Business Strategies:


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Business Strategies:

  1. 1. Leader Business Strategies: a summary profitable today, sustainable tomorrow
  2. 2. 1. becoming a Leader Business “Whether it is the world’s rapidly growing population or the worsening problem of global warming, we see the need for sustainable business practices as increasingly urgent. And perhaps more than anything else, we see sustainability as mainstream.” Lee Scott, Chief Executive of Wal-Mart, 2007 Sustainability has finally made it. A quiet night in front of the TV sees climate change on the news, reality shows ‘going green’, government carbon footprint campaigns and everyone from banks to supermarkets advertising their eco-credentials. Meeting our needs without compromising the ability of future generations to meet their own needs – in short, sustainable development – is the major challenge facing our age. And for Leader Businesses, companies that are pushing the boundaries on sustainability in one or more areas of their business activity, rising to that challenge is already boosting profits. This summary provides a comprehensive model of their business strategies and key approaches, and shows how your business can benefit too. today’s rules won’t apply tomorrow Leader Businesses recognise that many ways of making money today won’t be profitable tomorrow. Basic services and resources that the natural world now provides cheaply will become more and more expensive. Rising expectations of business’s role will translate into new regulation, changed consumer behaviour, new norms in the supply chain and investor pressure. New entrant entrepreneurs will grab market share from established competitors caught napping. Leader Businesses realise that sustainability issues are forming the operating context from which they need to make money. And as the leading sustainable development charity, we have already seen a profound strategic shift on sustainability. When we started over a decade ago, our partners asked “What should our sustainability strategy be, in the light of our business?” Now the likes of BT, First Choice, Marks & Spencer and Unilever are asking “What should our business strategy be, in the light of sustainability?” From ‘nice to have’ add-on, sustainability has become a driver of business strategy. practical model of Leader Business Strategies In our last publication Are you a Leader Business? Hallmarks of sustainable performance we highlighted best practice in key areas and business activities, including senior commitment, governance, procurement, stakeholder engagement and investor relations. This latest report provides a practical model of Leader Business strategies for your next competitive edge: • the TECHNOLOGIES that underpin a business’s offer, such as 3M’s Pollution Prevention Pays, GE’s Ecomagination, Caterpillar’s engine re-manufacturing or Phillips’ radical new lighting equipment; • the MARKETS where businesses make their offer, such as Nike subjecting its supply chain to scrutiny, M&S asking customers to ‘Look Behind the Label’, Unilever opening up new markets at the Bottom of the Pyramid, or GSH’s energy management service; • the CONTEXTS that set the rules of competition, such as Unilever's sustainable agriculture programme, the Climate Change Leaders Forum pushing for better regulation, or the Forest Stewardship Council, set up by collaborating competitors and civil society. key approaches to integrate sustainability into strategy Leader Businesses use three key approaches to develop and integrate the right combination of strategies for sustainability: • PLAN strategy to include sustainability trends and incorporate them into today’s decisions on future business direction; • MANAGE how opportunities are defined and selected, so that the potential for emerging sustainability solutions is identified and maximised; • EXPERIMENT with a variety of approaches to learn which yield the best results.
  3. 3. 2. what is sustainability, and why now? “Many CEOs recognise the underlying tension between business models wedded to increasing patterns of consumption and the reality of limited natural resources.” McKinsey & Co, Shaping the New Rules of Competition, 2007 Sustainability is an end goal: the ability of global society unsustainable eco-system services which we still rely to continue into the far future. Sustainable development on for business success. is the journey towards that end goal: how can we meet And we’re depleting our natural capital at the very time our needs without compromising the ability of future when our need is growing. The planet will be home to generations to meet their own needs? nine billion people by 2050, with just under one billion At Forum for the Future we use the notion of capital to extra people in the next 10 years alone. And just as we help people understand what sustainability means in want to continue to drive our cars and buy new shoes, practice. We have developed the Five Capitals Framework so people in developing countries want that too. to underpin our approach. No company can sustain itself Business faces the twin challenges of delivering greater by living off its capital alone. The same is true for society. equity between rich and poor nations and having fewer But increasing evidence that we are living off our global resources to do it with. capital means we can no longer take for granted our current pattern of development. The consequences of a the opportunity: to profit from new pattern of development are already changing the creating a sustainable future strategic context for business and affecting the types The surge in population and consumption over the next 20 of strategies that will succeed into the future. years looks impossible for damaged ecosystems to sustain. But smart businesses will profit from these challenges by the challenge: reducing supply finding ways to give us what we need and want whilst and rising demand maintaining the eco-system services on which we rely. Business depends on a host of often unnoticed People increasingly expect business to play a key role in ‘eco-system services’, from a stable climate to finding solutions to these global problems. There is an assimilation of waste, from providing food to controlling opportunity now for business to explore how to combine disease and pests. It's not just rainforests and tigers profit with creating a sustainable future. Business under threat. Climatic systems, water resources, strategies that address this challenge at a profit will agriculture and fisheries are all degraded or define the successful business of the next 10 years. 3. practical model of Leader Business Strategies “More capital is now focused on sustainable business models and the market is rewarding leaders and the new entrants in a way that could scarcely have been predicted even 15 years ago.” Goldman Sachs, Introducing GS SUSTAIN, 2007 Our experience shows that taking a business into the create value in a global society searching for a future is a balance between enhancing the current sustainable future?”, “How can we create the best competitive edge and exploring the next one. As our future for our business?” and “Are we clear about the model shows, most Leader Business strategies focus on consequences of these strategies?” Each strategy the next competitive edge. Simply improving current contributes to creating a sustainable future in its own business strategies will no longer be enough to thrive. way. In the full Leader Business Strategies paper we show how each strategy contributes to sustainable New strategies build on existing capabilities and development using the Five Capitals Framework. resources, answering questions such as “How can we
