5 Business Strategies for Sustainability
The term sustainability or corporate social responsibility has grown increasingly prevalent in corporate boardrooms and on executive agendas. In a study of 766 CEOs worldwide, KPMG concluded “that sustainability is truly top-of-mind for CEOs around the world”[i]. Growing pressure to respond to issues of climate change, the financial crisis, environmental degradation, and increasing social inequality have precipitated the diffusion of sustainability in internal business text, company websites, CEO speeches, and company reporting[ii].Some have argued that CEO action on sustainability issues has shifted from being a discretionary choice to a corporate priority with 99 percent of CEOs agreeing that sustainability issues are critical to the future
success of their business. What is more, 94 percent of CEOs exhibit a personal responsibility to shape their company’s core purpose and role in society while 88% of CEOs believe that global economic systems need to refocus on equitable growth [iii, iv].
In response, CEOs regularly tout their efforts to “embed” or “weave” sustainability into their operations and culture as the ultimate commitment[v] while scholars and practitioners have offered a number of prescriptions to achieve this objective[vi]. Yet despite the prevalence of sustainability and corporate social responsibility, there is tremendous variation in how companies have responded. Part of this variation can be explained by the lack of standardized definitions available, leaving the movement open to various managerial interpretations that influence the type of responses by a given firm. That said, research has shown that companies can be categorized into specific adoption levels of sustainability according to important organizational dimensions.
Before continuing, let’s define some terms. Sustainability is defined here as the long-term maintenance of systems according to environmental, economic, and social considerations. Ecological systems might include water systems, the climate system, biodiversity, or species reproduction. Economic systems would encompass the global financial system, income equality, the free flow of goods and services while social systems might include things like the proper functioning of civil society, low poverty rates, the education or health systems, social justice, or the food system. Business sustainability or corporate social responsibility can then be defined as the achievement of economic viability (i.e. profitability and competitiveness) while operating within the capacity, or contributing to the integrity, of social, economic, and ecological systems. For example, companies that take business sustainability or CSR seriously would be figuring out how to be profitable while preserving biodiversity or, more impressively, contributing to the integrity of existing ecosystems.
Almost all public companies and most non-public companies lay claim to the notion that they are doing something to preserve these systems either by minimizing harm (i.e. negative externalities) or finding ways to reinvigorate and improve these systems. But any smart student of business would be interested in distinguishing responses that negatively affect these systems. One of the ways to do this is to consider the relevance of these responses to the core strategy and operations of the firm. When students of business want to know what makes a business tick, they typically turn to its strategy. A firm’s strategy can be determined using three factors: 1) its positioning in the marketplace relative to competitors, 2) its core competencies that differentiate it from those competitors, and 3) its underlying culture that clarifies to employees the underlying purpose and identity of the organization, supported by structures, processes and policies. When aligned, these three components produce the coveted sustainable competitive advantage, which is defined as a firm’s ability to persistently create more economic value than the marginal (breakeven) competitor in its product market, Let's examine each in turn. First, positioning goes beyond marketing and represents a unique value proposition to consumers that distinguishes the firm from its competition. Wal-Mart’s positioning is the low cost leader while Apple’s positioning is innovativeness and high quality. Marketing is important in conveying this image to outside actors but positioning is supported by strong evidence that supports these claims (e.g. Wal-Mart’s low prices). Second, strategy is very much about what the company does really well that is valuable and unique (its core competencies) that competitors find very difficult to imitate or find substitutes for. This might include particular individuals employed by the firm (e.g. Steve Jobs), specific decision-making processes, unique products, a strong brand, innovation practices, intellectual property, highly valuable machinery or low cost operations. Whatever it is, there is a direct correlation between how sustainable a company's competitive advantage is and how causally ambiguous (difficult to understand where it came from), socially complex (result of many social interactions) and path dependent (developed from a series of decisions/behaviours over time) it is. Finally, external positioning and internal competencies must be supported by an organization’s culture and identity that transcends the worldviews of employees to the point where they see the relevance of the firm’s strategy to their daily activities, making it feel like employees live this strategy on a daily basis. On what employees are rewarded, how they are trained, how decisions are made, and company policies and mission statements all support culture.
