Why Smart Managers Will Capitalize on Sustainability First
Why Smart Managers Will Capitalize on Sustainability First
[Editor's Note: this is the latest in a series of blog posts from MIT's Sloan Management Review's Sustainability Initiative, which is partnering with The Boston Consulting Group to identify the sustainability challenges that will have the greatest effect on managerial decision making, and determine which challenges pose the biggest threats and opportunities.
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Richard M. Locke is the Alvin J. Siteman Professor of Entrepreneurship at the MIT Sloan School of Management and a professor in the political science department at MIT.
Locke has helped spearhead the development of MIT Sloan's Laboratory for Sustainable Business (S-Lab), which investigates sustainable-management issues in the classroom as well as puts students inside companies that are grappling with sustainability challenges on every front. His own current research focuses on improving labor and environmental standards in global supply chains.
Q: To leaders and managers, what do you think "sustainability" means?
We don't have a common language about this yet. I hear two different kinds of definitions in the circles that I travel in. One is from people who are fans of sustainability in terms of environment, and who say that we have to preserve and conserve the kinds of air, water and land resources that we have, or else we're going to be off balance and undermine the carrying capacity of the earth in terms of human life.
The other conception is held by people who basically just think of sustainability as a threat -- usually a looming threat of carbon tax regulation. So many of those people think of sustainability as just something that's going to be bad for business, as opposed to thinking that it can be an opportunity for business. Which I'm convinced it is.
Q: So definition matters, you believe -- we need consensus on what we're talking about when we talk about sustainability?
Yes. We have to make sure that if we care about the environment, we're also caring about people and the social dimension of sustainability. They have to go hand in hand, and not just in the advanced industrial nations, but especially in the developing world. If you don't combine those two things, it's a problem.
Q: What will trigger new focus on sustainability-related management strategy inside organizations? Often we see all kinds of change driven just because a CEO gets religion about something -- will that happen here?
Well, in addition to pressure from government because of the regulation, you're going to have pressure from customers. All the surveys and experimental work for consumer goods, whether it's about fair-trade-certified or ethical or green products, all seems to suggest that people really value these things.
I think big pressure also is going to come from within the business itself -- not from a missionary CEO, but from some of the functional managers. My theory is that it's some group on the periphery, usually middle level, that figures out a solution to some real problem. They show that it works, and then they can start diffusing it. And then it gets embraced by the top. I seldom think that it's a top-down thing.
Q: Can you elaborate on the correlation between sustainability and competitive advantage?
Yeah. Efficiency (lower unit costs), quality, reliability -- often these "positive" attributes of companies go hand in hand, managers will tell you. Now think about sustainability. If companies are good at developing systems that deal with health and safety, and/or treating waste and water, and/or devising innovative ways to reduce energy consumption and so forth, they usually have their act together on many other, fundamental, how-they-do-business fronts. In other words, companies that have thought hard about how to establish various management systems that promote more sustainable business practices are also companies that have thought hard about how to be more efficient or innovative or differentiate their products and services in the market.
Sustainability becomes a proxy for management quality. This is a quick way for others, be they buyers or customers or potential partners, to get information about vendors or any other value-chain partner and what kinds of systems they have. And that makes sense to me, absolutely.
Q: What are the impediments to moving forward? What will companies and managers have to overcome to make action happen on the sustainability front?
The first thing they have to fight are their own assumptions, their own mental model, which is that to embrace this is an extra cost or a drag on business. Especially now, during a period of financial crisis and declining demand, they're going to say, "Look, we're already having a hard time keeping our numbers. Don't ask us to do anything on investment."
But now is a great time for companies to revisit how they're thinking about sustainability and what they're doing, to see the opportunities to reduce consumption and change the way they're doing things. It's a cost savings that will set them up for the next growth spurt. In the end I think that efforts to act on sustainability issues are going to be a real stimulus for innovation -- that's one impact that I see clearly in the near-term future. But leaders and managers still have to be convinced that it's possible.
This article is adapted from "Sustainability as Fabric -- and Why Smart Managers Will Capitalize First," which originally appeared in the January 2009 issue of the MIT Sloan Management Review.
Copyright © Massachusetts Institute of Technology, 2009. All rights reserved.