  4. 4. 4. key approaches to integrate sustainability into strategy Leader Businesses develop the right combination of strategies by bringing sustainability into their strategy process in different ways. PLAN strategy to include future • Setting a structural context where opportunities trends that are on-strategy are favoured. These can be formal, like performance targets, or informal, like When setting the future direction of their business, promoting people who have pushed commercial companies can incorporate sustainability into their sustainability-related activities. strategic planning cycle in three ways: One Forum for the Future telecoms partner is • Introduce material sustainability trends to the creating a ‘sustainability-related opportunity register’. external assessment of the structure and dynamics The register provides a new way for commercial of the business context departments to define and identify market place • Use Leader Businesses strategies as a starting point opportunities by highlighting the ones relating to for generating options about ways forward sustainability. This has helped towards the gradual • Pay attention to any unintended biases when integration of sustainability into core product and selecting options to take forward. service offers. First Choice, now TUI Travel PLC, incorporated sustainability into their ‘Managing for Value’ planning EXPERIMENT to learn and cycle. We helped them frame the issues in the external to create options assessment, generate options and prioritise action The world changes fast, and so do the commercial through calculating the financial value at risk. As a opportunities of sustainability. To keep your options result, a host of initiatives has emerged to shift the open and identify the best approach, it makes sense to business onto a more sustainable pathway. initiate a range of deliberate and contained experiments. The experiments could be a new product message, a new product, or a whole new business. MANAGE how opportunities are defined and selected Such experiments give you the chance to test different In most organisations there is the plan, and then there approaches without committing the entire business. is what happens. Putting any strategic plan into action Learning is the success factor - even if you lose money, means changing how opportunities are defined at you will know how to do it differently next time. the 'coalface' and selected by managers, and then One Forum for the Future global electronics re-allocating resources appropriately. partner used a staff competition on new sustainable Leader Businesses can manage sustainability into business models in emerging and developing markets. strategy by: Staff submitted project proposals that met criteria of being profitable, and creating environmental benefits • Setting the strategic direction by giving clear and social value. The aim is to establish a range of signals of intent, including announcements innovative commercial possibilities, a few of which and symbolic actions. People at the ‘coalface’ will become the successes of the future. can now identify and define sustainability-related opportunities.
  5. 5. the TECHNOLOGIES that underpin a business’s offer these strategies explore how to improve or replace technologies in the supply chain, and in the products and services themselves. improve technologies in current production methods Instigate more sustainable production methods to improve resource efficiency, lower costs and mitigate supply risks. BP created an internal market for carbon, saving $650m and reducing carbon emissions from its production. 3M’s Pollution Prevention Pays programme proved exactly that. Encouraged to innovate, staff developed 6,000 environmental projects, saving over £1 billion and one billion kilos of pollutants in their first year. use closed-loop systems in production and beyond Transform waste output into an input for further value generating activity, either inside or outside the company. Benefits include: addressing the increasing prices of raw materials and waste disposal; pre-empting legislation that extends producer responsibility all the way to the end of the product’s life; getting closer to the consumer and gaining greater control over the supply chain. Caterpillar takes its used truck diesel engines and ‘remanufactures’ them into engines that are sold at the same price with the same guarantee. The company offers incentives to its parts distribution network to maximise used parts return and keep input costs down. ICI, Carillion and Forum for the Future have been funded by the UK Government to create a zero emissions paint enterprise: a profitable business with no waste or emissions anywhere in its supply chain. improve product design as customer needs evolve Improve product design to offer more value from using less, responding to business and consumer demands for improved resource productivity. The Toyota Prius is still a car, but the improved design has been tremendously successful: Car of the Year in North America (2004) and Europe (2005), and selling 750,000 by June 2007. GE’s Ecomagination is billed internally as “a business strategy to help meet customers’ demand for more energy-efficient, less emissive products and to drive growth for GE- growth that will greatly reward investors”, mainly by improving current products. In 2006 GE launched some 45 Ecomagination products with revenue of $12 billion. create radical new technology Create new technologies with radical breakthroughs in resource productivity or in serving social needs. Phillips, the Dutch electronics firm, developed ‘Edore’, an energy saving domestic halogen bulb providing clear, crisp lighting for half the energy of an ordinary household bulb.
