Since sustainable transformation builds on digital transformation, nearly every company not doing business exclusively on ink and paper has begun the race to net-zero. That means that the reams of digital transformation content around agility, teamwork, silo-busting, incentives, and scaling mostly apply. You can go and read that anywhere, and we encourage you to.
What’s most important about this next phase of transformation is that the means remain similar, but the strategic ends are different and more focused. While measuring carbon emissions and other negative impacts is foundational to any sustainable transformation, measurement is not the strategy itself.
“The place to start is being clear about your entire sustainability strategy,” said Michael McGuire, Head of Technology Strategy and Product for Sustainability at Walmart. “The quickest way to kill momentum is to say we're going to throw everything at the wall and measure everything. We need to start instead with a clear focus to prioritize the most impactful ideas and measure the most important things.”
6 Strategic Shifts for Sustainable Transformation
Our research and sessions with more than 50 executives and science and technology experts from the world’s leading organizations have identified six key strategic shifts that are common to nearly every organization’s sustainable transformation strategy. Think of them like a checklist for evaluating investment decisions. The more boxes ticked, the more impactful the approach.
1) Products & Services → “Servitized” Products, Outcomes & Experiences
Are you selling customers a drill, or a hole? A drill can puncture a wall, but do customers want to buy a drill if you can give them the hole? The closer you can get to delivering on the actual “job to be done,” in Clayton Christensen’s famous formulation, the fatter the margins to be had.
For a product manufacturer, this might mean selling your product as a service, or bundling it with one. Many airlines, for instance, no longer own, or even maintain, their planes’ engines. The engine’s manufacturer owns them and charges for them only when they’re on, in a concept Rolls Royce calls “power by the hour.” For services companies, this may mean charging for outcomes delivered instead of time spent. This is already a hugely popular practice in managed IT services.
2) Cutting Waste & Carbon → Clean Energy & Resource Independence
All companies must cut waste and carbon emissions, but we need to make a better business case for urgent action. This is fundamentally about de-risking a company’s operations by becoming more self-reliant in terms of energy supplies and physical materials.
A good example of companies taking energy independence into their own hands is Volkswagen’s solar power park in Chattanooga, TN. The park features 33,600 solar panels that generate 12.5% of the plant’s energy, and employs 50 sheep full-time as “animal mowers” for the grounds.
At the same time, companies all over the world are re-evaluating supply chain resilience strategies and their dependence on others for the tools and materials they need to succeed. Enabled by technologies including 3D printing, many companies are exploring the use of local manufacturing to move the production of materials close to suppliers and customers. Breaking this dependency in the places where it’s possible will create a more predictable, lower cost-structure that makes it safer to innovate and grow.
3) Exponential Growth → Higher, Predictable Growth
What could be possible if you knew well in advance what your revenue was likely to be, or at least the minimum “floor” for earnings? How would that give you the confidence to invest boldly and manage your business more wisely? Switching to recurring revenue models instead of one-off transactions makes this a real possibility. It means you may miss some of the market’s highest highs, but you’ll also avoid suffering its lowest lows.
4) Value Chains → Value Networks
There is no such thing as a value chain. There is not a simple, linear collection of entities that pass inputs down the line like a conveyor belt until they reach your hands and morph into a finished product. Pedantic, yes, but also important.
Each company actually sits within a broader network of stakeholders that influences their behavior. Behind every supplier sits another network of suppliers with their own networks of investors, communities, and stakeholders. Many of those more distant stakeholders will connect to your firm in ways you haven’t imagined—and present unforeseen opportunities or challenges.
5) Centralization → Localization
Major transformations across all sectors, including energy, transportation, food, and manufacturing, all point to increasingly localized production. The need for companies to take their futures into their own hands, in light of a broken global logistics network, is one reason. Another is that being closer to consumers saves money on shipping and cuts emissions, while facilitating a deep customer understanding that leads to outcompeting rivals.
The technology needed for every building, patch of land, and physical structure to generate its own energy exists today. 3D printing, precision fermentation, and cellular agriculture food products make it possible to produce more sustainable goods within communities using less materials and land. Localization also provides opportunities for people who live in underserved communities, especially those that have been historically marginalized or disadvantaged.
6) Competition → “Co-opetition”
The rise of today’s tech giants ushered in a new, fuzzier definition of competition. Many of these firms fight tooth-and-nail over one product or market segment, while collaborating energetically in other areas. As industry boundaries continue to dissolve and companies find new business models targeting different customers, they’ll find themselves meeting new adversaries in some areas, while finding more common ground with others.
Realizing the promise of sustainable transformation requires every company to take the same pragmatic, segmented approach to competition and collaboration seen in enterprise technology today.
Why Now Is The Time
Prioritizing these key strategic shifts today is not just important for environmental sustainability – it’s essential for every company’s financial stability. The world is more unstable and unpredictable than ever before. Decades of business strategy and value creation were able to take for granted that our infinitely complex global supply chains would simply run like clockwork. We assumed that the kind of geopolitical shocks that are threatening food, energy, and material supplies today simply could not happen in this day and age.
Now is the time to stop taking things for granted. Companies that pursue these shifts will find themselves better equipped to survive and thrive in the uncertain days ahead.