New research from MIT suggests three things your company can do to generate profit from sustainability activities.
Findings are based on a 2012 survey conducted as part of MIT’s Sustainability & Innovation Global Executive Study. The study was conducted in collaboration with the Boston Consulting Group. The researchers collected responses from over 2,600 managers, thought leaders and executives across two-dozen industries. They asked respondents about the impact sustainability activities had on the firm’s business model. This included changes to which products and services were offered and how they were offered. Researchers also asked whether sustainability activities had generated profit.
“You can talk about making it a priority, but if you don’t organize to do it in a priority way, it doesn’t get done. It has to have a line that gets all the way up to the CEO in a compelling way.”
A significant percentage of respondents said sustainability activities led to business model change. Of the firms that underwent business model change, seventy five per cent either broke even or increased profit. What’s more: making a greater number of business model changes increased the likelihood that firms would see increased profit.
The following characteristics helped firms make the business model changes needed to profit from sustainability activities:
- A network of supportive, top-level management that prioritizes sustainability.
- A high degree of collaboration with external stakeholders, community partners and consumers.
- A clear set of metrics to (1) measure impact and (2) make the business case for sustainability activities.
Actions for Managers
“It actually didn’t take long for our mills to ‘get it.’ If Staples says that’s what they want, we’re going to find a way to make sure we’re doing business with Staples.”
This research, from MIT, suggests three things firms can do to generate profit from sustainability activities:
- Ensure support from senior management: Business model innovation may require significant shifts in corporate culture and mind-set. Researchers suggest setting multiyear goals and paying consistent attention to progress towards goal attainment. To achieve this, top-level management must be present and engaged. For example, Doug Conant, Former CEO of Campbell Soup, says, “You can talk about making it a priority, but if you don’t organize to do it in a priority way, it doesn’t get done. It has to have a line that gets all the way up to the CEO in a compelling way.”
- Collaborate with stakeholders: Collaboration with NGOs, working groups and other external stakeholders can help shape your firm’s sustainability agenda. Collaboration can also stave off whistle-blowers by keeping you from inadvertently “greenwashing.” (See Finding the Smart Mobs Before They find You)
- Know your customer: Find out if customers are willing to pay a premium for sustainable products and services, and how much. For example, Lewis Fix, Vice President of Sustainable Business and Brand Management at Domtar Crop, says it was the needs of a major customer that lead Domtar to certify all its paper mills with the Forest Stewardship Council. “It actually didn’t take long for our mills to ‘get it.’ If Staples says that’s what they want, we’re going to find a way to make sure we’re doing business with Staples.”
Source: Kiron, D., Kruschwitz, N., Reeves, M., & Goh, E. 2013. The Benefits of Sustainability-Driven Innovation. MIT Sloan Management Review, 54(2), 69-73.