With the above in mind, it is possible to categorize companies into one of five business strategies for sustainability beginning on the one hand with businesses that separate sustainability from strategy and ending on the other hand where sustainability defines their strategy. Figure 1 illustrates these five strategies in the X axis alongside the guiding principle of philanthropy, business case, and paradox.
Strategy #1: Denial
In the first strategy, sustainability and CSR are highly irrelevant to the firm’s strategy. Any involvement in social or ecological issues is relegated to philanthropic contributions that have very little to do with the firm’s core operations. Here the purpose is to build social goodwill to oftentimes combat any negative publicity that might be associated with their core operations. Any public criticism of the firm is deflected as managers vehemently deny any wrongdoing or responsibility. The tobacco industry for years denied any responsibility for the link between their products and various forms of cancer in the same way that the food industry today denies responsibility for obesity and other related health issues associated with food. Associations representing restaurant or food production companies are often heard arguing that the unprecedented growth of food-related health problems is hardly a problem of the food itself but much more a problem of personal responsibility and a deficit in exercise. Unrelated to food health, the association representing fast food restaurants launched an ad in Times Square denying any responsibility for the growing dependence of their own employees on government assistance and arguing against any need on their part to increase employee pay to a living wage because these employees have no skill or experience and are often lazy. Nike in the 1990s denied responsibility for the growing instances of labour issues in developing countries because the suppliers making their products were distinct entities and therefore not under the responsibility of Nike. Facebook has denied responsibility for the proliferation of fake news although they’ve more recently shifted to acknowledging their role and thus have moved up this strategy continuum. Ultimately, companies will often say that nothing they are doing is against the law and so they are doing nothing wrong.
The Denial Strategy omits any use of sustainability or CSR in its competitive positioning and at most would rely on its disconnected philanthropic contributions as part of their marketing strategy to suggest that the company is a good corporate citizen. In fact, companies adopting this approach are heavily reliant for their success on practices that are particularly corrosive to social, ecological, and economic systems. Although growing more rare, companies may actually promote this positioning as did low end burger chains like Harvey’s or A&W that went with a positioning that countered any need for healthy food by allowing consumers to indulge to avoid any compromise on taste. More common though would be a particular positioning that very much relied on the erosion of social or ecological systems where denial of responsibility is oftentimes the only option. Ashley Madison is an organization whose fundamental premise is based on a service that a majority of society argues erodes social systems. Payday loan retailers can be classified under this strategy as well because their positioning as a source of capital for those consumers typically unable to get credit naturally positions the firm as an exploiter of vulnerable consumers. Big banks, at least in Canada, have avoided this low end market because, although legal, they do not want to position themselves in such a way that leads to outcomes that can be perceived by many as exploitative.
The companies in this category are therefore dependent on unrelated philanthropic initiatives that aim to distract stakeholders from the impact of their core operations. If they pursued philanthropy for projects meant to counter the negative impact of their operations, they would be admitting guilt to a degree. McDonald’s children’s charity has attracted substantial criticism due to the claims it makes for improving the lives of children yet ignores the health impacts of their products and the marketing tactics that have historically targeted children. CIBC’s Run for the Cure, although a worthy cause, ignores how their everyday decisions associated with capital lending might actually be greasing the wheels of those companies making products that have shown linkages to cancer.
From an internal competence perspective, what distinguishes the firm from its competitors has virtually nothing to do with sustainability. In fact, their source of distinction represents a key erosion of social, ecological, and economic systems. Consider gun manufacturers, tobacco companies and weapons manufacturers, all of whom have developed strong competencies related to their products whether it be design innovation, the manufacturing process, or logistics. But what is unique and difficult to imitate in these organizations are the very things that contribute to system erosion. Culturally, employees see virtually no relevance of sustainability to their daily operations and at most consider the company’s identity to revolve around some philanthropic endeavors. Internal processes, reward systems, performance evaluation and employee skill and training have virtually nothing to do with sustainability.
