Making the business case for step-
change
#theBIGshift
Webinar –24 September 2013
DavidBent,DirectorofSustainableBusiness ...
Webinar housekeeping
Please send your
questions in
throughout the
webinar from the
question box. We will
try to get throug...
What we’ll cover today
• How can sustainability add to my bottom line?
• How can I make the business case for sustainabili...
Let’s start with a story
4
This research was made possible by the
Sustainable Business Models Group
5
This group of our leading partners have come to...
Why focus on ‘step-change’?
• There is a need in the world for step-change
• Other business case research tends to focus o...
Where the research took us
7
Specific focus:
business case for step-change
Prototype tool that helps
you to create the com...
Making the case
What was emphasised by decision-makers?
8
Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specif...
Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specif...
Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specif...
getting better at ‘making the case’
12
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
getting better at ‘making the case’
13
1. Do you
have
a journey to
build on?
1. do you have a journey to build on?
• Senior executives rarely make big commitments in new areas. Usually the first
deci...
getting better at ‘making the case’
15
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
2. do you have the right senior executive
leadership?
• Step-change decisions are risky, affect many parts of a company an...
getting better at ‘making the case’
17
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
3. do you have a long-term view of how the
company creates value?
• Step-change decisions answer: how will the company be ...
getting better at ‘making the case’
19
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
4. do you have a specific business rationale?
• Step-change decisions have a clear, bespoke link from the particular actio...
Shape
context
-Shared knowledge
-“More hands to the
pump”
-Encouraging greater
investment in green
chemistry
-Shape regula...
• In 2011 McKinsey published this
infographic of links from a
sustainability-related activity to
shareholder value.
• You ...
4. do you have a specific business rationale?
• Step-change decisions have a clear, bespoke link from the particular actio...
getting better at ‘making the case’
24
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
5. have you addressed the status quo bias in your
financial tools?
• Step-change decisions require financial tools that co...
The problem with standard financial decision-
making tools
26
DCF and NPV
methodologies
implicitly make this
comparison
Co...
5. have you addressed the status quo bias in your
financial tools?
• Step-change decisions require financial tools that co...
getting better at ‘making the case’
28
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
making it happen: strategies to deploy
Recommendation In practice this means Who is doing
this?
Set goals that integrate
e...
making it happen: strategies to deploy
Recommendation In practice this means Who is doing
this?
Vest the CSO with greater
...
getting better at ‘making the case’
31
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
lea...
Upcoming Network activities
- The World We Made | October | London, New York, Atlanta & San Francisco
- The Future is here...
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Network webinar | Making the Business Case for Step-Change

  1. 1. Making the business case for step- change #theBIGshift Webinar –24 September 2013 DavidBent,DirectorofSustainableBusiness d.bent@forumforthefuture.org BenKellard,HeadofSustainableBusiness b.kellard@forumforthefuture.org
  2. 2. Webinar housekeeping Please send your questions in throughout the webinar from the question box. We will try to get through as many of your questions as possible throughout the hour **don’t raise your hand, type a question Any problems email Kester at k.byass@forumforthefuture.org
  3. 3. What we’ll cover today • How can sustainability add to my bottom line? • How can I make the business case for sustainability activities that create real step-change? • Forum for the Future’s cutting-edge research into how companies that have successfully made the business case for step-change did it • New tools to help you to use a logical step-by-step approach to build your own business case • Live examples of companies that firstly made the case and then went on to make sustainability happen for their business
  4. 4. Let’s start with a story 4
  5. 5. This research was made possible by the Sustainable Business Models Group 5 This group of our leading partners have come together to find practical ways they can create step-change towards sustainable business models.
  6. 6. Why focus on ‘step-change’? • There is a need in the world for step-change • Other business case research tends to focus on incremental change • What we mean by ‘step-change’: • An activity which has an intended outcome that is a large, fast contribution to trajectory we need towards a sustainable future. • Could be: • Shaping the context – an external initiative (eg Nike’s Road to Zero) • Innovating to win - an internal investment in, for instance: big goals, R&D, new fixed assets. 6
  7. 7. Where the research took us 7 Specific focus: business case for step-change Prototype tool that helps you to create the common features for your step- change decision. Results of WRI’s research in the handout The general business case A small-but-growing databank of credible examples Difficult to make a ‘general case’ because such variety in companies, industries and issues. “Making the case” What are the common features of step-change decisions? “Making it happen” Once a step-change decision has been made, how can you implement it?
