Driving business innovation and growth
For a useful perspective on how many leading organizations are approaching sustainability as a core business strategy, think back to when the World Wide Web was new. Initially, organizations established a website, providing static contents and little to no interaction with their customers or employees. It was a trendy thing to do.
As the Web evolved, so did organizations’ view of the technology. They adopted a strategy that integrated applications and practices to foster greater collaboration and information sharing among employees and customers. Now, the Web is transforming how organizations conduct business, ranging from improving efficiency to creating innovative products and services - all with an eye towards improving the bottom line.
Adoption of sustainability may be following a similar path. At first, organizations were just trying to be good corporate citizens, focusing on energy conservation and offering “green” products. It felt good to do, but it didn’t criticize the business. More recently, many business leaders have begun to view sustainability as a more integral component of their business strategies, identifying opportunities and risks as a way to enhance revenue, margins and brand value. Organizations with a broader, more strategic plan for sustainability will not only drive innovation across their enterprise - including transforming key processes - but also may influence what their customers want and how their suppliers operate.
In many cases, sustainability can be a game changer. Sustainability can drive innovation by introducing new design constraints that shape how key resources _ energy, carbon, water, materials and wastes - are used in products and processes. It can also suggest areas where innovation can pay off especially well.
These five resources are ubiquitous throughout an organization’s supply chain, and the potential to boost efficiency and cut costs across these resources is significant. In the past they often were not treated as primary design constraints.
That’s now changing, and how a company attempts to overcome these new design constraints, delivering similar levels of performance and cost at lower levels of resource usage, might be key to its prospects. Choices made with regard to these constraints may well determine whether a company is pursuing a disruptive or sustaining (using Christenson’s categories of ‘The Innovator’s Dilemma’) path in regard to innovation.
Sustainability-driven innovation goes beyond designing green products and packaging solely on their inherent virtue. It entails improving business operations and processes to become more efficient, with a goal of dramatically reducing costs and wastes. It’s also about insulating a business from the risk of resource price shocks and shortages. Taken together these enhancements can deliver business benefits that go far beyond the bottom line - whether it’s improving your overall carbon footprint, enhancing your brand image or engaging your employees in a more profound way.
Driving innovation in supply chain process
How can a business identify the sustainability design constraints created by its supply chain partners and other external factors? For example, could business leaders have anticipated that sustainability would be thrust into the spotlight because of the action of a retailer two steps downstream? What imperative will this create for companies to develop innovative products, services or operations? Is there a reliable and useful way to proactively identify potential risks and opportunities before they put the company in a reactive position?
One approach that can provide insights is the use of what we have referred to as a “heat map.” This tool can be applied to both operations and supply chains, and includes activities such as design, source, make, deliver, use and return/end of life. To develop this matrix view, companies can layer in the financial impact and sustainability priority of each component for each sector. By combining these two elements visually, companies can see where opportunities and risks may exist for themselves _ as well as for their supply chain partners _ and use that information to help drive and enhance their sustainability strategies.
The heat map shows how a packaging company in the food industry can use a heat map to uncover strategically important opportunities and risks, some of which may operate as design constraints within the innovation process. Looking downstream, the packager may see that food and beverage companies have made public statements regarding product safety and lowering energy costs for refrigeration.
These should spark questions for the packager, such as: Can we design or improve tamper-evident packaging? Can we produce more cube-efficient packaging to reduce transportation requirements for frozen goods? Extending this exercise from source materials upstream to consumers downstream paints a highly detailed portrait of the sustainability opportunities and challenges that packaging companies may soon face.
These innovations can help organizations dramatically improve their business performance by rooting out energy, carbon, water, materials and waste inefficiencies that could provide significant savings for all involved.
Developing a broad sustainability strategy
Financial and sustainability analysis can reveal surprising and often valuable insights. Some of the most important include:
Lesson 1 (Dig deeper): The methodology described above and its output, the heat map, is designed to evaluate a company’s sustainability opportunities and risks throughout its extended supply chain. This approach can help uncover issues posed by a company’s partners. It also drives innovation. Just as importantly, the heat map can be used to develop a holistic sustainability strategy.
Lesson 2 (Collaborate where it makes sense): When drawing a heat map for their company’s market, most leaders are especially attuned to places where there are consistently high sustainability priorities across neighboring sectors. For example, if areas of potential collaboration occur in the product design phase, a company may have opportunities to jointly focus on innovation to design products that are sustainable from end to end. This type of collaboration may result in cost savings and improved compliance with regulatory mandates.
Lesson 3 (Follow the money): Investigate issues where high financial impact aligns with high sustainability priority. Companies in the consumer packaged goods industry, for example, might reap relatively larger financial benefits by improving sustainability performance across their entire value chain _ think beyond the manufacturing footprint.
Lesson 4 (Mind the gap(s)): Discrepancies between financial impact and sustainability priority may indicate that companies are giving too little or too much attention to one sustainability priority over another. For example, one manufacturer initially focused on the presumed large impact that proposed carbon legislation would have on its business. Further analysis revealed that the proposed legislation posed virtually no financial risk. Instead, it suggested that the company should focus on its global sourcing approach. Although it sourced from a number of low-cost countries, the company did not have effective practices in place to monitor working conditions and product safety associated with these goods. The investigation helped align priorities with the most significant financial benefit.
Lesson 5 (Look over the horizon): Sustainability strategies should address current issues but leave room for future opportunities and risks as well. Although the heat map provides a current-state snapshot of an industry and company, leaders should keep in mind that the future landscape could look quite different. For example, companies may not currently view water as a sustainability risk or even a financial risk. However, population growth and pollution could create a situation where this critical resource may become significantly limited, which in turn could affect the ability to run operations to meet your revenue plan.
To reach this new frontier, leading organizations are taking a hard look inside their operations and across their supply chains, assessing where they are, prioritizing initiatives, and then formulating a broad sustainability strategy to foster product and process innovation to achieve their goals. They are also adopting metrics that more accurately measure their progress and improve their image in the marketplace. Companies that achieve this vision have the opportunity to enhance revenue and brand value, engage effectively with key stakeholders, manage risk and reduce costs.
This article was provided by Deloitte