Strategy #2: Defensive
In the second strategy, companies have moved beyond denial of responsibility and have begun to admit that they are partly responsible for the erosion of certain social, economic, and ecological systems. Unlike the previous strategy where companies feel that there is no need to adjust operations, the companies in this strategy work to lower their impact incrementally but avoid any serious reconsideration of their strategy. The overarching objective here is to continue with business as usual but with some minor adjustments to respond to upcoming regulation or consumer pressure. In other words, companies are starting to lose the argument that they are not responsible for system degradation and so want to show that they are responding to pressures of stakeholders, especially consumers.
One response is to engage in philanthropic activities that are more associated with the impacts of their operations. This helps them defend their operations because they can lay claim to the fact that they are at least redistributing some of the profit associated with these operations to various causes that work to stem their effects. Tim Hortons recently did this. One has to have a sense of humour to not balk at the company’s initiative to raise money for child food education by selling sugar-laden cookies through their Smile Cookie Program. This is an excellent example of avoiding changes to their core operations of food and instead launching philanthropic initiatives to show that they care about these issues. Oil and gas companies have also undergone tremendous criticism for touting their commitment to reducing climate change but have invested substantial resources in lobbying against policies that would support renewable energies such as wind and solar. The Guardian reported that The European Commission’s outlawing of subsidies for clean energy were largely requested by BP, Shell, Statoil and Total, and by trade associations representing oil and gas companies[vii].
Another very common response in the defensive strategy is for companies to aim for the low hanging fruit; a common expression that refers to those initiatives that represent relatively easy changes that demonstrate a business case. The most common initiatives are related to reductions in energy and fuel use in manufacturing processes or a reduction in waste through an increase in resource efficiency coupled with an increase in recycling efforts. Mining companies, for instance, have begun to tout “green mining” to represent incremental improvements in power and fuel use along with reductions in toxicity, emissions, and water use. Thinking beyond just the ecological dimension, an investment bank might indicate that they have reduced their portfolio of subprime loans from 60% to 40% or a fast-food chain might announce that they are reducing sugar and salt content of existing products by 15% over the next several years. Companies are therefore positioned as the sustainability leader based on all of the ways that they’ve worked to reduce the impact of their existing operations, products and services on systems. But the fundamental business practices have not changed. They have merely become more efficient or incrementally less impactful.
Internally, core competencies remain associated with practices that are associated with system degradation. That said, some companies might develop competencies in their brand as stakeholders perceive a certain company as a leader in making incremental improvements to their impact. Other companies may develop expertise associated with resource efficiency that competitors have been unable to replicate. Acquisitions of companies that have embedded sustainability do not represent core competencies unless there is evidence that the core competencies from these acquired companies have become integrated in a way that generates more value than they did independently. Culturally, employees are likely unaware of any positioning around sustainability and more directly associate any improvements to representing an important and natural part of business improvement. So whereas the company may be successful in creating a responsible image to broader society through philanthropic contributions, it's identity internally does not at all reflect sustainability. Performance evaluations are tied to cost reductions efforts that just so happen to be associated with environmental system improvements for instance, but there is very little in the way of accountability towards social and ecological goals across levels of the business.
Strategy #3: Isolated
The third strategy is one where sustainability begins to make substantial inroads into the firm’s strategy and operations. This typically involves an entire department or product line being positioned according to sustainability usually because it makes business sense to do so. Remnants of more radical changes to sustainability begin to emerge such as Nike’s green shoe initiative where consumers can design their own shoes using environmental benign materials. Another example might be a manufacturing firm’s use of a new technology that cuts emissions by 90% such as Vale Inco’s supposed plans to use a carbon sequestration scheme in Sudbury, Ontario that would replace one of Canada’s largest smokestacks. Another example might be a retail company’s efforts to fuel half of the energy required to operate its stores using renewable energy sources such as wind and solar.
