Sustainability fatigue, disruptive innovation and the flourishing enterprise

Rocky Mountain Institute

Sustainability fatigue, disruptive innovation and the flourishing enterprise

When a major company launches a sustainability journey, it normally starts with high expectations, says author Chris Laszlo, After these efforts yield early positive results, however, "sustainability fatigue" sets in. How can an organization find that original energy and push its goals forward?

Laszlo, a corporate sustainability expert, offers ideas about the next steps. He wrote “Embedded Sustainability: the Next Big Competitive Advantage” and “Sustainable Value: How the World’s Leading Companies Are Doing Well by Doing Good.” He’s an associate professor of organizational behavior at Case Western Reserve University’s Weatherhead School of Management and visiting associate professor at the Drucker School of Management at Claremont Graduate University.

I first met Laszlo at a Sustainability Circle event, where Chris facilitated a session on how to embed sustainability into an organization. Chris and I talked about his latest work on the “flourishing enterprise.” Rocky Mountain Institute (RMI) editorial director Peter Bronski recently joined us to continue the conversation.

Michael Bendewald: You teach executive MBA and Ph.D courses, where you include RMI’s “Reinventing Fire” alongside your own “Embedded Sustainability” as texts for the courses. We’d be remiss if we didn’t ask how “Reinventing Fire” complements your work and teaching.

Chris Laszlo: Sustainability is increasingly a business strategy and driver of profit, but the mindset of many companies is still that it’s a cost. When line managers hear about the triple bottom line, including social and environmental objectives, there’s a sense that you have to compromise on the economic side. But you don’t and you shouldn’t.

For students and executives, it helps to have them see how market forces are leading companies to embed sustainability along their life cycle value chains, making it a smarter way to do business rather than only a moral or regulatory obligation.

In my work in management schools, I bring in strategy and organizational behavioral frameworks. Students benefit from having a way to think about how sustainability contributes to competitive advantage and organizational effectiveness. I also provide tools such as life cycle cost analysis and my own work, such as the sustainable value matrix and the 6 + 1 levels of value creation. What we need, what any good course needs, is to populate those frameworks and tools with credible examples. That’s where “Reinventing Fire” fits in.

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“Reinventing Fire” is so powerful because it’s got these four industries -- transportation, buildings, electricity, industry -- covered in a practical, detail-oriented fashion, where the case for the U.S. getting off oil and coal by 2050 is made with the kind of credible and compelling examples that particularly hard-nosed business leaders need to have in order to understand this idea that sustainability is here now, can be done in a way that’s cost saving or profit generating, and is simply becoming a smarter way to do business.

Bendewald: What was the motivation for going from the world you just described into your new idea on the flourishing enterprise?

Laszlo: I’ve spent the last 12 years developing the business case from a strategy, finance, organizational and operations perspective. Having spent all that effort over those years, it really struck me a few years ago that something was missing: Most importantly, the way sustainability is typically addressed in most companies is not producing the kind of results either business or society is expecting.

There are high expectations when a major company launches a sustainability journey. There’s an inverted U curve: Expectations rise, you see results with low-hanging fruit, trucks can be more efficient, stores can be more efficient, supply chains get some benefits. And then suddenly there’s a sustainability fatigue that sets in, other priorities come along and sustainability becomes seen once again as a distraction.

Companies are not getting the kind of financial results over time that leadership expects. A joint 2011 Boston Consulting Group/MIT Sloan Management Review survey showed two-thirds of executives [embrace sustainability] to keep competitive advantage, but only one-third are reaping financial rewards. In another 2011 study, only 15 percent of executives can identify a return on capital levers in future years from sustainability.

On the other side [the stakeholders], if we look at all of the sustainability efforts businesses are making across the world, are they contributing to making the world more sustainable in terms of any of the big issues? Water, climate, biodiversity, chemical toxicity? I think the evidence squarely points to “no.” At best, business is only doing less harm, in other words, slowing the rate of unsustainability. To claim that business, as an institution, is materially contributing to a more sustainable world seems increasingly far-fetched.

