Why constraining your sustainability strategy is a smart move
Why constraining your sustainability strategy is a smart move
Is a commitment to sustainability a real strategic advantage? Or are companies voluntarily tying one hand behind their backs?
In recent weeks, I’ve been thinking a lot about the incentives, and disincentives, implied by an aggressive sustainability strategy. I participated in a great panel discussion focused on the link between innovation and sustainability, described here.
The panel was moderated by Phil Metz of Singing Dog and featured Mike Biddle from MBA Polymers, Mikhail David from Interface, Beto Lopez from IDEO and myself. We discussed some very interesting concepts, primarily dealing with how effectively innovation processes can deliver social and environmental wins, and conversely, how sustainability can be framed and employed as an opportunity innovation.
In one exchange, Beto described the sustainability director’s role as anticipating a future set of operating conditions for a company and making them relevant and actionable in the present tense. I love this description. It focuses on the importance of understanding a wide body of social, environmental, commercial, economic and other inputs, interpreting them into relevant terms for an organization and creating ways to integrate this information into the decision-making process -- be it product design, operational, strategic or otherwise.
The central question I arrived at was this: If a sustainability director’s job is to effectively understand and communicate a set of future constraints, be they in terms of resource pricing, material choices or operational context, why would any company voluntarily move to a more constrained and likely more costly mode of operations any earlier than required by legislation, scarcity, or other drivers?
I think there are five reasons why taking this step makes sense. To start, there is a multi-faceted first mover advantage for the company that enters and defines a new market. The chance to create the ecosystem in which all future competitors will play isn’t a guarantee of success, but it does mean that competition is on your terms. In effect, being there at the start gives a company a role in the decision to go Beta vs VHS. Mike Biddle cautioned on the risk and cost to the first mover’s investment in creating this landscape -- in his company’s case, this meant solving many of the technical and market challenges in recovering plastics from a wide range of waste streams.
An additional first mover advantage is the increased time an early player has to build capacity and expertise in a new set of conditions. For example, a company that has been building waste reduction goals into their operations for many years -- such as DuPont -- can rely on efficiency as a source of competitive advantage relative to competitors who don’t develop these abilities. As another example, Method had over five years of experience developing high efficacy phosphate-free auto dish detergents by the time regulation pushed the big players to remove phosphates from their own formulations. When they struggled with performance issues, Method’s product had addressed the technical challenges and its market share grew 40 percent over the year following the regulatory change.
Third, and most importantly from Method’s perspective, is finding ways to turn sustainability constraints from limitations into advantages. We aggressively focus on making resource efficiency, materials selection and responsible manufacturing into drivers of better product experience. Method’s 8x concentrated laundry detergent is a great example of how an impressive resource savings from a super-concentrated detergent directly leads to an easier and better user experience.
Fourth, establishing a reputation for leadership in sustainability can attract partners, collaborators and suppliers interested in social and environmental co-development. This effectively creates a new funnel for innovation to product development activities, potentially bringing a series of new ideas into the pipeline. Method has benefited from a surge in calls from novel green chemistry or low-carbon materials in recent years, largely driven by our ability to get previous such materials to market.
Lastly, green product development can offer market differentiation. Truly excellent environmental design is still a rarity. Despite 70 – 80 percent of surveyed U.S. consumers saying that they prefer to buy greener goods, actual purchase rates are at 5 to 10 percent. A part of this “green gap” can be attributed to green products that just don’t deliver what users expect. Companies that can address the technical challenges involved in creating and producing the first truly excellent green offerings in their categories have an amazing upside on their hands.
The discerning reader will notice that I have not listed any public or reputational benefits that could derive from a sustainability strategy. Other writers have correctly pointed to upsides in talent attraction and retention, brand value and social license to operate, among others. However, I would argue that many of these benefits could be experienced by companies that have not committed to materially changing their businesses in order to operate within a realistic set of future conditions, but rather have made some select changes, released well-publicized CSR reports, or issued compelling CEO statements while most of the business proceeds as usual.
There are clearly upsides and downsides for those companies that do acknowledge and react to their best understanding of future operating conditions. Where the balance between these two lies likely depends on the company’s culture and competitive context. In Method’s case, there is amazing overlap between the opportunities for value creation and the ethical imperative to address social and environmental problems. This overlap has led to the growth of our company so far and will continue to be the basis of how we think about designing better products, operating more efficiently and running our company more effectively. In effect, social and environmental constraints define our opportunities rather than limit them.