Sustainability might be isolated in an organization in a variety of ways. First, it can represent an explicit function or department in the organization like a marketing, human resources, or operations department. Second, it can cross functions and departments but represent a small isolated component of employee daily routines. That is, 20-30% of an employee’s daily routine might be associated with activities related to sustainability. Third, sustainability might be isolated to a particular set of product lines where it represents a relatively small percentage of revenue. For instance, the evolution of credit unions has isolated the original purpose of addressing gaps in finance in local communities yet represents only a small percentage of their core business operations that resemble the typical financial institution.
The important difference from the second strategy is that the company has begun to innovate in ways that have revolutionized a particular product or process resulting in a substantial reduction in social, ecological, or economic system degradation that goes well beyond incremental improvements. Under the defense strategy, improvements are limited by an improvement ceiling because the process or product itself is oftentimes inherently unsustainable. The isolated strategy questions the fundamental design of the product/service or the process of interest, thereby sidestepping the ceiling. Clorox, the consumer packaged goods company, launched a highly popular Greenworks line that represents an isolated brand in the minds of consumers. In this example, the product category is not associated with Clorox in the minds of the consumer but nevertheless represents an important strategic endeavor by the firm because it responds to a growing demand for green cleaning products. We can see similar types of initiatives in the social realm as well. Food manufacturers have developed their own highly sustainable products that result in dramatic reductions in unhealthy ingredients. A mining company, as another example, might take a much more comprehensive approach to community development surrounding one or two of their mines but relies predominately on donations and philanthropy on the remainder of their mines. Or they might introduce a technology that dramatically reduces the use of water An oil and gas company might have a full-fledged renewable energy program, staffed within a legitimate department such as BP that is distinct from its core operations of oil and gas exploration and production that can still result in catastrophic environmental damage. Finally, Toyota introduced a vehicle part that removed completely the need for a particular toxic mineral. Ultimately, these initiatives are meant to respond to a growing market demand for products in services associated with sustainability (i.e. the business case)
A firm’s positioning in the marketplace then represents somewhat of a contradiction because, on the one hand, a part of their operations or a small section of their product line exemplifies sustainability principles but, on the other hand, the remainder of their operations is non-sustainable or continues to be criticized as such. As a result, companies adopting this strategy will not necessarily lay claim that their positioning embodies sustainability but they will tout their efforts to make this a core part of their strategy by reflecting on the resources allocated to efforts to challenge certain sections of their products/services and operations. In their attempt to distinguish a firm between strategy 2 and 3, students of business need to examine to what extent these initiatives represent a substantial part of their strategy or, as the second strategy described, do they instead represent a means to mask the system degradation of their traditional operations. In other words, do these initiatives represent a substantial business endeavor that generates a substantial portion of revenue that positions them relative to competitors (beyond marketing)? If genuine, managers may position the firm as a leader in sustainability innovation but the innovation, while noteworthy if not groundbreaking, represents a small part of the firm rather than, as will be described in Strategy 4, a key part of the firm’s DNA. Incidentally, many firms do well with this strategy partly because of a number of third party ranking bodies that tend to be more attracted to key initiatives undertaken by the firm in contrast to the extent to which the firm lives and breathes sustainability.
Internally then, firms adopting strategy 3 demonstrate isolated yet highly lucrative competencies that are more typically found in pockets of the firm. They may have a particular product that is so revolutionary in its benefit for the environment or consumer health that, despite their other operations, represents a highly innovative capability that could be replicated internally in the firm but is hard to replicate by competitors. When Toyota came out with the Prius as the first hybrid vehicle, they demonstrated a highly lucrative core competency that competitors could not duplicate for quite some time. The process behind the development of this technology was highly valuable for the firm. Oftentimes companies, in the absence of core competencies in the area of sustainability, will acquire firms that have these competencies with the alleged intent to slowly integrate this way of thinking into its mainstream product lines. More often than not, however, this doesn’t actually happen. For instance, PepsiCo has acquired many healthy brands (e.g. Naked Juice) but has failed to appropriate the competencies from these acquisitions. They instead tend to make these acquired brands less sustainable. Bottom line is that while the core competencies associated with sustainability might be isolated from other competencies that conflict with sustainability, this strategy is the first of the five to show strategic relevance of sustainability.
