Integrating Sustainability into Business Strategy where Interests Intersect The WritePass Journal

Integrating Sustainability into Business Strategy where Interests Intersect Introduction Integrating Sustainability into Business Strategy where Interests Intersect IntroductionBusiness Benefitâ€Å"Protect it†26 – Regulations and Reputationâ€Å"Run it†33 Operationsâ€Å"Grow it†43 Innovation and MarketingRole of StrategyStrategic Approach to Sustainability  Ã¢â‚¬ËœIntegration’ and ‘Fit’  Does The ‘Sweet-Spot’ Approach Lead to Sustainability?Expectation of no Trade-offsBusiness Model as a WholeCreating a Sustainable Business ModelConclusion  Related Introduction Literature agrees that for sustainability to achieve benefit to business, society and the environment, it must not be an add-on but be integrated into the business.13 In order to integrate sustainability into business strategy Savitz and Weber suggest establishing where areas of â€Å"mutual interest†14 lie, between business strategy and stakeholder interest. They term this the â€Å"sustainability sweet spot: the place where the pursuit of profit blends seamlessly with the pursuit of the common good†15 Businesses operate in an â€Å"interdependent world†16 therefore there is much scope for overlap between stakeholder and business interests agree, recommending companies focus on â€Å"the points of intersection†18 rather than the tension and frictions between business and society. Points of intersection arise, in product offering, along the value chain and in the competitive context, that provide opportunity for â€Å"creating shared value†19 Drucker has encouraged companies, since 1955, to â€Å"make the public good become the private good of the enterprise†20 More recently, The Forum for the Future argues that â€Å"smart businesses†21 will profit from sustainability issues by â€Å"finding ways to give us what we need and want whilst maintaining the eco-system services on which we rely.†22 Business Benefit Points of intersection occur in product offering, throughout the value chain, and in the competitive context, providing much scope for sustainability activities. According to Savitz and Weber, sustainability activities have the potential to enhance your business in three ways. They can help to â€Å"protect it, run it, and grow it†24 Although using different terminology, this concept is â€Å"Protect it†26 – Regulations and Reputation Integrating sustainability into the business strategy reduces risk by ensuring compliance with existing regulations but also preparing for, influencing27 and reducing the risk of impending regulatory interventions.28 WWF and Smith add that engaging with stakeholders including Non-Governmental Organisations (NGOs) can reduce the risk of reputational damage,29 negative campaigns and consumer boycott. De Man and Burns suggest supply-chain partnerships and codes-of-conduct manage risk by recouping control lost through globalization and outsourcing.31 The second two stages suggested by Savitz and Weber move from risk management to include opportunity maximization, reflecting the shift observed by Forum for the Future over the past decade. â€Å"Run it†33 Operations As expressed by Forum for the Future, â€Å"Pollution is waste,†¦ it means that your company is paying for something it didn’t use†34 Reducing costs, waste and inefficiencies in operations can increase profitability while keeping the company ahead of regulators. The improved environmental and social impacts can be beneficial for brand enhancement. Porter agrees that â€Å"operational efficiency†35 is important but argues that it is not sufficient to secure a viable business into the long-term. It can be quickly imitated,36 shifting the â€Å"productivity frontier outward†37 and raising efficiencies of the industry as a whole but providing â€Å"relative improvements for no one†38 Without additional strategy this creates â€Å"pressures on costs†39 and â€Å"mutually destructive competition†40 Environment Management Systems can assist reduction of resources used in production. But, as populations and therefore production expands, this reduction becomes ‘relative’ rather than ‘absolute’41. Environmental degradation continues to increase although businesses appear to be addressing the issue. Jackson terms this the â€Å"myth of decoupling†42 Improvements required for absolute decoupling of growth and material usage would require substantial economic investment, with a return-oninvestment timeframe that would not pass traditional calculations. â€Å"Grow it†43 Innovation and Marketing Sustainability provides scope for growth activities including opening access to new markets, increasing share in existing markets, developing innovative new products and processes, increased consumer loyalty and satisfaction, increased scope for alliances and partnerships, and improvement to reputation and brand.44 This area shall be considered in detail in Part 2. In summary, sustainability can be integrated into business where there are areas of mutual interest between