Cambridge, Massachusetts – Companies reporting a profit from their sustainability efforts rose 23 percent last year, to 37 percent of the total, according to a new global study by the MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG). The study was released on February 5 in a report titled “The Innovation Bottom Line”.
The study, which is based on a survey of 2,600 executives and managers from companies around the world, also found that nearly half of respondents said their companies had changed their business model as a result of sustainability opportunities, a 20 percent jump over the previous year. The report calls these companies that have made business-model innovations “Sustainability-Driven Innovators”.
Interestingly, the study found that companies in emerging markets change their business models as a result of sustainability at a far higher rate than those based in North America, which has the lowest rate of sustainability-driven business-model innovation and the fewest business-model innovators.
“Sustainability-Driven Innovators see the opportunity differently than do companies that haven’t gleaned sustainability’s financial rewards,” explained David Kiron, Executive Editor at MIT SMR and a co-author of the report. “They don’t dwell on it as a cost issue. They focus on how their efforts can increase market share, boost energy efficiency, and build competitive advantage.”
Sustainability-Driven Innovators also bring a strong execution focus to their efforts, are much more likely to place customers at the center and work closely with many stakeholders, and drive sustainability objectives through skilful organizational change, Kiron said.
The extent to which a company incorporates sustainability concerns into its business model often correlates with its increase in profit, the study found. For example:
- 50 percent of survey respondents who had changed three or four business model elements said they profited from their sustainability activities, compared with only 37 percent of those who had changed only one element of their business model.
- When innovations to both target segments and value-chain processes were among the three or four business-model changes, the percentage of respondents who said sustainability added profits climbed from 50 percent to nearly 60 percent.
- More than 60 percent of respondents at companies that had changed their business model and had sustainability as a permanent fixture on their management agenda said they have added profit from sustainability.
- Companies that profit from sustainability are almost 200 percent more likely to develop sustainability business cases. The business case is often integral to the company’s overall strategy.
“The research suggests that business-model innovation, top-management support, collaboration with customers, and having a business case are all critical to creating economic value from sustainability activities and decisions,” said Knut Haanæs, a BCG partner and co-author of the report who leads the firm’s Strategy practice. “Executives need to view sustainability as both a business necessity and an opportunity. Even moderate changes to company business models can reap significant financial rewards.”
In a section called “Hitting the Sustainability Bull’s-Eye,” the report recommends that executives emulate five practices common to many of the companies that are finding profit in sustainability:
- Be prepared to change business models
- Lead from the top, and integrate the effort
- Measure and track sustainability goals and performance
- Understand how customers think about sustainability and what they are willing to pay for in connection with sustainable products or services
- Collaborate with individuals, customers, businesses, and groups beyond the boundaries of the organization
To illustrate how organizations are employing these practices, the report cites numerous company examples, including: AT&T, Campbell Soup Company, Dell, Ecover, Greif, Intel, Kimberly-Clark, Kraft Foods (recently renamed Mondelez International), Marks & Spencer, Nestlé, Patagonia, PepsiCo, Sainsbury, SAP, Sprint, Timberland, UPS, and Zipcar.
Source: BCG and MIT SMR.
About the Research Methodology
For the fourth year, MIT Sloan Management Review, in partnership with The Boston Consulting Group (BCG), conducted a global survey, to which more than 4,000 executives and managers responded. The report’s analysis is based on a smaller sub-sample of 2,600 respondents from commercial enterprises, with respondents from academic, governmental, and non-profit organizations excluded. A wide variety of industries are represented. The sample was drawn from a number of sources, including MIT alumni, MIT Sloan Management Review subscribers, BCG clients, and other interested parties. In addition to the survey results, the authors interviewed practitioners and experts from a number of industries and disciplines to understand the practical issues facing organizations today.