8 Reasons (You Never Thought Of) That Sustainability Will Change Management
As sustainability affects how the world works, so will it affect how business works in the world. Here are eight changes that smart managers are already talking about.
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This past August, in first a blunt report and then a trail of media appearances and press interviews, U.S. military and intelligence analysts made an announcement: The changing global climate now poses a threat to U.S. national security.
By way of explanation, the officials expressed alarm (though they expressed it in their usual calm, matter-of-fact tones) about the directly threatening consequences of such phenomena as rising sea levels and melting ice. Some key military bases could go underwater, other bases are jeopardized by increasingly extreme storms and in the Arctic there will be sea lanes to protect where until recently the sea had no lanes.
But more threatening, said spokespeople, would be climate change’s second-order effects: water problems, drought, food shortages, mass migrations, pandemics, civil unrest, political instability and relief emergencies. Any of them could demand a humanitarian response or even military intervention, stated a National Intelligence Council report, which would tax U.S. military resources and “result in a strained readiness posture.”
“It gets real complicated real quickly,” said Amanda J. Dory, deputy assistant secretary of defense for strategy, in a New York Times article. “These issues now have to be … wrestled with” in drafting national security strategy.
The announcement got wide attention — prompting discussions that understandably centered on military concerns and public policy. But it should interest business executives and company leaders for two different reasons, as well.
First, it comes from an unbiased bystander in the how-should-we-address-climate-change debate, yet it pointedly describes a cascade of varied real-world consequences. That makes it a more than usually persuasive argument for how significantly sustainability challenges will alter the way the world works — not just environmentally, but socially, politically and economically, too.
Second, it’s proof that you don’t need to care about fixing climate change — or other sustainability problems — in order to give it your full attention. (“We’re not in the business of mitigation,” said one top military leader.) The effects will be so great that one of the world’s largest and most powerful organizations plans to build strategy around it.
In the course of interviews for the Business of Sustainability research project and the special report in this edition of the Review, we heard from numerous CEOs and management thought leaders who are already well ahead of the military’s curve. They spoke about sustainability not just theoretically, but in terms of concrete ways that sustainability-related forces will change management practice — both directly and indirectly.
In this article you’ll read just top-line notes about these implications; they all need more inquiry. (Look for more in-depth discussion in the months ahead on the MIT Sloan Management Review Web site.) But the high-level observations are still worth listing. Here are eight management-altering trends that thought leaders told us about.
1. Planning You Don’t Need to Find Sustainability. Sustainability Will Find You One reason sustainability will change management, said Business of Sustainability interviewees, is that businesses won’t be able to keep from “bumping into” it — and being forced to change as a result. Nike, Unilever, Wal-Mart, Boral Limited, Rio Tinto, Chevron and many other companies have stories of being pushed to address sustainability issues before those issues had reached their strategic agendas.
Pressure can come from widely varied sources: public accusations of unethical labor practices; government regulators; NGOs that interrupt business practices or threaten brand perception; unexpected resource shortages; failure of a community relied on for labor supply; customers whose demands tilt specifically toward sustainability-oriented offerings or generally toward a sustainability-friendly business; competitors whose sustainability-related innovations alter industry conditions; investors.
“When I travel to conferences around the globe I’m often asked about our programs to preserve fisheries,” said the CEO of a company whose goods include fish products. “They say, ‘You do this because you have a corporate commitment to sustainability. Don’t you have any business drivers?’ Of course we do. The first driver was actually a business problem. It’s not a PR trick that we work on fish sustainability. We see a raw materials problem coming at us. We can’t run out of fish.”
2. Productivity The 16% Solution All sustainability-experienced executives cite bottom-line benefits from energy savings and resource-use efficiencies, but even they still ignore what many thought leaders claim is the biggest immediate profit payoff from acting on sustainability: increased labor productivity. Studies as well as anecdotal evidence point to improved employee engagement and
effectiveness when companies pursue sustainability strategies. Plus, as several thought leaders pointed out, workplaces designed and managed with sustainability principles yielded high-labor performance benefits irrespective of whether sustainability was part of a company’s mission.
