sunlight doesn’t seem to be a problem. Plants and animals must be abundant, and, as the result of the decay of dead and dying plants, the soil, we assumed, was rich. But this first impression was wrong. The Costa Rican rain-forest—in fact, nearly every tropical rainforest—has thin soil virtually devoid of minerals. The forest floor is generally starved of sunlight and often of water, which is blocked and diverted by the forest canopy. And fallen vegetation seldom accumulates on the ground long enough to create humus to enrich the soil. It is immediately captured by fungi that tear it apart and deliver its nutrients straight to living things. Out of necessity, rainforests deliver resources to their populations “just in time.”

How can this be? How can a region facing such immediate resource limits produce more diverse abundance than if the same region had richer soil, more sunlight and accessible water, and plenty of minerals? The answer is limits—and the feedback and adaptation triggered by limits. The scarcity of energy, water, and minerals means that every plant and animal species is continuously at the outer limits of its resource supplies, in danger of exhausting its reserves. In a very young, simple forest, this can be cataclysmic: Species that run out of fuel die. But species whose forms enable them to survive in the face of limits persist. Natural selection “chooses” them for another generation, and the attribute that gave them advantage tends to be passed on.

Over time, this process of natural selection leads to increasing variation. Every physiological advantage—every modification that gives an individual a reproductive edge—tends to be retained. As a consequence, species gradually adapt to define their specialties, the realms in which they compete better than in any other. These areas become their niches, the places where they are particularly adapted to excel.

If resources were abundant in the rainforest, these specialists would have no place. Faster-growing, more consumptive species would quickly outdistance them, and the forest would quickly be dominated by a monoculture of these—what ecologists call r-strategists, pioneer species that grow fast, produce lots of seeds, and die young. They are called “pioneers” because their growth and fertility enable them to quickly dominate an open field; they are “r-strategists” because their core strategy is mass reproduction.

Limits are, in fact, the platform from which innovation springs in nature. As each stage of development reaches its limits, new creativity emerges. If this innovation is adequate to the challenge presented by the limits, a more capable species or a richer ecosystem results. If limits are removed—for example, if fire is repressed—even a complex forest may be destroyed, because other limits that had been held in check finally impose themselves in force.

In the absence of seasonal fires, the trees of a simple forest may grow rapidly in size and number, closing off opportunities for young seedlings or more diverse species to take up niches. Eventually, without forces to hold it in check, the dominant species could overstep natural boundaries and exceed the carrying capacity of the forest. Because the trees would be of similar age, they would decline and die almost simultaneously, creating such an accumulation of deadwood that an inevitable fire’s destruction could be total. The repression of fire, or the overshoot of any natural limit or boundary, places the whole ecosystem at risk of being destroyed. But if change is permitted, if co-evolution proceeds at a measured pace, the forest will grow more diverse. Its cycle of innovation, growth, improvement, and creative destruction will repeat over and over again. On this moving “platform,” it will cultivate an increasing array of species and qualities of life, from the simplest to the most complex and self-aware.

So, despite its resource poverty—or perhaps because of it—the rainforest is extraordinarily abundant, with more life of greater diversity than any other type of ecosystem on the planet. Perhaps two-thirds of the earth’s species reside in its rainforests.

Pioneer species—“r-strategists”—are so fast-growing and fertile that they tend to shoot past the carrying capacity of the environment, Then they die off.

As the pioneers decline, “K-strategists” move in. They have lower fertility, but are more specialized to the local environment. Their population is more stable around local carrying capacity.

Pioneer species grow and reproduce so quickly that they tend to “overshoot” the carrying capacity of their environment. Their population and consumption can follow an upside-down “U” curve. In comparison to r-strategists, K-strategists are more finely tuned species who evolve into more efficient forms in response to environmental limits. Their population and consumption can follow an “S” curve.

CHANGE AMIDST STABILITY

All complex ecosystems possess dynamic equilibrium, whereby change is constant yet conditions that support life are somehow sustained. In a simple ecosystem, one with very few organisms—such as a lawn, a garden, or a young forest—one disruption can lead to total devastation. So long as this ecosystem is loaded with growth-inducing resources like fertilizer, it may excel for a while, almost unchanging except in physical size. But then, if it is attacked by a fungus or a pest, it may be quickly destroyed.

However, in a complex ecosystem with lots of variety, everything is constantly in flux. This type of system tends to be chaordic, blending characteristics of order and chaos. Every species influences every other; every change fans out through a complex web of relationships to affect everything else. Yet the whole remains healthy. Stresses to one part of the system may be severe. Populations of individual species may fluctuate greatly, or even die out. But changes in one area are compensated in others. After a disturbance, an ecosystem will be drawn back toward a point of equilibrium, an ever-shifting target it never continuously attains.

Equilibrium is not a fixed point; it is a point of balance that changes as the conditions of the ecosystem itself change. For example, it might seem that, if people left the rainforest untouched, then 100 years from now it would remain pretty much unchanged. That’s not generally true. Rainforests evolve continuously, sometimes changing in dramatic ways. We could see that in the two Costa Rican rainforests we visited, by comparing how dense their vegetation was at ground level.

