Wednesday, April 23, 2014

Sustainability Thinking... THE Driver for Resiliently Profitable Innovation

Why Current Approaches to Innovation Aren't Working

Many CEOs, are struggling to connect sustainability / CSR / Green with innovation and improving profitability.  This 2013 Accenture UN Global Compact survey highlights how many don't yet see how much the world has changed.  CEOs increasingly know why sustainability is important, but they largely don't understand the deep connection between sustainability thinking and solving their increasingly pressing innovation and profitability problems.


Innovate Profitably

But we also know CEOs are only part of the innovation culture and process in any organization. For example, embedded in that culture are the "profit-first" approaches to problem solving, innovation and increasing profits taught in most business schools world-wide for the last 60 years. 

These approaches assume that the only sources of innovation are those that directly focus on reducing costs and increasing revenues - regardless of longer term impacts, externalities and "unintended consequences".  Indeed applying these old approaches will increasingly harm business performance, unknowingly exposing business to additional risk.

So what has changed? Why have the traditional approaches to innovation become "old school", unreliable and risky? What has changed is the ever growing impact on business opportunity and risk of the "global mega-forces of change". The global mega-forces of change and opportunity all come from outside this typical profit-first business sphere.  Mega-forces such as climate change, energy, population, materials and water scarcity, wealth and income inequality, and food security. As a result, these global mega-forces are ignored by "old school" approaches. They are a new and largely untapped source for innovation and profitability.

Start-ups, small, medium and large businesses, such as those mentioned in the reports at the end of this post, are already starting to out perform in their markets because they are now tapping into this new source of resilient profitable innovation.


Manage Risk

Further, because the "old school" profit-first approach to innovation systematically ignores (or worst denies) the mega-forces as a valid source of inspiration, the material risks created by those same mega-forces are also ignored. This means "old school" innovations have unknown levels of monetary and reputational risk for investors, shareholders, and indeed all stakeholders.


Engage Employees

Lastly, the "old school" profit-first approach to innovation means employees and other key stakeholders can't live their deepest held human values in their working lives. We are told everyday that only innovations that reduce costs or increase revenues are "good" - even when we know they will harm us, our families, communities, countries and the world - upon which we ultimately depend.

This creates significant individual barriers to engaging with the "old school" approach innovation. These old approaches create pain as individuals experience the disconnect between their values and what they need to do to undertake their jobs. In turn employees dis-engage, their health is impacted, as is the companies performance, as ultimately the best employees leave (incurring disruption, re-hiring, re-training and reputational losses and costs).


Future Fit Business - it's Simply Better

What is a better approach to resilient profitable innovation that manages traditional and mega-force risk and engages employees?   How can a business innovate sustainably so it is resilient and always fit for the future?

The mega-forces combine diverse economic, social and environmental factors that together create a huge variety of new opportunities and risks. Creating a process of innovation that will systematically take advantage of the opportunities and minimize the risks, through a process of innovation, requires:
  • Understanding these factors and
  • New innovation tools that can help integrate the innovations into new and improved business models.
Businesses that do this successfully over time will simply be better, becoming future fit.  They will be:
  • Resiliently profitable: They reliably provide genuine wealth to all stakeholders - including a reliable financial return to shareholders.
  • Systematically aware of and mitigate risks from all sources: They resiliently face change from all quarters.
  • Aligned with deep human values: They will have a mission and vision that enables them to behave authentically with all stakeholders, enabling all of them to be genuinely and sustainably innovative.

As a result, such better businesses proactively contribute to a resilient sustainable environment, society and economy. They create the possibility that human and other life can flourish on this planet forever.

There is increasing evidence of both the limitations of the old innovation approaches, and the benefits of the future fit alternative (see the items at the end of this post for pointers). Further, there are already 1000+ companies world-wide who are certified as using this approach to resiliently profitable innovation and tens of thousands in wider communities such as the Business Alliance for Local Living Economies.


Beginning Your Journey

How do you begin on your journey to resilient profitable innovation?

Our Strongly Sustainable Business Model Canvas is a tool that helps companies learn about the impact of the mega-forces on their current business, diagnose current innovation challenges and design new and improved business models. This tool was created to systematically enable you to see the risks and opportunities that arise from both traditional sources of innovation and the mega-forces.

Using the canvas to innovate over time ensures that the connection between sustainability, innovation and stakeholders' deepest values are baked into the heart of your business. As a result your company can become authentic and resiliently profitable: able to sustainable innovation in the face of the ever increasing mega-forces.


Measuring Your Progress

How do know if you are progressing on your journey to resilient profitable innovation?

