lecture: embeddding sustainability into strategy

Unit 5:Embedding Sustainability into Strategy II

Formulating Strategic Responses

Dr. Miles Weaver, Edinburgh Napier University Business School

[email protected] @DrMilesWeaver

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mailto:[email protected]

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Learning outcomesAfter this lecture and independent study you should be able to:-

Learning Outcomes Key Concept

LO 5.1Evaluate the generic strategic responses to sustainability ‘how’ Sustainable Value/

Generic Strategic Responses

LO 5.2Discuss the difference between a ‘bolt-on’ and ‘embed’ sustainability strategy Bolt-on/Embedded Sustainability

LO 5.3

Understand how corporate and business-level strategies are devised to develop strategic capabilities made up of a unique ‘value bundle’ of sustainability-driven initiatives

Sustainable Value Framework /Sustainability-driven initiatives

#BSSD17Sketching today’s canvas:To begin …

Write down three animals and what they may represent on the sustainability debate

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Keeping on track …• The really contentious bit … requires deep thought and

reflection • Role of business in

society• How value is

captured and for whom

• Profit Vs. purpose

• The roots to the answer … the same thing?

• John Mackey offers an interesting perspective on a way forward

GENERIC STRATEGIC RESPONSE TO SUSTAINABILITY

LO 5.1 Evaluate the generic strategic responses to sustainability ‘how’

LO 5.3 Understand how corporate and business-level strategies are devised to develop strategic capabilities made up of a unique ‘value bundle’ of

sustainability-driven initiatives

#BSSD17

Addressing sustainability issues

Organisations can develop and implement a range of strategies to address environmental and social issues (e.g. complying with regulations; pro-activity to gain competitive advantage)

Three important questions:

– How might an organisation turn the key global social and environmental issues into strategic business opportunities…?

– How to incorporate environmental and social concerns into strategy?

– What level should environmental and social strategies be integrated?

Sustainable value

Unsustainable (value transfer)

Sustainable Value = both + to shareholder & stakeholder(Laszlo and Zhexembayeva, 2011)

Recap: Discussed ‘value’ from a sustainability perspective

“The opportunity to create sustainable value—shareholder wealth that simultaneously drives us toward a more sustainable world—is huge” (Hart and Milstein, 2003)

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The competitive landscape is constantly evolving. Key message: value is migrating to ‘sustainable value’ positions

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Key message: “Beating the average”

Can we agree that everyone wants to beat the average as ‘sustainability’ becomes a normal part of the way business is done?

• Today’s ‘core competences’ become tomorrow’s ‘threshold competencies’ (normal practice)

• the standard gets raised creating a new level playing field

• Alignment to need defined by community priorities

(transparency?)

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Levels of strategic response ‘what’

Banerjee (2001) differentiates between four levels of strategic response:

• Enterprise strategy - concerned with the role a firm plays in society; its fundamental mission. Suggests not much evidence of this except in environmental organisations

• Corporate strategy - the kinds of businesses a firm should enter to meet its enterprise strategy. Includes decisions on business portfolios, markets, technologies

• Business strategy - allocating organisational resources to achieve competitive advantage and integrating different business functions

• Functional strategy -planning operations for different functions (e.g. marketing, purchasing, distribution)

Above figure relates strategy level to strategy type and desired outcome

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Devising Corporate Strategies for the Sustainability ‘how’Operationalising these strategic questions means addressing them in the following ways:

Our sustainable value vision?• Organisational purpose based on the maximisation of ‘sustainable value’. • Concerns how the organisation fulfil this purpose, in terms of the scope of

industries and markets within which the organisation competes

• How can we address these social and environmental issues while advancing existing business priorities?

• How do we identify and manage emerging stakeholder issues?• What are the new sources of sustainable value (i.e. those in which

shareholder value is not created at the expense of other stakeholders)?

(Adapted from Laszlo, 2008, p.182)

Devising Competitive Strategiesfor Sustainability ‘how’• How might an organisation

turn the key global social and environmental issues into strategic business opportunities …?

– … through igniting innovation into new processes and products

– To open new, unexpected markets

– To create consumer passion and loyalty

– To energise the workforce and build its loyalty

– To build sustainable supply chains

– To radically bring down energy costs and waste production …

… and, at the same time, build a safer, more secure, better world ?

• What capabilities do we need to realise the sustainability vision?

• How do we measure the success of our sustainability?

