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|9 Apr 2012|
Transforming business to create sustainable value.
Sustainable business is much more than managing risks. It’s increasingly a lot about creating value by converting challenges into opportunities. Embedding sustainability into strategy and operations is increasingly becoming necessary for competitiveness and to remain relevant in rapidly changing markets and industry structures.
Business has been the single biggest contributor to sustainability challenges. Business will be the single biggest contributor to sustainability solutions. While governments still control most of the natural resources and are legitimate power centres, business can reallocate resources, remodel processes, and can most effectively provide products and services for consumption. This goes much beyond the “polluter pays principle”, with emphasis on creating and providing solutions rather than just paying for the damages.
What all this means is that companies can derive sustainabe value and increase business value at the same time, if they are able to identify opportunities within the array of risks and challenges. The CII-ITC Centre of Excellence for Sustainable Development has developed a framework for companies to identify the value created by transforming themselves into sustainable businesses.
The value creation framework is a combination for deriving economic and sustainable value through various approaches: reactive, incremental, radical and transformative. Reactive and incremental are necessary approaches, whereas radical and transformative are approaches that in the long run lead to reductions in poverty, regeneration of ecosystem, and to increase competitiveness.
The reactive approach is probably the most common approach and usually treated as low-hanging fruits in relation to sustainability. Thanks to new legislation, changing customer preferences, buyer demands, competitor moves and media attention, companies find themselves under pressure to change. This approach is important to ensure that resource efficiency and environmental performance are constantly improving, and human development indicators show positive reductions.
The incremental approach includes pollution prevention, improvement in public transport infrastructure, and product stewardship. Incremental steps — beyond compliance processes addressing current issues of cost, risk and footprint reduction — are important to create a better understanding of what sustainability means. These have succeeded in reducing waste and emissions, while simultaneously reducing cost risk and stakeholder resistance. Demonstrating significant progress in reducing waste and emissions is crucial.
This is reflected in the manner Bhilai Steel Plant (BSP) manages slag. Slag is a by-product of metal smelting, hundreds of tonnes of which is produced every year in the process of making steel. Less slag means more steel. If collected well, it also presents a business opportunity. BSP sells slag and other wastes to ancillaries. It also sells granulated slag, a key ingredient of cement, to cement companies.
Resource-use efficiency is the best example of necessary good practice that has a short pay-back period, and brings significant savings to companies. For instance, BSP could completely reverse the coal-coke oven gas ratio to 20:80 per cent. It not only reduced consumption of coal and utilised waste better but also reduced its cost of operations and checked emissions.
BSP built a water treatment plant to treat 30 million litres of sewage water daily. The treated water is reused by the plant. The steel industry is one of the largest water consumers — production of one tonne of steel requires 20 cubic metres of water.
JSW Steel has adopted high cycle rates for water usage, with nearly eight times in some cases in power plants. Blow down water is used in low-end applications like ore beneficiation, quenching and gardening. With these initiatives, the makeup water consumption has been consistently brought down much below the industrial norm of 8 m3/tonne of steel for integrated steel plants.
Then there are companies such as Ambuja Cements and ITC that are water positive. Not only they try to improve water-use efficiency, they use various measures such as rainwater harvesting and zero waste water discharge. The necessary approaches — reactive and incremental — are good for short-term and gain quick operational efficiency. But they are not sufficient to accrue or sustain competitive advantage. These are not sufficient to propel companies into new growth trajectory that creates new markets and industry structures, or those that create value for all.
A radical approach is necessary to ride growth trajectory that will propel companies to create sustainable value and provide them with the ability to make a significant positive difference. It is at this stage that companies should ask questions like:
* How are we going to build institutions and frameworks and shift our way of thinking about social and environmental issues?
* How are we going to reach people who want and need to improve their quality of life and standard of living?
* How are we going to regenerate lost natural capital in a manner that increases economic capital ?
Radical solutions include creating solutions for the poor, leveraging ICT to improve accessibility, availability and affordability of goods and services. It creates better alternates within existing industry, without fundamentally changing it. For instance, the electric car may be good alternate to fossil fuel powered car. But charging car batteries with fossil fuel energy generation limits net environmental benefit. Further, it does not resolve problems of traffic congestion and its impact on drain of public resources to create more parking space and larger road networks, and impact of social health.
When companies begin to look into the future, the shift in focus is transformational. Companies in sectors such as packaging, renewable energy, FMCG, and agriculture are reinventing themselves. The next four decades will witness many business es embrace this approach. It will involve a focus on bio-mimicry, natural material regeneration and creating new markets.
Sustainability demands more investments in research and innovation to create products that are environmentally compatible or socially value-adding, and create hybrid value chains that generate wealth for those who participate.
TCS, for instance, follows Harvard professor and independent director on the TCS Board Clayton Christensen’s framework of innovation. It calls for:
* Sustaining innovation that continually provides improvements on current services and solutions
* Transformational improvement or platform innovation that facilitates a swift move to visible adjacencies in terms of emerging technologies as well as markets.
* Disruptive or breakthrough innovation that enables customers to access potentially game changing or/and new market business models.
The research aligns itself closely to support its business objectives and is adapted to TCS’s customer goals. These tools and frameworks are based on leading edge technologies and address both IT and business requirements of customers. Projects address expectations from IT, such as:
* Increase operational efficiency
* Promote business agility
* Simplify and transform
* Manage enterprise risk and compliance
* Enable understanding of markets and customers
Similarly, ONGC has made significant investments in research and development, mainly in process efficiencies and impact of its business on environment. ONGC has established an Energy Centre to undertake R&D on new energy resources such as hydrogen. It has taken up three projects: thermo-chemical reactor for hydrogen (production of hydrogen through chemical process), geo-bio reactors (for biomethanogens), and fuel cells (through proton exchange membrane technology). The company has undertaken initiatives to tap unconventional energy sources like coal bed methane (CBM) and underground coal gasification (UCG). It has set up a laboratory in collaboration with the Indian Institute of Technology (IIT), Mumbai for UCG research.
The initiatives of ONGC are driven by the challenges of the oil and gas industry. The industry faces challenges such as climate change, growing attrition, procedural constraints, low gas prices, increasing subsidy burden and royalty. Whatever ONGC does has to respond to these challenges in a manner that sustainability is embedded into its business.
View from the top
Many CEOs see the value of moving from the business-as-usual approach to a sustainable one. What does it take for business leaders to make the transition? It includes setting a vision, and guiding the organisation to build commitment, making resources available, and helping people make tough decisions and choices. A strong leadership system is most critical for the transition to a sustainable business. It becomes more challenging in a diversified group than in a focused large company. The Tata Group shows a way to meet this challenge. Starting with an exercise in 2001, CEOs of the Tata Group companies collectively evolved an integrated approach to bring sustainability to the core of its business strategy. Over a period of time, this was reflected through the actions of many of the Tata companies.
Tata Steel’s leadership system has two dimensions: visionary and architectural. The visionary dimension enables people to envision the future, to empower them to perform better. The architectural dimension is an enabler, and includes designing and creating structures, processes, policies, systems, strategies and measures that support and enhance superior performance. These two dimensions are sometimes at conflict with each other, but the leadership strives to strike a balance. At the core of the leadership system are stakeholder expectations that drive all leadership actions.
There is no doubt that sustainable business and sustainable growth will require collective and comprehensive efforts. The scale is huge. Sustainable growth will be short lived without radical shifts and transformational change in governance and social behaviour, innovation, and of course technology.
Source: Business Standard