The Leading Edge of Sustainability – New Spheres, New Mindsets, New Models

[This post originally appeared on the SustainAbility website.]

“Sustainability” has become part of the modern business lexicon. But what does it really mean?

In a 2010 survey of global CEOs by Accenture and the UN Global Compact, 93% of the 766 CEOs surveyed said that sustainability issues were “very important” or “important” to the future success of their businesses. In this same survey, 81% agreed or strongly agreed that “these issues are fully embedded into the strategy and operations of my company” (up from 50% in 2007).

We’re glad to see this evidence of the growing importance of sustainability issues on the global corporate agenda, and we celebrate the ambitious goals and substantial progress of many businesses. But we have to disagree that 80% of companies have fully embedded sustainability into their strategy and operations. The participants at our annual members’ workshop in London seemed to feel the same – in response to our informal pre-workshop survey, most said they “strongly disagreed” or “disagreed”.

Such a disconnect between what the CEOs think and what many others think comes from a disagreement over what sustainability means. Sustainability isn’t just about a few percentage point reductions in carbon emissions, or a selection of sustainably sourced product lines, or a supplier policy – as important as all of those are as starting points. But what is it then?
We kicked off our recent Engaging Stakeholders Program member workshops in London and New York by asking each other: “What is sustainability leadership?” Here are some of the themes we discussed.

New Spheres

Manage outside the walls of the company. Leading businesses are expanding their spheres of interest and influence, seeing both responsibility and opportunity in the value chain as well as in the direct footprint. This is reflected in commitments that expand outwards (for example, in 2005 Walmart committed to sending zero waste to landfill; five years later it has committed to increasing the income of one million small & medium farmer suppliers), but also in a new view of what it means to manage a business. One of our workshop participants said that his company had begun to think of suppliers as part of the organization, and that this approach shaped everything they did on supply chain management.

Set Big Hairy Audacious Goals that go beyond the value chain. Examples we’d put into this category include GlaxoSmithKline’s efforts to increase access to medicines; Nike’s goal to develop a closed-loop business model; Google’s goals to make renewable energy cheaper than coal and (less widely known) to maintain the viability of one of its key input industries, journalism; and most recently Unilever’s Sustainable Living Plan, which aims to define a sustainable model for consumer goods value chains.

Look for the best ideas everywhere. The age of “Not Invented Here” is beginning to seem out-dated even in mainstream business. P&G now sources 50% of all new product ideas from outside the company. GSK, Nike and Walmart are all taking open innovation approaches to achieving their sustainability goals through GSK’s Open Lab for R&D into developing country diseases, GreenXchange for patents and Earthster for life-cycle assessment analyses, respectively.

Support individual leadership and innovation – particularly by the young. Many of the examples cited were of leadership from young people or employees, and DSM’s presentation on their young employees’ global bottom-up sustainability network was one of the most popular sessions at the workshop. It is becoming a constant refrain and source of hope that today’s young people are, as a group, much more interested in sustainability than their elders – and are full of ideas and energy.

New Mindsets

Think in terms of economic ecosystems. The least-understood and most overlooked dimension of the triple bottom line, economic impact, is perhaps the most important of all. As SustainAbility chairman Geoff Lye noted in his presentation, we are at a time when the economic power of business today has never been greater. The total annual sales of today’s top 200 corporations is $11 trillion – just under the GDP of the United States, over twice that of China, and five times that of the UK.

Businesses exist to create and distribute value, and the way they do this must be fundamental to any definition of sustainable business. Think of it as corporate economic responsibility, corporate social innovation, business-led economic transformation, or, as one of our members suggested, quite seriously, “Making Business Beautiful!” Whatever you want to call it, sustainable business is a way of doing business that sees each business as part of a larger economic system:

  • Where suppliers and employees are better able to supply and to work if they are treated and paid fairly;
  • Where shared resources and infrastructure are invested in through a good tax base (and businesses pay their fair share of that tax base);
  • Where customers have affordable access to products that will genuinely enrich their lives, including the basics (water, sanitation, nutrition, healthcare, energy, ICT and finance); and,
  • Where competition is healthy and businesses are diverse, making the whole system more resilient.

