Embodying Sustainability
Into a Strategy

As you might already know, defining a mission, vision and a set of values is something that all companies must go through during their life cycle. They represent the identity of the company and they may lead the firm to a successful application of its strategy. The vision is highly aspirational and it basically presents what the organization aims to do while the mission states how the management is going to take care of the needs of the stakeholders. Both of these elements are linked and tangled. As an example we could have a look at the vision statement of an international corporation such as IKEA:

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“At IKEA our vision is to create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”

 

Finally, we consider as values all the principles and ideals that the firm follows and considers to face different problems and to strengthen its culture.

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Therefore, in order to embody sustainability into strategy, every business should check in the first place the fit between its identity and the required features of the plan. So, in case there was a significant discrepancy between the two, the company should think twice about pursuing its idea. Otherwise it should be duty of the decision-making bodies to recreate the statements regarding the values of the firm.

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Even though the number is still exiguous, more and more companies nowadays are starting to embrace sustainability and social responsibility to have a positive impact on the environment and overall on the society, slightly abandoning the “profit only” mentality. The new long term goal is to do good to customers, employees and local communities. In order to achieve this ambitious objective, in this kind of organizations, the purpose drives the business strategy as well as the decision-making process and contributes also to inspire daily operations.

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Regardless of the link between the core strategy of the business and the traits of its corporate culture, today there’s the chance to deal with a wide range of different tools that address sustainability issues. Just think about renewable energy, resilient supply chain, green products and so on. How can we generate value through a sustainability strategy? How do we correctly apply this tactic ?

 

Stuart L. Hart (1995) has designed one of the most useful frameworks to examine these strategies and understand whether or not they could be link to a possible competitive advantage. With the natural resourced based view “NRBV”, Hart defines three main stages of environmental strategies linked with different drivers and competitive advantages.

• Pollution prevention represents the first level that companies seek to reach when they try to eliminate pollution and waste before they are created. It is associated with low-cost competitive advantage.

• Product stewardship represents the second level and prevents environmental damages for the whole life cycle of the products. The competitive advantage derives from establishing product standards.

• Sustainable development is the last strategy level and embodies economic and social concerns. It has a long term value creation potential and contributes considerably to the society.

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Starting from the theory developed by Hart, many other researchers have put a lot of effort in trying to give birth to similar frameworks. Noteworthy is surely the work made by Thomas Dyllick and Thomas Bieker. Their model identifies five different kinds of sustainability that provides benefits to the company and society according to two dimensions. The first one underlines the distinction between actions at the company and market level , focusing the attention on what happens internally (Internal) and externally (External) with consumers and suppliers. The second one stresses strategic actions made to rise revenues (Offensive) and actions that contribute to decrease costs and risks Defensive).

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The five sustainability strategies are:

• Reputation-based strategy to increase firm’s reputation

• Risk-based strategy to decrease and control risk

• Efficiency based strategy in order to improve productivity

• Innovation-based focuses on building product differentiation

• Transformation-based that involves a deeper change in business’ structure and corporate culture.

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Reputation-based strategy:

As we previously said, this strategy is made to improve the credibility of the firm against potential reputational risks, brush up its image and to cut transaction costs with key stakeholders. Therefore it is usually exploited to build legitimacy and consequently try to enhance customer loyalty to support market growth.

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Risk-based strategy:

It is thought up to minimize and manage better the corporate risks coming from social or ecological issues. These types of risks can damage the firm along the long period and also negatively affect multiple sides of the business itself. In order not to let those environmental risks affect the activity, it’s mandatory to first assess the risk and then finding a possible solution to reduce or completely cut out the issue. So the first step is to analyze the probability of the hazard and its consequences regarding the damage and loss of value for all the stakeholders. The options to tackle the problem are often implemented through internal policies, training campaigns, monitoring and reporting, programs and standard operating procedures.

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Efficiency-based strategy:

Also named “eco-efficiency”, since sustainability broke up in the managing processes of companies, it has become one of the most popular tools to support sustainability. This strategy is used to smooth the way for productivity enhancement at the process level. It leads to cost reduction and better operative margins. Investments in this particular field are related to cleaner technologies and organizational modernization such as environmental management systems.

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Innovation-based strategy:

This specific area is based on the production of services and products that cover the needs of the customers about environmental and social issues. In order to be successful this strategy needs a certain amount of credibility and trust, supply chain traceability and also availability of information about the product environmental and social performance. Firms would be able to rise sharply their market share exploiting brand differentiation and market positioning as well as additional revenues due to entering a new market.

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Transformation-based strategy:

The last kind of theory is based on the fact that the organization has to put its effort to boost the resilience of social-ecological system and also model the attitude of the market and society overall toward sustainability. Nowadays, all the companies that are trying to develop innovative technologies have to carry the burden of literally transform the market conditions, educate people and request the adoption of new helpful policies In fact, this view is based on a long term vision, new skills and new managerial applications as well as a needful partnership with governments, customers and competitors.

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All these approaches don’t exclude one from another and can be totally used together to increase the efficiency in the process of integrating sustainability into the firm’s core strategy. The five strategies of the framework that we have just described not only can help companies to get a better footprint on the globe but they are also extremely helpful to stress the the competitive opportunities that are linked with managing environmental and social issues.

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By Andrea Oliva