Part 2 of a five-part series. Join me on a journey to explore the development of genuinely sustainable business strategies – from the compelling need, through an integrated board agenda, new business and ownership models, frameworks for change, to re-booting the business mindset.
PART 2: THE 12 PILLARS OF SUSTAINABLE BUSINESS SUCCESS
Most approaches to business strategy have become tactical in the extreme, during recent years. A race to the bottom, as each company strives for relentless growth, competes for market share – increasingly reliant on hollow brand promises – and increasingly elusive operational efficiencies in delivery.
In a crowded world of highly-contested and bland markets, we seem to be working harder and harder for diminishing returns. At best, this looks like a very tired approach. At worst, a flawed paradigm given the increasingly visceral challenges we now face at the intersection of climate change, rising energy prices, increasing resource scarcity, and economic/debt restructuring.
And while sustainability programs have proliferated, with the aim of developing a more responsible approach to business, and a more balanced triple-bottom-line, there is often a wide gap between the rhetoric and reality of corporate behaviour.
In effect, many businesses can be seen to operate on two seemingly contradictory agendas – on the one hand seeking to benefit people and planet, and on the other, the singular focus on maximizing profit; often at the expense of the former.
It is time to close the gap. The sustainability strategy needs to become the business strategy – and the business strategy needs to be the sustainability strategy. In theory and practice, they should be one and the same: a single agenda for joined-up and sustainable business.
A matter of (first) principles
It is time to get back to first principles, and ask what do we want from our business strategies; what goods and services should we offer; in what markets; how do we respond to our strategic drivers; how do we transform what we do?
Quite simply, it’s time to reinvent our strategies, and to re-discover our lost strategic side, in the context of the challenges we all face. Necessity, as ever, is the mother of invention.
And in developing real and robust strategies, we need to avoid the false security offered by easy steps and tick-boxes. We need an integrated approach to strategy, involving real thinking and synthesis.
If the route to sustainable business was all about six-easy-steps, and one-size-fits-all, we would all have all got there, long ago.
1. From narrow aims, to higher purpose
Business strategy needs to mature, and shift up a level, from the narrow ego-centric pursuits of market domination, becoming the biggest, best, or maximizing returns, to aligning with a higher, more meaningful purpose.
What are we going to do in meeting the real needs of customers, and adding genuine value, regenerating natural and social capital? And how will we make appropriate and legitimate profits from doing so?
Our intent is key: it sets the tone for everything else that follows. Our vision needs to be bold, meaningful and outward looking.
Increasingly, we see examples of progressive companies redefining what they are all about. Look at the growth the B-corporation movement, which provides a vehicle for businesses to incorporate a range of goals in addition to the profit motive.
Ben and Jerry’s not only aims to make the best product it can, but has also formalised the goal of creating positive social change – specifically to advance new models of economic justice, that are both sustainable and replicable.
Hot air? Not if it wishes to stay listed as a B-corporation, and retain its reputation.
2. Leading long, managing short
The need to take a longer-term view is widely talked about, but all too often left aside, as more pressing short-term considerations dominate.
But the long-term doesn’t go away; as we often find to our cost, it all too quickly catches up with us in the present moment. The reality is that now, more than ever, we need to be adept at managing both short and long-term perspectives concurrently, if we are to be genuinely and sustainably successful. This is not easy, but Unilever’s approach to breaking the tyranny of quarterly reporting shows what can be done, if we wish it.
3. Authentic alignment, means real business
Ray Anderson
The late Ray Anderson, the visionary behind the Interface Mission Zero program
We need to find a more genuine alignment between our business activities and what is really occurring in our changing business landscape – a more responsive approach to the key drivers, risks and opportunities impacting on our business strategies; not just to avoid becoming the ‘boiling frog’, but also to find lasting pathways to sustainable business value.
This means looking beyond simple PESTEL and SWOT analyses, and completely re-imagining our businesses.
Perhaps one of the leading exponents here is Interface. Since the mid 1990s, and the realisation of just how misaligned the business was with the natural world, Interface has been working hard to embed sustainability principles into every aspect of its business, driven by a compelling mission to become the first fully sustainable company in the world, with zero negative impact by 2020.