  8. 8. Making the case What was emphasised by decision-makers? 8
  9. 9. Making the case What was emphasised by decision-makers? Part of journey Senior executive leadership Long- term view Specific business rationale Appropriate decision tools Dupont Forum A Nissan GSK Openness Telefonica UK Nike R2Z B&Q Timber B&Q Green Deal WRI 1 WRI 5 WRI 6 9
  10. 10. Making the case What was emphasised by decision-makers? Part of journey Senior executive leadership Long- term view Specific business rationale Addressed status quo in fin tools Dupont Forum A Nissan GSK Openness Telefonica UK Nike R2Z B&Q Timber B&Q Green Deal WRI 1 WRI 5 WRI 6 10
  11. 11. Making the case What was emphasised by decision-makers? Part of journey Senior executive leadership Long- term view Specific business rationale Addressed status quo in fin tools Dupont Forum A Nissan GSK Openness Telefonica UK Nike R2Z B&Q Timber B&Q Green Deal WRI 1 WRI 5 WRI 6 11
  12. 12. getting better at ‘making the case’ 12 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes 4. Do you have a specific business rationale? Yes 5. Have you addressed status quo bias in financial tools? Yes
  13. 13. getting better at ‘making the case’ 13 1. Do you have a journey to build on?
  14. 14. 1. do you have a journey to build on? • Senior executives rarely make big commitments in new areas. Usually the first decision will be low-risk and low-cost. Step-change decisions tend to be the latest step in a longer journey. What favourable conditions do you already have? 14 Favourable condition Status Next steps Successful track-record from past sustainability initiatives Acceptance of a general business case across executives Insights from stakeholder engagement Public reporting for accountability & transparency Other conditions which help decisions happen in your organisation:
  15. 15. getting better at ‘making the case’ 15 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes
  16. 16. 2. do you have the right senior executive leadership? • Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support - often from the CEO. • Key question: Do you have a senior sponsor whose role and credibility matches the risk, scope and strategic implications of the decision? If no: • Who are the key internal decision-makers? • What do they want and how might your proposal help? • Who or what influences the key decision-makers? • e.g. their business school, their professional institute… • What can you do to gain the right senior executive support? Options include: • Identifying who you need to work with to make change happen. Understand their vision and use their language • Framing sustainability issues as about delivering the current business strategy and long-term value creation (see next slides) • Identifying a burning platform 16
  17. 17. getting better at ‘making the case’ 17 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes
  18. 18. 3. do you have a long-term view of how the company creates value? • Step-change decisions answer: how will the company be successful in a future affected by sustainability issues? This requires: an enduring purpose and long- term view on how the company creates value • Here are three key questions to work through: • What is the company’s enduring purpose (especially for customers)? • What is the organisation’s long-term view on how it creates value – the matching of the company’s purpose and capabilities with its future context? • How does your proposal align to the enduring purpose and long-term view? 18
  19. 19. getting better at ‘making the case’ 19 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes 4. Do you have a specific business rationale? Yes
  20. 20. 4. do you have a specific business rationale? • Step-change decisions have a clear, bespoke link from the particular action to value creation for the shareholder. • Try working through these steps 20 1. Develop specific business rationale Work through causal links from the proposed activity to shareholder value. See next slide for a tool to help you do that. 2. Find evidence Look for compelling evidence for each link in the chain: - Past experience - Other examples - Ask ‘what would need to be true for this to be a great decision?’ 3. Quantify magnitude Put a financial range on the costs (upfront investment and on-going) and benefits. 4. Track what happens Use 2. and 3. to put in place the information systems needed to measure what happens
  21. 21. Shape context -Shared knowledge -“More hands to the pump” -Encouraging greater investment in green chemistry -Shape regulatory context Specific rational for shaping the context Nike: making the case for Increase Shareholder value Initiate System Innovation Start “Road to Zero” Apply your capabilities -Innovation -Turn sustainability into performance story that reinforces brand Pathways in: -Revenue Growth -Margin Growth -Risk Management Revenue: -product innovation Margin Growth -reduce input costs -share costs across industry Risk management -regulatory -reputation
  22. 22. • In 2011 McKinsey published this infographic of links from a sustainability-related activity to shareholder value. • You could also use Forum’s Pathways tool • Consider each in turn in order to identify the likely most important link to financial value. 22 Putting into Practice, McKinsey, Oct 2011 Specific rational for innovating to win
  23. 23. 4. do you have a specific business rationale? • Step-change decisions have a clear, bespoke link from the particular action to value creation for the shareholder. • Try working through these steps 23 1. Develop specific business rationale Work through causal links from the proposed activity to shareholder value. See next slide for a tool to help you do that. 2. Find evidence Look for compelling evidence for each link in the chain: - Past experience - Other examples - Ask ‘what would need to be true for this to be a great decision?’ 3. Quantify magnitude Put a financial range on the costs (upfront investment and on-going) and benefits. 4. Track what happens Use 2. and 3. to put in place the information systems needed to measure what happens