Young forests, those cut in the last two or three generations, have very dense thickets of vegetation near the ground, in what ecologists call their understories. Tortuguero is one of these young forests. When we walked outside our cabins past the prepared trails, we faced an almost solid wall of vegetation. These fast-growing, fertile pioneer species, the r-strategists, are the first to settle in when a large space opens up in a forest. Penetrating that wall of vines and branches was almost impossible and a little intimidating, given the coral snakes and other deadly creatures there. Tortuguero reminded us of the old popular conception of the jungle—a dark and dangerous place filled with threatening creatures; enemy territory, waiting to be conquered.

Corcovado, by contrast, is an ancient primary forest, filled not so much with fast-growth pioneers, the r-strategists, but by K-strategists. Their survival strategy is to adapt to fit specific niches more perfectly, and consume resources more frugally, than the pioneers. This expands the carrying capacity (K) of the forest ecosystem; it enables more life to co-exist on fewer resources.

In these older growth forests, which represent the great majority of all intact rainforests, the understories are largely open. This was a surprise to us when we visited our first rainforest, in Sarawak on the island of Borneo. We found that, far from being a dense thicket of branches, vines and leaves, the forest floor was often open and easy to penetrate. That is because, while the ancient rainforest is brimming with life, you won’t see it by looking ahead. Leaves and shoots, after all, take a major investment of scarce resources, and grasses and shrubs simply can’t thrive in the shadow at the forest floor. Instead, to find life, you must look up, to the densely leafed canopy, which captures 90% of the sunlight, blocking it from the forest floor. Life has moved upstairs.

In the canopy of the rainforest, soil rests on the tops of tree limbs and between branches, held there by root systems, which form a kind of mesh. In the mesh sprout thousands of kinds of seeds, including more than 1,400 types of orchids, most of them epiphytic, meaning that they nest in trees and plants. The plants, leaves, and soil capture sunlight and slow the descent of rain, diverting it to local use. So tight is the mesh they form that, after the start of a rainstorm, it can take ten minutes for water to pass from the canopy to the forest floor.

It was also surprising how little direct competition was in the rainforest. We had imagined the rainforest filled with plants and animals in constant mortal combat, which may be true in a very young forest, or an open field, where species are in a free-for-all for suddenly abundant stores of resources. But in a more developed forest, species have adapted to fill an array of distinct but interdependent niches. In this respect, as species adapt, cooperation grows gradually more common than competition. Competitive battles, for the most part, are carried out not directly, species-to-species, but between species and the resources of their own narrowly-defined niches. This niche competition, while still demanding, causes a much more gradual and less destructive reallocation of resources than does direct combat to dominate a larger ecosystem. “Studies of competition among animal species usually find that they divide resources in a manner that allows each species to exist on a unique subset of the resource spectrum,” say biologists Adrian Forsyth and Ken Miyata (1984).

Many scientists challenge the idea that cooperation may become more frequent than competition as species adapt. They often base their belief on a narrow view of cooperation. We view it this way: Every system comprises other systems—wholes and parts, and parts of parts. To make a coherent whole, the behavior of all the parts must be coordinated so the whole functions to their individual and collective benefit. For example, as a forest ecosystem grows more complex, it becomes divided into myriad niches, as species “get out of one another’s way” and find sources of support they are most adept at tapping. This subdividing of forest tasks too is cooperation. The cooperation is not conscious, as human cooperation sometimes is; it is a consequence of specialization and interdependency. As they specialize, living things find it to their advantage to cooperate. Whether they like it or not, the parts come together, in cooperation, as wholes.

One reason parts in effect “choose” to join together as wholes is that they sometimes gain new qualities through the combination, qualities so valuable that the combination is reinforced. Through processes of synergy, the molecules in a cell, the cells in an organism, the organisms in a forest each come to express higher qualities when they join to form next-higher systems. In this sense they “profit” from their combination. Complexity theory, originating in the fields of natural ecology and biology, explores how and why whole systems behave in ways unexplainable by the sum of their parts.

In a sense, then, the organisms of the rainforest have divided their territories. Each species both defines and fills its own niche. Other species constantly jockey with it at the borders of the niche, and often conditions change in ways that destroy a niche and leave its species without a home base. But rainforest species are not solitary organisms fighting myriad others to be the last to survive in a hostile environment. They all depend on one another to collectively build an ecosystem, each defining an exclusive niche vital to and dependent on the other niches that border and overlap it.

Here is where we discovered the most valuable resources of the rainforest: not the trees or other physical resources but the relationships, the complex array of designs. Each of the millions of species is different from every other; each fills a particular niche more perfectly than the others in its locale. Through species relationships the forest sustains itself in the face of limits. Species’ niche efficiency is a source of net gain in the forest, its source of “profit.” To the extent that one species is able to fill its niche—that is, carry out its function—using fewer resources than another, it has slowed the fall of the rainforest toward its limits. As these specialists come to supplant pioneer species in the forest, more life of greater variety is able to excel in a given space.

