With an eye on shaping the future of business through a lens of sustainability, Professor Luk Van Wassenhove is carving a niche at the intersection of new technologies and the United Nations Sustainable Development Goals. A leader in fields ranging from closed-loop supply chains to disaster logistics, at Insead, Wassenhove holds the distinguished Henry Ford Chair in manufacturing as an emeritus professor. In an interaction with Fortune India, Prof Wassenhove, who is also spearheading the university's humanitarian research group and sustainable operations initiative, explains why and how businesses can imbibe best practices of humanitarian efforts into their operations.
How can businesses integrate principles of humanitarian operations to enhance their resilience amid increasing geopolitical uncertainty?
Businesses want stability, that is, being in control of the conditions even if those are dynamic. They struggle with unexpected changes and disturbances. The reason is that they designed and fine-tuned standard processes using IT over the years. But these systems are lean but also vulnerable. COVID-19 and Ukraine have clearly shown this. The pendulum has gone too much in the direction of “control” and “efficiency,” making the complex global supply networks vulnerable, that is, not very resilient to disturbances and slow to recover from them. Humanitarians face highly uncertain dynamic situations all the time and they have learned to respond to them with scarce resources. Businesses would be well-advised to observe and study what skills humanitarians apply and how they could transpose them to their own situations and challenges. Companies should also learn to work with diverse stakeholders, be agile in dealing with unexpected situations, decentralise and localise where possible and empower employees to increase responsiveness.
Could you provide examples of such a successful adaptation?
Most businesses are experimenting and running (small) pilots. Few have managed to make the transition from a successful pilot to knowledge of how to replicate things and how to scale them up. That is the real challenge today. Resource scarcity is not in the form of a lack of money or other resources. It is mostly through the lack of skills and the complex internal business structures that are not adapted to this. The problem is mostly that businesses need to adapt their way of doing things, that is, their hierarchies, procedures, decision rights at different levels, performance evaluation systems, encouragement of local fast decision-making and experimentation, etc.
How can businesses collaborate with humanitarian organisations to address shared challenges in disaster relief and logistics?
Businesses like to do things alone, they often think they are the best, and they can manage things. While this attitude may be useful to motivate people in routine situations it is deficient in dynamic crisis types of situations which require fast and decentralised responses and dynamic adaptation to ever-changing conditions. One needs to understand the local context for this -- humanitarians do, businesses often don’t. There are enough opportunities for businesses to collaborate and quite a few do so successfully, learning in the process. It takes two to tango. Collaboration and partnerships are an excellent way to learn from one another. An interesting concept of “co-opetition” – where competitors in an industry cooperate towards a common cause – is adopted by the UN Logistics Emergency Team whereby competing logistics companies (Agility, UPS, Maersk, and DP World) join forces to provide resources such as temporary warehouses during major crises, in close collaboration with the humanitarians. This co-opetition model is particularly relevant when paradigm-shifting models, such as the circular economy and the energy transition, call for novel partnership types in the new ecosystem to structurally transform systems, infrastructure, and supply chains.
In what ways does the concept of a circular economy intersect with the principles of humanitarian logistics, and how can businesses leverage this intersection for sustainable practices?
The transition to the circular economy requires lots of stakeholders to construct an ecosystem since one cannot do it alone. This ecosystem often requires collaboration with competitors or other players I tend to call “uneasy alliances”. For example, one may need to collaborate with competitors to collect used products, recycle them properly, and find second-use opportunities for recycled materials. These second-use opportunities are often small startups or SMEs with good ideas about how to reuse things. Businesses do not know how to set up these ecosystems or how to operate effectively in them. This is very different from their usual competitive forward supply chains. Again, humanitarians operate in those ecosystems all the time so businesses can learn from this.
What are the ethical hazards that arise when businesses attempt to adopt humanitarian operational strategies since the underlying goal of business is profit and shareholder maximisation?