They call this Mission Zero, and the results are impressive.
4. Open minds, and new possibilities
We all know that playing it safe, and sticking with what we know, can work adequately in a stable and static world. But right now we need to ask: What if?
What if another financial crisis hit? What if key resources weren’t so freely available? What if prices went up by 10%, or more? What if climate change has a big impact on what we do?
And what if these issues impact on our customers and suppliers, too?
We need to explore the full range of possibilities, no matter how outlandish. We can build on risk management perspectives, considering the likelihood, impacts and consequences, and our key management responses. But also, quite importantly, we can identify the strategies that will help us to become more resilient businesses, rather than increasingly vulnerable ones. We need to change the conversation.
And we would do well to heed John Elkington’s innovative Future Quotient project, as we move “towards areas of chaos and uncertainty where new ideas and possibilities emerge. Without this, the path of extinction looms large”.
The actuarial profession is just starting to open up to such consequences, thanks to a new study by the Global Sustainability Institute at Anglia Ruskin University. Apparently, under a business as usual approach, the assets of all our pension schemes may be wiped out within 30 years, due to the impacts of climate change and resource scarcity. A very scary prospect, for all – and think of the implications of this, as the impacts ripple right through our economies.
On the positive side, companies like Adnams have found that sustainability challenges open up a whole new world of innovation. This has led them to deliver many product and process improvements with bottom-line benefits – not least of which is their impressive approach to water efficiency which means the brewer now uses an average of 3.2 pints of water to produce each pint of beer, compared with the industry average of five pints.
And there is much more to see. If you haven’t already, do have a look at the Adnams approach to doing the right thing.
5. Mindful of our customers and stakeholders, redefine markets
Football fans are being priced out of the game they love
As economies continue to falter, our customers are hurting, and there is more to come.
We need to make sure we can keep them with us, by offering something they will continue to need and value, and which they can also afford.
A down-to-earth example, for those with a lively appreciation of the beautiful game, concerns the Football Supporters Association, and their new campaign for a cap of £20 for away match tickets.
Their plea is simple to understand; the supporters see that the cost of tickets is becoming way out-of-reach for most people – and added to the burden of escalating transport costs – so many people can no longer afford to follow their teams away.
One also wonders at how long commuting to work may also remain affordable?
This is not an isolated example, either. Even more seriously, one-in-four families in the UK are regularly forced to choose between eating and heating. This is a major issue that will not go away, until we manage to provide affordable food, renewable energy, and good levels of income, across the board. We need to redefine our models.
In other cases, we see a growing recognition that stakeholder pressure can lead to market changing moves. Seattle City Employees’ Retirement System, a US pension fund with nearly $2 billion in assets, is currently considering whether to adopt a recommendation to divest its holdings in some of the world’s biggest oil and gas companies, due to the threats posed by climate change – a bold move, and one that could become the norm. Just watch the stock prices drop, in the drift away from stranded assets.
And back to Adnams for a moment; a key enabler for the business, in taking a long-term view on innovation, is the ability to engage with and inspire stakeholders – whether employees, suppliers, the communities they touch, or their investors – a mindful approach in all cases is essential.
6. Let go of the illusion of certainty, and rediscover entrepreneurialism
Meeting the challenges of our time enables us to rediscover our entrepreneurial side, too; turning apparent crises into real opportunities, creating genuine advantages for transforming the business model, and making legitimate profits from sustainable goods and services.
How can we generate new sustainable income streams, and offer genuine value? What challenges do our customers face, where are they heading, and how can we help them become more sustainable in this brave new world?
Cafedirect grew out of such a crisis, in the international coffee market.
At the end of the 1980s, the price of coffee plummeted to unsustainable levels, pushing growers and their families to the limits of their endurance. And when they could no longer make a living, they left their farms in search of new employment, in the cities. The market was no longer economically sustainable.
This led a group of NGOs and charities, along with the very well organised producer nations in South America, to get together and find a different way; an alternative, more equitable and sustainable approach to coffee trading.
