Section IV: Customer and Stakeholder Effects

This is part 5 of 8 from the 2012 Sustainability & Innovation Global Executive Study and Research Project.

For Sustainability-Driven Innovators, customers are at the center. These companies are 80% more likely to increase collaboration with customers as a result of sustainability than are companies that did not change their business model. They are also much more likely to collaborate with competitors, suppliers and across their own business units.

AT&T, for example, has consumer advisory panels that include both end users and businesses. The panels’ goal is to understand customer decision-making processes and then determine the best way to communicate the company’s sustainability values. Like many other companies, AT&T realizes that customers are moving targets and their competitors are also aiming at them. As Michael Bremans at Ecover puts it: “All your activities need to be centered on customer expectations. Even without legislation and regulation, consumers are looking for sustainable lifestyles and the demand is going to grow faster and faster.”

Governments and political organizations do play a key role, but not as a source of pressure. Sustainability-Driven Innovators pull them into the fold to build expertise and help solve sustainability related issues.5 “NGOs are an important resource,” says Bremans. “They are an excellent source of information about how the market might react to a particular innovation.”

Kimberly-Clark formed an outside advisory board five years ago to bring fresh thinking to its sustainability efforts. “We were really inwardly focused,” said Falk, the CEO. “We had been eating our own cooking for a long time and thought we had all the answers.” Today, the company has ongoing dialogues with Greenpeace, the World Wildlife Foundation and other NGOs. It is also working with suppliers to help them reduce waste and make progress with other sustainability goals.

Nestlé has brought together customers, advisors and competitors to develop what it calls “pre-competitive” practices. Ten years ago, for example, the company reached out to Danone and Unilever to help develop sustainable agriculture approaches. “We were like the oil and gas industry,” says Nestlé’s Johr. “A lot of what we did was having a negative impact. Instead of each of us working on our own, we decided to work together to figure out principles, practices and procedures.”

Timberland’s Green Index spurred the creation of the Higg Index, an industrywide coalition to measure the environmental and social impact of apparel products. According to Blaisdell, suppliers were frequently saying they had “green” products, but there was no way to assess the claims or measure them against other products. The Green Index provides that baseline. To develop it, Timberland worked with academics and retail customers.6

Investors remain a challenging stakeholder group. There are investment firms that focus on sustainability, and a growing campus movement in the United States is urging their colleges to divest investments in companies that don’t meet environmental muster. Nonetheless, sustainability does not necessarily appeal to short-term investors. “They can have a big effect on share prices, because they trade regularly,” says Sprint CEO Dan Hesse. “Their time horizon is shorter than the payback period of most green investments.”

References

1. PepsiCo, "Purpose," n.d., www.pepsico.com.

2. There are many business model frameworks to choose from. See, for example, H. Chesbrough, "Open Business Models: How to Thrive in the New Innovation Landscape" (Boston: Harvard Business Press, 2006); M.W. Johnson, C.M. Christensen and H. Kagermann, "Reinventing Your Business Model," Harvard Business Review 86, no. 12 (December 2008): 50-59; A. Osterwalder and Y. Pigneur, "Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers" (Hoboken, New Jersey: John Wiley and Sons, 2010); P. Lindgren, R. Jørgensen, Y. Taran and K.F. Saghaug, "Deliverable D 4.1 Baseline for Networked Innovation Models," NEFFICS Consortium, 2011; R. Amit and C. Zott, "Creating Value Through Business Model Innovation," MIT Sloan Management Review 53, no. 3 (spring 2012): 41-49; and Z. Lindgardt, M. Reeves, G. Stalk and M. Deimler, "Business Model Innovation: When the Game Gets Tough, Change the Game," Boston Consulting Group, December 2009.

3. N. Kruschwitz, "Why Kraft Foods Cares About Fair Trade Chocolate," MIT Sloan Management Review, September 12, 2012, http://sloanreview.mit.edu/feature/why-kraft-foods-cares-about-fair-trade-chocolate/.

4. L. Brokaw, "Marks and Spencer's Emerging Business Case for Sustainability," MIT Sloan Management Review, July 13, 2012, http://sloanreview.mit.edu.

5. Regulators, NGOs and the media are not driving the focus for Sustainability-Driven Innovators. However, our study found that companies less successful at sustainability business-model innovation are 25% more likely to be influenced by legislative and political pressures than Sustainability-Driven Innovators are, and 72% more likely to be driven by the need to maintain operating licenses.

6. N. Kruschwitz, "New Ways to Engage Employees, Suppliers and Competitors in CSR," MIT Sloan Management Review, November 14, 2012, http://sloanreview.mit.edu.

7. Some recent research using highly rigorous randomized field experiments shows that people are willing to pay premiums. See J. Hainmueller and M. J. Hiscox, "Buying Green? Field Experimental Tests of Consumer Support for Environmentalism," http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2062429.