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CSR is dead, part 2: From here, it's all about transformation

High marks for corporate social responsibility are no longer what drives companies into sustainable practices. It's business. But to get it right, companies must transform.

This article originally appeared at 2degrees and is the second part of a series.

What is our purpose in business? That debate is just beginning, and became a part of the conversation at the latest World Economic Forum in Davos.

Last time out, we explored Peter Bakker’s provocative view that corporate social responsibility (CSR) is dead and how leading companies already are going way beyond CSR, integrating sustainability into everything they do, to generate new models of business success.

Bakker’s statement rightly shakes up our perceptions, as he puts two key issues on our strategic radar — the need for carbon pricing and a fully integrated approach to business and sustainability.

There is no doubt that the cost of so-called externalities needs to be included within the total-cost-of-ownership of all our business products and strategies. We need to face up and pay up, on the true costs arising from all our business activities.

And, as Bakker urges, we will learn to love the authenticity of this approach.

But the key point for me — and where we need to dig deeper into the debate this year and beyond — is the call for an integrated approach to business. Easy words to say, but when you start opening the lid on this challenge, the implications are so profound and far-reaching.

This changes everything

Integrated business will mean a complete re-design of all our business thinking and practice — from top to bottom: It will mean redefining business purpose and strategy, re-engineering the business model (how we make money) and reconfiguring and realigning our operations and supply chains, to ensure authentic delivery on our integrated business promises.

It really does change everything. Once you set off down this road, there is no turning back. As the late great Ray Anderson used to put it, “Once you see, you can’t un-see.” Business never will be quite the same again.

The radical shift towards integrated business is ultimately a story of transformation — and by that, I mean genuine transformation, not some watered-down model, overstating the impact of incremental change. Making this stick will require business and sustainability leaders to share their inner truth — establishing a more authentic narrative for sustainable business success.

Ikea’s Steve Howard is setting the pace — in both word and deed. Recently, he shared his view on the common theme emerging from the great work going on at Ikea: “I think it comes down to setting an agenda for transformational change in the business and then really driving that change through innovation."

"Incrementalism doesn't light people up. It is radical change that excites people," Howard said. He is absolutely right.

The follow-through is just as impressive. The Swedish home furnishing business genuinely appears to be transforming its portfolio — helping its customers make the necessary shift towards a more sustainable world. Ikea's sales associated with its range of sustainable lifestyle products have passed $1.13 billion — a 58 percent increase, compared with 2013.

OK, so there may be question marks over the sustainability of the whole big-retail-model — after all, big shops need to sell more stuff, right? But seeing a major company transition its product portfolio in this way is radical and refreshing — and I’m sure we can look forward to further great strides, on the business model challenge, in the coming months and years.

Of course, transformation cannot happen on its own — it will need to be supported and nurtured. To enable a genuine transition to integrated business, we will need to see three big shifts in our business thinking.

1. Rethinking limitless business

Business leaders increasingly will desire to break with conventional, linear business thinking — including the false expectation of continuous growth — as they recognize this mindset is just not compatible with the planetary boundaries we are already crossing, and the very real limits to growth that result from this experience.

Denmark is, once again, proving to be a hotbed of innovative thinking. The Danish Government is challenging the orthodoxy of conventional economic growth — choosing to reframe the challenge in terms of "responsible growth," with a greater emphasis on shared value and on economic activity that will contribute towards social and environmental objectives, as well as delivering on internal business aims.

Businesses will, and should, continue with their best efforts in optimizing their eco-efficiency and circular economy initiatives, but we also will need to do our homework on key risks and pinch-points, and the extent to which we can achieve a fully "closed loop" and genuinely keep growing without adverse impacts.

We will need to see much more "science" in our business plans, to demonstrate that our growth plans are responsible and achievable. Investors will be watching closely — there is no room for error.

Our desire for growth might not only be limited by planetary or economic constraints, either. One simple law of business need not be overlooked — the customer is still king, and smarter businesses always will be looking to the next in line.

2. Prepare for the rise of the millennials

We should expect and be prepared for a different customer dynamic in the sustainability-charred and post-financial-crisis landscape. Millennials are not acting the way our customers used to, and rightly so. They are not passive consumers of old — they are much more discerning, they may not buy as much stuff, and are apt to see beneath the veneer of any empty brand.  Your proposition had better be real — or you will be found out.

Millennials also see a very different role and purpose for business. In a survey by Deloitte, 36 percent feel that the purpose of business is to improve society. Indeed, in my own class of sustainable development students in Copenhagen — many of whom come from the USA — 100 percent not only want to see a better world, they want to be engaged in changing it. This generation is quite inspirational.

3. Repurposing business purpose

This point flows through to the key debate that is only just getting started — and one that received traction at the recent World Economic Forum in Davos — and that is, what is our purpose in business?

Rather than self-seeking and profit maximizing, businesses will choose to look outwards to explore how their unique capabilities can be turned to good use — asking themselves, what is our unique contribution to solving the challenges of our time?

Re-purposing our business skills and capabilities in this way need not be a burden. In fact, for many, it could be a liberating experience.

Leading players are already starting to reinvent themselves – putting real purpose at the heart of their business strategies. HP recently has embraced this opportunity, in recognition that integrating purpose is essential not only for society, but also for long-term business growth and the transition to a sustainable economy.

HP has found that putting purpose at the heart of its strategy inspires the company to think differently about innovation — it helps it to reach beyond incremental improvements to create transformative solutions and to connect customer needs with human, economic and environmental impact. According to Gabriele Zedlmayer, HP's chief living progress officer, the results literally can be game-changing: capturing returns on capital today, while building leadership and business value for the future.

The great convergence

For the first time, it really does feel like a true convergence between business and sustainability is possible, and within sight.

But for this to happen, it will mean a complete and genuine re-design of business purpose and strategy — to help us meet 21st century challenges, as well as ensuring our shared prosperity on this beautiful planet of ours.

The conversation, going forward, is rightly all about transformation — enabled and supported by three big shifts in business thinking that will change everything: on responsible growth, based on robust alignment within planetary limits; on tuning into the real needs and aspirations of the 21st century customer; and in shaping business models, based on real purpose — and adding real value to people, communities and the planet.

Our focus here is necessarily on "what" needs to change in our business thinking.

In the third and final part in this series, we will look at "how" this transformation actually might come about.

Let 2015 be the start of a new era in thinking and practice — in better business, better economy and in genuine transformation.

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