We are used to painting these two as very different worlds -- on the opposite sides of the spectrum. I think this is ridiculous and no longer useful. Businesses need to create value and capture some of it. So, businesses need to make a profit, but not necessarily maximum profit, and certainly not maximum short-term profit for shareholders. Other stakeholders such as employees and customers have a big impact on the longer-term value creation of the business (employees need motivation and consumers need to select your products or services). On the other hand, humanitarian organisations may be driven by purpose, at least at the field level, but they are not so different from businesses at higher levels. They build hierarchies, have their internal power struggles, focus on growth (i.e. more budget) and compete (even the UN Agencies calling themselves “sister organisations” are sometimes very heavily competing. So, the two worlds are not that far apart in some dimensions. In the wake of a disaster, companies may be directly or indirectly affected – be it their employees, physical stores, products, or the economic situation in general. This is why disaster preparedness is not merely a humanitarian imperative, but also essential to business continuity.
Can you elaborate with an example?
Walmart's response to Hurricane Katrina is a good example of alignment between business continuity and disaster preparedness for humanitarian reasons. The company was praised for its efficient response. In fact, Walmart reached the affected region even before the United States Federal Emergency Management Agency (FEMA) did and distributed supplies such as food and water to the community. It even transformed its stores and parking lots into community hubs where people could get supplies and do their laundry.
Such a response was possible because Walmart was ready when Hurricane Katrina hit; the company constantly monitors supply chain risks, including natural disasters. It had put in place contingency plans to minimise disruption to the supply chain and reopen stores as soon as possible. Once it managed to restore its supply chain, it could then contribute to humanitarian relief by facilitating aid delivery. Clearly, a well-prepared company can recover faster (if affected) and even extend timely help to those in need. From the perspective of business operations, preparing for and supporting humanitarian relief operations allows the company to build adaptiveness and agility and, in turn, improve supply chain resilience, which is aligned with the goal of business continuity. Walmart’s response shows what a company can do by leveraging its core business capabilities and resources in retail logistics. Similarly, after the Turkey and Syria earthquakes, online shopping websites such as Trendyol, Hepsiburada and Yemeksepeti set up systems to enable donors to purchase in-kind aid to be delivered from the companies’ warehouses to affected population by the main coordinating body known as the Disaster and Emergency Management Presidency. Logistics companies such as MNG Kargo allowed individuals to deposit solicited in-kind donations such as blankets and clothes at their stores all over the country, which were sent to the affected regions at no cost.
The pandemic showed that managing supply chain disruptions is nearly impossible. So, what are the key differences and similarities between managing uncertainty in business operations and in humanitarian endeavours?
I am not sure that there are big differences. Businesses can hardly deal with disruptions because of several decades of building complex global interconnected systems with little or no slack/redundancy. That is efficient but highly vulnerable. It is possible to deal with disruptions, but one needs to build skills for that and perhaps redesign parts of the system. This would include understanding the system and vulnerabilities better, putting redundancies in well-selected places, understanding how to change the organisation (hierarchies/procedures/systems) to improve resilience, training people to deal with shocks/crises, and giving them the authority and resources to do so, etc. This is where businesses would be well-advised to carefully observe humanitarian organisations (e.g. by collaborating on projects) in order to learn. Again, one needs an open mind for this.
One of the strategies is localisation, which is about capacity development and empowerment: Humanitarian needs are increasing tremendously, and many international humanitarian organisations have zoned in on capacity development to reduce disaster risk in disaster-prone areas. This can be achieved via localisation — the empowerment of national and local actors in humanitarian assistance.
Localisation can ensure that on-the-ground actors are adequately prepared and equipped to provide aid quickly. In times of crisis, local organisations are very often the first to respond. They possess local knowledge that IHOs sometimes lack and have the trust of the population. This makes it imperative to strengthen these actors with the proper training and resources.
Besides increasing global response capacity, localisation can enable humanitarian relief to begin quickly, is more catered to local conditions and can foster a better bridge between the response and recovery phases. It can also help make disaster-affected communities more independent and resilient, which could decrease the need for international funding.
