The Biggest Missed Opportunity in Corporate Strategy? Sustainability

By David Korngold, Associate, BSR

Articles on corporate strategy from traditional sources—that is, from the major consulting and accounting firms—offer plenty of valuable advice on everything from organizational design to reaching new markets to creating innovative products. Unfortunately, they usually miss a major factor that can make or break a corporate strategy: sustainability.

Some of the greatest risks and opportunities in corporate strategy relate to supply chain disruptions that delay time to market, commodity price increases that make projects unprofitable, stakeholder criticism that morphs into new regulation, or emerging classes of consumers who reflect sustainability ethics in their purchasing behavior. 

Yet leading thinkers routinely ignore these issues.

One major firm’s 2011 report presented survey results on supply chain risks in emerging markets, such as local competition and regulatory/reimbursement uncertainty, but neglected to mention labor or environmental concerns. Yet just recently, environmental protests in China scuttled plans for a new petrochemical plant in Zhejiang. In recent years, working conditions in Chinese manufacturing plants have grabbed global headlines and sparked local protests. Chinese workers’ demands for more pay and better conditions have also helped drive labor costs up 20 percent a year for the past four years. These trends have a real impact on companies’ global corporate strategies.

Another leading consulting firm published a 2012 article on succeeding in emerging markets, highlighting important issues like sales channels and product delivery. Yet that piece failed to note the importance of local stakeholder engagement or social responsibility—critical factors in building strong relationships with governments and local communities, tailoring business offerings to local needs, and avoiding controversies. This is a lesson GE learned the hard way when activists and prosecutors in India complained that the company’s ultrasound machines were being misused to facilitate female feticide. (GE now uses this case study to draw important lessons on balancing global human rights issues and ensure that it doesn’t encounter the same issues again.)

On the other hand, we have seen companies like Novo Nordisk lead business growth with an explicit integration of sustainability principles. Recognizing the growing challenge of diabetes in China, as well as the opportunities to enhance awareness, Novo Nordisk developed programs for physician training and patient education. The company predicts that this patient-education program will produce more than US$100 million in additional lifetime sales (PDF) and save China more than US$200 for each patient.

Companies can develop integrated strategies that incorporate sustainability into the business to mitigate risks, unlock opportunities, and make important contributions to society and the environment. BSR’s “Four Cs of integrated strategy” applies a sustainability lens to the traditional “Three Cs” of corporate strategy—customers, competitors, and corporation—and further asks the company to consider the impact of civil society and government. 

Here’s how it works:

• Use the “Customers” lens to interpret customer data, learn from the sales and marketing teams, and identify ways for sustainability to create new opportunities to reach customers, e.g. What conduct do customers expect of the company?
• Use the “Competitors” lens to develop research on the competitive environment, e.g. How can sustainability differentiate the company and create a competitive advantage?
• Use the “Corporation” lens for a comprehensive internal diagnostic, e.g. How do sustainability challenges and opportunities affect the company’s manufacturing and go-to-market strategies?
• Use the “Civil Society and Government” lens to understand emerging stakeholder views and get ahead of policy/regulation, e.g. How can the company partner with civil society and government to innovate and reach new markets?

A company can apply the Four Cs by starting with its strategic priorities and examining how sustainability affects its ability to achieve them. For example, if your goal is to expand business-to-business sales, you might consider how your products could help customers achieve their own sustainability targets through reduced emissions. If your goal is to reduce manufacturing costs, consider how a new approach to handling waste could increase efficiency and generate revenue. Indeed, General Motors counts US$1 billion in revenue from landfill-reduction efforts such as byproduct recycling and reuse.

Fundamentally, this approach helps companies look outside their own walls to create strategies that harness strength from shifting global trends—demographics, customer expectations, stakeholder insights, social standards, and environmental conditions—instead of struggling against them. Such strategies may include enlisting stakeholders to contribute to product development, building the resources and expertise in your company’s supply chain to address sustainability challenges, engaging customers on sustainability issues to strengthen relationships by aligning your values, and improving your company’s transparency in response to growing societal demands.

Corporate strategy advice can be tremendously valuable to a company, but too often it ignores powerful sustainability factors. Adding a sustainability lens to corporate strategy is crucial to identifying high-priority risks and opportunities to protect the business, generate growth, and improve society and the environment.

This article first appeared in the BSR Insight.