Five generic strategies to address sustainability. Where are you on this spectrum? A synopsis of the key approaches and their pros and cons.
You need to be clear about how your business is going to address sustainability. Regardless of how you define it.
Doing nothing is an option, but a high risk one given the changes being seen in consumer trends and government regulation. Going all out to transform behaviour in your market is another. Exciting way to go, and also very high risk. We have classified five generic strategies to addressing sustainability. Where are you on this spectrum?
- Lip service
- Me too
- Isolation
- Commitment
- Transformation
Lip service
Business as usual. Showing and stating compliance, but doing as little as possible to maintain the charade. Looking to avoid negative publicity, there is often lots of distraction through shouting about one off philanthropic acts. Anther common approach is justifying a do nothing approach because of the competitive environment.
In our model, ethics and governance are a key pillar of sustainability. A classic lip service example is the collapse of Carillion, the British multinational construction and facilities management services company. It won several awards for its governance and integrity, including one in 2016. Liquidation was in January 2018, and the latest government prosecution effort suggest lip service was rife.
The positives of this strategy are the low cost and effort associated. It is risky though, particularly the potential for an erosion of trust with customers and staff. Competitors on a different strategy may relish opportunities to highlight your lip service. If you need finance, ESG investors will be unlikely to show interest. If there is a market shift, you are likely to lose significant share or worse while ‘catching up’.
Me too
The vast majority of businesses are in this camp. They respond to customer demand and competitor activity. It is a progressive camp as some key impacts are accepted, and positive actions being taken to address them. Risks are low as initiatives are tried and tested, or at the very least common to all competitors.
In a recent webinar we used Colgate as an example, considered superficially from their published information, so they could well be doing more than we’re aware of. They have a number of initiatives running that are strong on intent, but following the generic themes of the sector. Reducing waste, less new plastic. Not eliminating. Helping, engaging and striving for lots of other things. Little unique company specific strategy or action, with clear measurements illustrating their progress. A characteristic of me too businesses is a lack of public commitment and accountability.
The big risk is a lack of differentiation and innovation, leaving the business vulnerable to competitor strategic changes and new entrants. If and when this could happen varies dramatically across sectors. Those with strong balance sheets have the luxury of acquisition strategies to rapidly catch up on any market shifts.
Isolation
When a business focuses a unit, department, location or product on sustainability. This brings genuine impact reduction and innovation to the business.
There is a lot to like about this strategy. It creates a ‘sand box’ testing environment and gives a real focus to engage interest employees and customers with. This leads to innovation and impact reduction. For the best chance to succeed as a strategy to facilitate long term transformation, the focus has to be to get the ‘eco’ product to the same price point as the core offering.
The energy sector yields some interesting examples of this strategy, such as BP. Reinvented as Beyond Petroleum. Yet still also very much in petroleum while their alternative energy propositions such as electric charging ‘stations’ evolve.
The risks include accusations of green washing, and ignoring opportunities to improve the sustainability of the core business. The contradictions in approaches and impacts can be a challenge for some staff and customers to accept.
Commitment
Businesses that are using the sustainability as an agenda for positive change, whatever their motivation. Done really well, objectives related to sustainability performance improvement are built into the core business management. Key impacts are measured, performance targets are set, results are tracked and stories shared.
Lego is a bit of a poster child for sustainable business, having promised to reduce its negative environmental impact to the point of eradication. As well as moving to plant-based polyethylene bricks to soon replace their standard plastic bricks, they are committed to zero waste by 2025. Serious targets, with progressed transparently tracked.
This is very engaging for the attraction and retention of customers and employees. There is significant innovation as a result, in both the products and business model. ESG investors are a viable option for people with this strategy, and a business led future focus, enables timing of changes to be controlled in line with the market capacity.
In following these objectives there is potentially an opportunity cost from using resources that could be committed to other strategies. This can be exacerbated by competitor exploitation of relative cost or ease of doing business advantages. There is also a significant internal and external communication effort required to sustain progress.
Transformation
Going all in. Trying to create or significantly change a market. Getting people to behave differently. A worthy strategy, and high risk.
Looking at energy again, Denmark-based renewable energy provider Ørsted has changes its business model over the last 10 years. Once a coal intensive utility business they are now close to a 100% renewable energy provider, and ranked the world’s most sustainable energy business 3 years in a row.
The big risk with this strategy is that you get the timing wrong, and the market stays with the status quo. If you can achieve price parity or even give savings, chances are you will hoover up market share with this strategy while ‘me too’ competitors scramble to catch up. And all the benefits of commitment will apply. Not easy to achieve hence its rarity.
You also need to have the highest levels of accountability and transparency. Be squeaky clean. Done well the network effect of both customers and other market players supporting your progress can be powerful – and suck up a lot of your time networking and lobbying key bodies to avoid the ‘lip service’ player pressure to put obstacles in your path.
So what?
Wherever you may be on the spectrum it is important that you are there consciously. Know your impacts, be clear about your strategy now, the drivers for change, and what would trigger you to change tack.
Remaining profitable and keeping the cash flowing is critical for success. Your strategy should not lead to self sacrifice and leave a less ethical competitor to benefit from your demise. Your sustainability strategy should support you to do well from doing good. If it is costing you money and unacceptable risk, you’re doing it wrong!