The EFMD business magazine

The EFMD business magazine

Building sustainability into the value chain

Building Sustainability into the Value Chain

Running a “sustainable” business is not about recycling and tree-planting programmes, it’s about putting sustainability at the core of your shareholder value proposition. To achieve sustainability transformation in companies, leaders need a broader skillset. This means that management education thinking also needs to be transformed to address sustainable values.

Is sustainability in business misunderstood? Some senior managers see it as the end of the business – a strategy that strangles profits with green priorities and environmental constraints. To others, it’s a handy promotional tool. But aren’t recycling and community tree planting merely lip service – corporate social responsibility for the annual report and yearly updates to the board?

If this is how you see sustainability, you are still not “getting it”. Businesses exist to build value and drive profit. This won’t change. Forward-thinking leaders see this. They also know that the past decades’ trend of unbridled resource consumption – and the irresponsible environmental practices that have brought us to where we are today – cannot continue.

Quite simply, sustainability is set to become the new business model for the rest of the 21st century. To stay in business, tomorrow’s companies need to build value continually, innovate in productivity and increase profits. Nothing new here.

The twist is that sustainability is fast becoming an essential part of value assessment – the core of the new business model. Delivering this requires a new brand of leadership, thinking and practicing with a dual vision for the future of the business and the planet.

Leaders who are serious about building value for the future need to be serious about making sustainability central to the value equation. The first step is to be clear on what that means – for you, your teams and your stakeholders – and how to translate that into a business model.

Building sustainability is not a programme but a business and profit model with sustainable planning as an integral part of the value chain. The message that your shareholders, customers and the talent you recruit need to hear is that you are leading a business strategy that’s more profitable and based on sustainable values. Not the double bottom line: the integrated bottom line.

Examples abound of wildly successful businesses that are running the environment into the ground. In the near future this will no longer fly. But most business schools continue to sing from the old hymn sheet – that if you have to choose between profit and green, the only viable business choice is not ‘or’, it’s ‘and’.

So the new business target is sustainability and “Leadership 3.0” Leadership 1.0 was based on last-century paradigms and research, focusing on qualities such as creating self-awareness, giving and receiving feedback and coaching, version 2.0 added mindfulness and authenticity.

To make Leadership 3.0 a reality, executive education, and leadership development professionals need to develop business leaders who are self-aware, visionary and run a profitable business that contributes to improving society and the environment. You will need to clearly elaborate and demonstrate the sustainable value chain. That’s the sustainable business model.

Are you doing this today? Most likely, not. What you are doing is reporting to your board on “sustainability targets” largely through the lip-service lens of communications programmes and CSR activities – window dressing.

This thinking drives linear growth. Applied effectively, sustainability 3.0 drives circular growth. It’s not about recycling – of course, that’s part of the picture – but looking at the entire supply chain through the sustainability lens. In light of the rapid pace of change in climate thinking, leaders concern for “…how can we afford to do this” will soon become “…how can we afford not to do this”.

Is change really coming? The current era of populism will not last forever (some are hoping for a two-year horizon). Today’s world of 75-year-old politicians holding onto the past will soon give way to a new electorate and consumer base that is looking for proof of sustainability.

The call for climate action and corporate accountability will only get louder. Activism is already evolving into national and international legislation in treaties such as the Paris Agreement and other environmental treaties. This year’s young climate activists will be policymakers, investors and business leaders a decade from now.

In many sectors, changing consumer preferences are advancing in lock-step with the new legislation. Sustainable financing or the rejection of financing that does not have a clear sustainability benefit is taking hold. Likewise, pension and investment funds are focusing their investments away from unsustainable sectors.

All this should be a no-brainer for leaders who are attuned to thinking five, 10 or 20 years into the future. And for tomorrow’s leaders to embrace this new thinking, another group needs to be reskilled in short order: the business schools that develop them – many management development institutes are teaching last-century business models. If the policymakers and investors are measuring against green criteria today – it’s a signal that everyone needs to put their sustainability lenses on.

The business schools need a more transdisciplinary approach in their education. They can be inspired by Renaissance thinking – to revisit what it means to be a holistic leader. Business schools are too focused on case studies, shareholder value maximisation and undervalue the role of the shareholder. They need to develop “trans-disciplinary graduates” with skill sets that blend elements of management, engineering, sociology, history and psychology – a new crop of Renaissance women and men.

The change brought by this new thinking will be a new generation of leaders who are driven to build businesses with a purpose and driven by prosperity rather than solely by profit and shareholder value maximisation.

Now to the more practical question: how to do it? Leaders can be inspired by frameworks that guide development of sustainability and action plans.

Responding to climate science isn’t rocket science, it’s basic management science. This is another thing that visionary leaders are good at change management, innovation, and driving and managing disruption. The starting point for building sustainable value into your business is the same as any corporate transformation effort – baseline, targets, audit reflection, adjustment.

The sustainability audit is a management audit with a sustainable lens. It brings a fundamentally different set of core criteria to the business model. The foundations of the new model developed in a dialogue process – a sort of 360 scan of the business from a sustainability perspective:

Developing and engaging all actors in the value chain to embrace sustainability values – the board, managers, employees, customers, suppliers, and shareholders;

Integrating sustainability in the organisation – an iterative process of co-creation that sets the mission, strategy and action plan with clear and frequent communication to all staff and external partners;

Achieving the goal – or rather taking steps toward it. This is a progressive process that keeps the conversation going on the benefits of our journey together around providing benefits for through partnerships, prosperity, the plant – and the ultimate beneficiaries of our products and services, delivered in a sustainable model: people.

Assessment and learning – this phase asks the question: are we “Sustainability-fit”? in a process of integrated reporting, impact measurement and self-assessment?

This Sustainability fit approach differs from well-known business planning and continuous improvement paths, such as Total Quality’s ’plan-do-check-adjust’ in two ways. First, it puts sustainability at the centre of business value-profit model; and, second, it guides a “co-creation” process where all key internal and external stakeholders are engaged in developing the new business model.

For leaders who want to go sustainable, the pathway and business case are clear, getting there is a question of planning. As the Leadership 3.0 approach attracts the interest of leaders and senior managers as a real value proposition for shareholders, the remaining gap is preparing the next generation of leaders and managers.

Are business schools and the management development community prepared to build skills and knowledge on sustainable business thinking? Today, probably not.

Business schools need to adapt their thinking and teaching. Some are moving but many seem to be slow in rethinking executive development and leadership development programmes to develop leaders for a sustainable future.

Management’s focus on profit maximisation for shareholders as the only value by which success is measured got us into the current climate mess. It’s about more than carbon and global warming: consider issues such as pollution of water, and air; or plastic particles embedded in the food chain and the human genome.

What’s at stake for staying with the current shareholder value model and not addressing these issues in your business? Back to basics…. lost profit. The phenomenal rise of ‘B Corporations’ in recent times shows how companies that get it, will attract employees, customers, suppliers, and investors ahead of those that do not.

From the CEO’s perspective, any investment is not about cost but ROI, putting sustainability in that calculation will progressively transform business and society, just as poor corporate environmental practices have done over the past 50 years.

See more articles from Vol.14 Issue 01 – ’20: Leadership for a better future.

Senior Executive with more than 30 years experience in Executive Education, Leadership and Management Development, Sustainable Strategy, Finance and Leadership Consulting. Recognized as an exceptionally results and people orientated executive in the Executive Education and Leadership Consulting industry, someone who is creative, take calculated risks and acts and thinks strategically.

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