(Adapted from Laszlo, 2008, p.182)

• Rather than just to comply with regulations

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Recap: Traditional ‘business school’ thinking• Hart (2005) proposed a basis for integrating firms’ relationship

to the natural environment into resource-based theory (a dominant strategy school of thought) and indirectly into strategic management (NRBV)

• Key message: one of the most important drivers of new resources and capability development for firms will be the constraints and challenges posed by the natural environment (Hart, 2005)

• Developing solutions for sustainability are our opportunities

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Emerging views on strategy formulationCan we agree?

• Goal is sustainable value creation• this ‘higher purpose’ incorporates both PROFIT & PURPOSE• Process of strategy formulation is basically the same as standard approach

except for weight given to ecological (natural) environment relative to competitive environment (Roberts, 1995)

• Same is true for the ‘social’ environment • Necessity is to capture the ‘value bundle’ of both stakeholders and

shareholders• Competitive advantage is deep rooted in strategic capabilities that

incorporate a range of sustainability initiatives/actions (i.e. NRBV)• Organisational values shape strategic choice (… quid pro quo)

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The Laszlo sustainability model

Requires ‘systems thinking’ across the supply, process and demand chains (to be continued …)

Measuring Impact:• Social• Environmental• Economic

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Sustainable Value framework (Hart and Milstein, 2003)

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Sustainability Vision strategy:

Does our corporate vision direct us toward the solution of social and environmental problems?

Does our vision guide the development of new technologies, markets, products, and processes?

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Sustainable Value framework (Hart, 1996; Hart and Milstein, 2003)

Clean Technology Strategy:

Is the environmental performance of our products limited by our existing competency base?

Is there potential to realise major improvements through new technology?

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Pollution Prevention strategy:

Where are the most significant waste and emission streams from our current operations?

Can we lower costs and risks by eliminating waste at the source or by using it as useful input?

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Product Stewardship strategy:

What are the implications for product design and development if we assume responsibility for a product’s entire life cycle?

Can we add value or lower costs while simultaneously reducing the impact of our products?

Creating sustainable value:1 + 7 strategy responses

• Laszlo considers “The 7 levels of strategic focus” to be an important tool for identifying value creation

• “Many companies have made great strides in mitigating risk and process cost reduction through minimising waste and improving energy efficiencies …

• few(er) have focussed on top-line growth through product or brand differentiation.

• Even fewer have used stakeholder value creation (levels 4 and 6) to drive new sustainable strategies” (Laszlo, 2008, p. 155)

Laszlo (2003; 2011)

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Value destruction: It’s an added cost“do well by doing good” seems to violate economic logic

(Laszlo & Zhexembayeva, 2011)

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Value creation #1: It’s risk mitigationAvoiding its destructionNegative sustainability impacts & negative business consequences that follow it (Laszlo & Zhexembayeva, 2011)

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Value creation #2: It’s an efficiency opportunity (Laszlo & Zhexembayeva, 2011)

• Improving efficiency– Cut the quantity and intensity of

energy– Waste– Materials

Environmental + social harm = inefficiency

• Pollution prevention as a ‘strategic capability’ to become a ‘threshold capability’ (normal practice)?– Reducing pollution at the input stage is

less costly than treatment/repairs and harmful effluents (prevention)

#BSSD17Detour to “Shared Value”:Way 2: redefining productivity in the value chain • Next week we shall consider the opportunities to create sustainable

value in the supply chain

• Porter and Kramer (2011) approach follows a traditional and holistic evaluation of value chain productivity:– Energy use– Logistics– Resource use– Procurement– Distribution– Location – Employee productivity

#BSSD17Value creation #3: It’s a factor of differentiationEnvironmental & social attributes as a way to differentiate products & services


• Quality/performance includes a sustainability dimension• Do green and socially responsible products cost more?• Charge extra for it? (Laszlo & Zhexembayeva, 2011)

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Value creation #4: It’s a pathway to new marketsNew market opportunities when consumers demand solutions for their environmental & social problems


• New market – meeting the needs of the world’s poorest 4 billion living on less than $4 a day

• Consumer market = $5 trillionSee Hock’s lecture on ‘The Bottom of the Pyramid’

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Detour to “Shared Value”:Way 1: by reconceiving products and markets• ‘‘Business at the Bottom of the Pyramid’’ (Prahalad and Hart, 2002;

Prahalad, 2005; Webb et al., 2010)

• Porter and Kramer define it as ‘‘satisfying unmet social needs’’ and ‘‘serving disadvantaged communities’’ (Porter and Kramer, 2011, pp. 67-8).

