The world is changing. Technology is disrupting markets and industries. Consumers are becoming more and more aware of the impact of their dollar. However, too many organisations still view a triple bottom line – doing good, or engaging in shared value activities – as something that comes after they make money.
Yet this old-fashioned and short-sighted view can cost organisations massive amounts of the very thing they are trying to grow: profit. With so much misinformation out in the public, here is what you need to know about the new economy, shared value and the road to building purpose and profit.
MYTH 1: Companies can’t profit from valuing a triple bottom line as much as they value profit
Every day, employees are demanding more of their workplace. 42 per cent of the workforce now want to work for an organisation that has a positive impact on the world. And when they do, 36 per cent work harder. And this number rises when brand values and employee personal values are aligned. The business becomes an extension of who they are. They advocate for the business and stay longer. All of which increases sales (without paying your sales team more) and slashes recruitment and training costs. And given staff turnover can cost a firm with 500 people up to $5 million dollars annually according to Workplace Info, a shared value retention strategy seems like a viable alternative.
Customer attitudes are changing too. In 2015 Unilever undertook some research to understand whether consumers’ views on sustainability translate to actual purchasing choices1. The research revealed that over 50 per cent of people want to buy brands that are more sustainable. And that sustainability issues are relevant to consumers in both developed and emerging markets. This mean organisations driven by a purpose bigger than money outperform their competition in terms of customer loyalty and employee engagement. All of which ultimately leads to greater long-term revenue.
MYTH 2 – “I don’t have time”
Everyone is busy – it is a cultural affliction we wear proudly much of the time. And yet too many organisations don’t have time because they are busy fighting fires. Fires that exist because they didn’t make time for a planned burn off. In 1954 former U.S. President Dwight D. Eisenhower said: “I have two kinds of problems: the urgent and the important. The urgent are not important, and the important are never urgent.”
Important activities have an outcome that leads to us achieving professional or personal goals. Urgent activities demand immediate attention and are usually associated with achieving someone else’s goals. They demand attention because the consequences of not dealing with them are immediate.
Rethinking business to mitigate and manage a changing word is an important problem. It sets in motion conditions so tomorrow’s problems never eventuate. Yet many organisations don’t do important because they are always doing urgent. So yes, you might not feel like you have time now. But by waiting until it becomes an urgent problem you end with a less informed, more rushed, more expensive solution. And many organisations really don’t have time for that.
MYTH 3: There is no money to be had from sustainability efforts
All too often we come across organisations who subscribe to traditional business truths like, “there is no money to be made from doing good”. Or “sustainability initiatives cost money rather than make money”. Yet more and more we see business challenging these ‘truths’. Profiting specifically because of their green or shared value initiatives.
Shared value is a management strategy in which companies find business opportunities in social problems. It helps leaders maximise the competitive value of solving problems social problems in new customers and markets, cost savings, talent retention, and more. First coined by Michael E Porter and Mark Kramer in 2011, they explain “Shared value is not social responsibility, philanthropy, or sustainability, but a new way for companies to achieve economic success.”
It encourages partnerships with Governments, NGOs and even competitors and drives innovation and a new way of thinking about opportunity.
Nike set out to build a shoe with less environmental waste – because that wasted resource costs money – both to purchase initially and then dispose of. Their Flyknit range is the result. Using woven technology they reduce waste by 80% and generate over a billion dollars in revenue.
In Verizon’s effort to create more sustainable operations, the company generated $27 million by sorting out and selling recyclable materials from its waste stream. This also saved them over a million dollars in waste removal costs.
Puma rethought the packaging of their shoes, utilising the same system to pack, ship, display and transport their shoes. And while the shift was cost-neutral at the time, subsequent saving has increased every year as the cost of recyclable materials has fallen and the associated water, diesel and energy costs have risen.
And Mars, Unilever, and Nespresso all invest in Rainforest Alliance certification. This helps farmers deal with climate volatility, reduce land degradation, and increase resilience to drought and humidity. And secures the future availability of raw materials, which makes economic sense:
MYTH 4 It’s a big cost and we can’t afford it right now
Any new initiative needs to measure up from a business sense – that’s just good business strategy. And the truth is, many sustainability, social good and shared value initiatives have strategic, financial, operational, marketing, or employee recruitment/retention returns.
