Tuesday, February 28, 2012
A Framework for Sustainable Growth
Sustainable growth will be as important to corporate performance in this century as business productivity was in the last century. But creating and implementing an effective sustainable growth strategy will also be one of the greatest challenges. Sustainable growth can be defined as the use of sustainability-driven innovation to generate new business revenues from sustainable products and services, new business models, and new business platforms.It is rapidly becoming important as growth from traditional sources slows in developed countries while economic growth accelerates in emerging countries, along with concerns about environmental and societal impacts.
Our framework for sustainable growth is based on our experience over the past decade as thought leaders and senior executives who are deeply involved in designing and implementing sustainability strategies in business corporations. Here, we provide a summarized version of a more detailed framework that was published recently in the Stanford Social Innovation Review.
There are two key preconditions for the success of sustainable growth efforts in a company:
- Market conditions need to be conducive. Examples include growing customer expectations, increasing resource constraints, heightening stakeholder expectations, increasing environmental regulations, etc
- Opportunities for sustainability-driven innovations are available. A widely recognized framework for identifying these opportunities was derived from 30+ CEF member companies and published in the Harvard Business Review in Sept 2009.
In our experience, sustainable growth goes through five phases that take 3-5 years to implement:
Phase I: Form a Coherent View on Sustainable Growth
Companies need to be clear about their specific viewpoint on sustainable growth, and this viewpoint needs to be aligned with their values and strengths.
Alcoa’s starting viewpoint was eco-friendly growth. It directly sought to mitigate the environmental impacts of producing its products while emphasizing benefits during the use phase of aluminum products. Growth that explicitly incorporates environmental impacts has become a strategic imperative for Alcoa.
For PUMA, the starting viewpoint was ethical growth that emphasized a moral foundation for stakeholder relationships, in order to create mutual trust and high performance in the organization. PUMA defined ethical growth as being fundamentally fair, honest, positive, and creative, a combination of traits it called the 4Keys.
Phase II: Initiate Changes through Affective Means
Targeted changes to mindsets through affective means that address emotions and feelings provide a crucial starting point to initiating behavior changes. Here are three ways to do so:
- Provide peer inspiration. Credible organizations or peers are pivotal in changing mindsets and inspiring new behaviors. Alcoa organized several workshops on sustainability and innovation based on best practices of other companies that were pursuing eco-friendly growth. At PUMA, all employees including the CEO are expected to embody the 4Keys in their daily interactions.
- Choose credible change agents. Role models in senior positions are important for inspiring the new behaviors needed for sustainable growth. At Alcoa, the chief sustainability officer was the former chief financial officer for the primary products group. PUMA hired a museum curator with expertise in cultural change to drive PUMAVision, its program for company-wide change.
- Choose the specific reputation to influence. Business managers are highly influenced by the business unit’s reputation among key customers and the managers’ own professional community. For example, discussions of PUMA’s design innovations in leading design publications validated the appeal of sustainable and local designs for PUMA designers.
Phase III: Embed Sustainable Growth into Organizational Identity
As affective means begin to initiate change, enterprises need to start asking key questions such as, “Who do we want to become as a company?”, and “Who are we now?” These questions relate to the identity of the business corporation and should include:
- Questions to justify future existence. As part of its sustainable growth efforts, Alcoa initiated discussions on two questions that customers could ask: “Why aluminum?” and “Why Alcoa?” As a result of addressing these questions, Alcoa’s organizational identity is slowly shifting from being a producer of primary aluminum to one that produces sustainable products. It also positions aluminum as the preferred environmental choice.
- Questions about desired customer experience. Prior to PUMAVision, the company’s mission was “to be the most desirable sportlifestyle brand in the world.” Now, PUMA sought “to be the most desirable and sustainable sportlifestyle company in the world.” In addition, PUMA’s brand identity was changed to “We are the DJ: the brand that joyfully mixes the influences from sport and lifestyle with the desire to contribute to a better world.”
Phase IV: Institutionalize Sustainable Growth
Sustainable growth gathers momentum and is institutionalized in core businesses through formal mechanisms such as business systems and processes, and performance targets. While informal affective means initiate changes in behavior, formal mechanisms communicate and scale these changes throughout the enterprise.
Alcoa changed the way it evaluated conventional market opportunities, modified its compensation system to explicitly include incentives for sustainability, and required each business unit to report progress on sustainable growth at its quarterly business review with the company’s executive council.
PUMA developed a sustainability index for its products that is audited by a board of external experts and set aggressive goals for developing and selling sustainable products. Importantly, it developed the world’s first formal environmental profit and loss (EP&L) system that explicitly measures and communicates environment-related costs and benefits to the company.
Phase V: Evolve Business Foundation for Sustainable Growth
Resources spent on sustainable growth should be viewed as an investment in building a business foundation that is critical for future success. Moreover, this foundation will evolve as profound questions get raised and resolved over time.
Sustainable growth implementation is like a DNA double helix, comprising two interconnected strands that represent the affective means of the heart and the formal mechanisms of the head.
We believe that implementing sustainable growth successfully will make or break the credibility of business as an institution for enabling economic prosperity for society.
ABOUT THE AUTHORS
Ram Nidumolu is CEO of InnovaStrat, an advisory and consulting company for sustainability strategy and innovation at global corporations.
Kevin Kramer is president of growth initiatives at Alcoa, and was previously president of the Alcoa wheels and structures business.
Jochen Zeitz is CEO of Sport & Lifestyle Group and Chief Sustainability Officer of PPR, and Chairman of the Board of Directors of PUMA.
This article originally appeared on The CEF EcoInnovator.