Famed strategy and management scholar C.K. Prahalad, Ram Nidumolu, and M.R. Rangaswami wrote an article in the most recent Harvard Business Review arguing that sustainability is a key driver of innovation that yields extra rewards instead of costs. The authors contend that there is “no alternative to sustainable development.” Futhermore, the popular conception that investing in becoming more environmentally-friendly will erode a firm’s competitiveness is wrong. “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.”
Within many firms, sustainability is grouped with corporate social responsibility activities, and is about making companies “better corporate citizens.” The authors say many Western firms do this because they fear competition from developing country firms that offer lower-cost products and services. “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.”
C.K. Prahalad and his co-authors say that tougher regulation and increased public awareness can only partially push companies towards more sustainable products and services. “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.”
Instead of just superficially responding to external pressure to reduce their carbon footprint, companies must internalize sustainability, and embed sustainability into their core businesses. ”Sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line returns. Becoming environment-friendly lowers costs because companies end up reducing the inputs they use. In addition, the process generates additional revenues from better products or enables companies to create new businesses. In fact, because those are the goals of corporate innovation, we find that smart companies now treat sustainability as innovation’s new frontier.”
The authors outline sustainability challenges, competencies and opportunities grouped into different stages (worth reading in detail):
Stage 1: Viewing Compliance as an Opportunity
Stage 2: Making Value Chains Sustainable
Stage 3: Designing Sustainable Products and Services
Stage 4: Developing New Business Models
Stage 5: Creating Next-Generation Platforms
The authors also argue that three-fourths of those entering the workforce in the U.S. view social responsibility and environmental committment as important criteria when selecting employers. “People who are happy about their employers’ positions on these issues also enjoy working for them. Thus companies that try to become sustainable may well find it easier to hire and retain talent.”
Finally, leadership and talent are central to creating a new 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.”
Read the full article, and a brief New York Times Dot Earth interview with one of the authors. You can also purchase the article from Harvard Business Review.
Also, check out C.K. Prahalad’s well-known work, “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits,” which offers models on how to best provide business services to the the underserved “bottom of the pyramid,” the billions of developing country consumers who make less than two dollars a day. There is another report on this from the World Resources Institute.
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I’m all for sustainability, of course.
And, I’m certainly glad for the term becoming commonplace in recent years, and increasingly, month by month.
I believe that we now need to move the discussion to attaining a ‘Thriving’ society.
‘Sustainable’ just doesn’t arouse emotions of generate excitement. After all, we can be sustainable at a low-level, uninspiring life of mere existence.
Let’s seek to Thrive.