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Saturday, November 23, 2013

The Sweet Spot of Sustainability Strategy 11-23

The Sweet Spot of Sustainability Strategy

A three-question framework can help identify the most strategic sustainability issues for your company.

When it comes to sustainability, today’s fringe issues often become tomorrow’s mainstream and generic market expectations. And between these two extremes — the “fringe” and the “generic” — lies a third territory, which I call “strategic.” It is in this strategic territory that proactive companies have the best opportunity to influence the sustainability standards for their industry. I define the three sustainability territories as follows:
1. The “fringe,” populated by newly discovered sustainability issues.
However, these new issues have not yet materialized as business concerns; nor have normative voices yet proposed specific, credible business responses. Organizations should monitor these issues, but need not take action on them — not yet, at least.
2. The “strategic,” where various norm-setting groups — including businesses — are working to establish new market standards.
“Strategic” in this context means that a window of opportunity exists for proactive companies to assert a leadership position and help shape the market’s sustainability solutions. The window arises because standard resolutions to the issues are still developing. Therefore, any company that takes decisive action will be a leader — with the potential to define future sustainability standards for their marketplace and competition.
Image courtesy of Flickr user lowjumpingfrog
By taking the lead in enacting “dolphin-safe”
policies for its tuna, StarKist was able to influence standards in its industry.

For example, the issue of dolphin deaths from tuna harvesting became a strategic issue for companies like StarKist and Bumble Bee in the 1980s. Faced with concern from activists about the issue, StarKist in April 1990 chose to enact its own unilateral “dolphin-safe” policies.
 The move was quickly copied by its major competitors, Bumble Bee and Van Camp Seafood and consolidated “dolphin-safe” tuna as a marketplace norm, which in turn drove supply-chain changes. By taking the lead on this issue, StarKist was able to influence standards in its industry.
3. The “generic,” where standard solutions have already emerged for discovered issues.
Standard solutions usually take one of two forms. They can be specific technological solutions, such as water-saving toilets or energy-efficient LED lighting, or best practice solutions, such as Fair Trade certifications.
For executives, the first step is to determine if sustainability issues emerging from the fringe should be mapped onto the strategic or generic territory. This article proposes a three-question framework for doing so. Once executives know whether an issue falls in the strategic or generic territory, they can apply the tactics most appropriate for that particular terrain.
The following technique developed from semi-structured interviews with organizations confronting emerging sustainability issues. It was then generalized to broaden its relevance and vetted with senior management participants in executive education programs.

Distinguishing the Strategic from the Generic

There exist a number of potential approaches for prioritizing sustainability issues. Traditional risk analysis, for example, can be extended to social and environmental concerns. Likewise, stakeholder materiality techniques can be used to prioritize competing social demands. However, these methods are often involved and data-intensive. As an alternative, I offer a “quick and dirty” technique to assess whether a particular sustainability issue is strategic or generic. I call it “Sustainability Triage,” and it involves three sequential questions:
1. Can this issue be resolved without our company’s involvement?
This first question forces executives to consider whether their organization brings something unique or vital to resolving the issue. In some instances, companies are intimately implicated in either the cause or potential resolution of a sustainability issue. Take the example of the pharmaceutical industry when it was confronted with the HIV/AIDS crisis in Africa. While pharmaceutical companies obviously did not create the crisis, over time they were forced to recognize that the problem could not be addressed without their participation. That was because they held a monopoly on the treatment. Patents on antiretroviral compounds meant the drugs could not be provided without the owning company’s consent. Given this reality, pharmaceutical companies were inevitably drawn into efforts to confront the crisis. Moreover, the industry’s initial refusal to recognize the issue as strategic meant the terms of the debate were largely dictated by activist groups.
A “no” answer to this question will indicate that your company has vital responsibilities and risks. It may also indicate an opportunity to make a distinctive contribution to a potential solution that others can’t — thus creating a differentiated strategic response.
2. Can this issue be resolved materially faster with our company’s involvement?
Any company can cut a check and contribute to an issue, but the connection to corporate responsibility and strategy is often tenuous. Such activities should be considered discretionary and not strategic. However, there are times when a corporate contribution to a sustainability problem — while not resolving the issue — can substantially advance a solution. The key to this question is materiality. Does the company have competencies, geographic networks, influence, know-how or other assets that allow it to materially advance the resolution of a sustainability issue in ways that others cannot?
To help clarify the difference, take the example of the National Football League’s collaboration with the American Cancer Society. The NFL Pink Campaign sought to promote annual breast cancer screenings for women older than 40. While a worthwhile effort, it is hard to argue that the NFL materially advanced a resolution of the problem. “Women over 40” is not a demographic that the NFL has any special access to or influence with. Given this, some criticized the Pink Campaign as a ploy to attract a new audience to games.
Contrast this with the NFL Play60 campaign, an effort to fight childhood obesity by getting kids outside and active for an hour each day. This campaign plays far more to the NFL’s distinct mission and assets. NFL Play60’s target of children is a demographic whose members are already inclined to listen to their athletic heroes and emulate their fitness habits. And the NFL has obvious expertise in physical fitness. This gives the NFL a strategic opportunity, and arguably, a social responsibility, to have a differentiated impact on a societal problem. It also ties into the league’s business by fostering a generation of young fans and potential future players.
A “yes” to this question can prompt sustainability executives to explore in greater detail whether a strategic response is warranted.
3. Can the resolution of this issue substantially impact our business?
There are sustainability issues that — even if your organization can’t bring anything differentiating to the problem or solution — still merit strategic consideration. These are issues that could have important implications for your business, depending on how the problem is resolved. For example, food manufacturers, restaurant chains and soft drink producers cannot ignore the issue of childhood obesity. That’s because proposed short- or long-term solutions may impact their industry. Likewise, while a specific energy company may not have distinctive assets to help mitigate climate disruption, climate solutions will have an impact on the sector’s offerings — and, ultimately, its profitability.
There are sustainability issues that — even if your organization can’t bring anything differentiating to the problem or solution — still merit strategic consideration.
Subjecting emerging and existing issues to these three questions can help you segregate sustainability responsibilities into the generic or strategic domains. If you answered “no” to the first question or “yes” to the second or third question, the issue in all likelihood is — or will become — a strategic one for your organization. But even if the issue is generic, rather than strategic, you need to pay attention to it.

