The sustainability revolution is here!

During many projects, not only since the beginning of this year, ?sustainability“ emerged without explicitly mentioning the term. The acceleration of speed and impact is clearly observable.

Working with trends to re-new strategies, business models, vision statements or re-configure supply-chains, it showed up in many aspects (beyond the obvious price-increases):

• Changed consumer requirements/expectations: While some have the luxury to buy out of ethical considerations others have to adapt to new realities: Use products longer, buy re-furbed items or change consumption behavior to make rising (energy) prices bearable.
• Changed risk assessment: Not only insurance companies need to price corporate actions differently, e.g. unsustainable supply-chain strategies can no longer be hedged for reasonable premiums. Also finance institutions need to consider unsustainable dependencies (energy, supply-chain etc.) or resource-consuming operations in their pricing (risk premiums) of finance-facilities.
• Innovation roadmaps: In the last decades the starting point for innovation was new/unmet demands on an overcrowded buyer’s market. Today scarcity, inflation, energy crisis and on the other hand AI, smart cities, new mobility or sharing economy are the triggers and drivers for innovation.

?While at the beginning of discussions some, more conservative participants, react with caution (“will take decades…, consumers are not ready yet…, financial markets demand…”), the longer an open dialogue lasts, the more resistance to the transformational changes necessary is disappearing. This is not surprising – critical decisions are to be made and speed of execution is important. When is the right time to switch to a business-model of short product-life-cycles to one of longer life-cycles, re-furbishment and second-life for products? What are the revenue-stream implications (e.g. compensation of volume losses with increased service business)? Which technology-investments will be needed? – not easy questions, risk of mis-judgments or bad timing included!

Some selected trends:

• Refurbishment: Prolonged life for products. Upgrade of digital components (software-update) allows continuous expansion of features for user benefit – e.g. self-parking cars, without disposal of hardware.
• Subscription economy: ?Premium“, ?standard“ and ?economy“ plans will be available for many use-cases. In combination with the versatile consumer. I can be ?premium“ in one category (e.g. electronics – new I-phone every 2 years) and ?economy“ in other areas (e.g. sports equipment). Reduced need for ownership will reduce production volumes and open opportunities for "circular business models".
• Manufacturing-as-a-service: More and more business models are ?on-demand“ and payment only for results. Buyer-economics aside this will lead to a dramatic reduction of ?waste“. Full utilisation of production capacities and later selling-off unwanted items for steep discounts will be a thing of the past. Flexible manufacturing technologies (lot size=1) will power this trend.
• Platform economy: Digital platforms will very efficiently match demand/supply, powering a sustainable use of materials or resource consumption.
• New architecture and construction principles for any kind of hardware (infrastructure, machines, vehicles…). AI, using mathematical optimization, will assist in the design of architecture, optimal material mix and joining technologies (e.g. join brittle materials with stronger structural components). Less materials used, built for long-term use.
• Mobility-on-demand and micro-mobility for smart cities. ?

?Change–Management – Roadmap towards sustainability

The transformation necessary is not to be underestimated – full commitment of leadership is necessary to align all stakeholders to shoulder the investments and changes (e.g. new capabilities, different strategies) required! Although the CoVid 19 crisis exposed huge deficits concerning the digital transformation the acceleration and scope of possibilities witnessed was quite amazing – a blueprint for the ?sustainability-revolution“!? Two aspects go hand-in-hand:

• Management of change (e.g. orientation, steering – sense and respond, setting purpose and bringing it to life, aligning stakeholders…) and
• building of capabilities (digital assets, supply-chain management, sustainable product-design)

All of the above depends mostly on the availability of talent for the organisation! A few years ago sustainability, CSR (reporting…) was not the place for ambitious young professionals – it still isn‘t if sustainability is reduced to environmental care, or even worse a strategy of greenwashing bad practices. Sustainability is not limited to environmental protection – it is much broader: Sustainability is defined as ?meeting the needs of the present without compromising the ability of future generations to meet their own needs“. Therefore, it also includes for example supporting ongoing education to improve people’s opportunities – a business built on the availability of cheap labor is also not sustainable. ?

