AGENDA

Context: big picture + practical tools

Your thoughts, challenges

sSWOT and step-change

Big

issues

Big

changes

Center of Gravity

vs.

Center of Universe

S W

T O

sSWOT

TOP 10

Business Units

Customers

Stakeholders

Corp. Sustainability

Strategy

Products

Topic / Issue Area

Complement to Other

Tools

Education / Introduction

Corp Strategy / Outlook

Suppliers

Ideas, Insights, Collaboration

Eliot Metzger emetzger@wri.org 202-

729-7848

Making the business case for

step-change

SB13

6 June 2013

This research was made possible by the

Sustainable Business Models Group

14

This group of our leading partners have come together to find practical ways

they can create step-change towards sustainable business models.

What do 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.

• ‘Step-change’ is the phrase the SBM Group use which is equivalent to our term ‘system innovation’ – the set of interventions that shifts a system.

• 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.

• The financial investment could be large or small; what matters is the intended outcomes.

15

Making the case – prototype tool

16

1. Do you have

a journey to build on?

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Making the case – prototype tool

17

1. Do you have

a journey to build on?

2. Do you have the right

senior executive

leadership?

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support. (often the CEO).

Yes

Making the case – prototype tool

18

1. Do you have

a journey to build on?

2. Do you have the right

senior executive

leadership?

3. Do you have a

long-term view of how the company

creates value?

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support. (often the CEO).

Step-change decisions answer: how will the company be successful in a future affected by sustainability issues? This requires:

-an enduring purpose

-a long-term view on how the company creates value

Yes Yes

Activities with a business case:

returns that satisfy shareholders

today’s win-wins

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

today’s win-wins

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

Profitable but

unsustainable over time Today’s

win-wins

Sustainable but without

adequate returns today

x

today’s win-wins

Moves due to sustainability issues including:

- regulation (e.g. EU Emissions Trading Scheme)

- customer behaviour (e.g. the rise of fair trade)

- innovation (e.g. the falling cost of solar panels)

- competition (e.g. UK retailers positioning their

brands on sustainability)

and more.

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

tomorrow’s win-wins

x

Sustainable business

opportunity moves from

inadequate to adequate returns

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

Tomorrow’s

win-wins

tomorrow’s win-wins

x

Sustainable business

opportunity moves from

inadequate to adequate returns

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

Tomorrow’s

win-wins

tomorrow’s win-wins

x

But:

1. Level of materiality

varies

But:

1. Level of materiality

varies

Sustainable business

opportunity moves from

inadequate to adequate returns

Activities with a business case:

returns that satisfy shareholders Activities with a societal case:

lead to a more sustainable future

Tomorrow’s

win-wins

tomorrow’s win-wins

x

Understanding long-term value creation

An enduring purpose, often focused on customers

• Some evidence that this supports long-term success

• Examples: Johnson & Johnson, IBM

A long-term view

• Match

• Purpose and capabilities with

• Future context

26

Making the case – prototype tool

27

1. Do you have

a journey to build on?

2. Do you have the right

senior executive

leadership?

3. Do you have a

long-term view of how the company

creates value?

4. Do you have a

specific business rationale

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support. (often the CEO).

Step-change decisions answer: how will the company be successful in a future affected by sustainability issues? This requires:

-an enduring purpose

-a long-term view on how the company creates value

Step-change decisions have a clear, bespoke link from the particular action to value creation for the shareholder.

With the specific rationale you can look for evidence for each link.

