Integrating Sustainability into Business Strategy where Interests Intersect
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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