From the perspective of employees, strategy 3 creates a very bizarre identity as they might find it difficult to pinpoint just who they are and who they are not. If sustainability exists in an isolated department, employees not in this department often consider sustainability to be irrelevant to their daily operations. In fact, the existence of a sustainability department has been found to give employees a license to continue on with business as usual or, in some cases, to operate even more egregiously in their degradation of social, ecological, and economic systems. Business schools themselves have fallen victim to this problem as core business courses were given a license to “stick to the basics” because new departments operating under the label corporate social responsibility and corporate sustainability were meant to sensitize future managers to some of the complications arising from putting these core courses into practice. Ironically, the influx of specializations in sustainability in business schools inadvertently pushed mainstream professors to avoid thinking more critically about how their course might be partly responsible for some of the system level issues we’ve been seeing.
Other businesses may simply consider sustainability to be one of the many things that they do and don’t hide the fact that there is a contradiction because, in their mind, they are simply responding to the highly diverse set of demands in the marketplace at the time. From a systems and process perspective, no doubt there are likely job descriptions that relate directly to sustainability initiatives. This can go as high up as a Vice-President as in the case of Centerra Gold where there is a VP – Sustainability & Environment. But in most cases, the highest position tends to be at the director role as is the case at Loblaw Companies. From a performance appraisal point of view, only a selected group of employees, managers and directors would be held accountable for performance indicators related to sustainability. Decision-making at the organization, at most, will have sustainability as one of its key decision criteria but more often will not consider sustainability in its decisions because, again, a department or group of employees and managers is doing that for them.
Strategy # 4: Embedded
The fourth strategy sees sustainability infiltrated throughout the firm where, unlike the previous strategy, sustainability is no longer relegated to a particular department among some isolated die-hard employees or reflected in one or two product lines but is instead present in all aspects of the business across all products and services and among most, if not all, employees. From a competitive positioning standpoint, sustainability represents THE key differentiating factor among competitors. While there might be other factors that differentiate the firm in the marketplace (e.g. customer service), stakeholders consider the firm’s primary value proposition to be related to its commitment to sustainability. That is, consumers are loyal to the company because they can count on the fact that all products and services, and the operations used to support the design, manufacturing, and distribution of those products and services, reflect sustainability principles.
Many companies adopting this strategy tend to be smaller simply because the market isn’t large enough to support the business. That said, those consumers who are supportive of these businesses, however niche in nature, are more willing to pay premium prices that support the extra costs that often come with these practices. The value these businesses create for consumers above and beyond the alternative include health and safety, poverty reduction, the responsibility that comes with environmental conservation and, perhaps less intuitively, a desire to be associated with a company or brand that aligns with their values. This latter, rather less studied, reason has important implications for competitive positioning because it offers consumers an opportunity to be activists through their purchasing power. Patagonia, for instance, is a good example of a company that has clearly differentiated itself from competitors like North Face or Timberwolf. They command a premium price for their products but the philosophical value alignment they facilitate for their consumers justifies the price increase. Other examples include Interface Carpets, and Level Ground Trading. The business case therefore evident in the need for a company to meet the needs of a growing niche market that wants consistency in their offering.
On the surface, companies adopting this strategy possess similar capabilities as those companies adopting the third strategy. That is, their unique products and services might be difficult for competitors to replicate or the processes behind the creation and delivery of these products and services might be inimitable. But the fourth strategy reveals additional competencies that are higher in levels of complexity. Complexity is high when there are a large number of interdependent parts or actors that collectively create an unpredictable pattern of behaviour as they respond dynamically to their respective local environments. Complexity is important when considering internal competencies because the higher the complexity of a given competence, the more difficult it is for a competitor to copy or substitute it. In fact, the company itself struggles to figure out how they were able to develop these competencies. Examples of competencies in an embedded strategy include the ability to innovate continuously in the area of sustainability, strong relationships with suppliers that embed sustainability, or a strong sustainability brand. Another common source of competitive advantage for companies adopting strategy 4 is its culture. Culture is often defined as a set of values and belief systems that guide individuals in a particular group or organization. Oftentimes, companies that embed sustainability have a very strong culture where employees, feeling that they are part of something that aligns closely with their values, are more productive and committed to their work. These companies often refer to how close they are with their fellow employees, how collaborative they are in their work, and how there is very little politics that erode workplace performance. Unlike companies adopting the third strategy where sustainability related capabilities are confined to one department or small group of employees, capabilities are often at the firm level, crossing functional areas as employees, in their daily behaviour, interact in ways that create innovative forms of value for consumers and other stakeholders.