?Levers for change:

1. Mission, vision, purpose: Delivering value to customers without sacrificing the future is a must and is possible! Patagonia promotes repairing instead of buying new things. To the benefit of the consumer, the environment and the company! Loyal customers – unpaid ?brand ambassadors“ drive-down marketing costs and maximize targeting-efficiencies!
2. Strategy: ?Sustainability“ opens new business fields and revenue-streams. Recycling and refurbishing will be prosperous business sectors – not only due to high energy and material cost. Make sustainability a corporate goal and profits will follow! Using less resources for more durable goods – consumers will be ready to buy, even at higher price points!
3. Structure: Sustainable organizations prioritise autonomy over synergies, value-creation over profit maximisation or communities over hierarchies.?
4. Culture: A clear focus on sustainability will not only change business practices, but also how people relate to each other – interacting with respect and building long-term relationships! Seems to be a very attractive proposition for the best talents!

The sustainability-revolution is the playground only for the best – transformation challenges are huge, building of capabilities needs both foresight and insight.

In the end it is a matter of choice and ambition level! The sustainability revolution is here – how fast and radical implications will unfold is still unclear. Some say it is (only) about ?resilience“, change & leadership or ?vision“ – yes, all of the above but more important:

Actions to prepare for a sustainable future:?

1. Change behaviour - ?Make it tangible, visible for everyone, an inspiration to join an important movement!
2. Build capabilities – Create a yet unknown and uncertain future step-by-step. The LEAN start-up ?stack of knowledge“ includes a rich repository of methods, tools and check-lists to explore and step into an exciting future!
3. Be innovative – remember, this is the most exciting activity of humankind, to solve challenges – impossible with current ?technologies“. Maximum participation of employees will build those future-proof organizations we need as a society!

Another inspiring recommendation Kearney Consultants made is the setting-up of internal communities, holding regular sharing sessions. This platform for change will use “sustainability” as a lens to drive forward many initiatives which result in operational improvements, business resilience, competitive advantage and much more! For these groups, to be successful and impactful a seat at the “decision-table” is crucial – and it is an important sign to internal and external stakeholders that sustainability is of high-priority to the company. The “Chief Sustainability Officer” should be empowered to make “not-so-popular” decisions, the ones which balance investments/sacrifices made today for future benefit – a sustainable business serving customers, while respecting interests of future generations!

Sustainability is a perfect opportunity/catalyst to change the organisation’s culture: Help employees, clients etc. to be true “sustainability” ambassadors – creating an impact much larger than anyone could achieve alone by following sustainable practices. When sustainability is part of the DNA of the company – innovation, strong branding and an efficient operating model will emerge! Another idea is to promote intrapreneurship by co-operation with an impact-start-up hub. Employees will be inspired and energized by a dynamic open-innovation eco-system exploring the opportunities of sustainable business models.

Last but not least “sustainability” is one more reason to fully attack any challenges related to digital transformation! Many aspects require data-availability, build on sharing & exchange of information – not only inside the company, but also across the eco-system of relevant suppliers, business partners.?

ACTION PLAN: Roadmap from Compliant to Sustainability innovation leader (pioneer)

?The following part is taken from and inspired by Kearney’s book “The sustainability chessboard”.

?4 strategy cluster’s: Roadmap from the "basics" to "excellence":

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1. Compliance – the very minimum: To comply with regulatory frameworks – which can be quite demanding for some industries and tightening of rules can be expected. Even that may not be enough – e.g. multinationals, who comply only with regional standards, which are below standards of their target market.
2. Leverage sustainability data: Analytical tools are the basis to build competitive advantage through sustainability and manage sustainability risk – e.g. of non-compliance.
3. Create value through sustainability: Together with public institutions, their business-partners (e.g. suppliers, customers) and industry peers these companies exchange ideas and use common resources to explore opportunities.
4. Lead sustainability innovation – the pioneers: Again, their efforts are not limited to their own company and their stakeholders, but extend to an ecosystem of partners, customers, peers and institutions. They facilitate sustainability efforts and innovation across their sphere of influence. They are:

• Sustainability ecosystem builders,
• Circular business model creators,
• Sustainability innovation drivers.

