BUS604: Innovation and Sustainability

Porter and Kramer suggest that companies do the following:

• First, identify their environmental impact (e.g., contribution to carbon emissions).
• Then determine which impact(s) they can benefit the most from addressing.
• Then determine the most effective ways to do so.

For the economy and society overall, businesses' attention to sustainability has already become a source of social progress, as businesses apply considerable attention and resources to reduce their environmental footprint, which benefits their bottom line and also benefits the environment and society more broadly. But most companies are only at the initial stages of the sustainability learning curve.

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Competitive Advantage

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage. The first is when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage). The second is when a firm can deliver benefits that exceed those of competing products (differentiation advantage). Thus a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

What Porter and Kramer suggest is not easy. To enhance sustainable business practices, it must be rooted in an understanding of the interrelations between a corporation and society while at the same time anchored in the activities and strategies of specific companies. No business and no single industry can solve all of society's environmental problems; instead each company can work on environmental issues that intersect with its particular business.

What should guide each and every sustainable business practice is whether it presents an opportunity to create shared value - that it provides a meaningful benefit to society and that it is also valuable to the business. Each company will have to sort through their own sustainability issues and rank them in terms of potential impact. For example, for Toyota, a focus on fuel efficiency with the development and promotion of the highly fuel efficient hybrid vehicle the Prius provided environmental benefits and has been a source of competitive advantage for the company helping it to increase sales and profits. The same is true of Stonyfield and its focus on providing preservative-free, healthy, organic yogurt produced with manufacturing processes that minimize material and energy use.

A corporate sustainability agenda should look beyond stakeholder demands and desires to strategic opportunities to achieve social and company economic benefits simultaneously. This is the move from a strategic approach to sustainable business practices. As the cases in the book will highlight, it is in each company's best interest to identify a manageable number of sustainability initiatives whose shared benefits - to society and to the company - are significant for the company and also distinctive in helping the company strategically position itself in the competitive marketplace. Stonyfield's response to health and environmental concerns with a single basic product, yogurt, and Toyota's response to the concerns over automobile emissions are examples. Strategic sustainable business practices can lead to shared value creation that strengthens a company's competitiveness. A symbiotic relationship develops. Companies can do well in profits by doing good things for the environment; it is a "win-win" for society and for business.

How do society and future generations benefit? Private companies addressing environmental issues by creating shared value will lead to self-sustaining solutions that do not depend on goodwill or government subsidies. As Porter and Kramer highlight, "When a well run business applies its resources to problems it understands and in which it has a stake, it can have a greater positive impact on social good than any other institutions or philanthropic organization". And if many hundreds and hundreds of thousands of businesses act this way, it is powerful and can have a large impact on society and the world over time. This is the potential of sustainable business practices, which is why it is important to study and understand.