Last Updated 02 Aug 2020

Integrating Sustainability into Business Strategy where Interests Intersect

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Introduction

Literature agrees that for sustainability to achieve benefit to business, society and the environment, it must not be an add-on but be integrated into the business.13 In order to integrate sustainability into business strategy Savitz and Weber suggest establishing where areas of “mutual interest”14 lie, between business strategy and stakeholder

interest. They term this the “sustainability sweet spot: the place where the pursuit of

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profit blends seamlessly with the pursuit of the common good”15 Businesses operate

in an “interdependent world”16 therefore there is much scope for overlap between

stakeholder and business interests agree,

recommending companies focus on “the points of intersection”18 rather than the

tension and frictions between business and society. Points of intersection arise, in

product offering, along the value chain and in the competitive context, that provide

opportunity for “creating shared value”19 Drucker has encouraged companies, since

1955, to “make the public good become the private good of the enterprise”20 More

recently, The Forum for the Future argues that “smart businesses”21 will profit from

sustainability issues by “finding ways to give us what we need and want whilst

maintaining the eco-system services on which we rely.”22

Business Benefit

Points of intersection occur in product offering, throughout the value chain, and in the

competitive context, providing much scope for sustainability activities. According to

Savitz and Weber, sustainability activities have the potential to enhance your business

in three ways. They can help to protect it, run it, and grow it”24 Although using different terminology, this concept is

“Protect it”26 – Regulations and Reputation

Integrating sustainability into the business strategy reduces risk by ensuring

compliance with existing regulations but also preparing for, influencing27 and

reducing the risk of impending regulatory interventions.28 WWF and Smith add that

engaging with stakeholders including Non-Governmental Organisations (NGOs) can

reduce the risk of reputational damage,29 negative campaigns and consumer boycott.

De Man and Burns suggest supply-chain partnerships and codes-of-conduct manage

risk by recouping control lost through globalization and outsourcing.31

The second two stages suggested by Savitz and Weber move from risk management

to include opportunity maximization, reflecting the shift observed by Forum for the

Future over the past decade.

“Run it”33 – Operations

As expressed by Forum for the Future, “Pollution is waste,… it means that your

company is paying for something it didn’t use”34 Reducing costs, waste and

inefficiencies in operations can increase profitability while keeping the company

ahead of regulators. The improved environmental and social impacts can be beneficial

for brand enhancement.

Porter agrees that “operational efficiency”35 is important but argues that it is not

sufficient to secure a viable business into the long-term. It can be quickly imitated,36

shifting the “productivity frontier outward”37 and raising efficiencies of the industry

as a whole but providing “relative improvements for no one”38 Without additional

strategy this creates “pressures on costs”39 and “mutually destructive competition”40

Environment Management Systems can assist reduction of resources used in

production. But, as populations and therefore production expands, this reduction

becomes ‘relative’ rather than ‘absolute’41. Environmental degradation continues to

increase although businesses appear to be addressing the issue. Jackson terms this the

“myth of decoupling”42 Improvements required for absolute decoupling of growth and

material usage would require substantial economic investment, with a return-oninvestment

timeframe that would not pass traditional calculations.

“Grow it”43 – Innovation and Marketing

Sustainability provides scope for growth activities including opening access to new

markets, increasing share in existing markets, developing innovative new products

and processes, increased consumer loyalty and satisfaction, increased scope for

alliances and partnerships, and improvement to reputation and brand.44

This area shall be considered in detail in Part 2.

In summary, sustainability can be integrated into business where there are areas of

mutual interest between the business, environment and society. Areas of intersection

occur throughout the value chain. Sustainability activities can provide business

benefits such as: managing risk of regulation; managing risk of reputational damage

in consumer, investor and employment markets; re-couping control lost through

globalization and outsourcing; reduced operating costs; reputation and brand

enhancement; product differentiation; access to new markets and increased share in

existing markets; and providing a driver for innovation of product, process and

business model.

Role of Strategy

Strategic Approach to Sustainability

Focusing on points of intersection has the potential to benefit the business alongside

society and the environment. The danger is that sustainability activities become

“fragmented”45, “disconnected from the company’s strategy”46, reducing the potential

benefit to society, the environment and to the business and opening the company up to

risks such as accusations of ‘green-wash’ (see 2.2.1). A fragmented approach leads to

“contradictory practices”47 that reduce the overall benefits produced. Instead

sustainability issues should be analysed “using the same frameworks that guide their

core business choices”48 Approached strategically, sustainability becomes a source of

progress for both society and the firm, being “a source of opportunity, innovation, and

competitive advantage”49 “as the business applies its considerable resources,

expertise, and insights to activities that benefit society.”50 Considered strategically

sustainability activities can compliment and re-enforce each other, working together

as a coherent whole.

‘Integration’ and ‘Fit’

Sustainability activities can be realised throughout the business model,51 summarised

According to Drucker “The entire business can be seen, understood and managed as

an integrated process”53 “from raw material procurement…to customer service”54

According to Porter, the role of strategy is to “tighten fit”55 between activities and

changes taking place. Strategy considers the company as a whole “activity system”56,

rather than individual activities, combining and configuring activities. “The success of

a strategy depends on doing many things well-not just a few- and integrating among

them”57 ensuring that activities are complimentary, having “consistency”58, are

“reinforcing”59 and provide “optimization of effort”60

Integrating individual sustainability activities into business units is an improvement

from mere philanthropy, but real benefit is achieved when there is integration among

activities so that they work together as a coherent whole, re-enforcing and supporting

each other.