the business, environment and society. Areas of intersection occur throughout the value chain. Sustainability activities can provide business benefits such as: managing risk of regulation; managing risk of reputational damage in consumer, investor and employment markets; re-couping control lost through globalization and outsourcing; reduced operating costs; reputation and brand enhancement; product differentiation; access to new markets and increased share in existing markets; and providing a driver for innovation of product, process and business model. Role of Strategy Strategic Approach to Sustainability Focusing on points of intersection has the potential to benefit the business alongside society and the environment. The danger is that sustainability activities become â€Å"fragmented†45, â€Å"disconnected from the company’s strategy†46, reducing the potential benefit to society, the environment and to the business and opening the company up to risks such as accusations of ‘green-wash’ (see 2.2.1). A fragmented approach leads to â€Å"contradictory practices†47 that reduce the overall benefits produced. Instead sustainability issues should be analysed â€Å"using the same frameworks that guide their core business choices†48 Approached strategically, sustainability becomes a source of progress for both society and the firm, being â€Å"a source of opportunity, innovation, and competitive advantage†49 â€Å"as the business applies its considerable resources, expertise, and insights to activities that benefit society.†50 Considered strategically sustainability activities can compliment and re-enforce each other, working together as a coherent whole.   Ã¢â‚¬ËœIntegration’ and ‘Fit’ Sustainability activities can be realised throughout the business model,51 summarised According to Drucker â€Å"The entire business can be seen, understood and managed as an integrated process†53 â€Å"from raw material procurement†¦to customer service†54 According to Porter, the role of strategy is to â€Å"tighten fit†55 between activities and changes taking place. Strategy considers the company as a whole â€Å"activity system†56, rather than individual activities, combining and configuring activities. â€Å"The success of a strategy depends on doing many things well-not just a few- and integrating among them†57 ensuring that activities are complimentary, having â€Å"consistency†58, are â€Å"reinforcing†59 and provide â€Å"optimization of effort†60 Integrating individual sustainability activities into business units is an improvement from mere philanthropy, but real benefit is achieved when there is integration among activities so that they work together as a coherent whole, re-enforcing and supporting each other. Balancing Stakeholder Interests and Competing Business Objectives The business context contains a range of stakeholders61. FMCG’s are publicly traded companies62, therefore shareholders are among their key stakeholders, along with consumers, governments, employees, communities in which they operate, NGOs and the media. Inevitably conflict arises between stakeholder interests63 especially when consideration is extended to future stakeholder interests, as required by the sustainability agenda64 Porter and Kramer recognize that, like all business activities, sustainability activities require a degree of â€Å"balancing competing values, interests, and costs†65 In some cases the â€Å"conflict of interest between shareholders and other stakeholders†66 can be resolved by considering the long-term interests of shareholders67 In some instances it is possible to create an overlap of interests through innovation68, by â€Å"working to alter consumer preference†69 or by lobbying for regulation that converges these interests. In some instances the activity should simply be halted. Smith argues that â€Å"stakeholder engagement must be at the core†70 of sustainability strategy in order to ensure informed decision-making. Competing business objectives can conflict. Without clear strategy it is likely that sustainability â€Å"trade-offs†71 such as costs will be postponed72 â€Å"which can lead to far greater costs when the company is later judged to have violated its social obligation.†73 Although they do not explicate it, we can add that this postponement can also lead to severe costs to society and the environment. Porter identifies â€Å"the growth trap†74 as a pressure that detracts from strategy, encouraging activities that are not coherent with the system as a whole.75 A strategic framework allows decisions to be made, regarding competing interests and objectives, consistently across the business, maintaining the company’s â€Å"unique and valuable position†76 In order to ensure that sustainability activities fulfill their potential, it is necessary to have them sit within a core strategic framework. In summary, sustainability can be integrated into all aspects of the business. A fragmented approach is inefficient at producing benefit and avoiding risk. But, when considered strategically, sustainability activities can compliment each other, working together as a coherent whole to benefit the business, society and the environment simultaneously. This is when maximum benefit is achieved. Strategy provides the framework for managing competing stakeholder interests and business objectives in a manner consistent with the business as a whole, strengthening the company’s unique position.   