Walter Hale explores the concept that sustainability is no longer about being green, but about the way companies perform and how they help, or harm, the businesses, communities and societies they interact with.
“Businesses are here to serve society. We need to find a way to do so in a sustainable and more equitable way not only with resources but also with business models that are sustainable and generate reasonable returns. Business simply can’t be a bystander in the system that gives it life in the first place.”
These words may sound like a lecture from a left-wing politician or environmental campaigner scolding private enterprise but they are actually the views of Paul Polman, chief executive officer of Unilever, on one of the largest, most famous companies in the fast moving consumer goods sector, a business that reaches more than 190 countries and creates products that are used by around two billion consumers every day.
Such rhetoric is cheap but Polman has put those words into action, reinventing Unilever with an eye on the long term, clear business goals - generating profitable growth ahead of its markets, steadily improving its core operating margin and maintaining a strong cashflow - and a focus on the company’s impact on the environment and society.
In the process, the Dutch businessman - and others who think like him - are redefining what we call sustainability. It is no longer about being green, which was always a nebulous term. It is about the way companies perform and how they help, or harm, the businesses, communities and societies they interact with. To give one specific example that typifies this broader view of sustainability, realising that Unilever’s incentive schemes encouraged staff to think in the short term, Polman had them restructured so that some rewards were linked to long-term performance.
The time has passed when managing directors can see sustainability purely in terms of such specific, if laudable, initiatives as recycling more waste and using less electricity. So, for example, a British media company that buys all its paper from sustainable forests yet has created an opaque accounts system that leaves suppliers waiting 60, 90 or 120 days for payment is not, by Polman’s definition, truly sustainable.
To wide-format print bosses worrying about where the next order might come from, all this may sound grandiose, even idealistic. Yet Unilever's boss insists that he is only acting in the long-term interest of the business he runs. As he has suggested, if companies in the consumer goods sector don’t rethink their business models, the sector won’t exist in 50 years time.
Dominic Barton, the global managing director of management consultants McKinsey, makes the same point starkly. Pointing out that public trust in businesses had reached historical levels a decade ago - in other words, long before the recent global economic crisis precipitated by a colossal, systemic failure in corporate governance - he says: “Business leaders face a choice: we can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressure of an angry public. Serving the interests of all major stakeholders - employees, suppliers, customers, creditors, communities, the environment - is not at odds with the goal of maximising corporate value, it is essential to achieving that goal”.”
The terrible irony here is that it has taken so long for such thinking to permeate the world’s boardrooms. In 1776, the economist Adam Smith defined, in his magnum opus ‘The Wealth Of Nations’, three kinds of business inputs: labour, capital and land (defined as any resource that can be produced or mined from land or disposed as waste on it). The first two industrial revolutions were primarily driven by labour and capital. There is now, McKinsey argues, a need for a third revolution: to make significantly more effective use of the resources we have.
If the world’s economy grows at predicted rates, we will need to improve the productivity of our energy by 3.2% every year until 2030 to keep pace. Water is even more of an issue: we will need to increase the efficiency of our water - as measured in unit of GDP generated per cubic metre - by 3.7% every year over the same period. This is a colossal challenge that cannot be met by financial engineering, or the usual deckchairs-on-the-Titanic managerial tinkering and will, as Polman suggests, require a more collaborative kind of capitalism as companies seek to do five things:
- replace costly, clunky or scarce materials with more widely available, cheaper, more productive ones.
- embed software to optimise - and dramatically improve how they produce and use resources. ?
- move processes out of the world - through virtualisation, possibly through such innovations as cloud computing or simply not do things that can be automated.
- find value in products after their initial use.
- redesign products and services to eliminate waste.
So for wide-format and digital print firms, sustainability suddenly becomes a much wider, more complex issue. The quest to find the most environmentally friendly substrates and inks remains as urgent as ever, but the shrewd sustainable investment might be in software to reorganise production or design thinking to reinvent your products to maximise the effectiveness of the resources you’re using. Yet even this isn’t enough. Companies need to create a strategy that enables them to achieve their business goals in a way that is sustainable for them as a business - and their stakeholders.
Many of the initiatives wide-format printers have already taken - seeking environmental accreditation, using biodegradable substrates, reducing waste, integrating production systems to make them more efficient - will form part of that strategy. Yet there is so much more to think about. This won’t be easy. As the Nobel Prize-winning economist Daniel Kahneman has suggested in his bestseller ‘Thinking Fast And Slow’, we are hard-wired to operate in a mode he calls WYSIATI (What You See Is All There Is). To meet the strategic challenge sustainability is now posing, business leaders will need to shake up their thinking and be prepared to redesign the organisation.
A good place to start would be trying to see your company how others see it - not how you have become accustomed to regarding it. This would help clarify where your business is harming and helping, where and how it will need reorganising and which partners - be they suppliers or competitors - you can look to, learn from and, quite possibly, work with - to move forward.
To get a sense of where all this thinking can lead, look at General Electric and Apple. These two very different corporate behemoths both recently decided to systematically work their way through each of the 118 elements in the periodic table assessing which ones posed the greatest risks in terms of supply, cost and regulation ¬and then proceeded to identify what could be substituted for the riskiest elements. You can apply similar thinking to your own company, by just looking at the resources you use and focusing on their cost, availability and likely regulatory scrutiny ten years from now.
Fortunately, not every challenge is of that scale and complexity. Managing directors seeking to reinvent their businesses can expect some quick wins. One no-brainer would be to evaluate the impact Skype could have on travel costs - or the productivity of staff who spend most of their working lives on the road. Another simple change would be to extend the time frames against which senior managers’ performances are evaluated by ensuring, for example, that one year is judged in the context of a three year cycle or mapped against a five year plan.
None of these initiatives should be seen in isolation. McKinsey estimates that it takes five to seven years to create a strong business so, if you’re contemplating reinventing your company to make it sustainable in this new sense of the term, why not take a leaf from IBM’s book and create a five-year-road map? That will help you evaluate whether you are really making progress towards your goals and usefully put the ebb and flow of quarterly sales and profits in a wider, more long-term, context.
There is a danger that, amidst all this change, the original focus on sustainability might become diffused. That hasn’t happened at Unilever. Under its Sustainable Living Plan, the company aims to halve the environmental impact of the making, and use, of its products by 2020, while still growing the business. The rationale behind this is clear. The old thinking - in which companies were satisfied with the old two per cent approach (improve performance by two per cent a year and everything will be fine) - no longer applies. The truth is that sustainability is no longer just about being good, it is about having a good business. The decisive competitive advantage in the next 20 years won’t be how smart you are or how cutting edge your technology is, it will be how productively you use your resources.