Balancing Stakeholder Interests and Competing Business Objectives

The business context contains a range of stakeholders61. FMCG’s are publicly traded

companies62, therefore shareholders are among their key stakeholders, along with

consumers, governments, employees, communities in which they operate, NGOs and

the media. Inevitably conflict arises between stakeholder interests63 especially when

consideration is extended to future stakeholder interests, as required by the

sustainability agenda64

Porter and Kramer recognize that, like all business activities, sustainability activities

require a degree of “balancing competing values, interests, and costs”65 In some cases

the “conflict of interest between shareholders and other stakeholders”66 can be

resolved by considering the long-term interests of shareholders67 In some instances it

is possible to create an overlap of interests through innovation68, by “working to alter

consumer preference”69 or by lobbying for regulation that converges these interests.

In some instances the activity should simply be halted. Smith argues that “stakeholder

engagement must be at the core”70 of sustainability strategy in order to ensure

informed decision-making.

Competing business objectives can conflict. Without clear strategy it is likely that

sustainability “trade-offs”71 such as costs will be postponed72 “which can lead to far

greater costs when the company is later judged to have violated its social

obligation.”73 Although they do not explicate it, we can add that this postponement

can also lead to severe costs to society and the environment. Porter identifies “the

growth trap”74 as a pressure that detracts from strategy, encouraging activities that are

not coherent with the system as a whole.75

A strategic framework allows decisions to be made, regarding competing interests and

objectives, consistently across the business, maintaining the company’s “unique and

valuable position”76

In order to ensure that sustainability activities fulfill their potential, it is necessary to

have them sit within a core strategic framework.

In summary, sustainability can be integrated into all aspects of the business. A

fragmented approach is inefficient at producing benefit and avoiding risk. But, when

considered strategically, sustainability activities can compliment each other, working

together as a coherent whole to benefit the business, society and the environment

simultaneously. This is when maximum benefit is achieved. Strategy provides the

framework for managing competing stakeholder interests and business objectives in a

manner consistent with the business as a whole, strengthening the company’s unique

position.

Does The ‘Sweet-Spot’ Approach Lead to Sustainability?

Expectation of no Trade-offs

Walley and Whitehead express caution in allowing ‘sweet-spots’ to dictate

sustainability strategy. They accept that ‘win-win’ scenarios exist but argue they are

extremely rare and should not form the basis of a company’s sustainability strategy.77

Previous easy wins were achieved without making “truly fundamental changes in

production processes or product design”78 Once ‘low hanging fruit’ has been reaped,

addressing sustainability issues becomes an increasingly “costly and complicated

proposition”79 that requires “long-term commitment and cooperation”80 The

occasional ‘win-win’ becomes insignificant when considered alongside the full costs

of addressing sustainability issues. The expectation that no trade-offs are required

leads to reduced commitment and cooperation when expected win-win’s do not

materialise and true costs are realised.

Walley & Whitehead advocate “a more integrated way of thinking”81, focusing on the

core strategy of the business in order to make “informed trade-offs between costs and

benefits”82

Business Model as a Whole

Focusing on ‘sweet-spots’ does not address the impact of the business model as a

whole but makes modifications within. Utting argues that corporations have

“skillfully placated the opposition”83 using dialogue, engagement and sustainability

activities, without effecting real change to business practices. Focusing on gradual

mitigation of negative environmental and social impacts, or increasing positive

impacts only to the extent that delivers medium term business benefit, may well

provide the desired business benefits, and indeed provide some benefit to society, but

results in the continuation of “current unsustainable trends”84 Looking long term this

is detrimental to shareholder value as well as to future stakeholder interests.

Jackson argues85 that the constant pursuit of growth, through marketing and

innovation86, has led to unsustainable levels of consumption.87 Companies are

responsible for encouraging materialistic desires as well as for fulfilling them.88

87 Five planets would be required if current consumption levels of richer nations were achieved

globally. (Leonard, A. 2002) Add to this an increased population size and it becomes clear that

incremental improvements will not be enough to achieve sustainability (WWF-UK (2001), p12.)

88 Sustainable Development Commission (2009) and Leonard, A. 2010.

19

Leonard argues that making the products a little less damaging will not achieve

sustainability.89 More sustainable patterns of consumption must be achieved90 where

prosperity is not reliant upon continued “consumption growth”91

Savitz does not deny that current efforts will not achieve sustainability, but he argues

that we cannot make “extreme shifts”92 without “modest initiatives first”93 to achieve

buy-in from stakeholders essential to the viability of the business.

Creating a Sustainable Business Model

Drucker advocates asking “What is our business, what will it be, what should it be?”94

The organisational structure and objectives should be designed to achieve this vision

of the company, ensuring integration and consistency throughout, in order to achieve

the goals of the business as a whole.95

According to MacDonald, to achieve sustainability one must first have a vision of

what sustainability would look like, which can then be planned towards. This

“planning from principles of success”96 or “back casting from principles”97 matches

Drucker’s view of strategy outlined above.

Envisioning a sustainable company provides the goal towards which the business

structure and objectives can be designed.98 This view is supported by Forum For the

Future99, who work with companies “with positive visions of a sustainable future;

finding innovative, practical ways to help realise those visions;”100

MacDonald recognises that interim targets towards achieving the goal of

sustainability are useful but these should be planned within an “overarching

strategy”101 and recommends a “10 – 30 year horizon”102

Conclusion

Much of the literature on sustainability recommends that companies look for areas of

mutual interest between its various stakeholders and focus on integrating

sustainability activities. ‘Sweet-spots’ are a vital tool in transitioning a company and

its stakeholders towards a sustainable future, but this does not constitute a complete

sustainability strategy. Sustainability activities and incremental targets must be set

within an ‘over-arching strategy’ designed to achieve the vision of a sustainable

company.

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Integrating Sustainability into Business Strategy where Interests Intersect. (2019, Mar 25). Retrieved from https://phdessay.com/integrating-sustainability-into-business-strategy-where-interests-intersect/

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