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Humanizing the Profits: A Green Guide for Business Strategy Professionals

Aug 19, 2020

Greenwashing or a watershed moment? Year-on-year the table stakes for sustainable business practices are rising. A primer on the role of business professionals in creating a win-win world in which what is good for the planet is also good for business.

Maximizing shareholder value has always been the number one priority in business. But in recent times, the world is looking differently. We are seeing a shift in how businesses are run.

Last year, over 8,000 Amazon employees demanded an aggressive climate action plan in an open letter to the CEO Jeff Bezos.

A global walk-out was staged by Microsoft workers in September 2019 to protest the company’s complicity in climate change.

The calls for “green” and “sustainable” business practices are getting louder and catching the attention of leadership. New generation’s wokeness toward shared value between society and business, and extreme weather events are making companies rewrite their long-term survival strategies.

A lowdown of business strategy architectures making resource efficiency and social inclusivity a source of their competitive advantage.

What Every Business Gets Wrong About Sustainability?

Doing good and making money are considered antithetical. In reality, the adoption of responsible practices can make companies stronger andlasting.

McKinsey states that brands with higher Environmental, Social, and Governance (ESG) metrics prove more financially successful and garner more public support.

The reasons are simple.

  • The costs of unsustainable practices are not theoretical anymore – floods causing bank defaults, storms destroying infrastructure, and water shortages making life difficult for beverage companies. A move to sustainability is long past due for businesses with life-and-death consequences and vast costs associated with climate change.

  • 1/3rd of the world’s largest companies admit they are experiencing searing effects of climate change on their business (Carbon Disclosure Project).

  • Investors and governments are pushing for more sustainable practices and rewarding eco-friendly businesses that can save money as well as energy.

  • Societies at large are responding to corporate priorities and beliefs.

  • Earth-friendly businesses are in vogue among new customers who are willing to pay more for greener options.

  • Brands supporting inclusive culture and sustainable practices are retaining the best of talents.

The results are an accelerating pace of corporate commitments for low-carbon options, renewable energy, and voluntary setting of science-based targets.

On A Green Mission: 5 Industry Examples

Sustainable business architectures are not anti-growth, rather represent serious growth. A few examples from the business world on ways to achieve economic vitality while helping the planet toward reduced carbon footprints and social vigor.

1. IKEA’s Absolute Reductions

The poster child of absolute reductions in carbon emissions, IKEA has pledged to become “climate positive” by 2030. The retail giant is often cited for its sustainability plans. It aims to spend over USD 221 million toward green initiatives, which include:

  • A move to renewable energy

  • Halving travel emissions, and

  • Investing in reforestation.

Business Case: Sustainable practices have helped IKEA benefit the environment and gain long-term innovation in products, reduced energy expenses, and a positive public image.

Challenge: Getting everyone to agree on what counts as climate positive is a sticky challenge. While many, including IKEA, believe it should be about absolute carbon reductions and not using carbon offsets such as planting more trees as an alternative to cutting your emissions, to others, absolute reductions are ideal targets affordable only to Goliath companies, and not meant for David businesses.

2. McDonald’s Sustainable Packaging

The fast-food giant has an aim to source 100% of its customer packaging from renewable and recyclable materials, and make recycling available at all its joints. The goal is a result of popular customer demand. The Chief Supply Chain and Sustainability Officer of McDonald, Francesca Debiase tells that packaging waste is the topmost environmental challenge their customers want the company to address. Recently, it launched fiber McFlurry cups without the need for plastic lids in its European market.

Business Case: Less and sustainable packaging has helped McDonald’s reduce its carbon footprint, make a community impact, and at the same time reduce material and disposal costs.

Challenge Handing down environmental strategies made in corporate headquarters to individual franchises is proving tricky.

3. GE’s Six Sigma

The famous former CEO of General Electric, Jack Welch is often referred to as the “King of Green” due to his Six Sigma style of management. It is all about getting leaner. Given its benefits for both profits and planet, it soon became a corporate religion for manufacturing. Along with improving accuracy by 99.99966%, it reduces steps, costs, and materials. Today, in some variants it’s used across sectors and industries.

Business Case: With its focus on reducing waste and improving efficiency, six sigma has currency among business leaders as well as environmentalists.

Challenge: Leadership commitment, poor understanding of the concept, and suboptimal execution are some of the most common roadblocks to six sigma strategy for sustainable business development.

4. Toyota’s Nenrin or Tree Ring Approach

The Japanese automotive manufacturer, Toyota, despite facing many crises has performed well. Not only in revenues but on the sustainability meter too (think its fuel-efficient hybrid and electric vehicles, and hydrogen infrastructure). Without fail, it has paid attention to environmental factors when developing new products.

Kiichiro Toyoda, the founder of Toyota, opted for a long-term view of growth when confronted with a sharp drop in vehicle sales and profitability. Quite an odd route to take, but he did! Its strategy is inspired by a traditional “nenrin or tree ring” philosophy, which propounds that just like tree rings vary in width with each year’s weather, but the tree grows bigger irrespectively, a slow and steady growth of management proves virtuous.

Business Case: Sustainable growth been a source of competitive advantage for Toyota, helping it weather slowdowns, increase sales and profits, and become one of the largest corporations globally.

Challenge: Taking a long-term perspective may require letting go of immediate profits for future advantages.

5. HP’s Sustainability Numbers

The printer cartridges of HP are recycled over seven times, which is remarkable considering the strict performance requirements in the hardware industry. HP was ranked among the top 20 world’s most sustainable corporations on Corporate Knight’s Index 2020. The Chief Sustainability and Social Impact Officer at HP, Nate Hurst says,

I no longer need to justify sustainability strategy to the CFO. I let the numbers do the talking.

Business Case: Sustainability is a key differentiator in the purchasing decisions of HP’s enterprise as well as end customers. According to its 2017 estimates, a minimum of USD 700 million in new revenue was related to the contracts or sales with a known consideration for sustainability factors.

Challenge: Rethinking material strategy and supply chain to use recyclable substances while meeting technical engineering requirements is an uphill struggle.

Lessons for Business Strategy Professionals

A business that contributes to sustainability requires managers who can break from long-held orthodoxy around revenues and profits, and take a broader perspective of the impact of business on environment and society, and vice-versa.

It necessitates asking difficult questions and understanding the intricacies of becoming sustainable. Say, the debate between absolute and relative reductions highlighted in IKEA’s case; the concerns around being theoretically versus actually recyclable; reaching agreements on recycling rates; setting science-based targets; etc.

For managers, Michael Porter, a leading management thinker on strategy and competitiveness suggests following three-steps:

  • Identify the environmental impact of your company (carbon emission, etc.).

  • Determine by addressing which impact would you gain the most.

  • Find the most effective ways to tackle it.

Unlocking the full potential of responsible business practices require a strategic focus and an approach that best fits an organization. Be the strategian businesses need to make sustainable development more than a cost, or an act of kindness, but a competitive advantage.

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