What is a sustainable business?
We hear a lot about working towards a sustainable global economy. What this means is that governments and businesses as well as consumers need to change their way of thinking towards sustainability.
Sustainability has a number of definitions, but for me, a sustainable business is simply one that will be around next month, next year, next decade. Those that will win in the next decade are the ones that will that decouple natural resource use from the provision of value, innovate for a climate-compatible world, and meet the basic needs of the emerging consumers at the base of the pyramid. So, it’s much more than “simply” making a profit. Whether you provide a service or sell a product, it’s about fundamentally analysing your business’s offering to its customers and understanding its impact in society, the environment and its profitability too.
There is much evidence to suggest that if you embrace sustainability into your business, you will be more profitable. Climate change focused businesses alone are proven to be 6% more profitable than those that don’t. In the business world, this means sustainability can be aligned with profit objectives – indeed, it should be in order to achieve long term survival. If your business does not, your competitors that do, will be at an advantage.
To name a few industries where there are winners and losers, just think about how those that are on the winning edge have embraced a more sustainable business model. The decline of print, online shopping & bricks and mortar retail, digital music & vinyl (coming back as a niche), online education & classroom teaching, peer to peer lending & banks, fossil fuels & renewable energy (ignoring Trump’s ideas, if you can.)
My business is tiny – how can I embrace sustainability?
Whether you produce and sell a product or provide a service to your customers, there are many ways you can embrace sustainability. Let me provide a few examples to give you a flavour and see if you can apply the principles to your business. Warning, this may fundamentally change the way you do things!
Typically, gym equipment is manufactured to last just a few years. Trends in gyms change quickly. 10 years ago when running on the treadmill the only screen you saw was on the wall pumping out the BBC or Sky News. Now, you have your own personal multi function screen equipped with bluetooth. You can monitor your heartbeat through your watch, change your music according to your mood on your phone and record your progress on any sort of app. The treadmill of 10 years ago has long been replaced by a younger model.
In terms of climate impact, the machine you’ve replaced may well have gone straight to your local landfill site. If you produce gym equipment, you’ll have proudly sold a shiny new piece that has all the new features. But what if, 10 years ago, you’d seen sustainability coming and taken a longer view? Would you have designed your equipment so that your customer could upgrade to the new features as they develop? Would you have made it really easy to maintain the equipment? As resources to manufacture new become more expensive, would you have looked to make your machine last longer?
All your gym customer wants is an up to date running machine that their members like to use. Change from a product seller to a service provider of equipment that allows gym members to run and be entertained along the way, and you may well retain that customer for a longer distance (poor attempt at pun, but you get my meaning). Convert to a service model that charges a monthly fee rather than a one off sale and you stand to get the following if the customer proposition is properly thought through:
- Higher and longer term profitability
- A more valuable business
- Increasing balance sheet value
- Feedback from consumers on how to improve in the future
Advantages for your customer, the gym
- No capital outlay (don’t they lease anyway).
- Upgrade is automatic so they always benefit from featuring the best equipment.
- They can call themselves a green gym because they’re not throwing away the old stuff.
If Microsoft can do it with MS Office, why can’t you? Hint: there’s a good reason Microsoft has made the move. It ties their customer in for the long term and they plan to be around at the end of the century.
It’s not as obvious for businesses providing a service, but there are ways to change behaviour. The low hanging fruit is by reviewing the following areas.
- Energy use (efficient intelligent systems)
- Office space utilisation (use less as workforce is at clients)
- Procurement (buy longer lasting recyclable equipment, buy recycled office supplies)
- Greener policies (e.g. encourage staff to use public transport where practical)
- Measure it, then manage it
If you take a look at PWC, you’ll learn that not only do they seek out computers that are powerful and up to date, but they also ensure they are easily upgraded to extend product life, they use 85% recycled plastic and, at the end of their life at PWC, they are sold off and produce an income stream of around £500k per annum. PWC reported that they have achieved a zero waste to landfill policy in 2013. In my Deloitte days, the average number of A4 sheets used, per staff was over 70,000 per annum, so PWC’s achievement is admirable and could be replicated by any business at any scale with some thought and advice about what to look for.
With both a product based or service based business, the key to success is measurement. First, decide what is best to measure and understand the baseline. Then, to measure the impact the business is having against the baseline.
It should be clear that a business can gain both in terms of profitability and reputation if it can find a way to focus on what is sustainable. It should also be clear that competition will be looking for ways to become more competitive and sustainability can provide one pathway towards this.
I’ll leave you with this thought. In 2016, global trade grew by 1.9%; less than expected. Since then, Trump will probably put the dampers on world trade through his protectionist measures. At a more local level, Brexit may divert attention away from growth. The WTO has revised its trade growth forecasts to between 1.8% and 3.1% which is down from 3.6% – siting Brexit and anti-trade rhetoric as the cause. So what can you and your business do to counter this trend?
QR3 can help you think this through in a logical and bottom line focused way.