Business leaders now recognise that sustainability has moved beyond the corporate social responsibility agenda to become an integral part of core business strategy, and therefore, success. Companies are moving from asking what our sustainability strategy should be, to asking what our business strategy should be, in the light of sustainability.
Companies have used three key approaches to integrate sustainability into their strategy: planning their strategy to include sustainability trends, managing how opportunities are defined and selected, and experimenting with approaches to learn which yield the best results.
High demand, low supply
Business depends on a host of often unnoticed eco-system services, from a stable climate to assimilation of waste, from providing food to controlling disease and pests. It’s not just rainforests and tigers under threat, climatic systems, water resources, agriculture and fisheries are all degraded or unsustainable eco-system services, which we still rely on for business success.
We’re depleting our natural capital at the very time when our need is growing. The planet will be home to nine billion people by 2050, with the addition of just under one billion extra people in the next ten years alone.
Profit from sustainability
The surge in population and consumption over the next 20 years looks impossible for damaged ecosystems to sustain. But smart businesses will profit from these challenges by finding ways to give all of us what we need and want whilst maintaining the ecosystem services on which we rely.
People increasingly expect business to play a key role in finding solutions to these global problems. Taking the opportunities also brings reputation and brand benefits, as well as giving employees a larger cause to be motivated by. However, if companies fall short of expectations then they experience consumer distrust (or even boycotts), greater regulation from governments and investors questioning the quality of management.
There is an opportunity now for business to explore how to combine profit with creating a sustainable future. Business strategies that address this challenge at a profit will define the successful business of the next ten years.
Integrate sustainability into strategy
We have found that businesses bring sustainability into their strategy process using a combination of three approaches. First, they must plan to include future trends. Most companies have a strategic planning cycle, perhaps five-yearly with annual revisions. Companies can incorporate sustainability into that cycle by introducing material sustainability trends to the external assessment of the structure and dynamics of the business context.
As an example, First Choice (a company in the UK), incorporated sustainability into its 'managing for value’ planning cycle. It put sustainability issues like climate change and changing consumer expectations into its external assessment for the first time. They calculated the financial value-at-risk for each issue and prioritised sustainability issues because they had a material impact on shareholder value. As a result, a host of initiatives has emerged to shift the business onto a more sustainable pathway.
Secondly, companies should manage how opportunities are defined and selected. In most organisations, there is the plan, and then there is what happens. Putting any strategic plan into action means changing how opportunities are defined at the 'coalface’ and selected by managers, and then re-allocating resources appropriately.
Leading businesses are enabling people to define sustainability as an opportunity through giving clear signals of intent, including announcements and high-profile actions. They are also setting a structural context where opportunities that are on-strategy are favoured. These can be formal, like regular reporting to board-level committees, performance targets or internal carbon currency. Or they can be informal, like promoting people who have pushed commercial sustainability-related activities.
Thirdly, organisations need to experiment in order to learn and create options. The world changes fast, and so do the commercial opportunities of sustainability. Speed of change limits how well a company can plan or manage for success. Instead, leading businesses keep their options open and identify the best approach, through a range of deliberate and contained experiments. The experiments could be a new product message, a new product, or a whole new business. Such experiments give them the chance to test different approaches without committing the entire business. Learning is the success factor – even if they lose money, they know how to do it differently next time.
A global electronics giant used a staff competition for new sustainable business models in emerging and developing markets. Staff submitted project proposals that met criteria of being profitable, and creating environmental benefits and social value. The aim was to establish a range of innovative commercial possibilities, a few of which will become the successes of the future.
The approaches above enable companies to create business strategies that deliver profit by contributing to a sustainable future. Some companies focus on one but most companies have a combination of strategies that use core competencies. The examples are classified according to the focus of the strategy:
- Technologies that underpin a business offer, from production to through to the product itself. Eg. Philips, the Dutch electronics firm, developed Edore, an energy saving domestic halogen bulb, providing clear, crisp lighting for half the energy of an ordinary household bulb.
- The markets, established and new, where businesses make their offers. Eg. Nike responded to bad publicity on working practices in its supply chain with a 'product stewardship’ strategy that improved working conditions and reported transparently on its actions. The threat to the brand has declined.
- The contexts that set the rules of competition. Eg. Unilever sources over two thirds of its raw materials from agriculture. Over the last 10 years, a sustainable agriculture programme engaging experts, producers and suppliers has helped secure the future supply by implementing new supply chain standards.
Business strategies for sustainability must be built on the specifics of how that company creates and maintains its competitive edge. Any business case is going to be weak for generic initiatives, philanthropic add-ons or being responsible for the sake of it. Instead, substantive business strategies must anticipate emerging issues, build on the company’s strengths, and focus on solving the challenge of reducing supply and increasing demand.
This article is contributed by CIMA (The Chartered Institute of Management Accountants) and it is an extract from CIMA's Excellence in Leadership series on Responsible Business.