The interesting thing about this strategy is that employees of these companies, when asked about what they do in their job that demonstrates their commitment to sustainability, struggle to answer the question because they don’t see sustainability as distinct from their daily routines and activities. This is an important paradigm shift from strategies 1, 2, and 3 because employees of the company struggle to understand how the business could exist without sustainability filtered through their daily activities just like employees of strategies 1, 2, and 3 struggle to understand how sustainability could at all be relevant to their daily operations. The identity associated with businesses adopting this strategy tends to revolve around a sustainability leader, consciously distinct from companies that do not take sustainability seriously. Unlike strategies 1and 2 then, the identity of employees and image to outside actors are aligned. Most, if not all, levels of the organization have performance indicators related to sustainability and decision-making processes incorporate social and ecological indicators. For instance, companies adopting an embedded strategy have a rigorous balanced scorecard that prioritizes financial and non-financial metrics and objectives equally.
Strategy #5: Transformational
The fifth and final strategy is called transformational because companies adopting this strategy make substantial changes to the external environment in which they operate. The external environment can be defined here as an industry, consumer market, supply chain, local community, or even broader society in which the company operates. Unlike the previous strategy where the focus was on diffusing sustainability within the firm, the focus in this strategy is facilitating more sustainable practices outside the firm. The primary reason for this is because firms adopting a transformational strategy tend to go beyond a niche segment of the market and are trying to tap into the mainstream. This requires change in the supply chain, among competitors, regulators, and the market. As a result, a transformational strategy presents firms with a paradox because they are typically trying to push a sustainability agenda on actors in society who are not ready for it. Interface Carpets is a US-based carpet company that has pioneered a number of technologies that have revolutionized the once very toxic carpet industry. But a key difference from the fourth strategy is that their focus wasn’t just on embedding sustainability, it was about rewriting the regulations associated with the carpet industry by demonstrating that more sustainable modes of manufacturing carpet were possible. They also constructed new norms in the industry that forced a number of competitors that had no interest in sustainability to jump on board. That is, the mainstream market, which consisted of large industry government facilities purchasing industrial carpet, now expected that Interface competitors offer a similar portfolio of sustainable products.
When done successfully, the strategic benefits become quite lucrative for businesses that adopt this strategy. Competitive positioning becomes one of leadership where competitors look to the company for the next wave of technological innovation that they too need to adopt or, at least, be mindful of the market’s response to what the company is doing. Even more lucrative is when government, always uneasy about setting harsh social and environmental regulation that might stifle growth and job creation, establishes regulation that is based on what the company has in fact proven to be possible, without the economic costs governments want to avoid. SEKEM is an organic conglomerate located just outside Cairo, Egypt that specializes in agricultural commodities for a wide range of industries. Established in the late 1970s, the company was so transformative in its business model that it single-handedly convinced over 800 Egyptian farmers to transition their practices to organic cultivation in exchange for guaranteed access to the European market. SEKEM’s own ‘mother farm’ was so advanced in its agricultural practices environmentally and socially that the Egyptian government established regulatory policies in the agriculture sector based partly on what SEKEM proved was possible. Imagine that, organic farming in the middle of the desert.
