Why Net Positive can help big business achieve long-term success, and more
Businesses are facing unprecedented levels of disruption- and from so many different quarters that the dependable business models of old are being torn to shreds. In many sectors market share is being seized away from the incumbents by savvy - and very often values-driven - start-ups who are rewriting the rules of business, leaving those that fail to innovate and adapt facing a bleak future.
In the food industry, for example, 25 of the biggest names lost $18bn in market share from 2005-2015 – and in the last six years lost out in 42 out of 54 product categories. With agriculture being one of the most severely affected sectors by the growing impacts of climate change, things are also only likely to get worse. Similarly in personal care, Johnson & Johnson, who have dominated the infant market for more than a century, have seen falling sales as they have lost out to ‘millennial mums’ that are opting for organic, natural alternatives.
A recent HBR article recognised how non-commercial factors, such as exchange rates and politics, are impacting business results more than conventional commercial factors. This will only increase as a range of external factors such as climate change; resource scarcity; volatile energy prices; Brexit; social inequality and shifting consumer expectations completely reshape our world – and the way business will need to operate within it. At the same time, the bewildering pace of technological development, from automation to the Internet of Things, is enabling new tech-driven business models to flourish in many sectors, challenging existing business models further.
Against this backdrop of challenge and uncertainty, capital markets and the growth in short-term trading, continues to exert irresistible pressure on big businesses to maximise quarterly returns in a global economy struggling to grow.
And just to rub salt into the wound, according to recent research by Havas Group, global consumers wouldn’t care if 74% of the brands they used disappeared anyway.
Not surprisingly, many business leaders are continually fire-fighting, leaving them feeling anxious, uncertain and confused about where to focus their attentions, all the while facing the prospect that the strategic context will only get more challenging and disruptive.
The response from many business leaders has been to try to patch up and optimise increasingly outdated business models to meet short-term financial targets. However this just puts off longer-term challenges, in the hope that they become someone else’s problem or that they can react fast enough when the time comes. This backs-against-the-wall approach often reflects desperation and closed thinking, however. The cruel reality is that businesses need to adapt or die.
Savvier leaders recognise that they also need to disrupt their own business models before someone else does, either innovating from within or acquiring potential competitors. Unilever’s decision to purchase GMO-free condiments maker Sir Kensington and Pukka teas this year, for example, capitalised on increasing consumer demand for more meaningful brands. Meanwhile, its market-leading Hellmann’s brand is making ethical inroads of its own.
Similarly, SC Johnson’s recent acquisition of Method/Ecover demonstrates a similar trend in home care – all in an attempt to stay relevant and ahead of the game.
So for many CEOs, they are continually reacting to a bombardment of challenges while trying to hit a series of short-term financial targets. It must be tough to find a pathway out of the fire-fighting labyrinth to resilient, long-term value creation and relevance.
A route out of the labyrinth
So, how can these beleaguered bosses get the necessary perspective to look beyond the intense pressures of the here and now? Where can they find a route out of the labyrinth and onto a sustainable path to long-term value creation?
The good news is that we now have a map in the form of the sustainable development goals (SDGs).
When the 17 goals were adopted by world leaders in September 2015 to “end poverty, protect the planet, and ensure prosperity for all”, they also provided business with a globally recognised set of guidelines for what it will take to deliver a sustainable future. Two months later, the leaders were at it again, this time committing to the “well below” 2°C climate agreement in Paris, making it unequivocally clear to the world that now was the time for action.
The SDGs enable businesses – and other stakeholders – to identify both vulnerabilities in their current business models as well as untapped market opportunities. In fact, according to the Business and Sustainable Development Commission, as well as safeguarding the social and environmental systems that business rely upon, embracing the SDGs could generate at least US$12trillion of new business value a year.
But to achieve the SDGs and meet the global warming target requires transformational change, which includes collaboration between business, government, NGOs and other major players. For although the goals were set out with humanity and the environment as their focus, rather than the interests of a particular company or sector, the private sector has a crucial role to play in their delivery. And that, of course, is good for business by unlocking new markets, securing supply and maintaining the licence to operate.
Conventional approaches to sustainability are not enough
The SDGs then, provide business with both the map and the incentive to work out a resilient and relevant role for the future- in short- a way out of the labyrinth. However, most companies are instead identifying current issues, usually with a materiality matrix, and then setting incremental targets against them. But these incremental targets will neither safeguard the business nor deliver the level of change required.
So, if conventional approaches to sustainability are not enough to meet the SDGs, what then is the answer for business?
The SDGs allow businesses to take an ‘outside-in’, future-orientated approach that starts with what is required to deliver a sustainable future and then works back to what the organisation can do to deliver on those opportunities and reshape the systems it relies upon, by drawing on its core capabilities.
So how does an organisation determine its path and compellingly tell its story?
At Forum for the Future (Forum) we believe that taking a Net Positive approach – in which a business puts back more into society, the environment and the global economy than it takes out – provides a robust and credible way of both developing a pathway out of the labyrinth and telling the story.
The SDGs and Paris Agreement can be viewed as a map that can be used to diagnose how a business, and the systems it relies upon, can contribute towards delivering the goals. The resulting strategic priorities can then be expressed as Net Positive goals that act as a “North Star” to inform strategic decisions that set the organisation on a robust and relevant path.
These goals can also be used to stimulate innovation and align different business functions to crucially amplify the business’ impact by connecting internal developments with external initiatives and influence.
For example, Kingfisher has an aspiration, as part of their Net Positive strategy, that every Kingfisher store and customer’s home is zero carbon or generates more energy than it consumes. So they are providing energy saving products that they estimate have saved their customers £840m a year since 2011/12. They are improving energy efficiency through building design, energy monitoring and management, and are also working with NGOs, other businesses and governments to promote solutions that will speed up the transition to a low-carbon economy. For example, they worked with the Solar Trade Association to call on the UK government to reverse the increase in business rates on solar panels.
So, a Net Positive approach allows businesses to clarify their long-term purpose, then develop a pathway towards the business models of tomorrow.
The Net Positive Project
Is your business struggling to find a way out of reactive fire-fighting or move beyond incremental change? Are you looking for a North Star that sets your company on a path to long-term value creation? Do you feel ready to step up your ambition on sustainability?
If any of the answers to these questions is yes, then you need to know about the Net Positive Project, a cross-sector collation convened in 2016 by Forum and other leaders in the field to accelerate progress and help companies commit to and implement a Net Positive approach within their businesses.
Our members are united by the view that Net Positive can become a cornerstone of regeneration and help deliver a sustainable future for all. But to make that happen, it needs to grow, and quickly.
Ben Kellard is associate director, transformational strategies at Forum for the Future