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Posts Tagged ‘Business model’

Why do we turn to nonprofits, NGOs and governments to solve society’s biggest problems? Michael Porter admits he’s biased, as a business school professor, but he wants you to hear his case for letting business try to solve massive problems like climate change and access to water. Why? Because when business solves a problem, it makes a profit — which lets that solution grow.

Please take about 16 minutes to listen to Dr. Porter and understand why our global  business environment has changed and why business needs to modify it’s models to reflect that change.

Michael E. Porter wrote the books on modern competitive strategy for business. Now he is thinking deeply about the intersection between society and corporate interests. He argues that companies must begin to take the lead in reconceiving the intersection between society and corporate interests — and he suggests a framework, that of “shared value,” which involves creating economic value in a way that also creates value for society.

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“People only see what they are prepared to see.” ~ Ralph Waldo Emerson
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Business needs a model to integrate strategies with objectives, both business and sustainability, to collaborate internally, listen to external publics, effectively apply effort and resources that produce products and services fulfilling expectations of the customer. It promotes continuous improvement while recognizing stewardship for the environment, while benefiting the corporation.

“In a typical large change program, it is not a matter of sending out the new organization chart or the new budget or the new strategy with a few projects. It is about changing people’s behavior, often a lot of people, and this is not trivial.”           ~ Professor John P Kotter, Harvard Business School

Interesting enough, research shows there are at least two paths to Sustainability. Sustainability can be a voluntary, directed and focused initiative designed to transform the mindset and culture within your organization. Often times this is a culmination of a series of transformations that has brought your organization to realize that the next step should be long-term and more stable over time. Sustainability can also be an obligation from the central government to ensure environmental control of emissions that encourages best practices or driven by market or internal forces to survive the changing market landscape.

However, there is another perspective that acknowledges that Sustainability is the evolutionary “next step” of investigating internal and external opportunities. Not every company understands Sustainability, nor embraces CSR to implement it correctly.  Understanding starts with recognizing threats and accepting why change is necessary. Here are seven possible explanations of why a company would choose to be socially responsible:

Reason #1: Urgently Needed Fixes.  Often times, Owners and Executives will want to transform their organization, with a since of urgency, for immediate reasons. Many times this is triggered by a crisis or event that forces the need for change.  It may be a vacuum in the succession of the business leadership, market valuations, illegal business practices or environmental catastrophes. Owners and Executives, who are forward thinking, will recognize potential impact of their crisis and foresee the consequences and recognize the potential exposure from past practices.

Reason #2: It’s just the way it has always been[1]. Succession of leadership is an opportunity for change. This is especially true when the original founders of the Corporation past leadership roles to trusted personnel and family. Taking this transition creates an opportunity for change that could outline a number of reasons why executives would consider Sustainability as the next logical organizational change. The organizational mantra “it’s always been this way” should be a signal for leadership to look at areas of waste and applying Sustainability and Quality principles.

Reason #3: CEO interest[2]. A CEO may have a number of interests around Sustainability, but the two most important are based on tangible benefits in mitigation of external risks. Today, more often than not CEOs will rely upon their CFOs expertise and understanding of tangible benefits from Sustainability. From a risk point of view, CEOs must play the leadership role when confronted by NGOs. As Steve Fludder, VP of Ecomagination, GE said; “Let’s figure out how to take the world in a different direction and let’s all go there together.”

Reason #4: Reducing Costs To Stay Competitive. Good leadership will have costs as targets for business success. Would these cost savings have happened anyway without Sustainability?  Perhaps. Looking through Sustainability lens, identification and elimination of costs will be seen differently. Here are some examples of how costs could increase performance and profitability in an organization:

  •    Cut mileage out of transportation routes
  •    Reduce energy consumption
  •    Reduce water consumption
  •    Telecommuting to reduce employee carbon footprint and increase productivity
  •    Eliminate a variety of waste, internally and externally

Reason #5: Legislation Uncertainty. CSR is a form of corporate self-regulation integrated into a business model. Astute executives are CEOs are wary of looming “anti-business” rhetoric and possible legislation that will increase government involvement in environmental processes and procedures. In this context, CSR is a mitigation tool against government over regulation of an industry. Further, CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international regulations.

Whether through court decisions, regulations, or legislation, companies and industries can be forced into social and environmentally responsible practices. They are also worried about possible legislation that would penalize previous behavior and increase future litigation and risk to business. Current EPA regulations monitor impact from air, water and land emissions.

Reason #6: Overzealous Marketers[3]. “Greenwashing” is recognized as the “yellow journalism” of marketing. It makes claims about a product or company that cannot be substantiated by actual business or environmental actions or records involving the protection of community, habitat or the entire planet. Overzealous marketers are essentially disingenuous storytellers who are not practicing social responsibility and not transparent. However, prudent leadership caught in “liar, liar, pants on fire” scenario may be compelled to rectify that behavior and improve their brand image through active Sustainability practices.

Reason #7: Third Party Intervention. A financial institution that has supported the business may seek improvements in the business performance to reduce a potential risk to their investment. This may prompt the business leaders to take improvement actions that were previously alien to satisfy the institution and reduce the risk to their own assets that may be held as a guarantee against the investment[4].

Reason #8:  Sales Decline. There may be a serious decline in sales. Competition, new technologies, a failure to meet the customer needs and expectations, a history of poor product development and introduction or poor marketing may all be contributory factors in reduced sales and be the catalyst for the business owner to change the approach to the business development[5].

Reason #9: Takeover. The business is acquired and the policies and practices of the acquiring business are adopted and introduce a proactive approach to the business. This may follow the appointment of new executive directors[6].

Reason #10: Lack of Internal Skills. The dearth of management skills within the business may trigger the appointment of an external senior executive who brings new methodologies, planning and enterprise to the business[7].

Reason #11:  Family Business ‘Turmoil’. The autocratic control of an owner may at times only be changed through the realization that permanent family divisions are undesirable. It may well be the opportunity for perhaps the ‘university educated next generation of family’ to demonstrate their abilities in setting and achieving sustainable growth strategies and managing the culture change[8].

Reason #12: Where’s The Beef? This a true “loss of face” predicament when your executives have promoted that the company meets or exceeds compliance to Sustainability principles and standards, but either have not fully implemented checks and balance, not completely institutionalized all employees, have not tethered executive incentives to behavior or do not hold Suppliers to the same standards. The most obvious example is British Petroleum [BP]. BP had engage its entire enterprise and committed to Sustainability for years. It was often highlighted as an example of making a carbon based industry leader into a paragon of Sustainability virtue. However, in 2010, that lofty status was dethroned when BP created the worst environmental disaster in the Gulf of Mexico.

Sustainability is the holistic business model for the 21st century. From a business perspective, it is a long-term strategy that eliminates waste, both externally and internally, while supporting the survivability and transformation of the enterprise. The future is our’s to create now.

Footnotes:
[1] Epstein-Reeves, James; The Six Reasons Why Companies Actually Wind Up Embracing CSR,  Forbes,  The CSR Blog – Corporate Social Responsibility  10/17/2012
[2] Epstein-Reeves, James; Ibid.
[3] Epstein-Reeves, James; Op. cit.
[4] Willetts, David; DAW Consulting, UK; Retrieved; 12 Aug 2012
[5] Willetts, David; Ibid.
[6] Willetts, David; Op. cit.
[7] Willetts, David; Op. cit.
[8] Willetts, David; Op. cit.

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