Does The ‘Sweet-Spot’ Approach Lead to Sustainability? Expectation of no Trade-offs Walley and Whitehead express caution in allowing ‘sweet-spots’ to dictate sustainability strategy. They accept that ‘win-win’ scenarios exist but argue they are extremely rare and should not form the basis of a company’s sustainability strategy.77 Previous easy wins were achieved without making â€Å"truly fundamental changes in production processes or product design†78 Once ‘low hanging fruit’ has been reaped, addressing sustainability issues becomes an increasingly â€Å"costly and complicated proposition†79 that requires â€Å"long-term commitment and cooperation†80 The occasional ‘win-win’ becomes insignificant when considered alongside the full costs of addressing sustainability issues. The expectation that no trade-offs are required leads to reduced commitment and cooperation when expected win-win’s do not materialise and true costs are realised. Walley Whitehead advocate â€Å"a more integrated way of thinking†81, focusing on the core strategy of the business in order to make â€Å"informed trade-offs between costs and benefits†82 Business Model as a Whole Focusing on ‘sweet-spots’ does not address the impact of the business model as a whole but makes modifications within. Utting argues that corporations have â€Å"skillfully placated the opposition†83 using dialogue, engagement and sustainability activities, without effecting real change to business practices. Focusing on gradual mitigation of negative environmental and social impacts, or increasing positive impacts only to the extent that delivers medium term business benefit, may well provide the desired business benefits, and indeed provide some benefit to society, but results in the continuation of â€Å"current unsustainable trends†84 Looking long term this is detrimental to shareholder value as well as to future stakeholder interests. Jackson argues85 that the constant pursuit of growth, through marketing and innovation86, has led to unsustainable levels of consumption.87 Companies are responsible for encouraging materialistic desires as well as for fulfilling them.88 87 Five planets would be required if current consumption levels of richer nations were achieved globally. (Leonard, A. 2002) Add to this an increased population size and it becomes clear that incremental improvements will not be enough to achieve sustainability (WWF-UK (2001), p12.) 88 Sustainable Development Commission (2009) and Leonard, A. 2010. 19 Leonard argues that making the products a little less damaging will not achieve sustainability.89 More sustainable patterns of consumption must be achieved90 where prosperity is not reliant upon continued â€Å"consumption growth†91 Savitz does not deny that current efforts will not achieve sustainability, but he argues that we cannot make â€Å"extreme shifts†92 without â€Å"modest initiatives first†93 to achieve buy-in from stakeholders essential to the viability of the business. Creating a Sustainable Business Model Drucker advocates asking â€Å"What is our business, what will it be, what should it be?†94 The organisational structure and objectives should be designed to achieve this vision of the company, ensuring integration and consistency throughout, in order to achieve the goals of the business as a whole.95 According to MacDonald, to achieve sustainability one must first have a vision of what sustainability would look like, which can then be planned towards. This â€Å"planning from principles of success†96 or â€Å"back casting from principles†97 matches Drucker’s view of strategy outlined above. Envisioning a sustainable company provides the goal towards which the business structure and objectives can be designed.98 This view is supported by Forum For the Future99, who work with companies â€Å"with positive visions of a sustainable future; finding innovative, practical ways to help realise those visions;†100 MacDonald recognises that interim targets towards achieving the goal of sustainability are useful but these should be planned within an â€Å"overarching strategy†101 and recommends a â€Å"10 30 year horizon†102    Conclusion   Much of the literature on sustainability recommends that companies look for areas of mutual interest between its various stakeholders and focus on integrating sustainability activities. ‘Sweet-spots’ are a vital tool in transitioning a company and its stakeholders towards a sustainable future, but this does not constitute a complete sustainability strategy. Sustainability activities and incremental targets must be set within an ‘over-arching strategy’ designed to achieve the vision of a sustainable company.