These observations put us at the beginning of a new conversation. We need to move away from only reducing a negative footprint. Now companies are making “net positive” a central component of their business strategies. I like the distinction of Australian activist Kathryn Bottrell between reducing a negative footprint and making a positive handprint. The standards of sustainability leadership continue to rise. We can expect in years ahead that it will not be enough for companies to only do less harm. Increasingly, it will be expected for companies to make positive, contributing solutions that benefit society and the world.

Peter Bronski: But if we can’t get companies to reduce their negative footprint currently (as evidenced by sustainability fatigue), how can we get them to go even further into a net positive situation?

Laszlo: What I’m talking about is a completely disruptive approach. Truly disruptive innovations are far more profitable for investors than sustaining innovations that add bells and whistles to existing [products or services]. The bigger profit opportunities are for companies that are going to do something completely different. Driven by solutions to global challenges proportional to the magnitude of those challenges. For example, a company called Ecovative, founded by two young grad students, to take mycelium from mushroom cells and use it to bind agricultural waste into packaging-like material that’s a good substitute for extruded polystyrene. The profit opportunity for this and many other such sustainability-driven breakthrough innovations is potentially huge.

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Bronski: You’ve mentioned disruptive innovation, which brings to mind startups and venture capital. But what about the role of incumbents?

Laszlo: There is a case to be made that business leadership in the years ahead will not come from incumbents, and not even from the U.S. and OECD countries. If you look to where business models and product designs are going to come from, you’re going to need to look to places such as rural India. The Emergent Institute, for example, which has a lot of heavy hitters behind it, including Stu Hart [professor of management at Cornell University’s Johnson School of Management]. Investing in startups, in emerging markets, is where you’ll get the kind of disruptive change that’s going to finally and truly address the kind of global challenges that we face, especially if we are going to really make a difference with business as an agent of world benefit.

What role is there for the incumbents? It will be just as tough for [the incumbents to create] any disruptive or radical innovation. Paul Pohlman at Unilever has a “sustainable living plan.” Is he able to change the culture there around decoupling Unilever’s growth from energy and materials intensity? And what does it mean for employees? I don’t know. Are they able to come up with a business model that’s really going to be disruptive? The consumer products area, aka consumerism, is an elephant in the room, with everyday low-cost material consumption. Is that a model that’s sustainable?

I like emerging markets. Simpa Networks in India. Their model of really-low-cost distributed solar on a pay-as-you-go model is highly socially inclusive. It’s a base-of-the-pyramid model that will make it highly affordable for people. Is that something the big players in Germany and the U.S., such as First Solar … would they be thinking of coming up with that kind of model? It will be tough for incumbents.

Although when you look at a company like DuPont, what they’ve done is remarkable. In the early 1990s, voted least-desirable corporation in the U.S. and top polluter by the EPA. In 2013, 20 years later, it’s gone from being an energy-intensive business, one that owned Conoco, commodity chemicals, harmful in manufacturing, to now the world’s most creative science company coming up with sustainable solutions everywhere. With over 25 percent of sales in sustainable agriculture, including its Pioneer seeds business. Kingfisher is another example of a big mainstream corporation pursuing radical innovation in its business model. It is possible for an incumbent to reinvent itself in short period of time, but I don’t think that there are many.

Bendewald: So whether via disruptive innovators or transformative incumbents, what does flourishing really mean?

Laszlo: Some observers, like John Ehrenfeld, have argued that sustainability has become an empty concept. That it’s often taken to mean continuity, survival and primarily meeting material needs, all of which are insufficiently inspiring for today’s workforce and customers. By contrast, flourishing is far more content-rich and engaging. The word is defined as “thriving, successful, doing well, prospering” (Collins Thesaurus) or “growing or developing in a healthy or vigorous way especially as the result of a particularly congenial environment” (Oxford Dictionary). It’s about the world we all want, not the world we just get by in.

