There is no alternative to sustainable development. Even so, many companies are convinced that the more environment-friendly they become, the more the effort will erode their competitiveness.
They believe it will add to costs and will not deliver immediate financial benefits. Talk long enough to CEOs, particularly in the United States or Europe, and their concerns will pour out: Making our operations sustainable and developing “green” products places us at a disadvantage vis-à-vis rivals in developing countries that don’t face the same pressures.
Suppliers can’t provide green inputs or transparency; sustainable manufacturing will demand new equipment and processes; and customers will not pay more for eco-friendly products during a recession. That’s why most executives treat the need to become sustainable as a corporate social responsibility, divorced from business objectives. Not surprisingly, the fight to save the planet has turned into a pitched battle between governments and companies, between companies and consumer activists, and sometimes between consumer activists and governments. It resembles a three-legged race, in which you move forward with the two untied legs but the tied third leg holds you back.
One solution, mooted by policy experts and environmental activists, is more and increasingly tougher regulation. They argue that voluntary action is unlikely to be enough. Another group suggests educating and organizing consumers so that they will force businesses to become sustainable. Although both legislation and education are necessary, they may not be able to solve the problem quickly or completely.
Indeed, the quest for sustainability is already starting to transform the competitive landscape, which will force companies to change the way they think about products, technologies, processes, and business models. The key to progress, particularly in times of economic crisis, is innovation. Just as some internet companies survived the bust in 2000 to challenge incumbents, so, too, will sustainable corporations emerge from today’s recession to upset the status quo. By treating sustainability as a goal today, early movers will develop competencies that rivals will be hard-pressed to match. That competitive advantage will stand them in good stead, because sustainability will always be an integral part of development.
It isn’t going to be easy. Enterprises that have started the journey, our study shows, go through five distinct stages of change. They face different challenges at each stage and must develop new capabilities to tackle them. Mapping the road ahead will save companies time.
Viewing Compliance as Opportunity. Contrary to popular perceptions, conforming to the gold standard globally actually saves companies money. When they comply with the least stringent standards, enterprises must manage component sourcing, production, and logistics separately for each market, because rules differ by country. However, HP, Cisco, and other companies that enforce a single norm at all their manufacturing facilities worldwide benefit from economies of scale and can optimize supply chain operations. The common norm must logically be the toughest.
Making Value Chains Sustainable. Companies develop sustainable operations by analyzing each link in the value chain. First, they make changes in obvious areas, such as supply chains, and then they move to less obvious suspects, such as returned products.
Designing Sustainable Products and Services. To design sustainable products, companies have to understand consumer concerns and carefully examine product life cycles. They must learn to combine marketing skills with their expertise in scaling up raw-materials supplies and distribution. As they move into markets that lie beyond their traditional expertise, they have to team up with nongovernmental organizations. Smart companies like P&G and Clorox, which have continued to invest in eco-friendly products despite the recession, look beyond the public-relations benefits to hone competencies that will enable them to dominate markets tomorrow.
Developing New Business Models. Developing a new business model requires exploring alternatives to current ways of doing business as well as understanding how companies can meet customers’ needs differently. Executives must learn to question existing models and to act entrepreneurially to develop new delivery mechanisms. As companies become more adept at this, the experience will lead them to the final stage of sustainable innovation, where the impact of a new product or process extends beyond a single market.
Creating Next-Practice Platforms. Leadership and talent are critical for developing a low-carbon economy. The current economic system has placed enormous pressure on the planet while catering to the needs of only about a quarter of the people on it, but over the next decade twice that number will become consumers and producers. Traditional approaches to business will collapse, and companies will have to develop innovative solutions. That will happen only when executives recognize a simple truth: Sustainability = Innovation.