Introduction to Sustainable Business

Learning Objectives

1. Explain how sustainable business practice can be a source of competitive advantage for businesses.
2. Understand what it means for a business to create shared value.
3. Describe how it can be beneficial for society to have businesses acting to address sustainability concerns.

A useful perspective for sustainable business practitioners will be between the balanced values approach and the systems approach. It would use a systems approach, but it would focus on the system from the inside of the business perspective and focus on the business interaction with the external environment.

But how can this systems perspective be incorporated into real-life business practices? The most useful business guidance can be drawn from arguably the most prominent scholar of corporate strategy, Harvard Business School professor Michael Porter. Porter's strategic corporate social responsibility (CSR) model can be applied to sustainability. He rejects the pure stakeholder approach to CSR because stakeholder groups, he believes, can never fully understand a corporation's capabilities, competitive positioning, or trade-offs it must make and because the loudness of the stakeholder voice does not necessarily signify the importance of an issue - either to the company or to the world. The stakeholder approach, for Porter, is too often used to placate interests or public relations with minimal value to society and to the company. Greenwashing is an example of this, and it has proven to be a failed approach.

Porter's point about CSR that can be applied to sustainability is that sustainable business practices can be much more than a cost, a good deed, or good public relations for businesses - it can be a source of competitive advantage. In his 2006 article with Mark R Kramer, "Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility," Porter proposes a new way to look at the relationship between business and society that does not treat corporate profits and societal well-being (including sustainability) as just a balancing exercise. The authors introduce a framework that individual companies can use to identify the social consequences of their actions, to discover opportunities to benefit society and themselves by strengthening the competitive context in which they operate, to determine which CSR or sustainability initiatives they should address, and to find the most effective ways of doing so.

Perceiving social responsibilities, such as acting with attention to sustainability, as an opportunity rather than as damage control or a public relations campaign requires for most private companies to dramatically shift their thinking to a mind-set, the authors argue, that will become increasingly important to competitive success. The principle of sustainability appealing to a company's enlightened self-interest works best for issues that coincide with a company's economic interests and when the company has strategically assessed what actions to address. The example of McDonald's using less packaging that reduces company materials and disposal costs at the same time that it helps the environment illustrates this.

Another example is GE and Jack Welch, the famous former CEO of GE. While he was CEO at GE, Jack Welch was often referred to as the greatest CEO of the last century. G. Michael Maddock highlights that "for all the accolades Welch received, those handing out plaudits missed a huge one: He was the King of Green. Six Sigma, the management style (and manufacturing process) he championed, is all about getting leaner: reducing steps, costs, and materials. And lean is green. Lean manufacturing benefited GE, in particular its competitive position, by reducing the company's costs of manufacturing and operations relative to competitors while providing broader societal benefits.

A few corporations such as Stonyfield Farms stand out even more than McDonald's and GE with their exceptional long-term commitment to sustainability. Gary Hirshberg, who refers to himself as the CE-Yo of Stonyfield in his book Stirring It Up: How to Make Money and Save the World, highlights how the company has built its entire value proposition around social issues with a focus on environmental actions.

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