The Age of Sustainability: Why 'Less' Should Be More of Your Business Strategy
The Age of Sustainability: Why 'Less' Should Be More of Your Business Strategy
Business has officially entered "The Age of Sustainability."
Most people relate sustainability to climate change and our efforts to sustain Earth's limited resources.
In the corporate world, it means businesses are being asked -- or even expected -- to take Earth's climate into consideration in normal business operations. In this new age, business strategy has been required to adapt to profound changes in how consumers and partners buy, use, interact with and view their products and services. This is particularly true over the last 10 years and will likely continue for at least the next 20 to 30 years.
We have all heard of the phrase "reduce, reuse, recycle," as the call to think about environmental sustainability when making decisions about products and services. But have you considered that this directive may be in conflict with the common business goal of selling more to achieve higher revenues and profits?
Recycle and Reuse
In general, businesses have adapted reasonably well to recycling. In many cases, it is an integral part of the business model. There is high consumer awareness of what and how to recycle, and there are great examples of businesses profiting from this trend such as the recycling of certain plastics to make outdoor furniture or recycling paper products into boxes.
The trend to reuse is more of an individual attitude. Awareness of reuse has increased significantly over recent years. Secondary markets are quite mature with reuse today. If you look at the success of eBay, Amazon, and craigslist, you can see how this trend has taken off and how businesses have taken advantage of the reseller marketplace.
Less in use today, however, is the reduce portion of the formula. There are few business models or strategies that take advantage of a reduction in consumption. Using fewer resources in the first place, makes reduce strategies among of the most effective for increasing sustainability.
Here are some of the ways to practice the reduce philosophy, according to an article from the National Resource Defense Council:
- Choose energy-efficient electronics and appliances.
- Ditto for cars. Try sharing a car and rides, and try to combine trips.
- Buy local. Purchase items made close to home. Less energy was used transporting them to the store. This includes food grown locally.
- Avoid goods made with materials whose extraction or processing are especially destructive to the environment, such as tropical woods and most gold jewelry.
- Avoid overly packaged goods. The packaging is a total throw-away.
- Cut back on water use.
- Waste less energy on lights and related equipment. Using smart everything (grids, meters, switches, clean energy, etc.) can significantly help reduce energy consumption.
- Eat less meat. The environmental footprint of a pound of meat is 10 times or more greater than that for a pound of grain or produce.
What is interesting about these recommendations is that when consumers change their behaviors, the impact on virtually every industry and type of business will be profound.
Consumers are already becoming much more attuned to socially responsible buying.
One estimate from recent research by Time magazine shows that over one third of consumers made their purchase decisions based on socially responsible criteria. For example, origin of the raw materials, factory conditions, amount of packaging, percentage of recycled material used, whether it can be recycled post-use, and how the company treats employees, partners, customers, the environment and the community are all taken into account. Despite the global recession, customers have been willing to pay a premium for these purchases. According to the research, this buying behavior is likely to be exhibited in ALL consumers in the next 20 years.
An example of the reduce trend is the huge efforts made in cutting paper usage by substituting printing with emails, text messages, Web meetings, conference calls etc. Such practices have greatly reduced paper usage for some specific applications.
For instance, the expense reimbursement process has gone completely paperless in many companies. Also, the use of overhead projectors and Web conferencing tools has eliminated the need for printed handouts.
The trend has created vast opportunities to develop products and services that appeal to consumers and businesses who want to use less paper. However, the trend hasn't been fully embraced and overall volumes of paper usage have actually increased in recent years, due in large part to the plummeting cost of print technology.
The Bottom Line
Businesses MUST consider reductions as they create and execute their business strategies. Businesses, if they do nothing, could be negatively and drastically impacted. The good news is, we have already seen how such a trend can impact businesses. The current recession is a good practice run for companies trying to survive as consumers buy less. Even though the recession will end, the trend to reduce should continue in the Age of Sustainability.
The summer of 2008 provided an ideal kaleidoscope of what could happen when reduce really takes off. During this time, the average price of gasoline topped $4 per gallon in the United States. The cost of oil is built into the price of virtually everything due to the energy used to produce and deliver a product or service to the end user. Therefore, the summer of 2008 saw nearly everything become more expensive with fewer purchases made due to price elasticity.
The resulting behavior changes from the price hikes were predictable in some cases and surprising in others.
For example, in transportation, most people took fewer trips and drove less. Traffic volumes on the road went down for the first time in decades. Carpooling and ridesharing went up, while public transit and bicycle use spiked in some areas.
Many people took "stay-cations" rather than traveling, and the resulting increase in food costs led many to eat at home more often. In many cases, sales of private-label products increased, while those of brand names decreased.
Interestingly, although the price of gasoline has come down, many consumers and businesses have been slow to revert back to pre-hike usage.
Demand for hybrid cars is still higher than before and gas-related surcharges, such as airline fees for checked baggage, are still in effect.
What opportunities did the behavioral changes create? Which companies survived or even thrived during this tough period? And why? Which ones could not take the heat and collapsed? These are the questions that businesses developing their strategies should ask and answer.
A New World of Reduce
Another interesting question is how product designs will change in a world of reduce.
Take cell phones for example. Many people replace theirs after one or two years -- not because the phone doesn't work, but out of the desire to acquire the latest functionality. If phone manufacturers are to employ the reduce strategy, they may build interchangeable interiors and exteriors so consumers can swap out chips to get the latest features without changing the whole phone, or swap out the shell to change how the phone looks.
But what about products like cars and appliances? Can the same design approach be extended to them as well? In my opinion, designs for ALL products are going to have to consider the reduce trend if they are to be successful -- even car designs.
Let's think about the service industries.
What opportunities are there in the consulting industry (of which I am a part) to take advantage of this trend? What do we use that we can reduce, or perhaps a better question is, what are our clients demanding that we reduce (in addition to price, of course)?
What about business travel -- can we reduce what is one of the industry's biggest contributors to greenhouse gases? Many companies are actively measuring their use of resources with the expressed intent to reduce their carbon footprint (by reducing consulting travel expenses, for example), and publishing this information via "sustainability scorecards" and dashboards.
Small Window of Opportunity
Today, many businesses are able to charge a premium for green products and services as not everyone is doing it yet.
However, this window of opportunity is shrinking rapidly as expectations for sustainability are built into every product and service. As more and more consumers make sustainability a part of their purchase decision, it will become the norm.
More companies will sell sustainable products, and competition will bring the price premium for green products close to zero. The result is if your product or service does not inherently consider sustainability from cradle to grave, it will not even be allowed to compete in the marketplace. Products and services will have to be designed from the ground up with sustainability in mind, if they are going to continue to compete.
As this trend to reduce consumption becomes more prevalent, many businesses will be unable to survive if they don't figure in sustainability. The businesses that do survive will be those with innovative strategies to be profitable, despite a reduction in the sales of products and services.
Mahesh Pethe is a senior manager in the business intelligence practice at Hitachi Consulting. He can be reached at [email protected]
Image CC licensed by Flickr user silverfox09.