Category Archives: sustainable business model

Talk for Bath MBA students: the sustainable business landscape

Here’s a talk I gave to some University of Bath MBA students on Friday 22 March 2013.

Key points:

  • Sustainability issues are affecting your business
    • Doing nothing presents real risks
    • Acting now opens exciting opportunities
  • Leading businesses are acting on 2 fronts:
    • Shaping the context for a brighter future
    • Innovating to win on that path

I illustrate this with some recent work:

  • Developing strategy at AkzoNobel (I blogged about that here)
  • Innovating with Sony
  • Embedding change with O2
  • Shaping the system with Nike

Enjoy!

Disruptive technology, me and the Guardian

Just a short parish notice to say I was in the Guardian last week. It was their write-up of a roundtable on the power of disruptive technology for a sustainable future – and much fun the roundtable itself was too.

Their key points:

• Disruptive technologies don’t simply improve an existing technology, but offer something radically different.
• We are currently living through a digital revolution, where new companies such as Facebook, ZipCar, and Kickstarter are changing the way we live, consume and create.
• Small companies can often be better breeding grounds for innovation than large companies.
• Pressure created by buyer demands or regulation can drive innovation.
• Sustainable technologies must be closed-loop, designed with end-of-life recycling and re-use in mind.

I also wrote a piece for the Forum website on unlocking the promise of disruptive technology. What it says, in 4 bullets:

  1. Disruptive technologies are part of what we need, but only part
  2. They need the right circumstances to have a chance
  3. They need a good strategy to take their chance
  4. The sustainability movement needs to surf and shape the digital revolution

Enjoy!

‘Business model’ vs ‘economic model’

Over the last few years a term has been on a seemingly inevitable rise: sustainable business model. A conversation I had yesterday reinforced one of the dividing lines I’ve seen, especially in sustainability circles, between the organisation-level and system-level.

Sustainable Business Model. It’s new! It’s exciting! It’s obviously better than, you know, incremental change. But what exactly is it?

Even without the tricky first word, business model means different things to different people.

On one side you have the term applied at the level of an individual company. Does X have a product or a service business model? This is where most business writers and academics are.

Osterwalder says a business model “describes the rationale of how the organisation crease, delivers and captures value”. In the same vein, Joan Magretta of Harvard Business School says that:

business models are at heart , stories–stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?

This is the sense that WRAP have with their Innovate Business Model Map.

But others have a broader motion in mind. They mean something like ‘an economic system where companies are expected to maximise short-term rerun regardless of consequences’ – in short, the Anglo-Saxon version of capitalism. So, when they say ‘companies need a new business model’ they mean something like ‘companies need to pursue a social purpose’ and/or ‘companies need to purist long-term value creation, and so have a stake in making a sustainable future’ and/or ‘organisations need to be accountable to their stakeholders’ and/or ‘enterprises need to be cooperative’.

As it happens it’s not just sustainability folk which have this broader notion. Noted economist and FT commentator John Kay has long critiqued the American Business Model, in interviews and his book, The Truth About Markets.

My view is that these two perspectives are talking about different things. The first is about companies, the second is about the economic system that a company is within.

If you try to apply these different meanings at the same level – the organisation – then you can accidentally force yourself to choose between, say, trying shift from products to services or registering as a public-benefit B-Corporation.  But, in my view, this conflates the underlying economic logic with legal form. A for-benefit company could sell products or services. A product-based business model have positive sustainability outcome, even if incorporated as a for-profit company.

That’s why I prefer to refer to ‘business model’ for the organisation-level and ‘economic model’ for the system-level.

Of course, we need change at both levels to change. We need an economic system that promotes long-term value creation, and therefore supports companies innovating their business models so they can make succeed through sustainability. I think – think – we’ll be more successful if we use different terms to mean different things, rather than the same term to mean different things.

“How can I successfully disrupt thinking for sustainable innovation within an organisation?”