Yes Yes Yes

Getting to a specific business rationale

1. Shape the context 2. Innovate to win

Focus External Internal

Examples • collaboration including

• sector visions

• sharing best-practice

• standard-setting

• visions and strategies

• innovation of business

models, products and

services

Challenge

when making

the case

• different from familiar

commercial decisions

• can seem do-goody, far from

core business

• often helps competitors as

well

• getting the resources needed

to build the evidence to get

the resources needed to…

• demonstrating returns

relative other potential

investments

Forum work • Nike • Pathways in ‘Better

Decisions, Real Value’

28

Getting to a specific business rationale

1. Shape the context 2. Innovate to win

Focus External Internal

Examples • collaboration including

• sector visions

• sharing best-practice

• standard-setting

• visions and strategies

• innovation of business

models, products and

services

Challenge

when making

the case

• different from familiar

commercial decisions

• can seem do-goody, far from

core business

• often helps competitors as

well

• getting the resources needed

to build the evidence to get

the resources needed to…

• demonstrating returns

relative other potential

investments

Forum work

includes • Nike • Pathways in ‘Better

Decisions, Real Value’

29

Getting to a specific business rationale

1. Shape the context 2. Innovate to win

Focus External Internal

Examples • collaboration including

• sector visions

• sharing best-practice

• standard-setting

• visions and strategies

• innovation of business

models, products and

services

Challenge

when making

the case

• different from familiar

commercial decisions

• can seem do-goody, far from

core business

• often helps competitors as

well

• Catch-22: getting the

resources needed to build

the evidence to get the

resources needed to…

• demonstrating returns

relative other potential

investments

Forum work

includes • Nike • Pathways in ‘Better

Decisions, Real Value’

30

Shape context

New research

insights from

larger, more

diverse

numbers of

researchers

1. Shape the context GSK: specific rationale for opening up on

clinical data

Increase Shareholder

value

Initiate System

Innovation

Put research

data into public

domain

Apply unique

capability

Ability to turn

research

insights into

viable

products

Pathways in:

-Revenue Growth -Margin Growth -Risk Management

New income

streams drive

revenue

growth

2. Innovate to win > Pathways to value

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Value driver Pathways to value

Turnover growth

Product differentiation

Product development

Innovation

Brand reputation

Margin growth Efficiency

Staff motivation and retention

Effectively manage

capital expenditure

Asset efficiency and effectiveness

Risk reduction

Security and quality of supply chains

Reduced regulatory risk

Reduced risk to reputation

Licence to operate

Duration of competitive

advantage

Market shaped to company’s advantage

Recruitment

Early mover on emerging strategic issue

Access to key markets for growth

Access to key financial resources for investment

Access to partners for growth

Building management qualities that enable enduring success

Reduced cash tax rate Reduced payments to government

Reduced cost of capital Reduced cost of financial capital

Making the case – prototype tool

33

1. Do you have

a journey to build on?

2. Do you have the right

senior executive

leadership?

3. Do you have a

long-term view of how the company

creates value?

4. Do you have a

specific business rationale?

5. Have you addressed status quo

bias in financial tools?

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support. (often the CEO).

Step-change decisions answer: how will the company be successful in a future affected by sustainability issues? This requires:

-an enduring purpose

-a long-term view on how the company creates value

Step-change decisions have a clear, bespoke link from the particular action to value creation for the shareholder.

With the specific rationale you can look for evidence for each link.

Step-change decisions require financial tools that compare the proposed action with a realistic base case, that has the plausible consequences of not taking the action.

Yes Yes Yes Yes

The problem with standard financial

decision-making tools

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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

Making the case – prototype tool

35

1. Do you have

a journey to build on?

2. Do you have the right

senior executive

leadership?

3. Do you have a

long-term view of how the company

creates value?

4. Do you have a

specific business rationale?

5. Have you addressed status quo

bias in financial tools?

Step-change decisions are part of a longer journey, which often has created favourable conditions:

-successful track-record

-acceptance of a general business case

-insights from stakeholder engagement

-public reporting for accountability & transparency

Step-change decisions are risky, affect many parts of a company and have strategic implications. So, they need board-level support. (often the CEO).

Step-change decisions answer: how will the company be successful in a future affected by sustainability issues? This requires:

-an enduring purpose

-a long-term view on how the company creates value

Step-change decisions have a clear, bespoke link from the particular action to value creation for the shareholder.

With the specific rationale you can look for evidence for each link.

Step-change decisions require financial tools that compare the proposed action with a realistic base case, that has the plausible consequences of not taking the action.

Yes Yes Yes Yes