Three years later the Fairtrade Foundation mark was launched, to promote better prices, decent working conditions, local sustainability, and fair terms of trade. And Cafédirect is still innovating today, going even further, to prove that business can be a force for good and ensuring our actions have a positive impact for people and planet.
7. To compete, or not to compete?
What if we got it all wrong? What if our notion of competition in business is misplaced? What if our models should be collaborative, rather than competitive?
Just consider this thought for a moment; only in a world of real scarcity do we need to compete (and even go to war) over resources. So it must also hold, that if we operate in a completely sustainable paradigm, with 100% renewable – and therefore plentiful resources – there is no longer anything to compete for?
Ah, but we would still need to compete for our customers.
Really, how many customers do we need? There are seven billion or so out there, and rising – more than enough to go around. Perhaps the real challenge comes not so much from our so-called rivals, but more from our greed paradigm.
We need to challenge ourselves, and our businesses here; or we may simply not survive, let alone prosper. The point is: We need to move from narrow self-interest to enlightened collaborative-interest.
Gazeley, a leading provider of sustainable logistics space, has built quality warehouses and distribution parks across the globe, receiving many awards for its market-leading sustainable facilities. As a major part of its business strategy, Gazeley has taken an enlightened approach to competition; by sharing its R&D, and working collaboratively with its competitors, the developer has been able to drive the market, raise standards and influence wider systemic change.
When the company openly shared its entire Eco Template R&D – open source – many of its competitors thought madness had taken hold. Gazeley had realised that it was simply not possible to deliver what the business, or indeed the planet needed, if they were (in their terms) “lonely idiots”. Profound, on so may levels.
8. Sustainable by design, in a resource constrained world
Any business strategy will have major implications for resources – whether financial, physical materials, people and skills. We need to shift our strategies beyond assumptions, to deal with the reality of a resource-constrained world. We need to think through how we can develop inherently sustainable goods and services.
Look at product innovation: Consider ways of innovating in product design to reduce the amount of virgin raw materials needed, increase the use of recycled content and establish suitable low carbon alternatives. Consider offering value-adding customer choice, perhaps changing your model to focus on services that look after the complete product lifecycle.
How can we shift towards the circular economy, where waste is designed out? Where we ensure our customers are able and encouraged to buy products that are durable, while concurrently reducing overall consumption. Where products are more easily and economically repaired, upgraded or remanufactured.
Companies like Desso, Life Technologies, M&S, and Patagonia have all developed product-take-back strategies, taking responsibility for the whole life cycle, as they shift towards the circular economy.
9. Business remodelling – the total cost of ownership
Puma is making great progress with its Environmental Profit & Loss system – a world first
The business model gives us a blueprint for our business strategy, and how we make our money. Business models need to become more holistic, transparent and accountable.
Key factors that were simply over-looked as externalities, now need to be considered more carefully. The costs associated with pollution, resource scarcity, climate change impacts, carbon, and social impacts, all have an increasingly direct impact on profitability and therefore attractiveness to shareholders.
Anything hidden will come back as a major risk.
We have to account for total cost of ownership. Puma appears to be making great progress, with the world’s first Environmental Profit & Loss (E P&L) – providing a framework and valuable insights, towards the sustainable use of natural capital.
Although Puma still has some way to go here, let alone for their approach to become adopted as the standard.
And how many businesses fully understand how their business models actually work, and just how vulnerable they might be? Therein lies great risk.
We live in an interconnected world – and who would have thought just how much – until a whole bunch of sub-prime business models unravelled, a few years back. The rest is history, albeit a considerably painful one.
We need to stand back, and review the strengths and weaknesses of our current models. What factors will impact on our ability to make good returns, and for how long can we continue to do so? Are we operating on a take-make-waste model, or are we able to regenerate the planet’s capital stocks? How do we transform our model from a position of unsustainable risk and stranded assets, to one built on sustainable attributes and resilience?
10. On the need to be transformative
DONG Energy is trying to manage its business-model transition
Sustainable business strategies may well mean ‘killing the golden goose’, or at least killing off the illusion of such.
The ways in which we made our money in the past may not be appropriate going forward, and we may need to transform our businesses accordingly. This may mean a period of transition, as we seek to grow the profile of sustainable goods and services, and while we put the less unsustainable ones in run-off.