Another interesting dynamic associated with competitive positioning for this strategy is that the rivalry among competitors that typically exists in strategies 1-4 is much lower. Rivalry is lower because for any transformation to take place in an industry, it is easier to have competitors on board for the change. This sounds counter-intuitive because competitors are supposed to ‘compete’. But evidence in the last decade suggests otherwise. Open source innovation is a relatively new practice where multiple competitors join forces to innovate in ways that no individual company could possibly innovate. This requires the sharing of important intellectual capital. Patagonia’s business model is predicated on the notion that it is meant to share any of the new innovations they encounter in the development of more environmentally sustainable apparel. Similarly, leading CEOs, such as Tesla CEO Elon Musk have been quoted as saying that trying to establish a monopoly in their industry is counter to the goals of sustainability because it delays the establishment of a much needed industry standard all competitors can adopt to move forward and leave less sustainable practices behind. Think about the old BETA/VHS war (for those who are old enough) or the more recent HD-DVD/blu-ray war where the supply chain had to wait to figure out which standard would become dominant. Companies in the transformative strategy want to avoid these standoffs and establish a common standard that competitors can use as well. Leading electric car companies could have put forth separate and technologically-specific charging facilities in the hope of being the VHS or Blu-Ray winner. But at least two leading CEOs have instructed governments in the jurisdiction that they were considering entering that any charging infrastructure must be universal and therefore usable by competing electric car companies. Another reason why rivalry must be lower is that companies need to collaborate to avoid the tragedy of the commons. Absent government regulation, natural resources such as a fish species, water or clean air would be depleted if companies behaved independently. Transforming an entire industry away from unsustainable practices, such as fishing in a remote coastal region, requires collaboration among large groups of fishing companies.
Many academic scholars and practitioners alike have come to the realization that no organization can single-handedly make substantive strides to sustainable practices. Wal-Mart, McDonald’s, Starbucks, and Google, no matter how genuine they might be or how embedded sustainability might be internally, can only push the envelope on sustainability if they facilitate change among multiple, highly interconnected actors in their supply chain and industry. The transformative strategy then can only be transformative if networks of actors are created. In addition to combining forces to innovate, competitors and players along the supply chain (customers and suppliers) often come together to self-regulate in ways that governments have struggled. Consider the diamond mining industry where several leading diamond mining companies partnered to impose peer pressure on the industry to stem conflict diamond mining. The Equator Principles is a similar platform through which major global banks, including CIBC and Royal Bank of Canada, agreed to prohibit any loaning of capital to projects in developing countries of the world that carry substantial social or environmental risks to its citizens. In the absence of any governing body with the power to develop and enforce such a policy, these banks, through peer pressure, have pushed the industry in a direction that fosters more sustainable lending practices.
A critical source of competitive advantage for companies adopting strategy 5 is their ability to foster relationships with key actors in its external environment. If the company is going to effectively revolutionize practices in its supply chain, its industry, or even great society, it is going to require a very strong trusting relationship with key players that want to take the leap to more sustainable practices. More importantly, these companies need to understand how to develop a network or ecosystem of actors that are connected and interact in ways that can create the necessary creative destruction that warrant changes in behaviour among all these actors. Any innovation developed in the transformative strategy is often less valuable than the processes that created the innovation.
The organization itself starts to be redefined in the 5th strategy as the lines that once separated its own boundaries become blurred. That is, in the context of sustainability, managers that think of the company as a distinct organization is unhelpful. A more accurate term to define what is needed for strategy 5 is a meta-organization. Meta-organizations are unique networks of organizations in that they organize actions around a system-level goal but are not bound by formal authority relations. Meta-organizations typically possess lead organizations that use their prominence or power to take on a leadership role in pulling together the dispersed resources and capabilities of potential meta-organization participants. The innovativeness of meta-organizations as alternative forms of organization to traditional hierarchical organizations bestows on them an advantage in coping with the complexity of sustainability. Meta-organizations are effective at recognizing opportunities through previously unimagined or unavailable participant connections. The Fair Labour Association, The Kimberly Process and Wal-Mart Labs are examples here. The organizations involved range from businesses, to non-governmental organizations, to community based organizations and even governmental bodies.