Addressing Generic Sustainability Issues

When executives determine that a sustainability issue is generic, it doesn’t mean that it’s not important. It just means that the company has little chance of gaining strategic advantage from investing in its own solution. The generic domain is filled with sustainability problems that are common to many industries. Energy efficiency and reducing a company’s carbon footprint, for example, are nearly universal concerns.
For most generic issues, there already exist organizations and groups working on and implementing well-defined solutions. Some of these are companies, often business-to-business suppliers, developing new technologies in service of larger industry value chains. 
Others are multi-stakeholder partnerships of business, nongovernmental organizations and/or government agencies working to establish standards, such as green building, sustainable forestry and ISO certifications. When operating in the generic domain, the managerial questions are twofold: 1) “Which solutions should we support?” and 2) “When should we implement them?”

Strategic Domain Tactics

Some companies can do well by managing from within the generic sustainability frontier alone. However, if your sustainability triage reveals your company has differentiated sustainability risks and/or opportunities, you’ll need to strongly consider a more proactive approach on sustainability issues strategic to your company.
Take, for example, how PepsiCo confronted its packaging problem in its snack chips businesses. Fritos’ and Lay’s bags that are discarded in parks and on roadsides are “branded litter,” which publicly links PepsiCo to growing concerns around waste. In the early 2000s there was no generic solution to the disposable packaging problem — so a window for strategic action existed. PepsiCo managers recognized that their R&D group had the capability to bring an innovative packaging solution to market. Furthermore, because the company’s business could be impacted by some proposed solutions to the litter problem, there was a strategic impetus for PepsiCo to take action.
So PepsiCo’s R&D team began exploring new packaging innovations. By 2006, the company had made progress on a compostable bag that would offer a biodegradable solution. Consumers could dispose of the bag in a compost pile, and within two weeks, it would decompose. PepsiCo decided to launch the compostable bag for its SunChips product, a brand through which the company was already innovating around sustainability.
While the bag performed as well as existing packaging, there was one exception: It was noisier than traditional bags. According to PepsiCo senior vice president Rocco Papalia, at the time of the launch, that seemed like a small price to pay for a real solution to a sustainability issue.
Unfortunately, customers didn’t agree. When the new SunChips packaging hit U.S. markets, a backlash ensued, resulting in a dip in market share for SunChips and bad publicity. The company pulled the noisy bags from store shelves.
Because they had publicly committed to producing SunChips in a 100% compostable bag, PepsiCo recognized that going back to the old packaging was not an option. Despite some internal tensions, PepsiCo R&D teams persisted and ultimately produced a “quieter” bag design that was still biodegradable. The new package hit the shelves in 2011 — to a far better response.
As the PepsiCo case illustrates, stepping into the strategic window on the frontier can be risky. The PepsiCo case, however, provides a good example of how those risks can be managed. First, PepsiCo chose to launch the compostable bag under its SunChips brand, not mainstream brands like Fritos or Lay’s. Second, leadership quickly leveraged the lessons learned from the United States launch when it rolled out the SunChips compostable bag in the Canadian market. The Canadian ad campaign acknowledged the noise but emphasized the sustainability gains of the biodegradable solution. They asked customers to give the bags a try and then humorously offered to send a free set of ear plugs if the noise bothered them. By addressing the issue upfront, the company avoided the backlash that followed the U.S. launch and garnered positive publicity.
Finally, by persisting through the initial setbacks and resolving the problem, PepsiCo gained goodwill and enhanced its reputation with sustainability advocates. By being the first among its competitors to introduce a compostable snack bag, PepsiCo staked out a first-mover advantage on an issue strategically important to the company.
Reproduced from MIT Sloan Management Review

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