The New Competitive Advantage

We are witnessing an inflection point for sustainability in business. A company’s ability to create positive environmental and societal impact is rapidly reshaping competitive advantage.

It is remaking whole industries by blurring—and in some cases obliterating—the boundaries between industries and generating new waves of growth. The challenge for business leaders: transforming their companies to deliver business value and environmental and societal value.

Central to that effort is sustainable business model innovation. SBM-I doesn’t just help companies create environmental and societal benefits; it also ensures that companies capture the value they create to build lasting competitive advantage.

We see companies in different industries and geographies innovating business models—building on and expanding beyond their core assets and capabilities—to address significant environmental and societal challenges in their local contexts. In this way, they create new sources of value and competitive advantage.

To understand what drives such successes, BCG studied over 500 corporate sustainability initiatives. We identified more than 100 cases of true SBM-I and revealed that a company’s maturity, as far as sustainability is concerned, evolves along a spectrum, starting with traditional corporate social responsibility and ending with SBM-I. While many companies are moving along that continuum, few are operating at the SBM-I stage.

We classified roughly 45% of the cases as initiative leaders. In these cases, companies used innovations in products or processes and changes to the value chain to mitigate negative environmental impacts and to enhance their brands. Among the case studies, 25% took an extra step and were ecosystem leaders; these cases reimagined value chains and business ecosystems to potentially address the root causes of environmental and societal needs and to compete differently. And 30% emerged as front-runners; these cases reimagined the business entirely and reshaped the boundaries of competition to address the root causes of environmental and societal needs at scale for growth and advantage.?

So how should companies approach SBM-I? Our work shows that the key to success is a four-step innovation cycle:

• The first step for companies is to develop a rich understanding of the broader stakeholder ecosystems in which they operate and of the environmental and societal issues and trends that might affect these ecosystems. As part of this diagnosis, companies explore the potential impact of ecosystem dynamics on their business models. This will help them identify a variety of business vulnerabilities and opportunities tied to environmental and societal issues.
• In the next step, companies transform their business models, or imagine entirely new ones, to seize identified opportunities. They are seeking to bypass current constraints, break tradeoffs, deploy technological advances, and perhaps integrate activities that were previously kept separate. New business models should integrate and reinforce business advantage along with environmental and societal benefits.
• In the third stage of the cycle, companies should test, iterate, and refine business model ideas or concepts (from the second step) to ensure that they will yield the environmental and societal benefits intended. They must also ensure that the benefits will translate into value and advantage.
• Finally, companies should pilot and scale the winners. This may require setting new industry norms, reshaping stakeholder dynamics, and pushing the boundaries of competition. ?

With each innovation cycle, companies gain scale, experience, and market presence for their initiatives—ultimately creating business advantage and meaningful environmental and societal benefits.

For Further Reading:

Why the New Competitive Advantage Demands Sustainability

Four Steps to Sustainable Business Model Innovation

The Secrets of Sustainability Front-Runners

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