  6. 6. the MARKETS where businesses make their offer these strategies create the right sort of demand in both new and existing markets. improve transparency to protect brand value Protect brands in the market place, through improving transparency and engaging with stakeholders on material issues. Otherwise, brand equity can erode quickly when a gap between expectations and performance is revealed. Nike has responded to bad publicity on working practices in its supply chain with a ‘product stewardship’ strategy that improved working conditions and reported transparently on its actions. The threat to the brand has declined. create and grow new markets at the bottom of the pyramid Target new markets where non-consumption is the main ‘competitor’. At the bottom of the economic pyramid, four billion people earn less that US$3,000 in purchasing power parity terms. Serving that market can create the scale with which to attack ‘top of the pyramid’ mature markets from below. Unilever subsidiary Hindustan Lever (HLL) targeted India’s rural poor with affordable soaps and shampoos. The new products utilised Unilever’s core capabilities – top-class science and technology – in partnership with a local NGO. More than half of HLL’s revenues now come from customers at the bottom of the pyramid, and BOP practices are being transferred to other parts of Unilever. grow the size and sophistication of demand in mature markets Increase the sophistication of consumer demand to shift customers from saying they’d like to buy ethically to actually doing so. Companies that proactively shape demand can respond to changing purchasing habits faster than their competitors. In 2005 Marks & Spencer launched a ground-breaking marketing campaign called ‘Look behind the label’ which informed customers of M&S’s long commitment on social and environmental issues such as fish sourcing, animal welfare, Fairtrade and reducing salt and fat levels in food. A Citigroup report in the middle of 2006 said that the campaign contributed to the ongoing sales recovery and would underpin M&S brand performance going forward. Cafédirect has achieved double-digit growth by putting quality and fair treatment of producers (accredited by the FAIRTRADE Mark) at the heart of its offer. sell services, not products Seek competitive advantage by meeting customers’ needs with services rather than products. This strategy brings sustainability benefits by shifting the mix of inputs away from energy or materials towards labour, and matches likely changes in the relative costs of materials and labour. Facilities management company GSH have an energy services business called Energyplus which helps clients cut their energy use by a guaranteed five per cent. GSH retains any cost savings beyond the five per cent, making for a profitable service business based on its core competence of engineering expertise. Novo Nordisk is repositioning itself from a pharmaceutical company to ‘a leader in diabetes care’. It is exploring ways of selling prevention as a service, not just insulin as a product.
  7. 7. the CONTEXTS that set the rules of competition these strategies tackle issues beyond the company’s boundaries to create a more successful competitive context for the business. improve inputs, supply chain and infrastructure Respond to threats with strategies that improve access to, and the quality of, inputs, supply chains and infrastructure. Unilever sources over two thirds of its raw materials from agriculture. Over the last 10 years a sustainable agriculture programme engaging experts, producers and suppliers has helped secure the future of supply by implementing new supply chain standards. Unilever was well placed ahead of the competition when Tesco and Wal-Mart made their sourcing polices more stringent. seek regulation that rewards responsibility Form industry clusters, sometimes with unlikely partners, to seek regulation that rewards responsibility and creates a level playing-field. Taking the lead provides an enhanced platform for progressive businesses to innovate and differentiate. The Corporate Leaders Group on Climate Change, convened by the University of Cambridge’s Programme for Industry, is a group of major UK and international business leaders pushing for government action on climate change. They are working in partnership with the UK Government towards strengthening domestic and international progress on reducing greenhouse gas emissions. form strategic alliances to address business-critical issues Join forces with a range of organisations, companies, suppliers and sector bodies to tackle strategic and operational challenges that are too big for one business to deal with alone. The Forest Stewardship Council (FSC) arose from collaboration between NGOs like WWF and a group of timber users and traders, including B&Q. Despite coming from different perspectives, everyone involved appreciated the benefits of an honest and credible system for identifying products from well-managed forests. The FSC now certifies some 12 per cent of the world’s commercially-managed forests, helping safeguard the future of the timber industry.
  8. 8. do you want to be a Leader Business? Forum for the Future, the sustainable development charity, works in partnership with leading organisations in business and the public sector. Our vision is of business and communities thriving in a future that is environmentally sustainable and socially just. We believe that a sustainable future can be achieved, that it is the only way business and communities will prosper, but that we need bold action now to make it happen. We play our part by inspiring and challenging organisations with positive visions of a sustainable future; finding innovative, practical ways to help realise those visions; training leaders to bring about change; and sharing success through our communications. This document is a summary of Leader Business Strategies. The in-depth version has greater detail on the different strategies, including an analysis of their contribution to a sustainable future based on the Five Capitals Framework and many more examples. Our research builds on our related publication, Are you a Leader Business? Hallmarks of sustainable performance. A further approach to applying environmental principles to business can be found in Sustainable Wealth Creation within Environmental Limits. All are available from our website Authors: David Bent and Stephanie Draper. For more information about Leader Business strategies and how to make them happen, email us at With thanks to our Foundation Corporate Partners who contributed to this report through the Business Futures Fund. Designed by Ideas Registered office: Overseas House, Printed on 150 gsm Revive 100 Uncoated FSC 19-23 Ironmonger Row, London, EC1V 3QN Printed by Taylor Bloxham Registered charity number 1040519. Company limited by guarantee 2959712 ISO 14001 EMS 59526