  24. 24. getting better at ‘making the case’ 24 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes 4. Do you have a specific business rationale? Yes 5. Have you addressed status quo bias in financial tools? Yes
  25. 25. 5. have you addressed the status quo bias in your financial tools? • Step-change decisions require financial tools that compare the proposed action with a realistic base case; one that has the plausible consequences of not taking the action. Most financial tools don’t take future resource constraints and thus higher energy bills, for example, into account. • What to do about it: • Rigorously improve the ‘do-nothing’ base case > Check the base case for optimistic assumptions • In times of disruption, compare the total cashflows of status quo and proposal > Normally, Net Present Value calculations look at the extra costs and benefits. This assumes fixed and sunk costs will continue to perform. > Avoid an incumbency bias by comparing the total costs and benefits of different options. • Use ‘discovery-driven planning’ > Start with the ‘reverse income statement’ – list the costs and benefits that would need to be true for this decision to be worth doing in order of importance > Test these assumptions, starting with the most important 25
  26. 26. The problem with standard financial decision- making tools 26 DCF and NPV methodologies implicitly make this comparison Companies should be making this comparison Adapted from Innovation Killers, Christensen et al, HBR Jan 2008 A. Assumed cash stream from doing nothing A C. Projected cash stream from investing in step- change C B. More likely cash stream from doing nothing B
  27. 27. 5. have you addressed the status quo bias in your financial tools? • Step-change decisions require financial tools that compare the proposed action with a realistic base case; one that has the plausible consequences of not taking the action. Most financial tools don’t take future resource constraints and thus higher energy bills, for example, into account. • What to do about it: • Rigorously improve the ‘do-nothing’ base case  Check the base case for optimistic assumptions • In times of disruption, compare the total cashflows of status quo and proposal  Normally, Net Present Value calculations look at the extra costs and benefits. This assumes fixed and sunk costs will continue to perform.  Avoid an incumbency bias by comparing the total costs and benefits of different options. • Use ‘discovery-driven planning’  Start with the ‘reverse income statement’ – list the costs and benefits that would need to be true for this decision to be worth doing in order of importance  Test these assumptions, starting with the most important 27
  28. 28. getting better at ‘making the case’ 28 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes 4. Do you have a specific business rationale? Yes 5. Have you addressed status quo bias in financial tools? Yes
  29. 29. making it happen: strategies to deploy Recommendation In practice this means Who is doing this? Set goals that integrate environmental considerations into core business decision making - Selecting suppliers based on their economic, social and environmental performance - Developing products and services that help customers reduce their environmental impact - Natura - AkzoNobel; Alcoa; Greif; Siemens Implement internal mechanisms that ensure environmental sustainability is valued - Allowing funds saved in operational costs on environmental projects to be allocated to capital budget needs - Bundle high financial return/low GHG reduction projects with low return/high GHG reduction projects to diversify risk and deliver overall corporate value. - Johnson & Johnson - Diversey (Sealed Air) 29 • Based on our research, five recommendations emerged that can help companies implement sustainability strategies:
  30. 30. making it happen: strategies to deploy Recommendation In practice this means Who is doing this? Vest the CSO with greater authority over capital budget decisions and engage the sustainability team early in project planning - Giving the CSO authority to ensure all capital budget requests integrate sustainability considerations - Ensuring the company’s sustainability specialists are engaged early in project planning - AkzoNobel; Alcoa - AkzoNobel Establish and manage metrics that comprehensively indicate risks and opportunities across corporate value chain - Instituting supplier programs that put a price on externalities like CO2 emissions, water use, and waste generation - Natura Support public policies that put a stable price on externalities - Consistently supporting public policies that benefit the environment and companies’ financial performance Identified as a need, but no companies active 30
  31. 31. getting better at ‘making the case’ 31 1. Do you have a journey to build on? 2. Do you have the right senior executive leadership? Yes 3. Do you have a long-term view of how the company creates value? Yes 4. Do you have a specific business rationale? Yes 5. Have you addressed status quo bias in financial tools? Yes Questions?
  32. 32. Upcoming Network activities - The World We Made | October | London, New York, Atlanta & San Francisco - The Future is here: workshop & tour at the Design Museum | 22 Oct | London - Informal Cities Dialogue | 24 Oct | webinar - Energy drinks: #theBIGshift & the Energy System | 11 Nov | London - Blue Skies, Sustainable Thinking: the new innovation frontier | 21 Nov | London - #theBIGshift: how to be a system innovator | 5 Dec | New York - #theBIGshift: in conversation with Paul Polman and Jonathon Porritt | 9 Dec | London - End-of-year network event & drinks| 16 Dec | London

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