See values, norms and cultures as crucial enablers. Two participants at our London workshop named the end of the Catholic Church’s absolute ban on condom use and the work of Mechai Viravaidya to popularize the use of condoms in Thailand through humor as favorite examples of sustainability leadership. More generally, almost all agreed that understanding and influencing the expectations and values of everyone from consumers to investors would be crucial to the success of future sustainability initiatives. This is now mainstreaming as a topic of discussion – see, for example, the theme of the upcoming 2011 World Economic Forum, Shared Norms for the New Reality.

New Models

As SustainAbility co-founder John Elkington wrote last year in The Transparent Economy:

Properly understood, sustainability is not the same as corporate social responsibility (CSR)—nor can it be reduced to achieving an acceptable balance across economic, social and environmental bottom lines. Instead, it is about the fundamental, intergenerational task of winding down the dysfunctional economic and business models of the nineteenth and twentieth centuries, and the evolution of new ones fit for a human population headed towards nine billion people, living on a small planet already in ecological overshoot.

Indeed, the search for these new business models is becoming increasingly vocal. At last year’s Clinton Global Initiative meeting, Ceres, Nike, the Skoll Foundation and CalPERS launched a working group on this subject.
Two key goals of these new models:

Collaborate to deliver solutions. Sustainability leadership has moved well beyond compliance (‘because it’s the law’), and even accountability* *(‘because we are pushed, we must’), towards solutions (‘because we can, we will’). Increasingly, leading businesses are looking at their core competencies and asking how these can solve pressing social and environmental challenges, often in collaboration with other industries. As former Harvard Business School professor Shoshana Zuboff has written, “For a century… the manager’s job was to oversee and control what was inside ‘my company.’ Everything else was a distraction. [Now] you need to collaborate… you can’t do it alone because the needs of individuals don’t conform to existing organizational and industry boundaries.” At our London workshop, Vodafone’s Sarah Sanders presented on their work to partner with pharmaceutical companies to make healthcare more accessible through Vodafone’s mobile platform.

Influence consumption – and defy waste. Our workshop participants agreed that addressing consumption was crucial, but admitted that this was also one of the greatest challenges for their business models. Product portfolio changes such as PepsiCo UK’s commitment to increase the percentage of whole foods and low-fat dairy in its global portfolio are important steps, but more is needed. One fascinating trend in this direction is collaborative consumption, web-enabled platforms that allow people to share the use of existing assets. One of our workshop participants named Streetbank, which allows neighbors to borrow household items from each other, as her favorite example of sustainability leadership.

What’s Next?

The leading edge is out there. As author William Gibson famously wrote, “The future is already here, it’s just not evenly distributed.” Here are three leadership themes we’d like to see more of in 2011. We welcome your additions to this list.

  • Sustainability strategy as large-scale collaboration and change management. “Traditional” approaches to sustainability strategy have been heavily focused on the company’s own performance, planning and processes, with partnerships and organizational change as a second step. We now expect to see leaders increasingly placing collaboration and change management at the heart of their strategies. A key part of this will be formal and informal structures to encourage and harness insight and innovation among employees as well as stakeholders. Interestingly, a look at the business section of any bookstore will demonstrate how collaboration and behavior change, once on the sidelines, have now become part of the global business and economic conversation.1
  • Business initiatives to understand and affect values and behaviors. Many businesses have access to deep insight into human behavior through their market research capabilities and relationships with consumers. We want to see more of this directed towards positive change. The power of brands to change our values and aspirations has been a key theme at the Sustainable Brands conferences.
  • Efforts to systematically identify and scale new business models based on creating value from fewer physical resources, such as Daimler’s Car2Go pilot based on the Zipcar car-sharing model.

1 See Macrowikinomics; Collaboration; Drive: The Surprising Truth About What Motivates Us; Nudge: Improving Decisions About Health, Wealth, and Happiness; Switch: How to Change Things When Change Is Hard; Sway: The Irresistible Pull of Irrational Behavior; etc.