Notes Rocky Mountain Institute’s Amory Lovins: “Efficient buildings in which you have better thermal, visual and acoustic comforts — where you can see what you’re doing, hear yourself think, feel more comfortable and enjoy clean air — will typically yield [up to] 16% higher labor productivity in offices.
“There are one to one-and-a-half orders of magnitude greater bottom-line benefits from labor productivity than from the energy savings themselves.”
3. Reputation A Proxy For Management Quality Global Business Network chairman Peter Schwartz summed the views of many of our interviewees, noting an increasing tendency to size up companies according to how they perform on sustainability measures. “It is clearly the case,” he said, “that a company that is both rigorous and thoughtful about what it does, and then actually manifests those practices about sustainability, is likely to be rigorous and thoughtful about things like finance and markets and the technical quality of products, and probably everything else.” It’s hard to assess a business’s management quality from the outside. “Sustainability performance turns out to be a very good proxy for it.”
“We used to think of safety performance like this,” said an executive at a leading minerals-based manufacturer. “If a company had a track record of reducing lost workdays and reportable accidents, you could probably guess that their balance sheet was in order, the morale was high and their customers were being served on time with quality products. Sustainability is becoming the new measure.”
4. Strategy The Better Vantage Point (Or Seeing the System and Connecting the Dots) Interviewees whose companies have undertaken major sustainability efforts claim consistently that they’ve discovered things about their organizations and operations that surprised them — and that the ability to make those discoveries was a result of how sustainability prompted them to see from a “higher altitude,” as one said. “You’re required to see the whole system in which you function, not just your boundaried part. We’re a company that studies everything — or so we thought. But we learned new things.”
Coca-Cola Co. vice president Jeff Seabright put it this way: “The sustainability agenda offers insights into the business that perhaps were not self-evident when we began the journey. When we started really peeling back where the embedded carbon in the value chain is, we found the waste in the system. And where there’s waste, there’s opportunity.”
Other executives called this “connecting the dots” — saying it’s easier when a whole ecosystem is in view. Sustainability widens focus, and throws light on how facts, trends, observations and ideas are relevant to one another.
5. Innovation You Can’t Get There From Here … But You Can From Somewhere Else Sustainability challenges demand innovation that’s more iterative, more patient, requiring more diverse inputs, the interviewed thought leaders told us. Because sustainability problems are unusually interdisciplinary, they require collaboration across silos and even business sector boundaries. Often they promote unusually speculative experiments, over longer time frames. They encourage the collection of data and the examination of processes in new ways, leading to new insights.
Those characteristics will lead, sometimes accidentally, to improved innovation results. “It creates different conversations, raises different questions,” said one executive. “It opens up unexpected options which may or may not lead to something you want. But that option richness is not available to you if you don’t play.”
6. Coordination The Networked Advantage, By Necessity Because of the complexity and system-permeating nature of sustainability problems, the experts said, addressing those problems compels collaboration across nearly all boundaries. Work has to be coordinated across intracompany fiefdoms, industry sectors and geographic regions. Businesses have to work with governments, NGOs, communities and even competitors.
Companies that grow adept at that, said interviewees, gain huge functional advantages in all aspects of their business, not just those involving sustainability projects.
“We’ve seen enormous gains in integration and communication across silos,” said an officer at a multinational information business. “Sustainability work forced us to learn a different way of working. And now we know how to do it.”
7. Partnering Closing the Trust Gap Another meme that appeared throughout the interviews: fear about risk has skyrocketed; ability to assess risk is low; hence any organization that can inspire trust is advantaged. Experts predicted a strong trend toward any management practices and corporate behaviors that would enable prospective stakeholders to assess risk more confidently — especially the effective practice of transparency. They predicted changes in financial measurement and reporting, and in external communications strategies.
8. Advantage First Adapters Will Win Interviewees claimed that preemptive sustainability efforts would generate more than typical first-mover advantage. Many linked this idea to the observation about companies “bumping into” sustainability whether they want to address it or not. Often, that bump involves pain — even if, as sometimes occurs, the pain eventually leads to gain. Experts argue that the smartest companies are working to leapfrog that “bump” by acting to “design out” problems before they arise. They argue that when sustainability impacts an industry, its effects are more pervasive than typical market-changing forces. Being ahead, they say, will matter more.
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