The principles of a sustainable business model
Did you know that nearly 50% of companies have changed their business models as a result of sustainability opportunities? Pursuing a sustainable business model is a big step and often means big changes in the way a company and its network create, deliver and capture value. It is nevertheless well worthwhile and as it turns out, the more ambitious the innovation, the bigger the bang.
So what are you waiting for? Here are seven tips to help you get started…
1: Set a sustainable strategy
Your vision and ambition should be transformed in a tangible plan of action that employees and stakeholders can understand. Although research shows that 90% of executives see sustainability as important, only 60% of companies actually built a sustainability strategy.
Probable avenues to explore when developing a sustainable strategy are “product stewardship”, “pollution prevention” or “sustainable development”.
- Product Stewardship means that everyone involved in the lifespan of the product meaning whoever designs, produces, sells, or uses the product should try to minimize the product’s environmental, health and safety impact. It includes prioritizing the use of more sustainable materials and ingredients, as well as optimizing and reducing packaging.
- Pollution prevention means your strategy will focus on reducing emissions and waste during the product’s lifespan.
- Sustainable development means that all new developments don’t endanger the quality of life of future generations and/or undermine the integrity and stability of the natural systems.
Keep in mind that sustainability requires a long-term, strategic-level commitment and an adjusted business model to generate success. It asks a level of sustainability commitment that goes beyond cycling to the office or charitable giving.
2: Focus on materials
A MIT study revealed that companies that focus on material issues report up to 50% added profit from sustainability. Contrary to those that fail to focus on their material issues and therefore struggle to add value from their sustainability activities. Identifying polluting materials and acting on them, is a big part in becoming more sustainable. Every small adjustment is a step forward, this could go from fuel efficiency to making sure you use sustainable materials for packaging and/or product design. Taking a closer look also takes in account sustainability criteria for the qualification and prioritization suppliers.
3: Take a closer look at logistics & manufactures
A major step in becoming more sustainable is examining the operations of manufacturing, logistics and setting sustainability criteria in the qualification and prioritization of suppliers. Sustainability and efficiency go hand in hand, so by focusing on becoming more efficient, brands can minimize emission and negative effects caused by transport and production. Additionally, actively engaging with suppliers and further partners to make sustainable commitments and investments is key to achieve real progress.
Logistics 4.0 takes it a step further by putting the focus on instant information exchange, automated solutions and real-time big data analysis. Adding IoT to logistic processes can minimise waste and pollution, remove costs, and boost sustainable collaborations. Think about digital supply chains, (semi-) autonomous decisions and logistical assets such as self-driving trucks.
4: Persuade your employees
The golden rule to create a vibrant and sustainable company is to make it business as usual. Sustainability has to cut across all aspects of a business, from reducing the environmental footprint of the company and staff to integrating sustainability into their business decisions. This means making sure the sustainable values shimmer through on all three dimensions of personal compacts; formal, psychological and social. The sustainable should be embedded into the core working practices and procedures and a component in performance evaluations. Employees should feel that their efforts are being recognized and rewarded. The company culture should carry strong sustainable values for employees to align their personal and corporate values. However, changing the culture will take time.
It is crucial to educate employees about sustainability and to provide them with the tools, skills and knowledge not leave a trail of confusion and inaction. Too many companies count on employees to intuitively change in direction, and work out for themselves what they need to do differently. Companies as diverse as BASF, IBM, Marks & Spencer, and Unilever have invested heavily in training and development. To enable sustainability decisions to be made at a large scale they adapted easy-to-use systems, processes and eco-efficiency tools to evaluate a new product. This might sound obvious, but many businesses think that the production of a cutting-edge strategy is enough.
5: Develop a clear sustainable business case
While 60% of companies have a sustainability strategy, only a fourth have actually developed a clear business case for their sustainability efforts. Although a sustainable strategy is a great kickstarter, it won’t do the job. Your business case will actually make sure you profit from going sustainable. By tackling subjects like alignment, time and performance you will get a clear view on possible struggles and opportunities. How aligned a sustainability initiative is with the firm’s core capabilities can shine light on how it could enhance or devalue those capabilities. If the issue doesn’t fall within the boundaries of your area of influence, a business case will help to analyze how you can successfully tackle this issue relying on your capabilities or by co-operating with others. Your case could also include short-term strategies that are in-line with the overall strategy to help overcome these challenging barriers. In addition, it will give you an idea of the time it will take for benefits to materialize and the expected return in terms of economic benefits for the firm. Will you gain or retain legitimacy and create social and environmental value? And will this initiative lead to returns in terms of learning and acquisition of new capabilities?
6: Explore business model innovation opportunities
Pursuing a sustainable strategy will probably mean your business model will have to change. Although they’re aren’t any sustainable business models out here, you shouldn’t be afraid to explore and innovate. There is a reason nearly 50% of companies have changed their business models as a result of sustainability opportunities. The same MIT study found that 59% of companies that profited from sustainability did so by changing three or more elements of their business model. So dare to focus on multiple business model elements to get the most potent results. They often aren’t game-changing products, but a combination of innovation in the value chain and a focus on target customer segments that add the most profit from sustainable related activities. Once you created your sustainable business model it is important to also integrate it into day-to-day business.
7: Get the board of directors on board
Although the board plays a strong role in sustainability efforts, studies found that only a third of companies have strong board-level oversight and only half of the CEOs are truly engaged to go sustainable. However, you need to get stakeholders and the board in agreement if you were to roll out a successful long term strategy. It might help to point out the number of studies that found a direct link between companies that do good by the environment, their labor force, and in communities also do well financially.
Global companies should also consider creating a dedicated committee to help the board focus on sustainability, and bring expertise to the table. Unilever and Nike both showcase the difference a board-level corporate responsibility committee can make. Nike transformed itself from being know for “slave wages” and “arbitrary abuse” to a pioneer in using sustainability for innovation. Unilever launched one of the most ambitious strategies that a global company has ever embarked on with its Sustainable Living Plan (USLP) pioneering a bold new business model that recognizes the importance of partnerships to accelerate progress towards sustainability.
Time to get started
Although these seven principles are great guidelines, there is no one solution. Mapping challenges and motivating employees will take you a long way, but every company is different and sometimes the right solution is not the obvious one. It is important to realise that transforming to a sustainable company will take time and effort, but don’t be discouraged, afterall Rome was not build in a day.