The good news: There is a business case for sustainability
Several recent studies from leading scholars from Harvard and the London School of Economics confirm that companies with an operating model that integrates sustainability outperform their “old model” peers in the long run. Not just in terms of higher stock market returns, but also with lower debt costs and fewer capital constraints – this means improved risk management, less volatility and improved profitability .
The financial advantages of sustainability are not limited to lower debt costs and easier access to borrowed money. Perhaps more importantly it lowers the interest rate that professionally driven companies use to calculate the Internal Rate of Return for business ventures and projects. In essence it affects whether business ventures are accepted or rejected. An improved Internal Rate of Return means projects that would otherwise have been rejected will now be allowed to live and prosper, enabling companies to develop a higher ROI.
This improved ROI means a better bottom line and thus influences how investors perceive the performance and the risk of the company, and ultimately the market value of the company.
Since capital market participants are more willing to allocate scarce capital resources to firms with better performance and innovative business processes, sustainable brands are poised to build a lasting competitive advantage over their competitors in the long run.
This research-proven business case is great news for the sustainability champions within an organization, who often struggle with presenting a business case for sustainability initiatives that will get the CEO and CFO on board.
The bad news: The business case alone is not enough to get organizational buy-in
Few companies are born with an ingrained commitment to sustainability. For most companies it requires transformational culture change. The first step is strong leadership commitment, as the company’s identity needs to be reframed. Without strong leadership and vision, that is not likely to happen. The business case above could help pave the way for a dialogue with executive management, but will not make the case alone. In fact, companies that already have a business culture with strong capabilities for change, a commitment to innovation and high levels of trust in the organization are more likely to embed Sustainability in their Corporate DNA. But it will still be a hard sell.
Once leadership is committed to a sustainable vision, one of the next steps involves establishing a new (sustainable) identity through employee engagement. This is where the sustainability department should join forces with the corporate strategy department, the business innovation team, the product marketers or whoever is responsible for business innovation and improvement in the organization. If the company is already applying collaborative idea management into its ideation process, this could be a fast track to transformational culture change.
Making sustainability everyone’s job
If you have executive commitment to sustainability, collaborative idea management can be a great way to create a sustainability driven culture. Collaborative idea management is a systematic approach to gathering and channeling ideas that enables you to:
- Utilize the diversity and collective creativity of all employees
- Ensure that the right ideas end up meeting your relevant sustainability and other business innovation needs
- Engage your employees across the organization in business innovation and improvement
- Provide participants with feedback and recognition
- Create transformational change to a sustainability and innovation driven culture
Collaborative idea management rests on 4 principles:
1) Invite anyone
Involving everyone in your organization in collaborative idea management will increase the benefits. As you source ideas from the entire organization and beyond to include customers and partners – you will have more ideas and thus increase the likelihood of getting quite a few really good ones.
Having broad participation in idea generation – inside as well as outside the organization – not only increases the number of ideas but also the range of perspectives resulting in greater diversity of ideas.
Collaborative idea management can serve as an instrument to empower creative employees, engage everyone in thinking about renewal and improvements, and to drive a culture of innovation.
2) Create a company-wide market place for ideas
Establish a ‘market place’ where sustainability needs can be launched as innovation campaigns as they are identified, and where ideas are automatically matched towards any existing sustainability and other innovation needs. In this way, collaborative idea management is implemented like an internal idea marketplace – an open network for the exchange of ideas on how to reduce greenhouse gas emissions, how to use less energy, how to reduce packaging and transportation costs, how to replace raw materials that are becoming scarce and so forth.
Some of the more successful solution providers combine gamification capabilities that incentivize people to participate as well as advanced prediction market analytics to validate the information that is collected, This idea market uses the “collective wisdom” of the participants to identify what the idea market expects to be winning ideas.
The notion that markets are the best aggregator of dispersed information is not new. The price of every stock that is traded is just a prediction market about a company’s future cash flows; traded commodities futures are just prediction markets about the future prices of the commodities.
3) Embrace Collaboration
Collaboration based on openness is a key feature of collaborative idea management. Collaboration will help surface new ideas, improve existing ideas, leverage expert knowledge in the organization, provide feedback to users and help business innovation and improvement managers select and act on the best ideas.
New ideas are formed when people of different backgrounds, expertise and interests communicate and collaborate with each other. Therefore, cross pollination through collaboration across units both internally and potentially with external stakeholders, such as suppliers and customers, is important to spark innovation.
4) Use feedback and recognition
The innovative power of an organization can be boosted by appealing to the drive for self-realization among employees. Having your idea published for everyone to see, receiving many view hits, comments and a high ‘idea market value’ can be a huge reward in itself. Recognition does not have to be in the form of material or monetary awards. Building reputation and being recognized is a core human driver. It is no different in the idea management process.
If your company is already embracing the four principles of collaborative idea management or has a culture that could readily embrace them, there is a fair chance that you could fast track to making sustainability everyone’s job.
 Eccles, Krzuz and Serafeim, Harvard Business School, Sep 2011: ‘Market Interest in Nonfinancial Information; Eccles, Ioannou and Serafeim, Harvard Business School, Nov 2011: ‘The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance; Cheng Ioannou and Serafeim, Harvard Business School, May 2011: ‘Corporate Social Responsibility and Access to Finance’; Bauer and Hann, Maastricht University: December 2010: ‘Corporate Environmental Management and Credit Risk’.
 Eccles, Miller Perkins and Serafeim, MIT Sloan Management Review, Summer 2012, ‘How to Become a Sustainable Company’
Jesper Bank is CEO and Co-founder of Waabii, an Innovation Management Company that helps companies increase collaboration, engage their employees in idea generation and convert great ideas into value. Jesper works with leaders in global companies, organizations and public institutions to improve their business and product innovation processes through novel insights and approaches. Jesper Bank can be reached at firstname.lastname@example.org