Strategizing Sustainability

Charles Vincent (Consulting Leader) and Moray McLeish (S&CC Technical Advisor)

Jakarta Globe - 22 May 2014

 

It is difficult to doubt that the world in changing, with impacts felt at both the global and local level.  Organizations that formulate the right strategy and execute accordingly will flourish, but those that fail to recognize the signs or act too slowly, won’t be able to sustain themselves in this new paradigm and will falter.

PwC has identified five powerful global trends that we think will have profound effects on our clients and communities. The five ‘megatrends’, as they are known, concern demographic & social change, urbanization, technological breakthroughs, climate change & resource scarcity and shifts in global economic power. Each one presents both opportunities and threats for businesses. Taken together they will create a whole new world in which organizations and societies must operate regardless of size or national boundaries. Realizing this is the first step on the road to sustainability.

Recent research shows that many companies are aware of these impending changes, but still do not have a strategy to deal with them.  In PwC’s recent “Pulse-check on Sustainability” covering the five largest economies in the Association of Southeast Asian Nations (Indonesia, Malaysia, Philippines, Singapore and Thailand) 81percent of the companies surveyed responded that sustainability is ‘extremely’ or ‘very’ relevant, but less than 50% actually have a strategy to become sustainable

Meanwhile, what the Pulse Check survey shows is that while the level of awareness of sustainability and its relevance to business is increasing rapidly in Asean, the practice of truly integrating changes in global environmental and social trends into the heart of corporate strategy is still limited to a minority of companies.

The corporate strategy – the mother of all plans and procedures designed and implemented in a company – provides clear directions toward achieving long-term goals. A corporate strategy is not only about what is written on paper but, it’s a plan that gets to the heart of the thinking and feeling processes of the company’s leadership and defines the reputation of an organization.

A good strategy is a powerful tool to guide the company’s short-term choices and priorities in creating value. It helps the company focus on certain products/services, certain markets, and certain ways of doing business. A good strategy is also embedded with a feedback mechanism, soliciting inputs from employees, customers and other stakeholders. It helps the company monitor and respond to the impacts of all business decisions, operations and externalities.

In both respects, a sound strategy and good strategy execution will differentiate a company from its competitors.

The following provides a good example of an effective corporate strategy. A new company successfully overtook the market leader in the "Widget" business by segmenting the market by end-user. The new comer decided to target small and medium-sized business and set out to sell its "widgets" through a dealer network rather than lease them directly as the incumbent continued to do for bigger businesses.  The key success factor was a unique and well-defined strategy to position themselves in the industry – one with distinctive customers, products and activities, such as when the new comer creates a niche market for itself instead of trying to beat the establishment at its own game.

This new company heeded the advice given in the Harvard Business Review as early as 1996 by professor Michael E Porter:  “A company can outperform its rivals only if it can establish a difference that it can preserve”.

Good corporate strategy is much more than simply scrambling for market share however.  A crucial aspect of strategy concerns protecting the very base upon which your business is built. Critical to longevity is the supply of the material(s) a business uses to transform into a product.  Wooden furniture makers need wood – the right type, in the right place, at the right time, in the right quantity and at the right cost. Makers of biscuits need to blend several ingredients to consistently achieve the taste that their customers have become attached to. 

Nowadays, a crucial part of a company’s corporate strategy is to secure consistent access to its raw materials, in terms of volume, quality and cost. This will dictate the profitability, stability, and even viability of its business operations in the long term. 

Thus many companies are exploring and understanding their critical supply chains, answering for themselves questions, such as “Where are my raw materials coming from?’’ or “Who is producing them?’’, and “How long can/will they continue to produce for?’’.

In many cases they have adopted a strategy of investing in their supply chains to keep supply flowing. For example, a chocolate company training farmers on how to grow the right types and qualities of cocoa, to make sure they have what they can buy what they need to make their chocolate bars.

Continued supply needs sustainable production.  Thus, sustainability becomes a strategy.

A well known bottled water company provides a further example. The company has managed the area surrounding its operations to protect and secure access to the water that is its business. Protection of biodiversity has been a core element of its strategy for protection of natural water resources. The company has implemented sustainable water resource management in one of its operating areas, to ensure natural balance. This included a study on geological and hydro-geological and climate monitoring. Furthermore, surface water protection has been implemented by piloting good practical farming in a small scale area. In partnership with local NGOs, this water company established a cooperative, which serves farmers in 36 villages along the watershed to help the community in improving their quality of life.

“As markets globalize, there is a realization that supply chains are becoming extended and infinitely more complicated, making them vulnerable. Therefore supply chain sustainability is a vital part of a robust strategy” Pieter van de Mheen, supply chain advisor at PwC Indonesia.

Whilst the megatrends mentioned earlier give us a glimpse of how the world around us will change, it’s clear that companies still find it difficult to deal with sustainability as an intrinsic element of  their strategies. This is understandable and is why PWC have developed the Strategic Sustainability Services Framework, a tool for supporting clients in the development and operation of a strategic sustainability program. The steps are : identify issues, prioritize, create a vision, gap analysis and action.  

This framework guides companies to navigate the complexities of their economic, social and environmental issues as well as manage stakeholders' expectations, in five main stages. First step is to understand the business, its impacts and its context. Secondly, prioritize issues by considering their commercial, environmental and social importance. Then, set a vision and decide where you want to be in the future, before undertaking a gap analysis to determine the actions and enablers, to help you get to where you want to go and achieve the desired result. And finally, execution.

In PwC’s “Pulse-check on Sustainability," about 50 percent of companies have a strategy to become sustainable, but only 30 percent of those actually plan their initiatives in advance and have a method in place to monitor and measure sustainability.  

Value through sustainability is created when a strategy on paper becomes a strategy in practice. Our extensive experience in this area shows that is where the hard work starts.      

 

Moray McLeish,  technical advisor in sustainability and climate change practice and Charles Vincent is a technical advisor of PwC Indonesia Consulting.