Corporate strategy at the organizational level has been about the competitive environment, what Michael Porter calls competitive positioning, looking at industry structure, what the organization chooses to offer as a value proposition, and how it operationally delivers on that value proposition. Labor is an input to be made productive. The focus extends to individual competencies and capabilities, but almost never with regard for individual well-being. None of the literature ever asks whether those employees are able to live their personal values in the organization, whether they feel that they can bring their whole selves to work. The next wave in sustainability will have to do more to raise the bar from mere survival to economic and environmental prosperity; it will also have to pay more attention to individual well-being. We cannot expect to have a thriving business in a flourishing world without individuals who are also able to experience a greater sense of well-being and connectedness to their self, to others and to the world around them.

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Unless we have such a vision that will inspire and engage employees and other stakeholders, you won’t get creativity or authentic commitment to corporate mission. It’s about doing well by doing good. You’re not going to attract the best talent, best customers, best ways to drive disruptive innovation.

Bendewald: You’ve also spoken of flourishing as spirituality, and that it’s hard finding the right words to talk to companies.

Laszlo: Very early on my colleagues and I at the Fowler Center for Sustainable Value defined spirituality as the basic feeling of being connected with one’s self, others, nature and the entire universe. Many empirical studies, such as the Mitroff and Denton piece in The Sloan Management Review (Summer 2009), show that when you really question executives about what spirituality means for them in a non-religious sense, it’s about meaning and connection. When executives get that, it becomes a much easier conversation.

Yet everybody was telling us that to talk about the spirituality stuff is crazy, that you’ll offend people, they’ll be put off. Now I’m teaching and giving talks half about business case and half about flourishing. The only thing people want to talk about is the flourishing. They want to experience a greater sense of connectedness to the world around them. To think that there might be practices at work to allow them and their teams to be able to put some attention on caring for yourself. [Author and management consulting expert Peter] Drucker said that managers cannot manage others unless they manage themselves first. He also said that spirituality is not instead of material activity, but a way to give material activity greater value.

Bendewald: In your work you’ve referenced the 1920s work of Martin Heidegger, who described our primary way of being as that of interconnectedness -- with other humans, technology and nature. How does that contribute to business success and sustainability?

Laszlo: Yes, [Heidegger] called it “Dasein.” I’m personally convinced that when people feel a greater sense of connection, they are more likely to understand what sustainability-as-flourishing is all about. The task of management leadership is to help everyone in the business system pay more attention to customers, employees, suppliers, local communities, to make a greater sense of connection part of how they do business.

[Connectedness and care as a way of being] helps people, inspires and engages people, enables them to be part of the company’s work in a way that sustainability has lost the ability to do, and certainly just making money doesn’t do. If people are connected to a mission of doing good in the world, and connected to a level of flourishing at every scale, including at the personal level, you get high levels of engagement. My hypothesis is that that yields greater creativity.

If you pay attention to individual well-being in a deeper sense -- more than salary, taking care of their hearts and spiritual well-being, not in a religious or cult sense, but in enabling employees, giving them generative space to do that on daily basis -- you’re going to get a much more productive and loyal workforce ultimately able to be better at innovation, etc.

When people feel deeply connected, they will habitually make decisions that support flourishing, which will support the “Reinventing Fire” vision, because it’s not just the business case. Making purely the analytical business case has proven over the last 10-15 years not getting companies to go far enough fast enough. We and they need to do something more. “Reinventing Fire” -- and its promise of economic prosperity, environment and health, security, and resilience -- has the potential to lead to flourishing. But to get to that end state sooner than later, we need to invest more in business-led, market-based disruptive innovation, which we’ll only succeed in doing if we can overcome sustainability fatigue. And doing that may depend on cultivating flourishing at every scale, including individual emotional and wellbeing.

Image credit: CC license by U.S. Army/Flickr