Rather than creative destruction, their aim is to build strong competitive fortresses! And they enjoy the benefits of their efforts:

• Reduced costs due to operational efficiencies (less waste/wasteful activities).
• Sustainable product portfolios – access to new customers, less cost for recycling/clean-up activities.
• New circular business models create new revenue streams.
• Premium brand perception.
• Access to talented, inspired professionals… AND MORE!

?For companies, being in group 1 wanting to do business with leading companies (group 4), being part of successful, future-proof business models one thing is clear: Compliance, transparency and plans for initiatives are absolutely necessary to have a seat at the table. Leaders will not tolerate laggards, showing no progress and will ensure standards are respected by conduction auditing routines.

Risk and cost of non-compliance may be significant:

• Fines (not only from regulatory bodies, also contractual fines, in case commitments are not maintained) and ultimately loss of contracts.
• Reputational damages to companies’ brands
• Inability to participate at tender processes

Some companies might see sustainability as a “non-issue”, since they are not in the chemical industry, do not source from locations with low standards or do not consider their production/product as having substantial negative impacts. What about opportunities to impact sustainability!?

• Use available infrastructure to generate re-newable energy (solar-panels on rooftops or any company premises, like parking lots)
• Promote sustainable mobility: Provide charging stations, electrify fleet, support employees going green – e.g. subsidized public transport, provision of micro-mobility (e-bikes, scooters)
• Reduce unnecessary travel
• Support customers, business partners to contribute to sustainability – provide information & education on how to recycle products, use environmentally-friendly packaging etc.

For a financial institution it might be a smart move to assist with sustainability management by providing reporting tools, publish industry benchmarks etc. in order to better protect their credit, investment or insurance portfolio against adverse effects of non-sustainable business practices.

Continuously enlarging sphere of influence to promote and profit from sustainable business practices:

As soon as your company has a clear picture of it’s sustainable future, has a solid strategy and framework to manage the necessary transition and is taking serious steps to make sustainability a part of the organisation’s DNA it is time to activate supply-chain partners, clients and an eco-system of innovators (e.g. start-up accelerators). Timing is of the essence: Being to early (not enough back-up of promises and vision) bears the risk of being perceived as “green-washers”, being too late is a missed opportunity to co-create sustainable business-models (e.g. platform-enabled offerings).

Going beyond first, project based sustainability efforts requires end-to-end anchoring of an organization-wide structure. Starting with a dedicated “sustainability office”, supported by local facilitators (project management, coaches, promotors) to the teams implementing initiatives. Suitable to company size and demand for change these positions might be staffed full-time. As always, a combination of “power-promotors” and “knowledge promotors” is necessary to create impact!

Where-ever your company starts, a sustainability roadmap is key:

• Set realistic goals and KPI’s – transform step-by-step!
• To begin with the right steps – the vision of the transformation has to be clear!
• Align funding (investment needs) with expected paybacks on a time-line.
• Ensure ownership & accountability, responsibility and learning – accelerate change by building on experience, offer continuous direction for improvement (feedback) and widely share success stories!
• Set a management framework: Timelines, resources needed, reflection points!

The probability of success increases dramatically, if “sustainability” is not seen as an additional, add-on activity of the company, rather it is a growth-driver, a lever to improve efficiencies, to build a more resilient supply-chain and a culture-accelerator!

How will companies profit from sustainability?

• Growth: Sustainable products pull-in an attractive, ever growing group of customers. Reduced unit volumes may be more than compensated by a repair, service or recycling business.
• Improved efficiencies: Use less raw-materials and energy, continuously trim supply-chain and operations towards a LEAN model of production and servicing customers in every aspect.
• Changed culture: In purpose-driven organizations people see any challenge as an opportunity to contribute – for the benefit of customers, resulting in increased company-value.

Summary and conclusion:

1. The sustainability-revolution is here to stay! The required transformation will not be easy – but is without alternative, as we can witness in the news every day (climate change: ?Wildfires, melting of glaciers, flooding – or droughts on the other extreme; divided societies: More and more people have less – fleeing their countries).
2. Companies beginning change today and aim to be pioneers will be the winners of tomorrow.
3. Kearney’s book “The sustainability chessboard” shows many inspiring case studies and proven strategies – the roadmap to achieve sustainability is clear!
4. Sustainable businesses are profitable! Bringing benefits to all stakeholders!

Start involving all employees, business partners and customers TODAY!