Google’s mission to make journalism sustainable

James Fallows has a great piece in The Atlantic on Google’s work to “[reinvent journalism’s] business model to sustain professional news-gathering.”  It’s a fascinating look at business model innovation, journalism, and sustainability for a number of reasons:

First, it’s a fast and clear analysis of an industry business model going through a dramatic transition as we speak (I’d love to read something similar for auto or pharma).

Second, it gives us insights from outsiders on the current state of journalism. Google News head Krishna Bharat believes that there is a deeply fundamental inefficiency in the media today, namely “the predictable and pack-like response of most of the world’s news outlets to most stories.”

“Why is it that a thousand people come up with approximately the same reading of matters? Why couldn’t there be five readings? And meanwhile use that energy to observe something else, equally important, that is currently being neglected.”

Third, it’s a look at how one company, seeing that “huge, historic technological forces” are threatening the viability of a crucial part of its value chain, is throwing its core competencies towards collaborating with that industry to make it sustainable in the truest sense—having the capacity to endure.

“We help people find content,” [Nikesh Arora, president of global sales] told me. “We don’t generate content ourselves… When there’s no great content, it’s very hard for people to be interested in finding it.”

“For the last eight years, we mainly focused on getting the algorithms better,” Krishna Bharat said, referring to the automated systems for finding and ranking items in Google News. “But lately, a lot of my time has gone into thinking about the basis on which the product”—news—”is built. A lot of our thinking now is focused on making the news sustainable.”

It is this same mindset that, say, global processors and retailers of food should be taking: respecting producers—smallholders and Big Farmer alike—as fellow businesspeople operating within an enormously challenging commercial and resource-constrained context and asking “How do we do our our best to help the sector that produces our key input achieve the capacity to endure? And how can we leverage our core competencies, like world-class distribution capabilities and a deep understanding of consumer behavior, to help develop solutions?”

One inspiring lesson seems to be that “an accumulation of small steps can together make a surprisingly large difference.” Google being Google, their efforts here consist of lots of experimentation and prototyping—Fallows describes a few, like Living Stories, an effort to aggregate a news outlet’s reporting on a single key topic over time.

The forces weighing down the news industry are titanic. In contrast, some of the proposed solutions may seem disappointingly small-bore. But many people at Google repeated a maxim from Clay Shirky, of New York University, in an essay last year about the future of the news: “Nothing will work, but everything might.”

Fourth and finally, it’s a look at the three areas (“improving the distribution, engagement, and monetization of information streams”) in which Google is trying to re-design the business model for news, which is interesting from a corporate transparency and reporting perspective. Most of this harnesses Google’s deep expertise in advertising or technologies such as YouTube Direct, which gives newspapers the means to allow readers to send in video clips and do a bit of citizen reporting. For example, Fallows notes that “Al Jazeera used YouTube Direct during the elections in Iraq this spring to show footage from around the country.” One of the things my Open.com piece advocates for is for sustainability reporting to experiment with sourcing data from stakeholders—imagine the possibilities here.

Spend less time talking, and more time prototyping, especially if you’re not very good at talking or powerpoint

Paul Buchheit, creator and lead developer of Gmail, on the role of prototyping and “20% time” in innovation:

We did a lot of things wrong during the 2.5 years of pre-launch Gmail development, but one thing we did very right was to always have live code. The first version of Gmail was literally written in a day. It wasn’t very impressive … but it was live and people could use it… From that day until launch, every new feature went live immediately…

The great thing about this process was that I didn’t need to sell anyone on my ideas. I would just write the code, release the feature, and watch the response. Usually, everyone (including me) would end up hating whatever it was (especially my ideas), but we always learned something from the experience, and we were able to quickly move on to other ideas.

