Innovation and profit in the climate age: so you think you’re Jimmy Hendrix?

Raise your hand if you’re ambidextrous.?

Let me try that again – raise your other hand if you’re ambidextrous!

I don’t know many genuinely ambidextrous people. If you’ve ever tried that internet challenge where you brush your teeth with your other hand for a month, you know it’s not easy. At least at first, you’re going to end up with a lot of toothpaste all over your face.

But when I talked to Professor Julian Birkinshaw – Vice-Dean of LBS, author of business books people actually read (like Fast/Forward), and all-round management genius – he was all about ambidexterity. We got deep into how real-world businesses are facing the climate crisis, and how they’re going to manage to transform themselves without ending up with the proverbial toothpaste all over their faces. His answer – it’s all about organisational ambidexterity.?

Hold on, Chris – what does that even mean?

The idea is simple: when the world changes around them, businesses need to change too. Disruption = innovation.

But – and this is a big but – these businesses only exist because they are already very good at something they know how to do. And if they suddenly stop doing that one thing, they’re going to find that the cash stops rolling in. Survival = profitability.

Businesses need to care about both of these equations. They need to make both of these identities work at the same time. This is organisational ambidexterity.

Sincere apologies for what I’ve done to the humble equals sign in this graphic:

Survival?= profitability

A is for ambidextrous, A is for Apple

For a case study, look no further than Apple. This is a company that has been blessed with two of the greatest leaders in living memory – Steve Jobs and Tim Cook. These two giants represent the left and the right hand of the business to me and show what can happen when you combine creativity and traditional tight management.?

Jobs was the visionary. We don’t need to recapitulate the full soap opera of his time variously leading and not leading the company; it is enough to recognise that Jobs brought an attitude to the disruption that allowed the firm to pretty much reinvent modern technology as we know it.?

Disagree? Feel free to call or message me and explain why. Oh wait, you’re using a smartphone…?

The mac, iPod, iPhone, and iPad?- heck, even Pixar - pretty much invented their own categories. So what became of Apple when Jobs died in 2011? Many people sold their stock as soon as they heard the news, convinced that was the end of the road for the most disruptive company of its time.

And what a mistake that would have been. Apple’s share price has done 10x since his funeral and reigned for years as the most valuable company in the world. (Then again, if you were invited to Jobs’ funeral you’re probably doing just fine for money!)

The answer is Tim Cook, and his willingness to play to Apple’s other strengths at the same time. There have been attempts to create new products since, but honestly – who here is going to claim the apple watch changed the world?

What has changed everything for Apple’s shareholders is Cook’s laser-guided focus on profitability. Well, if you’re going to put an ex-head of operations in charge, what do you expect? The core engine of the company is the iPhone, with its fabled 100%+ markup. Despite being a grizzled teenager of a product – over 15 years old this year, an eternity in tech – Cook has managed Apple’s pivot from disruptor to mature cash generator. By masterfully managing supply chains (including through the COVID nightmare), reinforcing apple’s platform moat, and staying supple enough to keep services revenues flowing around core hardware, he has kept Job’s innovative legacy pumping out returns for shareholders.?

So there you have it. A company that can not only brush its teeth with both hands – it’s playing left-handed guitar solos at Woodstock. And there aren’t many who have done that.

?And now we return to our scheduled programming – climate change

This is all well and good, but does it stand up as an approach for companies facing climate change? I’ve got to be honest – it’s a damn big ask.?

To my mind, organisational ambidexterity in the face of climate change means being able to do two things at once:?

• profit-making in the classic mould (find the cheapest possible production methods, screw down hard on them in the short run, and see shareholders as your only constituents in the world) ?
• transitioning to genuinely sustainable new practises (decarbonisation, closed-loop circularity, purpose-led decision-making that centres a wide range of stakeholders)

To which I might say – that sounds great! Now…where is it?

This is where the Apple story is instructive again. Yes, Jobs and Cook represent the balance of disruptive innovation and old-school management. But critically, these two approaches were in series, not in parallel – and the order matters.

