Sustainability Is The Next Business Megatrend: Harvard Business Review

The May 2010 issue of Harvard Business Review has an interesting feature article called ‘The Sustainability Imperative’.

The authors of the Big Idea feature, David Lubin from the Sustainability Network and Daniel Esty from Yale University, argue that sustainability (or climate change) is the next transformational business megatrend comparable to past megatrends like mass production, manufacturing quality movement, IT revolution, and globalization.

Business megatrends have forced fundamental and persistent shifts in how companies compete. Some businesses come out of them as winners and others as losers. In the manufacturing quality megatrend, we have witnessed how General Motors’ failure to react led to its decline. In the IT revolution megatrend, Kodak’s dominant position in photography quickly eroded as it ignored the signals that digital technologies would displace film.

The sustainability megatrend will again shuffle businesses into winners and losers, depending on how they react. The authors suggest firms seeking to gain advantage to (1) get the vision right, and (2) get the execution right.

Getting the vision right means knowing what to do. Companies can start by focusing on risk and cost reduction and over time develop strategies for increasing value creation, ultimately including intangibles such as brand and culture.

Some pioneering companies are already seeing payoff. In focusing on outperforming competitors on regulatory compliance, 3M’s Pollution Prevention Pays reduced 3M pollutants by more than 2.6 billion pounds and saved the company more than $1 billion.

DuPont’s ‘zero waste’ commitment led to its decision to shed businesses with big eco-footprints, such as carpets and nylon, as the environmental risks were deemed to outweigh their potential contribution to future earnings.

Dow’s 2015 Sustainability Goals yielded new products in areas from solar roof shingles to hybrid batteries. Its core business, which had traditionally relied on commodity chemicals, has shifted toward advanced materials and high-tech energy opportunities. Getting the vision right has led these companies to stronger competitive positions and realizing major savings.

Getting execution right means knowing how to do it. Companies could focus in five critical areas: leadership, methods, strategy, management, and reporting.

The IT revolution megatrend created the leadership position Chief Information Officer. Many companies now have Chief Sustainability Officer to lead the company through the sustainability stages. Notable companies with CSO include AT&T (U.S.), SAP (Germany), and LoyaltyOne (Canada).

Sustainability is bringing new business methods and tools such as business-case analysis, trend spotting, scenario planning, risk modelling to encompass the specialized requirements of environmental sustainability.

With a solid base of analytical data, businesses will be positioned to develop distinctive sustainability strategies. Many aspects of strategy development will remain internal, but companies will increasingly adopt open-source approaches that engage outsiders.

Management might consider incorporating sustainability objectives into compensation models, reviews, and other management processes. Some firms have invested in technology to record and report environmental events such as spills and waste disposal. IBM uses their environmental management system as the foundation for policy deployment, practice management, goal setting, decision making, and data capture.

Getting the vision right and getting execution right can help companies compete through the sustainability megatrend and come out as winners. Failure to react or simply ignoring sustainability could impact a company’s ability to compete, as we have seen in the decline of GM and Kodak through past megatrends.

While pioneering companies like 3M, DuPont and Dow are already realizing payoff, we are still at a relatively early stage of the sustainability megatrend. But the time for Canadian businesses to think and act is now, as this megatrend appears to be unstoppable. If you would like to consider how these ideas may be applied to your Canadian business, please contact me. The full article (subscription may be required) can be accessed at Harvard Business Review.