Sustainability as a Business-Model Transformation

Many global companies have made public commitments to sustainability targets. In almost every case fulfilling those commitments will require firms to transform their business models and organizational architectures to a degree that matches or even surpasses the transformations triggered by digital and AI.  A select few pioneers have moved from commitment to action and are demonstrating that companies can make sustainability not only a goal but also the driver of their business model. Unlike the companies that have been leading the way in digital transformation, most of which are based in Silicon Valley, many sustainability pioneers are based in Europe, Latin America, and Africa.

Much as large companies do with innovation, would-be sustainability pioneers face three fundamental tensions: maintaining a long-term sustainability vision while delivering on short-term financial targets, introducing systemwide change while keeping people engaged at the local level, and being open to external collaboration while maintaining strong internal integration. As these pioneers have found with transformative innovations more generally, it is imperative to address these tensions intentionally. Doing so increases the likelihood that they will be able to successfully transition to sustainable business models. What are the specific practices companies can use to address these three fundamental challenges?

The Strategy Challenge.  Identify a Concrete Path.  There is no shortage of CEOs who publicly announce that sustainability is on the agenda. However, in the companies which excelled, the top teams went further; they identified concrete goals that were material to their stakeholders and stated how their company should commit resources to meeting them.  The innovation portfolios of all these pioneering companies were an integral component of their strategies for achieving sustainability goals. In order to balance long-term sustainability goals with medium-term financial performance, companies typically spread their projects among three categories:  Invest in proven ideas that need scaling. Invest in new market opportunities.  And invest in long-term projects that expand a company’s sustainability goals and explore unproven technologies. 

The Organizational Challenge.  Introduce Global Change at the Local Level.  Unsustainable business practices are often spread across an entire organization.  Surfacing and sharing both the problems and opportunities requires a systemwide mobilization of the workforce, which must nonetheless remain responsive to local priorities and business profitability. The pioneers managed this tension in four ways:  Break the challenge-solution coupling.  Engage business-unit change leaders.  Establish a sustainability process for employees.  And Create a culture of experimentation.

The Collaboration Challenge.  Create Integrated Innovation Units.  Many innovative companies have found that engagement with external players is a key factor in accessing new ideas and capabilities. Sustainability pioneers, too, must collaborate with external players, as many clean technologies and new competencies needed to become sustainable are not available in-house. Many are being developed at academic institutions and startups.