To alleviate uncertainty in business and to grow profits, it’s increasingly clear that businesspeople must keep an open mind to seek opportunities, be bold and plan long term.
In other words, companies that change their business models in order to become sustainable enjoy higher profits.
That’s the conclusion from a 2013 study by MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG). Such companies enjoyed a 23 percent profit increase. The report’s title: “The Innovation Bottom line.
It’s like a long-term game of chess. Executives need vision to spot opportunities.
“Sustainability-driven innovators see the opportunity differently than do companies that haven’t gleaned sustainability’s financial rewards,” explained David Kiron, executive editor at MIT SMR and a coauthor of the report.
“They don’t dwell on it as a cost issue,” he added in a press release. “They focus on how their efforts can increase market share, boost energy efficiency, and build competitive advantage.”
North American companies lag behind
Interestingly, the study found that companies in emerging markets change their business models as a result of sustainability at a far higher rate than those based in North America, which has the lowest rate of sustainability-driven business-model innovation and the fewest business-model innovators.
The study, which is based on a survey of 2,600 executives and managers from companies around the world, also found that nearly half of respondents said their companies had changed their business model as a result of sustainability opportunities, a 20 percent jump over the previous year.
The report cites numerous companies: AT&T, Campbell Soup Company, Dell, Ecover, Greif, Intel, Kimberly-Clark, Kraft Foods (recently renamed Mondelez International), Marks & Spencer, Nestlé, Patagonia, PepsiCo, Sainsbury, SAP, Sprint, Timberland, UPS, and Zipcar.
The report calls these companies that have made business-model innovations “sustainability-driven innovators.”
Sustainability-driven innovators also bring a strong execution focus to their efforts, are much more likely to place customers at the center and work closely with many stakeholders, and drive sustainability objectives through skillful organizational change, said Mr. Kiron.
Strategies for sustainability
The extent to which a company incorporates sustainability concerns into its business model often correlates with its increase in profit, the study found.
- Fifty percent of survey respondents who had changed three or four business model elements said they profited from their sustainability activities, compared with only 37 percent of those who had changed only one element of their business model.
- When innovations to both target segments and value-chain processes were among the three or four business-model changes, the percentage of respondents who said sustainability added profits climbed from 50 percent to nearly 60 percent.
- More than 60 percent of respondents at companies that had changed their business model and had sustainability as a permanent fixture on their management agenda said they have added profit from sustainability.
- Companies that profit from sustainability are almost 200 percent more likely to develop sustainability business cases. The business case is often integral to the company’s overall strategy.
“The research suggests that business-model innovation, top-management support, collaboration with customers, and having a business case are all critical to creating economic value from sustainability activities and decisions,” said Knut Haanæs, a BCG partner and coauthor of the report who leads the firm’s Strategy practice.
“Executives need to view sustainability as both a business necessity and an opportunity,” Mr.Haanaes added. “Even moderate changes to company business models can reap significant financial rewards.”
The report recommends that executives emulate five practices common to many of the companies that are finding profit in sustainability:
- Be prepared to change business models
- Lead from the top, and integrate the effort
- Measure and track sustainability goals and performance
- Understand how customers think about sustainability and what they are willing to pay for in connection with sustainable products or services
- Collaborate with individuals, customers, businesses, and groups beyond the boundaries of the organization
From the Coach’s Corner, the report’s conclusions make sense – here related articles:
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