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Jun 27, 2013

Sustainability Fatigue, Disruptive Innovation, and the Flourishing Enterprise: RMI Chats with Corporate Sustainability Expert Chris Laszlo (Part 1)

 

“There are high expectations when a major company launches a sustainability journey. But there’s also frequently an inverted U curve: expectations rise, you see results with low-hanging fruit … And then suddenly there can be a sustainability fatigue that sets in. You see it in some leadership transitions or when new priorities arise, or simply when the initial excitement has run its course.” So says Chris Laszlo, a leading thinker in the world of corporate sustainability.

Laszlo is the author of Embedded Sustainability: the Next Big Competitive Advantage and Sustainable Value: How the World’s Leading Companies Are Doing Well by Doing Good. He’s also an associate professor of organizational behavior at Case Western Reserve University’s Weatherhead School of Management and visiting associate professor at the Drucker School of Management at Claremont Graduate University.

I first met Laszlo at a “Sustainability Circle” event to share best practices in sustainable business management. Chris facilitated the morning session on how to embed sustainability into an organization; I ran the afternoon session focused on building energy management strategies.

Chris and I talked about his latest work on the “flourishing enterprise.” RMI editorial director Peter Bronski recently joined Chris and me to continue the conversation.

Michael Bendewald: You teach executive MBA and PhD courses, where you include RMI’s Reinventing Fire alongside your own Embedded Sustainability as texts for the courses. We’d be remiss if we didn’t ask how Reinventing Fire complements your work and teaching.

Chris Laszlo: Sustainability is increasingly a business strategy and driver of profit, but the mindset of many companies is still that it’s a cost. When line managers hear about the triple bottom line, including social and environmental objectives, there’s a sense that you have to compromise on the economic side. But you don’t and you shouldn’t.

For students and executives, it helps to have them see how market forces are leading companies to embed sustainability along their life cycle value chains, making it a smarter way to do business rather than only a moral or regulatory obligation.

In my work in management schools, I bring in strategy and organizational behavioral frameworks. Students benefit from having a way to think about how sustainability contributes to competitive advantage and organizational effectiveness. I also provide tools such as life cycle cost analysis and my own work such as the sustainable value matrix and the 6 + 1 levels of value creation. What we need, what any good course needs, is to populate those frameworks and tools with credible examples. That’s where Reinventing Fire fits in.

Reinventing Fire is so powerful because it’s got these four industries—transportation, buildings, electricity, industry—covered in a practical, detail-oriented fashion; where the case for the U.S. getting off oil and coal by 2050 is made with the kind of credible and compelling examples that particularly hard-nosed business leaders need to have. In order to understand this idea that sustainability is here now, can be done in a way that’s cost saving or profit generating, and is simply becoming a smarter way to do business.

MB: What was the motivation for going from the world you just described into your new idea on the flourishing enterprise?

CL: I’ve spent the last 12 years developing the business case from a strategy, finance, organizational, and operations perspective. Having spent all that effort over those years, it really struck me a few years ago that something was missing—most importantly, the way sustainability is typically addressed in most companies is not producing the kind of results either business or society is expecting.

There are high expectations when a major company launches a sustainability journey. There’s an inverted U curve: expectations rise, see results with low-hanging fruit, trucks can be more efficient, stores can be more efficient, supply chains get some benefits. And then suddenly there’s a sustainability fatigue that sets in, other priorities come along, and sustainability becomes seen once again as a distraction.

Companies are not getting the kind of financial results over time that leadership expects. A joint 2011 Boston Consulting Group / MIT Sloan Management Review survey showed two-thirds of executives [embrace sustainability] to keep competitive advantage, but only one-third are reaping financial rewards. In another 2011 study, only 15 percent of executives can identify a return on capital levers in future years from sustainability.

On the other side [the stakeholders], if we look at all of the sustainability efforts businesses are making across the world, are they contributing to making the world more sustainable in terms of any of the big issues? Water, climate, biodiversity, chemical toxicity? I think the evidence squarely points to “no.” At best, business is only doing less harm, in other words slowing the rate of unsustainability. To claim that business, as an institution, is materially contributing to a more sustainable world seems increasingly far-fetched.

These observations put us at the beginning of a new conversation. We need to move away from only reducing a negative footprint. Now companies are making “net positive” a central component of their business strategies. I like the distinction of Australian activist Kathryn Bottrell, between reducing a negative footprint and making a positive handprint. The standards of sustainability leadership continue to rise. We can expect in years ahead, that it will not be enough for companies to only do less harm. Increasingly it will be expected for companies to make positive, contributing solutions that benefit society and the world.

Peter Bronski: But if we can’t get companies to reduce their negative footprint currently (as evidenced by sustainability fatigue), how can we get them to go even further into a net positive situation?

CL: What I’m talking about is a completely disruptive approach. Truly disruptive innovations are far more profitable for investors than sustaining innovations that add bells and whistles to existing [products or services]. The bigger profit opportunities are for companies that are going to do something completely different. Driven by solutions to global challenges proportional to the magnitude of those challenges. For example, a company called Ecovative, founded by two young grad students, to take mycelium from mushroom cells and use it to bind agricultural waste into packaging like material that’s a good substitute for extruded polystyrene. The profit opportunity for this and many other such sustainability-driven breakthrough innovations is potentially huge.

In part 2 tomorrow, we’ll continue the discussion with the role of incumbents and how “connectedness” may be at the heart of the flourishing enterprise.

This blog post also appeared on GreenBiz.

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Showing 1-1 of 1 comments

July 11, 2013

Michael, Excellent interview. In the later part of this interview mention is made "...all of the sustainability efforts businesses are making across the world, are they contributing to making the world more sustainable...". The answer given is a resounding 'NO'. Inference is given to the fact that a combination of missed profit and look term understanding that sustainability can have an ROI. However I would beg to add another cause to this lack of action to the title "Sustainability Fatigue" and that would be Overuse of the word 'Sustainability'. There would currently seem to be a greater shift towards 'greenwashing' or 'sustainability washing' by some corporate entities as a method to provide a smoke and mirrors process to divert attention from their continued lack of action.
Looking forward to the second part. Many thanks

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