It’s always easier to innovate first, and then settle into a pattern of mature market exploitation. For firms that started out with a core product designed to solve climate or other crises, then balancing both creativity and profitability works out just fine.?

Going the other way – which is what 95% of companies are being asked to do around climate – is much, much harder. If your entire model of historic profitability rests upon cheap carbon, untaxed pollution, and people-chewing Chicago capitalism, then it doesn’t matter how many transition units you set up, new green products you create, or PR firms you hire.?

Climate change isn’t just a new vertical you can silo off. it’s not an add-on to your existing range. It’s not a special situations fund. Climate. Is. In. Everything.?

Genuine innovation means you’re going to have to put the vast majority of your existing business model in the bin, and that is a very tough thing to do. That’s not asking someone to be ambidextrous. It’s asking them to play the guitar with their feet.

When sacred cows rise from the dead

Let's dive into another case study that’s instructive here – Danone. In 2014, Emmanuel Faber was made CEO of the global dairy giant, and he very quickly took an ambidextrous approach to climate. Danone’s core operations – in milk and yoghurt, formula, and bottled water – continued to deliver strong returns. At the same time, Faber began to push the company in a genuinely climate-conscious direction. He created the One Planet Business for Biodiversity coalition; bought plant protein companies such as WhiteWave; and won board approval to declare the company an enterprise on a mission. He also pioneered the idea of carbon-adjusted earnings per share (CAEPS) to put climate rigour into company accounting.

Less than a year after he declared he had “toppled the statue of Milton Friedman” in the firm, he was himself toppled by shareholders in March 2021.?

What does this tell us about the pursuit of ambidexterity? It’s a nightmare for any genuinely climate-conscious leader in a big old firm like Danone. Faber’s measures weren’t even that extreme – some M&A, Science-Based Targets for absolute and relative Scope 1&2 emissions that were Paris compliant…heck, even carbon-adjusted earnings-per-share is still an earnings-per-share metric! Any sensible accountant who can see the hammer that is carbon taxation coming down the line should be able to get behind this innovation. And yet, for the shareholders, it was still too much change. ?

The hard reality is that Danone’s business is animal agriculture, and that is brutal to the planet. Yes, there are lots of ways to make cattle farming more sustainable, and even regenerative – but they all involve small, local and free-range systems centred around agroecology or soil regeneration. A multinational like Danone is never going to look like Joel Salatin’s Polyface farm – and certainly not if it intends to continue to make its existing products in a profitable fashion. The more likely reality is that, pressed into a corner in coming decades, Danone will decide that climate-forward innovation means genetically engineering lab-grown udders out of seaweed that eat their own methane farts. Don’t hold your breath.

Time to Get Real

?Of course, there is one way to learn to play the guitar with your feet. And that’s to lose both your hands.?

Frankly, that’s the more likely route for these companies that talk a good game on climate, but under the surface are wedded to BAU. Physical reality will eventually just stop them in their tracks. As Emmanuel Faber has pointed out, agriculture is perhaps the most climate-exposed economic activity going. If it doesn’t completely change of it’s own accord, it will be forced to anyway.

I believe in ambidexterity – but it has to be real. It doesn’t mean talking to the left, whilst moving to the right. It must be genuine, evidence-based, and irreversible. Climate change is going to ask firms everywhere to do things differently, forever. This isn’t a one-month internet challenge.?

I’ll leave Faber himself with the last word:

Interviewer: Do you think the next generation of CEOs is going to be quite different?

Faber: The next, I don’t know. But the next-next? I think yes. Maybe they will not join the companies. That’s the point…

They will leave these large companies, in which case I think these large companies will simply not survive, because they will not have the skills…

Put it this way: if you’re not able to lead climate strategy 10 years from now, you should not be a CEO. It’s as simple as that.?

#climatechange #climatestrategy #ceo #corporateleadership #londonbusinessschool