The most dramatic example of this process was the creation of content targeted ads (now known as “AdSense”, or maybe “AdSense for Content”). The idea of targeting our keyword based ads to arbitrary content on the web had been floating around the company for a long time — it was “obvious”. However, it was also “obviously bad”. Most people believed that it would require some kind of fancy artificial intelligence to understand the content well enough to target ads, and even if we had that, nobody would click on the ads. I thought they were probably right.

However, we needed a way for Gmail to make money, and Sanjeev Singh kept talking about using relevant ads, even though it was obviously a “bad idea”. I remained skeptical, but thought that it might be a fun experiment … The code was rather ugly and hackish, but more importantly, it only took a few hours to write!

I then released the feature on our unsuspecting userbase of about 100 Googlers, and then went home and went to sleep. The response when I returned the next day was not what I would classify as “positive”. Someone may have used the word “blasphemous”. I liked the ads though — they were amusing and often relevant. An email from someone looking for their lost sunglasses got an ad for new sunglasses. The lunch menu had an ad for balsamic vinegar.

More importantly, I wasn’t the only one who found the ads surprisingly relevant. Suddenly, content targeted ads switched from being a lowest-priority project (unstaffed, will not do) to being a top priority project, an extremely talented team was formed to build the project, and within maybe six months a live beta was launched. Google’s content targeted ads are now a big business with billions of dollars in revenue (I think).

Of course none of the code from my prototype ever made it near the real product (thankfully), but that code did something that fancy arguments couldn’t do (at least not my fancy arguments), it showed that the idea and product had real potential.

The point of this story, I think, you should consider spending less time talking, and more time prototyping, especially if you’re not very good at talking or powerpoint. Your code can be a very persuasive argument.

The other point is that it’s important to make prototyping new ideas, especially bad ideas, as fast and easy as possible. … This is also where Google’s “20% time” comes in — if you want innovation, it’s critical that people are able to work on ideas that are unapproved and generally thought to be stupid. The real value of “20%” is not the time, but rather the “license” it gives to work on things that “aren’t important”.

Design thinking + innovation

A week ago my colleague Gary and I went to Forum for the Future’s and IDEO’s i-team debrief at the Design Council on some of the work they’ve been doing with UK councils on using design thinking to address climate change. Intriguing and energizing – very much enjoyed the presentations by the council representatives, who were shifting Post-Its and throwing out “how might we”‘s like seasoned IDEOers.

My favorite take-away: “Pitch, don’t preach.”

The session was chaired by sustainable design and innovation expert John Thackara. I was so impressed by his chairing that I wanted to find out more, and realized he writes Doors of Perception (among other things). Delighted to find that he does not have formal design training – he studied philosophy (me too!).

John Thackara’s Power Laws of Innovation

Power Law 1: Don’t think “new product” – think social value.
Power Law 2: Think social value before “tech”.
Power Law 3: Enable human agency. Design people into situations, not out of them.
Power Law 4: Use, not own. Possession is old paradigm.
Power Law 5: Think P2P, not point-to-mass.
Power Law 6: Don’t think faster, think closer.
Power Law 7: Don’t start from zero. Re-mix what’s already out there.
Power Law 8: Connect the big and the small.
Power Law 9: Think whole systems (and new business models, too).
Power Law 10: Think open systems, not closed ones.

Does efficiency stifle innovation?

Businessweek published their excellent annual special on innovation in its June 11th issue. I was particularly fascinated by “At 3M, A Struggle Between Efficiency and Creativity“, which asks whether Six Sigma has stifled 3M’s famously innovative culture and suggests that efficiency measures “lead to more incremental innovation at the expense of more blue-sky work.”

After all, a breakthrough innovation is something that challenges existing procedures and norms. … While process excellence demands precision, consistency, and repetition, innovation calls for variation, failure, and serendipity. … Indeed, the very factors that make Six Sigma effective in one context can make it ineffective in another. Traditionally, it uses rigorous statistical analysis to produce unambiguous data that help produce better quality, lower costs, and more efficiency. That all sounds great when you know what outcomes you’d like to control. But what about when there are few facts to go on—or you don’t even know the nature of the problem you’re trying to define?