network webinar | making the business case for step-change

Making the business case for step-

change #theBIGshift

Webinar – 24 September 2013 David Bent, Director of Sustainable Business [email protected]

Ben Kellard, Head of Sustainable Business [email protected]

mailto:[email protected]


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 [email protected]


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

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 together to find practical

ways they can create step-change towards sustainable business models.

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.

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Where the research took us

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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?

Making the case What was emphasised by decision-makers?

8


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


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


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

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

1. Do you have


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?

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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

1. Do you have



senior executive

leadership?

Yes

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

1. Do you have



senior executive

leadership?

Yes

3. Do you have a


creates value?

Yes

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

1. Do you have



senior executive

leadership?

Yes

3. Do you have a


creates value?

Yes

4. Do you have a


Yes

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

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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

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

• 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

https://www.mckinseyquarterly.com/The_business_of_sustainability_McKinsey_Global_Survey_results_2867

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

1. Do you have



senior executive

leadership?

Yes

3. Do you have a


creates value?

Yes

4. Do you have a


Yes



Yes

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

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

http://hbr.org/2008/01/innovation-killers-how-financial-tools-destroy-your-capacity-to-do-new-things/ar/1

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

1. Do you have



senior executive

leadership?

Yes

3. Do you have a


creates value?

Yes

4. Do you have a


Yes



Yes

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:

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

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31

1. Do you have



senior executive

leadership?

Yes

3. Do you have a


creates value?

Yes

4. Do you have a


Yes



Yes

Questions?

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