Principles of humanitarian work are increasingly relevant in a world with a growing divide. The inequitable access to vaccines and medical services seen at the height of the pandemic clearly shows the need for more equitable and resilient supply chains. If companies follow the example of humanitarian organisations by embracing the principle to “do no harm” and take responsibility for the impact of their business, society and the environment will benefit greatly from this change.
Are there businesses that have successfully integrated closed-loop supply chain models, and what benefits they have derived from such practices?
I have worked for 30 years on closed loop supply chains. Products are discarded much too fast. We call this waste, but these products very frequently contain a lot of remaining value. They can be reused (second hand), refurbished, remanufactured to give them a second or third life. Components can be reused as spare parts; materials can be recovered through recycling. We should ban the word waste since waste is value. But one needs to be smart/creative in extracting this value in a profitable manner. Many companies have done this successfully, many struggle and give up.
Can you elaborate with a case study?
There is a case study of a white goods manufacturing company, though its transition is still in progress. Slovenian major appliance manufacturer Gorenje wanted to shift to a more sustainable but equally profitable circular business model from its linear sales model. The initial idea was to extend the life of existing washing machines by leasing them for one or more cycles. This could lessen the resources needed to produce new machines, leading to reduced costs and an impact on the environment. That was the hypothesis.
Cost structures of circular business models are often unclear in the beginning. Companies require time to fully understand, for instance, that a spare part now represents a cost instead of revenue. In a leasing model, both costs and revenue are stretched over a longer period, and field tests or pilots to verify remanufacturing costs or leasing revenue in the later cycles take years to complete. Initial cost estimations, which may take years to verify, is in fact the most important consideration. As one of Gorenje’s project managers put it, “If we have a great idea which is not economically feasible, then we will stop here.”
Consumer acceptance and willingness to pay introduce an additional layer of complexity to cost considerations. While leasing offers convenience and reduces the risks of having to deal with or pay for machine failures, consumers ultimately decide based on cost. The total cost to consumers in the leasing model should not be (much) more than the total cost in the sales model. This, therefore, is often the upper limit of the company’s total cost of offering the service to its customers. Ultimately, companies need to assess both profitability and value for customers to ascertain the viability of circular business models.
Any humanitarian crisis is resolved on a scale, but not all businesses can achieve scale as size can be a constraint. Against this backdrop, is there a limitation to what we can take away from humanitarian operations?
Scale is an element in that it is usually related to resources. Humanitarian interventions are not always large-scale. The Red Cross is involved in 40-60 interventions at any point in time. Many of these are small but can still involve thousands or tens of thousands of people in need. These humanitarian operations simply do not get to CNN. They are not what are sometimes called “sexy disasters”. In any case, it is my strong conviction that there is a large convergence going on (between manufacturing and services, small and large, business versus non-profit, etc.). All these organisations face similar challenges and need to operate in complex and dynamic ecosystems. As always, some learn how to do this, and others fail to adapt and disappear.
Can lessons from humanitarian efforts translate into better efficiency in the operations of companies?
It’s important to understand that most of this is not about “higher efficiency” but rather about “more effectiveness”. Higher effectiveness is difficult to measure since its impact is longer term (e.g. by providing better value for the customer). Efficiency can be measured more easily (e.g. by lower costs). Nevertheless, companies that develop these competencies related to agility and resilience succeed in taking advantage of crisis situations, that is, they do better than their competitors or are back in business faster. Putting numbers on this is difficult (e.g. because companies would not be eager to share what they do and how they do it). Note that Walmart understands that its own employees, their families, and their consumers suffer from hurricanes. It has developed a large group of well-trained people with specific procedures to quickly react to a hurricane and use their logistics and warehousing resources and skills to help the population. This gives them a lot of goodwill, but it is also good for Walmart’s business if operations go back to normal quickly after a hurricane. Companies cannot operate when the economy is down (for instance during Covid). Hence, companies can and should collaborate with humanitarian aid organisations to pull resources and knowledge and restore normality as soon as possible.