• Basic argument rests on creating economies of scale for offering essential products and services such as health, housing or credit at reasonable prices to disadvantaged communities, thus fostering their inclusion within the formal economy (Spitzeck and Chapman, 2012)

• Critics focus on the enhancement of social conditions in communities (Karnani, 2007; Olsen and Boxenbaum, 2009)

#BSSD17Value creation #5: It’s a way to protect & enhance the brandBrand/image rooted on perceived on environmental & social performance (Laszlo & Zhexembayeva, 2011)

• Draw talent• Secure loyal customers• Become supplier-of-

choice• Attract investors

• Goodwill with regulators

• Positioning can be gained and lost …

#BSSD17Value creation #6: It’s about influencing industry standardsShape government regulation or private industry standards in ways that favour them over competition


• Can create barriers to entry (i.e. low cost imports?)

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Value creation #7: It’s a driver of radical innovationTransformative whole system change

(Laszlo & Zhexembayeva, 2011) • Process innovation creating value delivered to customers• ‘Natural resource based view’ will fuel disruptive innovations?

#BSSD17Missing one?Detour to “Shared Value”:Way 3: building supportive industry clusters • Industry clusters were found to enhance innovation,

competitiveness and knowledge exchange (Arikan, 2009; Liela et al., 2010).

• Shared values help to:– Align the activities of the actors within clusters (Tracy and Clark, 2003)– Collaboration and knowledge exchange on sustainability issues in clusters

improves environmental and social performance (Anh et al., 2011).

• Interaction and alignment of several players such as suppliers, service providers, educational institutions, NGOs and local governments in order to attain to local development goals (Nelson, 2006; Kania and Kramer, 2011).

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Scotland’s ‘Responsible Business Forum’See Weaver et al., (2016)

EMBEDDING SUSTAINABILITY

LO 5.2 Discuss the difference between a ‘bolt-on’ and ‘embed’ sustainability strategy

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The ‘blind men and the elephant’ problem

…. ‘Bolt on’…. ‘embed’On Youtube

https://www.youtube.com/watch?v=bJVBQefNXIw

https://www.youtube.com/watch?v=bJVBQefNXIw

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‘Bolt-on’ or ‘embed sustainability (I)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityGoal Pursue shareholder value Pursue sustainable value

Scope Add symbolic wins at the margins

Transform core business activities

Customer Offer “green” and “socially responsible” products at premium prices or with diminished quality

Offer “smarter” solutions with no trade-off in quality and no social or green premium

Value capture

Focus on risk mitigation and improved efficiencies

Reach across all seven levels of sustainable value creation

Value chain

Manage company’s own activities

Manage across the product or service life cycle value chain

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‘Bolt-on’ or ‘embed sustainability (II)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityRelationships Leverage transactional

relationship. Stakeholders such as customers, employees, and suppliers are resources to be managed and sources of input

Build transformative relationships. Co-develop solutions with all key stakeholders including NGOs and regulators to build system-level change

Competitor Operate only in win-lose mode in which any gain is competitor’s loss

Add cooperation with competitors as potential sources of gain

Organisation Create a “scapegoat” department of sustainability

Make sustainability everyone’s job

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‘Bolt-on’ or ‘embed sustainability (III)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainabilityCompetencies Focus on data

analysis, planning, and project management skills

Add new competencies in design, inquiry, appreciation, and wholeness

Visibility Make green and social responsibility highly visible and try to manage the resulting scepticism and confusion

Make sustainability performance largely invisible but capable of aligning and motivating everyone

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When does Sustainability pay?

• Growing research interest in understanding the link between sustainability and profit

• In a study of one discipline (OR) Weaver et al., (2013) found a concentration on environmental sustainability. Primarily on efficiency through waste and pollution protection. Little evidence on the impact of social sustainability. But accelerating since 2010 …

• Strategists dilemma: Under what conditions does it pay?

• Leads to new strategic capabilities that underpin competitive advantage

Summary and where next …

• Getting more stuck into the ‘how’; we need to see things differently

• Next week we will look in depth at the Laszlo model by considering further design for sustainability value creating initiatives in the supply chain

• We shall focus on the organisation but also propose that the “supply chain is the new value chain” recognising Christopher (2011) claim that it is:

“Supply chain’s that COMPETE NOT companies”