Sustainability as Core Business Strategy

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on August 23, 2008
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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Business leaders now recognise that sustainability has moved beyond the corporate social responsibility agenda to become an integral part of core business strategy and success. Companies are moving from asking what our sustainability strategy should be, to asking what our business strategy should be in light of sustainability.

Companies have used three key approaches to integrate sustainability into their strategy – planning their strategy to include sustainability trends, managing how opportunities are defined and selected, and experimenting with approaches to learn which yield the best results.

High Demand, low supply

Business depends on a host of often unnoticed ecosystem services, from a stable climate to assimilation of waste, from providing food to controlling diseases and pests. It's not just rainforests and tigers under threat, climatic systems, water resources, agriculture and fisheries are all degraded or unsustainable ecosystem services, which we still rely on for business success.

We are depleting our natural capital at the very time when our needs are growing. The planet will be home to 9 billion people by 2050, with the addition of just under 1 billion people in the next 10 years alone.

Profit from sustainability

The surge in population and consumption over the next 20 years looks impossible for damaged ecosystems to sustain. But smart businesses will profit from these challenges by finding ways to give us what we need and want while maintaining the ecosystem services which we rely on.

People increasingly expect business to play a key role in finding solutions to these global problems. Taking the opportunities also brings reputation and brand benefits as well as give employees a larger cause to be motivated by. However, if companies fall short of expectations, then they will experience consumer distrust (or even boycotts), greater regulation from governments, and investors questioning the quality of management.

There is an opportunity now for businesses to explore how to combine profit with creating a sustainable future. Business strategies that address this challenge at a profit will define the successful business of the next 10 years.

Integrate Sustainability into Strategy

We have found that businesses bring sustainability into their strategy process using a combination of three approaches. Firstly, they must plan to include future trends. Most companies have a strategic planning cycle, perhaps five-yearly with annual revisions. Companies can incorporate sustainability into that cycle by introducing material sustainability trends to the external assessment of the structure and dynamics of the business context.

Secondly, companies should manage how opportunities are defined and selected. In most organisations, there is the plan and then there is what happens. Putting any strategic plan into action means changing how opportunities are defined at the “coalface” and selected by managers and then reallocating resources appropriately.

Leading businesses are enabling people to define sustainability as an opportunity through giving clear signals of intent, including announcements and high profile actions. They are also setting a structural context where opportunifies that are on-strategy are favoured. These can be formal, regular reporting to board-level committees, performance targets or internal carbon currency. Or they can be informal such as promoting people who have pushed commercial sustainability-related activities.

Thirdly, organisations need to experiment to learn and create options. The world changes fast, so do the commercial opportunities of sustainability. Speed of change limits how well a company can plan or manage for success. Instead, leading businesses keep their options open and identify the best approach through a range of deliberate and contained experiments.

The experiments could be a new product message, a new product, or a whole new business. Such experiments give them the chance to test different approaches without committing the entire business. Learning is the success factor – even if they lose money, they know how to do it differently next time.

Some companies focus on one strategy, but most companies have a combination of strategies that use core competencies.

Business strategies for sustainability must be built on the specifics of how that company creates and maintains its competitive edge. Any business case is going to be weak for generic initiatives, philanthropic add-ons or being responsible for the sake of it. Instead, business strategies must anticipate emerging issues, build on the company’s strengths, and focus on resolving the challenge of reducing supply and increasing demand.


Written by David Bent. For more information, please contact The Chartered Institute of Management Accountants (CIMA) Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com. Website: http://www.cimaglobal.com