Prepare Yourself to Position Your Company for Future Success

In this article, Harvard Business School Professors Robert G. Eccles and George Serafeim, cochairs of Innovating for Sustainability, discuss the latest trends in sustainability, the importance of innovation, and how the program prepares corporate leaders to position today’s firms for future success.

Are companies trending toward sustainable strategy models?

Serafeim: Yes. Expectations are changing among employees, customers, and investors. In a world where we actually have a shortage in talent and human capital, it’s very important to be able to engage and retain your employee workforce. It has become increasingly obvious that employees want to work for companies where they feel proud of what they’re doing and how they’re contributing to society. There’s also increasing competition in the product market space, and customers want to buy from companies that are engaging in honest and ethical business practices and adding value to society. On the investor side, expectations are changing, and investors are also trying to promote responsible business practices that are going to add value to society. To compete in this market, the business community has responded by becoming more responsible and developing CSR products, services, and functions within the organization. The next step is to become more integrated, and integrated reporting is part of this.

Eccles: The pendulum is clearly swinging in this direction for the reasons that George just talked about—changing expectations on the part of employees and customers, and even investors—and I don’t expect the pendulum to swing back. That said, some differences are based more on countries than on sectors. This trend is more developed in Europe than it is in the United States, which is not a surprise. In Europe, there’s more awareness around social issues and climate change, and this relates to the point that George made earlier about human capital. Europe as a whole is losing people, so its population is going to decline.

How are you addressing this trend and helping executives stay ahead of it?

Eccles: We’re doing two things. First, we’re trying to understand the phenomenon and make the case for sustainability through the work we’ve talked about, our case studies and our empirical work. We’re also trying to contribute in our own small way to accelerate that process. We’re trying to communicate the value of having a sustainable strategy to companies—and the value of taking a long-term view to investors.

Serafeim: We both believe that corporate leaders need to drive this trend rather than wait for regulation to solve these problems. We are moving into an era where some large corporations are more powerful than many governments—because their size makes them visible, the impact they have on society and the environment is visible. So, they cannot afford to ignore the impact they have.

What is the goal of the Innovating for Sustainability program, and who should attend?

Serafeim: One of the main things that we’re trying to do in this program is explore what sustainable business models look like. We named the program Innovating for Sustainability because we believe that innovation is essential—in products, processes, and business models—and it includes cases studies that address all three of these areas.

Eccles: We are committed to value creation over the long range and to meeting the needs of other stakeholders. This entails accepting the tough tradeoffs that need to be made to improve so-called nonfinancial performance—environmental, social, and governance—in a way that’s neutral to or even adds to financial performance. That’s why innovation is necessary. Among the things we’re trying to do in the program is to explore what those sustainable business models look like—to find examples of companies that really are on the leading edge. One example is a case study we’ve developed on Intel, which is looking for opportunities to help address the problems related to water scarcity. Another is a startup company called GoodGuide, which was started by a professor at UC Berkeley.

Serafeim: GoodGuide offers a very innovative product. The company collects information about the health implications of a consumer product and its social and environmental performance. Then, they disseminate that information to consumers. They offer a phone app, so consumers can scan a product bar code at the supermarket and see a score. It’s a great idea, but the challenge is to find a way to monetize and develop it into a sustainable corporation.

Eccles: As for participants in the Innovating for Sustainability program, they should come from a company that’s either committed to or wants to seriously explore developing a sustainable strategy. They can be skeptical, but they need to be open-minded. The individuals who should attend include operating executives—people who are running the major business units, have bottom-line responsibility, and manage the environmental, social, and governance issues. Other candidates are people in the executive suite who have a market-facing point of view, as well as individuals in business development and finance functions.

Serafeim: Add to that those individuals on the investor side, from both the sell side and the buy side. Understanding the business models will allow them to recognize how to allocate capital within a portfolio and be forward thinkers in this space.

Eccles: Also consider the intermediaries, such as accounting firms that are starting to struggle with this issue of providing assurance on nonfinancial information.

What will the experience be like for participants and what will they get out of the program?

Serafeim: From the very beginning of the program, participants will engage in a meaningful discussion and journey on understanding a new phenomenon. They will discuss new business models and business ideas—new ways of integrating social, environmental, and governance issues into their strategy and operations. We’re also going to have some discussion groups and group exercises. Participants will explore how to build business models around these ideas, measure and report performance data, define the boundaries of corporations, compete strategically, and meet the expectations of different stakeholders. And, just as important, they will learn how to make tradeoffs—a major component of the course.

Eccles: We’re on a journey to creating a more sustainable society, which requires the majority of—if not all—major corporations to have sustainable strategies. I think we’re at the early stages of our research and our teaching. Part of what this program is creating is the community. Participants will interact when they come to the program, but we’re hoping it doesn’t end there. Ideally, they will be able to stay in touch with one another, share their experiences and ideas, and discuss what they developed in the program and took back to their organizations. So I think the program itself will be a great experience for participants, and I think they’ll also find ongoing value in it.

Innovating in Sustainability will take place in Hampshire, England May 26-29, 2013. Learn more about this program by visiting our website.