Culturally then employees view the organization as one piece of a larger puzzle of organizations who collectively work to achieve sustainability goals. The identity of the organization is largely tied to the connections it has with key participants of the meta-organization as employees feel that they are part of something much bigger than their own organization can accomplish independently. In addition to performance appraisal mechanisms of Strategy 4, managers may also be accountable to the networks they create with other participants while decision-making processes within the firm encompass a wide range of external actors.
Business Strategies for Sustainability
In summary, research has shown that companies respond to pressures for sustainable business practices in very different ways (see summary table in Exhibit 2), ranging from ignoring and defending against those pressures to aligning the broader objectives of the company and even the supply chain. One of the ways to understand these differences is to consider them in the context of strategic adoption levels where sustainability in the firm varies according to its role in positioning the company in the marketplace, representing lucrative competencies that are difficult to imitate, and creating a particular culture and identity that aligns with sustainability. It is important to note that companies will exhibit behaviour that spans some of these strategies. For instance a company might engage in philanthropic activities that are both related (defensive) and unrelated (denial) to their operations or they may both defend against the impact of their operations while still having a department that contradicts the seemingly careless operations of other departments (isolated). It’s the job of the analyst to put these initiatives together to pull out a overarching strategy that defines their positioning, core competencies, and internal culture and identity.
[i] P. Lacy, T. Cooper, R. Haywood, and L. Neuberger. ‘A New Era of Sustainability: UN Global Compact-Accenture CEO Study’ N Global Compact and Accenture. (2010) p. 10.
[ii] KPMG found that 95% of the top 250 companies report on sustainability. KPMG International Survey of Corporate Responsibility Reporting 2011: KPMG International Cooperative (2011); P. Lacy, T. Cooper, R. Haywood, and L. Neuberger (2010) op. cit
[iii] Winston, A. (2019). What 1,000 CEOS Really Think About Climate Change and Inequality. Harvard Business Review. September 24, 2019: https://hbr.org/2019/09/what-1000-ceos-really-think-about-climate-change-and-inequality. Accessed, June 7th, 2021.
[iv] Bonini, S. “The business of sustainability”, McKinsey and Company (2011)
[v] For example, Coca-Cola states, “Our next step is to embed sustainability into our strategic planning process”, Nestle explains, “All business units are now encouraged to embed Creating Shared Value and sustainability into their business strategy and consumer communication”; Wal-Mart held a conference on “How to embed sustainability into your organization”; Royal Dutch Shell chairman said, “Under the recognition of Shell that began when I became CEO in July 2009, we embedded sustainable development firmly into our business”; British American Tobacco stated that they are “Working to embed sustainability in the business” while Philips Corporate Communications says “You have to embed sustainability in your organization”
[vi] Examples include I. Andersson, S. Shivarajan and G. Blau, “Enacting ecological sustainability
in the MNC: A test of an adapted value-belief-norm framework,” Journal of Business Ethics, 59/3 (2005): 295-305; W. Blackburn, The sustainability handbook: The complete management guide to achieving social, economic and environmental responsibility (Washington, DC: Environmental Law Institute, 2007); K. Buysse and A. Verbeke, “Proactive environmental strategies: A stakeholder management perspective”, Strategic Management Journal, 24/5 (2003), 453-470; B. Doppelt, Leading change toward sustainability. A change-management guide for business, government and civil society (Sheffield, UK: Greenleaf Publishing Limited, 2003); D. Dunphy, A. Griffiths and S. Benn, Organizational change for corporate sustainability (London, UK: Routledge, 2003); M. J. Epstein, Making sustainability work. Best practices in managing and measuring corporate social, environmental, and economic impacts (San Francisco, CA: Greenleaf Pub, 2008); Ethical Corporation, “How to embed corporate responsibility across different parts of your company”, 2009; S. Bartels, L. Papania and D. Papania, Network for Business Sustainability (NBS), “Embedding sustainability in organizational culture”, B. Willard, The sustainability champion’s guidebook (Vancouver: New Society Publishers, 2009)