Sustainability – A Business Decision

In Harvard Business Review (March 2013), there is an article entitled MakingSustainability Profitable (Haaneaes, K. Michael, D and Rangan, S.) http://hbr.org/2013/03/making-sustainability-profitable/ar/1.

In the article, they look at organizations that have sustainability at the heart of their organization and show that this results in “above-average growth rates and profit margins.  In these examples, from across the globe, they are not looking at sustainability as an add-on, something to consider as it is in vogue, but make sustainability a core value of their organization, from which all other organizational activities follow.

They suggest three main approaches:

1. A long view: Investing in sustainability at the operational level to realize lower operating costs and resulting in attractive profits and margins.

2. Bootstrap approach to conversation: Implemented small process changes that generated substantial cost savings.

3. Spread sustainable efforts to the operations of their customers and suppliers, creating new business profit models.

So we see sustainability all around us. As a business you want to consider the concept of sustainability within your organization.  Where do you start? This is a key question to consider and not an easy one to address.  Well, let’s go back to the very beginning.  Why are we in business / or rather why do we exist.  I always answer that regardless of whether you are a business keen on making profit or a non-profit organization, that the reason why we operate is to maximize stakeholder returns. The concept of return means different things to different people, and could consist of making profit, gaining market share, benefiting a community etc.  If we look at a manufacturing business, we take a set of inputs (raw materials) transform them (through manufacturing) and if there is a value add in this transformation, then people will buy the resulting products.

The concept of value is well-studied in management literature and some seminal work was undertaken by Michael Porter, who identified the Value Chain concept. 

Considering a business, the model analyses the individual components within it, so that value-generating components can be identified to learn where profit can be gained. If we break down the constituent elements that create the product or service, we identify the processes, techniques and value add techniques that results in the transformation.  If this analyses has been properly undertaken, we can then look at how sustainability can be applied to drive the value addition.  For example, a key value-add contributor, for a manufacturing firm, will be the manufacturing process itself.  We look at the process from a sustainable lens.  How can the processes be optimised to meet sustainable targets?  Can they improved or manufacturing steps improved?  These fundamental questions, from a sustainable stance enables the value-add to be improved. 

We have finite resources, if they are used effectively, from a sustainable lens, then we can attain better returns from our resources, processes and create value add that maximizes stakeholder returns.

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