Four strategic shifts to achieve both growth and sustainability targets
For a long time, I have thought that my connection with nature and my work with leaders on strategic challenges were two realities that would never meet. One set in the personal sphere and the other in the professional one. This is no longer true.
In a recent blog post I highlighted how climate change is both the biggest threat and the biggest strategic opportunity for companies in the near future.
A recent McKinsey study puts a figure to that opportunity, stating that 12 trillion USD are up for grabs, and advising that organisations should now move to Playing offense to create value in the net-zero transition.
This green transition wave is reaching Australian shores and some of the recommendations in that study resonate strongly with the strategic conversations we at Vibrance Partners have been having with Executives in the last 12 months.
In this blogpost I’ll examine the 4 strategic questions you should explore to achieve both growth and sustainability targets in the years ahead.
How do organisations…
differentiate products and services through sustainability?
decarbonise a Business Model?
explore new green business ideas?
re-balance their business portfolio towards a more sustainable portfolio?
How do organisations differentiate products and services through sustainability?
The risk to manage here is the risk of customers transitioning away from an organisation’s products and services due to their carbon-footprint and negative impact on the environment. Leaders need to have a deep understanding of customers and their behaviour shifts to manage that risk.
On the opportunity side, leaders need to understand if and how a redesign of products and services could help decarbonise and differentiate them in a way that makes a price premium acceptable by customers.
The challenges to overcome to benefit from that strategic opportunity are both about product and service (re)design and communication. Indeed, clear communication will be key to:
demonstrate superior sustainability attributes of the redesigned product or service,
reassure customers that they’re doing the right thing for the planet by choosing this product or service,
clear out any doubts around greenwashing (i.e. unsubstantiated claims to deceive consumers into believing that a company's products are environmentally friendly).
In my client work I advise innovation teams to use the Value Proposition Canvas to re-design a product or service.
If you don’t know that the Value Proposition Canvas watch this short video from the creators of this tool.
I have illustrated below at the highest level the key job-to-be-done, pain and gain of a “sustainable-minded consumer” and the key gain creators and pain relievers of a “differentiated and decarbonised” product or service.
How do organisations decarbonise their Business Model?
Of course, products and services are not the end of it. Leaders are increasingly judged on how well they manage the backstage of their business model, operations as well as the supply chain where the lion share of an organisation’s carbon footprint might lie hidden.
For organisations not taking full ownership of their supply chain the risk of making the news headlines is real.
On the flip side, organisations that seize the supply chain challenge can unlock new value from true collaboration with suppliers around sustainability goals. And this often includes lower costs with decarbonised operations and supply chain over time.
In my client work I advise leaders and strategy teams to use the Business Model Canvas to visualise all changes required to decarbonise a business model.
If you don’t know the Business Model Canvas watch this short video from the creators of this tool.
I have illustrated below at the highest level the typical changes in the backstage of a “decarbonised” business model.
How do organisations explore new green business ideas?
While the green transition opportunity is real and big (with 12 trillion USD up for grabs in 11 different value pools according to McKinsey), so is the level of uncertainty. In such an uncertain business context, placing one big bet in one of those value pools is probably not the best approach to maximise chances of building new growth and long-term resilience.
In a recent blog post I explained that “transformative innovation is a volume game”, and how volume unlocks more value from your innovation endeavours.
That means that the best way to succeed in building the businesses we need for and after this green transition is to start exploring a large portfolio of new green business ideas.
In my client work I advise leaders to use the Portfolio Map to visualise and manage all current ideas/projects in their exploration portfolio and businesses in their exploit portfolio.
My co-authors and I have introduced the Portfolio Map in The Invincible Company. Watch this short video to become more familiar with this new strategy tool.
I have illustrated below on the Portfolio Map the need to explore a large funnel of green business ideas to maximise the chances of building a sustainable and profitable business in one of those eleven high-potential arenas.
How do organisations re-balance their business portfolio?
According to a recent study, CEOs priorities have shifted dramatically after the COVID pandemic. The number 1 priority is now to “centre strategy on sustainability”. Market conditions and customer expectations are also changing rapidly. So, the current business portfolio of a company, the result of strategic decisions taken sometimes in a distant and unrecognisable past, might no longer be aligned with the new vision, strategy and priorities of the organisation.
Once this gap is explicit, leaders can more easily agree on the most appropriate actions to rebalance their portfolio towards a new vision and steward the company away from the risks of disruption involved in the net-zero transition.
This will usually involve a combination of projects to:
improve a business to make it sustainable from a financial and environmental perspective,
acquire a company to enter a new market, or accelerate the green transition of an existing business
divest an emissions-intensive business that cannot be improved and does no longer fit the vision,
It’s worth noting though that divesting an emissions-intensive business is not a solution to the sustainability challenge we face as a species. There is a clear difference between resolving a problem and passing on the hot potato to someone else. Attitudes are changing fast and attempts to “dump most toxic assets” might now be perceived as simply irresponsible by the market. Think of the recent battle in Australia around AGL Energy’s demerger plan and its dramatic conclusion at the end of May with AGL Energy abandoning plans to demerge coal generation business. It is a clear warning for any executive and director that passing on the hot potato to someone else is no longer enough.
Now using the other part of the Portfolio map, I have illustrated below the three most common strategic moves to apply to your existing business model(s) to re-balance the Exploit portfolio towards your new sustainable vision.
All companies that we work with have growth in their strategic objectives. But very few have a clear vision on how growth and sustainability can be weaved in to unlock new level of value creation for customers, the organisation and society. Yet, pioneer companies like Patagonia and Unilever have long overcome that apparent paradox and shown that superior growth and sustainability are no longer opposites.
It should be clear by now that the net-zero transition is coming. Leaders who can quickly embrace a vision that reconciles growth and sustainability will have overcome the first and maybe biggest obstacle in leading that transition for their organisation.