Another way forests slow their fall is through nesting, bordering, and overlap. Ecosystems are not isolated entities with impenetrable borders. Every ecosystem is nested within, borders on, or overlaps with other systems. The mangrove plant, for example, thrives at the border between land and water. As it multiplies, it overlaps the water, eventually forming a mangrove swamp, which is nested within the local ecosystem. In these ways, ecosystems layer themselves inside, outside, and atop one another.

In fact, examine any one species and you will find that it is both a nest for, and is nested within, a sequence of interrelated systems. Bacteria are nested in organs, and organs in individuals. Families are nested in communities. Species are nested in ecosystems, ecosystems in the biosphere, the biosphere in the planet, and so on. Philosopher Ken Wilber, drawing on the work of Arthur Koestler, calls each successive whole a holon, a whole that is also part of a more encompassing whole. By drawing together in holonic organizations—holarchies—systems can be large and complex, yet efficient, resilient, and adaptable.

When ecosystems overlap without nesting within one another, they define an ecological verge on which they may engage in a kind of battle. A verge is a rich mixture of ecosystems that happens where two distinct forms meet with each other and begin to intermix. Often, two species seek to inhabit the same niche, but they will not be successful. According to the competitive exclusion principle developed by biologist Garrett Hardin, at least one of the organisms must adapt or die. Thus, while nested systems may in effect cooperate, overlapping ones often foster competition. The competition often leads to co-adaptations in which the systems become interdependent, one bordering on or even nesting within the other.

Costa Rica’s species show many such combinations. Bordered on the north and south by the two great American continents and on the east and west by two great tectonic plates, the country is one of the hottest spots along the Pacific’s Rim of Fire. Volcanic activity transforms it periodically from an isthmus to a peninsula to an archipelago and back again. That means it sometimes forms a barrier to, and other times provides a corridor for, the migrations of plants and animals from the north and south, first inviting new ecological and cultural combinations, then closing them off, forcing them to evolve. During times of overlap, some species excelled in their new environments. Some perished. But most evolved, taking on characteristics of both the north and the south.

Overall, the blending of the two continents, through their point of convergence, has led to increased biological diversity. Old forms found new homes within the array of microclimates now available to them. Others adapted into forms more appropriate to their new habitats. Thus Costa Rica is a cauldron of biological innovation. It makes up less than three ten-thousandths of the earth’s landmass, yet it is home to five percent of its species. Hectare for hectare, its species diversity is hundreds of times the global average. Why is this important? Because it shows what happens when two systems are brought together, overlaid on the same territory—the mix of competition and cooperation, of destruction and creation. Verges are places of conflict, but also of positive change. They bring together diverse systems and set the stage either for their integration or for their destruction.

NESTED SYSTEMS
Every system is both a nest for, and is nested within, another system. Each part-within-a-whole is called a holon.

OVERLAPPING SYSTEMS
When two systems overlap, they form a verge. Verges are more diverse. They can also set the stage for combinations that create something new.

Our economy, too, is on a verge. We are living between two great eras of civilization, between two ecological seasons.

IN BUSINESS

FROM BILL COORS TO DEE HOCK, THE CREATURES OF THE RAINFOREST ECONOMY AND THE FUTURE 500

In December 1995, we gathered 60 leaders of companies from both the old economy and the new in Aspen, Colorado, to consider how we could begin to run our companies in more sustainable ways. We agreed on one point: The world was between economies—between an industrial economy founded on the use of machines to multiply human muscle and a more information-based economy with the capacity to expand the human mind. Three forces were compelling this convergence: environment, technology, and values.

Environmental limits, from local air and water pollution problems to global concerns about climate change, species loss, and rainforest destruction were forcing changes in the way we do business.

New technologies, like the microchip, advanced materials, the computer, and the Internet, were beginning to make those business changes possible. By replacing fossil fuels and raw materials with knowledge, they created the seeds of an economy that offered a high standard of living, using a fraction of the resources once required.

New values were beginning to emerge, values that reflected these changes in technology and the environment. In surveys, most consumers said they no longer saw the interests of business and of the earth as intrinsically at odds. Most believed that the needs of people could be met with less effect on the earth, not more.

Yet, despite the new technologies and values, we weren’t making the progress we needed to develop a rich and sustainable business culture. We seemed married to business models and methods of the last economy, not the next one. From that meeting emerged a new business network, an informal alliance of companies that came to be known as the Future 500. It included companies from the old economy and the new. Industrial and information-based; mass production r-strategists and niche-filling K-strategists. For the next five years, we met, made plans, held conferences, and developed tools that our member companies could use to begin to tap the potential of the emerging economy to profit sustainably. This book is one outgrowth of that effort, as well as a report card on some of our successes.

On the date we took our dive into the Costa Rican rainforest, October 10, 2000, some of the most innovative creatures in the business rainforest were just below us, on the ground—some of the unconventional corporate CEO’s, technologists, executives, and activists who often joined us in our expeditions, the Future 500 leaders whose stories are woven together to tell the lessons in What We Learned in the Rainforest. They are characters in the truest sense. But what is most intriguingly similar about them may be this: They all gained business insights and inspiration from nature, and all have used what they learned to develop more successful companies.