A few weeks ago I was asked “How can I successfully disrupt thinking for sustainable innovation within an organisation?”. Here’s my answer:

  • “It’s all about the journey”. The first thing you do is very unlikely to lead to massive pipeline of sustainable innovation. Successfully disrupting is a journey, from the first disruption through several steps to a new normal where sustainable innovation is commonplace. Generally, the steps in the journey are using the permission you have now to run experiments (or, for the more risk-averse, ‘pilots’) that get track record and credibility for more permission, and bigger experiments (‘pilots’).
  • Understand where you’re starting from. You need to diagnoses the status quo, and therefore what the best next step is. Are you in a Leader, where the task is more about embedding and lighting new passion? Perhaps an ambitious Beginner, which can leapfrog through some bold pilots but will also need to put the basics in place (this can be done in parallel). Is there a creative culture, so you can just inspire and point a direction because everyone will get on with it. Or an engineering culture, which will want to know that the answers are possible before they start? The specific next step – the pilots you choose to run, for instance –  depends on where the organisation is at now.
  • Use respected others to make sustainability credible and normal. People believe people like them a lot more than they believe change agents. Can you tell key decision-makers  stories of competitors that are succeeding because of sustainability? Can you introduce them to professional peers who can tell that story. (This is one reason why Forum runs its Network.)
  • Senior sponsorship is usually key. Usually you’ll need a senior sponsor. It doesn’t have to be the CEO, yet. But sustainability tends to end up being strategic, risky and touching many parts of the organisation. It needs a senior executive to overcome the people saying no for tactical and/or risk-averse and/or siloed reasons.
  • Connect to the enduring purpose of the organisation. It’s obvious to say that sustainability is about the long-term. But that’s a difficult guide for action: the rewards are too far away, especially compared to immediate challenges. Better to work through  how sustainability connects to the long-term purpose of the organisation. Why was it founded? What job does it do for its customers? What role does it have in society? At the core of successful companies there usually a purpose about helping people live better lives in some way – after all, for the most part £10 income is a customer saying this good/service makes my life at least £10 better. (And, yes, there are exceptions.) You can ask questions: how can the company deliver on that purpose for a sustainable world?  Connecting like this does a few things. It says sustainability is about making the company more successful, not giving up on business all together. Also, the answers tend to be do-able steps from today into the long-term.
  • Set some ‘pilots’ going. You’re armed with a diagnosis of the status quo, some senior sponsorship, and the first notions of how sustainability connects to the enduring purpose of the organisation. Now you can look for opportunities to start pilots, little experiments that use a bit of resource to do some sustainable innovation. Perhaps you ride on an existing focus group to test some initial concepts. Perhaps you convince HR to let you use one of the graduates trainee groups for a project. Perhaps you’re further forward and can take an entire product category and think through from first principles (“now, what business are we in here, really?”). Ideally you have a portfolio of pilots, so you start to gather an internal network, plus more chance of a clear success. Of course, you’ll make sure that you learn from any ‘failure’ – and look to build credibility for bigger pilots next time.
  • Get some resource set aside for disruptive innovation for sustainability. Classic mistake I’ve seen in many companies. Hold a creative workshop. Get people excited. Then no follow-up to the best ideas. Please, please, please try to get some resource set aside in the budget for unexpected, disruptive opportunities.
  • Create management structures that nurture and protect disruptive ideas. Second classic mistake: put an interesting innovation into the daily grind. Subject it to the same financial hoops as a mature business. Put people with implementation skills only on the team. Then watch it die a death by a thousand cuts. Different or difficult concepts need to be protected from the norm, while still subject to the appropriate discipline – are the team learning and putting those insights into the next iteration? In the report Breakthrough Innovation: your guide to innovating for a brighter future we found  companies used 10 different management structures, from competitions through hot-housing to collaboration and corporate venturing. If you can create a management structure to host sustainable innovation then you’re making good progress.
  • Opportunistically embed in your organisation. In the report  there are something like 20 different ways companies embed innovation into their culture, covering their people (example: training), their processes (example: add sustainability tests to innovation gates), their networks (example: engage external stakeholders for insight)  and their purpose (example: can you set a very ambitious target?). Be opportunistic about embedding one of these recommendations in your company.

So, my answer is not a neat 5-point plan. It is context specific – understand your starting point, and the core purpose of the organisation. And it assumes you are a change agent with some support, but not enough for An Official Change Management Programme (not that those work anyway). My answer also combines the supposed ‘soft’ side (relationships and capacity building) with the ‘hard’ stuff of budgets and processes.

All of which says that successfully disrupting an organisation is not a neat, linear process that can be prepackaged. There is a skill in choosing what to do when. But in order to learn that skill you’ve got to try some things out. Go on, run a pilot.