DONG Energy, one of Europe’s leading energy groups, appears to have an enlightened approach already underway, with its transition away from fossil fuels, towards 85% renewables by 2040.
In managing the transition, the company already uses half as much coal as it did in 2006, and is ahead of its target to halve CO2 emissions by 2020. If a business seemingly so dependent on fossil fuels can do it, anyone can.
But this is not just about carbon and energy, our strategies need to be mindful of, and support the transition to a fully sustainable economic operating system. More work is needed here – as we discovered in the Capitalism 2.0 series.
11. Operational alignment – delivering the art-of-the-possible
While transformative, we also need to align with business operations – and ensure our grand strategic designs are deliverable.
This is very much about our capacity and capability to deliver. Do we have the right people with the right skills doing the right things? And for our suppliers, do they share our vision and values, can we work collaboratively with them to make the transformation real, right the way through our extended enterprise?
We also have to be mindful that our commercial arrangements and reward structures actually do support and enable, rather than inhibit investment and transformation. Having developed the right strategy, it will of course need to be eco-efficient in delivery.
Desso again provides some useful insight here; when integrating sustainability and circular economy principles, the company realised it had to re-work and align its vision, strategy and rewards system, in order to make the transformation work, and get its people fully engaged.
12. New forms of leadership, and genuine empowerment
The global financial crisis of 2008 became an “unstoppable juggernaut”, triggered by the collapse of Lehmann Brothers
Our strategies need vision and courage. To help us look beyond the current system, beyond present-day difficulties, to take on the real challenge of transformation, and to take our businesses to a better place, another model we have not seen before.
But we also need to genuinely empower our people, and unleash their real capability to make the right things happen. We need the right culture, to be open to the ‘whistle blowers’, or those brave enough to suggest the emperor has no clothes.
One can only wonder at how much better off we would all be if someone had called time on complex and destructive financial instruments, a long time before the global financial crisis became an unstoppable juggernaut through our economies.
One might argue that genuine empowerment can only really be achieved through ownership. And there is an opportunity to move towards shared forms of business ownership – with a fair distribution of rewards for the people that truly enable wealth creation. More on this, next time.
Conculsion: A voyage of rediscovery?
Sustainability can never work as a bolt-on, or an adjunct to the main purpose and strategy of the business. Sustainability principles have to permeate every living and breathing pore of the business, its strategy, as well its operations.
We need to re-write the book, and totally re-think our business strategies, if we are to navigate the risks and opportunities, and deliver sustainable business success in the 21st Century. Yes, there are pockets of great work out there, but few, if any, have yet managed to weave together all the elements required, to form a fully integrated sustainable business strategy.
This requires real strategic thinking. There are no easy steps or tick-box sheets that will deliver real impact – at best they can provide only illusory and short-lived comfort. We have to work through, from first principles, where our strategies need to go. We can start by changing the conversation in the Board Room – bringing sustainability challenges and principles into the heart of every topic on the agenda.
I sense this journey could be one of ‘rediscovery’ of strategy for many, rather than something new, or risky. We can draw on the frameworks and tools we know well, but we must look more broadly, and deeper too – effectively rediscovering strategy – through a more mature, more mindful agenda.
With this, there is a real opportunity to bring greater harmony to our businesses, and within our selves, too – reconciling the values within and the practices without – so we are operating from a more authentic place. The power of this is not to be underestimated.
And let’s be honest, transforming business strategies is much more fun and productive, rather than flogging an out-of-date and broken paradigm. So, how will you transform your business?
This article was originally published on 2degrees
To view part 1 of this series click here
Part 3 click here
Part 4 click here
Part 5 click here
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Michael Townsend is the Founder and CEO of Earthshine Solutions. He is passionate about promoting the benefits of sustainable business, and author of The Rough Guide to Sustainable Business (forthcoming). Michael is an engineering graduate and MBA: a business transformation leader with over twenty-five years experience in a range of sectors. Michael has developed “best in class” performance for a range of organizations, including Norwich Union (Aviva) Insurance, BAA, British Airways, Mace, The Home Office and Gazeley, amongst others.