Back before Nokia bought Alcatel-Lucent, Richard Goode, the then Director of Sustainability explained, “In good times, sustainability can be a competitive differentiator, in lean times, it’s a defensive strategy, and in really hard times, it can determine your survival.”
In reality, everything costs money. The challenge can be the anticipated time for shareholder return on that investment and the short-sighted quarterly reporting cycles. Paul Polman uncharacteristically gave away quarterly reporting on his first day as CEO of Unilever in 2008. His gamble is paying off with Unilever growing 33 per cent to €54bn during his tenure, share prices rising 172 per cent, and shareholder return increasing 274%. Most significantly, their ‘Sustainable Living Brands‘ – those with a strong environmental or social purpose, have been the company’s strongest performers. In 2016 the 18 brands grew 50 per cent faster than the rest of the business and delivered more than 60 per cent of its growth.
Couple this with the potential cost of climate change – the EPA suggested it could cost the US economy up to 180 billion dollars in losses, and some organisations – like Walmart, see opportunity. Walmart are the second largest purchaser of solar power globally. This purchase is about the benefit of being able to act independently from the grid and remain open in the event of a crisis. It creates a safer workplace with fewer cases of work-related illness, accidents and deaths. All of which ultimately lead to increases productivity and reduces staff turnover.
MYTH 5 Shared Value activities, and sustainability or social good initiatives don’t relate to my business.
Rolled into this myth are ideas about business needing to be a certain size, or have a certain turnover, or a certain market share for this to be relevant. Or the assumption that only B2C relationships benefit. Or the belief that supply chain is only relevant to companies that make things.
From our experience working with large and small companies, we can tell you without hesitation that the size of the company makes little difference. The opportunity to increase impact and through that impact increase profit, exists for any organisation. It just looks different depending on the specific situation. While larger organisations can have more success influencing supply chain and influencing policy, smaller companies are often intrinsically leaner, more resourceful, and more able to adapt. They can test and adopt more readily, realising benefits sooner.
Austral Fisheries have recently become the world’s first carbon-neutral seafood supplier. When asked what drives their sustainability agenda CEO David Carter said, “The greatest motivation is profit. Our customers and community want leadership from progressive businesses and connecting them authentically to our values ultimately delivers premiums. Millennials demand for products that have high ethical credentials is growing and productivity is high in our inspired workforce who are proud to work for a sustainability leader.”
As more and more customer demanding information about where organisations source products from and the conditions of workers in the supply chain, B2C companies look for B2B relationships that share similar values. Partnering with eco-conscious companies – including electricity providers and banks such as Beyond Bank and Bank Australia can make your brand much more attractive than a competitor to your partners, who are answerable to their customers.
MYTH 6: My customers don’t care about shared value, sustainability, social good or our values
More and more customers are choosing one brand over another otherwise equal brand because of their stance on shared value, their CSR program or their values. This can be a vital point of competitive difference. 82 per cent people expect more from their expenditure than the acquisition of products and services, according to the Consumer Study for Marketing to Mattering. It goes on to explain how people are more and more expecting business to help them attain their optimistic vision for the future, and subsequently, in high-growth economies,73% of people actively buy responsible brands. Konica Minolta Australian CEO David Cooke can attest to this. Konica Minolta is bucking the recent trend of declining printing as more big clients come over from competitors because they feel there is brand alignment. “They like what we stand for” says Cooke.
Similarly, an increasing number of organisations now require suppliers to demonstrate environmental management capabilities (like ISO 14001 certification) and government departments want evidence of sustainable supply chains in tenders and contracts.
A 2015 Corporate Knight report that found there is growing global demand from investors for companies to be disclosing carbon metrics, as a means for them to decrease their carbon portfolio. Couple this with the recent announcement that Suisse Re is joining insurance giants Alliance, AXA, SCOR and Zurich in abandoning investments in coal-based businesses. Corporations are being held responsible for developing more sustainable business practices.
Are these the only myths preventing business from leveraging Shared Value opportunities? From engaging in a new economy, and building purpose and profit. No, but they are ones we come across regularly that may unconsciously be limiting your organisation.
Businesses that thrive in the future will be those that serve society today. That’s why a blueprint for sustainable growth is essential for any organisation keen to lead into the uncertain emerging future and come out ahead. A blueprint to help them drive more profitable growth for their brands, save costs, mitigate risk and build trust among stakeholders.