Dos and Don’ts of Breakthrough Innovation

A few weeks ago Forum for the Future launched Breakthrough Innovation: your guide to innovating for a brighter future, which I wrote with my colleague Zoe Le Grand. We brought together the experiences of our leading partners into a short guide for sustainability champions and innovation specialists to make it happen. The hypothesis: companies need breakthrough innovations to succeed; we all need those breakthroughs to help create a brighter future.

The guide has lots of nuggets on how you can make breakthrough innovation – a product or service to customers which both creates a new market or shifts an existing one and creates superior sustainability outcomes – happen. Here are some of the best, in a handy list of ten do’s and don’ts.

DO

  • See issues of sustainability as an opportunity to grow your business. Unilever will sell more in developing markets by innovating new products that help improve hygiene and have a reduced impact on the environment.
  • Allocate resource to develop disruptive concepts. Otherwise your innovation portfolio will only have incremental improvements and competitors will grab the opportunity.
  • Understand innovation sometimes means ‘good’ failure – fast, cheap and with new insights for next time. If you only innovate when you know you will succeed, you will never innovate. You must be prepared to take risks and accept some failure will be inevitable.
  • Protect disruptive ideas from day-to-day requirements of the core business. Innovative companies ensure their ideas are nurtured and get a chance to succeed. Examples of this include a dedicated team, ring-fenced funds and internal competitions.
  • Ensure you have sustainability expertise within the development team. O2 Drive, which uses GPS technology to help drivers enhance fuel efficiency, was developed by people who understood the need to address climate change.

 

DON’T

  • Ignore the warning signs that sustainability issues are affecting your business. Nike’s CEO says, “It is clear to us that our long-term potential, and the long-term potential of virtually every other major company in the world, will be severely pressured by rising energy costs and environmental concerns, increasingly scarce natural resources and intensifying demand for equal access to economic opportunity.”
  • Define your business so narrowly you go out of business. Kodak thought it was in the film business and killed the development of a digital camera. It went bankrupt.
  • Use financial KPIs of a mature business to measure early-stage concept progress. The size of the opportunity cannot be estimated by measuring growth early on. Instead look at your predictions to test if you are understanding the market better. Return on capital is an important measure – but later, for a mature business.
  • Assume you know everything already. You’ll need to step out of your day-to-day assumptions, and that needs external stimulus, insights and experience.
  • Delay. By the time your competitors are stealing your lunch it is too late. Sustainability issues will shape your business drivers for the coming decade, and you need to start now.

 

Tell us what you think using #breakthru_innov or download your copy of Breakthrough Innovation: your guide to innovating for a brighter future.

This post first appeared on the Forum website here.

Wilderness talk on growing pains of capitalism

In mid-August I was asked to take part in a debate at the Wilderness festival  on “Growing Pains: Natural Capitalism and the role of business in sustainability”. I had three messages: 1. Not all growth is ‘bad’ growth; 2. Not all profit is ‘bad’ profit; and 3. businesses must lead by shaping a better form of capitalism.

My full talk is below. In a subsequent post I will reflect on what the other speakers said and the Q&A that followed.

One other piece of context: I assumed the audience was broadly left-leaning and distrusted markets after received lots of negative rhetoric on growth and profit. This is why my main messages seem so defensive; I wanted to speak to where I believed people were starting from. If I was speaking to a business audience I would have had different messages (‘we can’t just rely on markets’). The other speakers and the Q&A confirmed my suspicions – more on that in the subsequent post.

Hello! Thank you for coming to this talk on a sunny Saturday. Thanks to Louise Carver of Blue Bell Tents for inviting me to speak. My name is David Bent and I’m the Deputy Director – Sustainable Business at Forum for the Future. I’m going to start the debate with three messages:

1. not all growth is ‘bad’ growth
2. not all profit is ‘bad’ profit
3. the role of businesses it to lead and shape a better form of capitalism

But first a story. In the 19th century the rapid growth of cities meant poor public health. There were lots of diseases transmitted by touch, especially in the slums. A company called Lever Bros sold a soap – Sunlight Soap – which was part of transforming people’s lives. They washed with the soap with newly-available running water and the waste water could flow into new sewage systems.

Fast forward more than a hundred years and Lever Bros is now part of Unilever. Last year Unilever announced the Sustainable Living Plan (knowns as the USLP) with three goals:

  • Halve the environmental footprint of our products
  • Help more than 1 billion people take action to improve their health and well-being
  • Source 100% of our agricultural raw materials sustainably

(Full disclosure: Forum works closely with Unilever, including on the USLP. This post only contains publicly available information.)