We recommend two approaches, depending on your information and other needs:
  1. B Lab's Benefit Corporation Impact Assessment and Certification are currently the best way to quickly find out if you're doing a good job of leveraging the innovation opportunities and avoiding the increasing risks of the global mega-forces, all whilst remaining profitable. 1000+ companies world-wide have found that the impact assessment is also a tool for demonstrating your progress publicly. This, in turn, can help attract new customers, innovative financing and other innovatiave stakeholders.
  2. The PROMoting Business Excellence (PROBE) network's benchmarks for Sustainable Business and Innovation Excellence gives you a detailed comparison of best practices against current practices.



Invitation

To explore how you can begin this journey for your business please see BetterMy.Biz - a collaborative initiative of a number of companies, including Edward James Consulting Ltd.

If you're interested in learning more about this topic please join the 250+ practitioners and academics in the Strongly Sustainable Business Model Group, hosted by the OCAD University's Strategic Innovation Lab.

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Evidence to Support our Thinking

There is increasing evidence of both the limitations of current innovation approaches and the significant benefits and opportunities of the future fit alternative:
  • Expect the unexpected: Building business value in a changing world. KPMG International. The key chart from this report is Fig 49 on PDF page 133. It lists the global mega-forces of change, and the resulting risks and opportunities that are missed by the "old school" approach to innovation.
  • Committing to sustainability with Unilever, a ~4min video recorded by McKinsey & Company with Unilever CEO Paul Polman. In this video he concisely and powerfully makes the connection between Unilever's improving profitability and the innovations inspired by sustainably thinking - including the impacts of the global change mega-forces in all tactical and strategic planning.
  • The New Sustainability Advantage by Bob Willard. This book identifies the 7 elements of the financial business case for a Better, Future Fit, Business. Dr. Willard documents how better businesses can improve financial profits by 50% within 3-5 years while simultaneously reducing risk - and all this by only implementing existing proven practices already implemented by others. 
  • Make the Case for Business Sustainability by the Network for Business Sustainability (NBSNet) that "regardless of industry or organizational size, this site will help understand how to create value through sustainability."
  • Culture of Purpose: A Business Imperative. Deloitte. A new report that suggests purpose drives profit and confidence. Nicely summarized in this Forbes interview with Deloitte' CEO
  • Sustainability Driven Innovation: Harnessing Sustainability's Ability to Spark Innovation. Deloitte. The report Intro States: Sustainability and innovation go together. Our research has shown that companies that pursue sustainability significantly increase their chances of becoming innovative leaders in the process.
  • Breaking Through: How Corporate Social Innovation Creates Business Opportunity.  KPMG Canada, Volans, and Social Innovation Generation.  "Today, many business leaders realize the challenges facing our society can adversely impact business. And more broadly, businesses can make a powerful contribution"
  • For Companies, It's Not Easy Being Green. Booze + Allen / Strategy + Business which summarizes much of the recent academic research related to the connection between Green / CSR and Profit. "Leading companies that have implemented sustainable initiatives along their supply chains have seen a corresponding boost in their financial performance. But there's no reward for a half-hearted implementation"
  • Are You Ready for the Resource Revolution. McKinsey & Company. This article summarizes a book about the risks and opportunities of the materials scarcity mega-force. There is a short video of this article here.
  • Capturing Leadership Positions & Catalyzing Innovation using Sustainability. The Natural Step Canada. A video of a webinar run by our friends at The Natural Step Canada which explores the application of the Framework for Strategic Sustainable Development (FSSD) to business - to enable businesses to capture a market leadership position and catalyzing innovation
  • Remaking the Industrial Economy. McKinsey & Company. A report and collection of articles about a "regenerative economic model-the circular economy-is starting to help companies create more value while reducing their dependence on scarce resources." Of course all this requires a huge amount of innovation of all types! 
  • Meet the Aspirational Consumer.  New research from BBMG and GlobeScan identifying a new fast growing consumer market segment "who are driving innovation, business growth and positive impact".  Good introduction to this research in this recent Fast Company article 5 Secrets To Engaging Aspirational Consumers.  
  • The Impact Generation Has Arrived.  New research from Deloitte "Millennial Innovation Survey" talks to the changing expectations of business that milliennials have as they become customers, employees and investors.  As this Forbes article concludes "Should we not look to the power of the free market for help solving our problems like public health and climate change? Over the next decade, society will demand that the business community address, or at least respond, to these issues, and the businesses that do so will reap the greatest returns. They will do it through better customer loyalty, a higher-skilled and more motivated workforce, and a lower cost of capital. For investors, that is a winning combination that spells impact."
  • Not Business as Usual. A feature length video featuring case studies of small and medium sized companies adopting the future fit approach to resilient profitable innovation.