Why am I telling this story? Because it illustrates my three messages.

1. Not all growth is ‘bad’ growth. The incredible growth of the Victorian economy had negative impacts, but it also financed the building of public  infrastructure like a sewage system. Rising household wealth meant people could meet fundamental needs much easier – including buying soap for hygiene. All this was part of improving public health, with lower child mortality and longer lives.

When we’re talking about growth it is important to separate out the different things people mean (following Paul Ekins in Economic Growth and Environmental Sustainability: The Prospects for Green Growth).

There is economic growth – the increasing financial value of paid-for transactions as measured by GDP. Then there is welfare – how satisfied we all are. Until recently mainstream economists and politicians assumed that economic growth automatically increased welfare. We are learning that the picture is more complex. The latest evidence I’ve seen suggests that, once people have the income to meet the basics, financial wealth is not as important as feeling that you’ve done well compared to your peers. Growth is not necessarily good.

Another thing people mean when they talk about growth is energy and material throughput – how much stuff we use to live our lives. Using more stuff is bad for the environment. It takes from sources, driving deforestation, soil depletion and so on. More stuff also means more waste, which the environment struggles to cope with. Carbon emissions are leading to climate change because nature cannot scrub out the carbon dioxide fast enough.

Up until now economic growth has used more stuff. It is true we have become more efficient, using less stuff per dollar (known as ‘relative decoupling’). But these efficiency gains are wiped out by increasing scale of the economy. There hasn’t been the ‘absolute decoupling’, where we have a larger economy without increasing the stuff we use. (See Tim Jackson‘s instant classic Prosperity Without Growth for more.)

But ‘good’ growth is possible. Unilever is an example of a company trying to do absolute decoupling. Unilever is an example of a wider attempt to have ‘green growth’.

2. Not all profit is ‘bad’ profit. At Forum for the Future we believe a sustainable business achieves commercial success by delivering social value within environmental limits. This is exactly what Unilever is trying to do.

At the launch of the USLP Oliver Morgan, London School of Hygiene and Tropical Health said “Soap is the most cost-effective health intervention. Governments don’t get people to use it; marketing does.” (See my previous post.)

If Unilever succeeds it will have helped people meet their needs, increased public health and made a profit. Surely that would be a good thing?

3. The role of businesses it to lead and shape a better form of capitalism. Finally, Unilever knows that it cannot achieve its ambitious goals by itself. It will need to act, with others, to re-shape many of the systems it is part of. In my post of the launch I quoted the CEO as saying “We must attract the right investors. If you buy into our approach to long-term value creation… then invest in us. If not, I respect you as a human being, but don’t invest in us.” Clearly, he’s trying to change the financial system. Unilever is also working on consumer behaviour, tea supply chains and more. It is trying to shape a better form of capitalism.

Now, capitalism is the worst system devised – except for all the others (to misquote Churchill). Despite its negatives, democratic capitalism has a better record than anything else in helping people choose how to lead their lives, just compare the record of West and East Germany (as John Kay does in this article from 1997).

We’re in a weird historical moment where a vocal minority have convinced us that there is only one version of capitalism – free markets and hyper-financialisation. But there have been many capitalisms over time, and there are many across the world today.

We all face huge and urgent challenges. A sustainable form of capitalism is the only way to mobilise human ingenuity and institutional resources at the scale and speed required. We don’t have time to speculate about an alternative – while getting no traction in the political realities of today. We have to start from here and now.

Certainly, the capitalisms we have today are not sustainable. Most growth is ‘bad’ growth, much profit is ‘bad’ profit. There are companies preventing a sustainable future, whether deliberately and unintentionally.

There is a ‘societal case’ for action, but that rarely translates down to a ‘business case’ for individual companies. We need markets to be framed by proper regulation and institutions; we need consumers to change behaviour; we need investors to shift expectations; and more. Then there will be more of a business case, and there will innovation at scale.

To recap. Not all growth is ‘bad’ growth. Not all profit is ‘bad’ profit. The role of businesses it to lead and shape a better form of capitalism.

We need to find a sustainable capitalism or at least shift things so that whatever is next can flower and flourish. Creating a better form of capitalism of the task of our generation.

Thank you.