By Michael Zacka, North America President and CEO, Tetra Pak
We’re stuck. The American economy picked up such little steam last year that the Federal Reserve said it would keep interest rates near zero through 2014. Credit Suisse economist Jay Feldman’s observation about a slight rise in the fourth quarter output – “It’s not bad, but there’s no oomph” – has become the mantra of the moment.
In the U.S., many can’t help but ask if the nation has lost its competitive edge. America’s systems and businesses are built to reward and penalize based on performance. Last week, we all watched the winners and losers as quarterly earnings reports were released. All eyes tuned to those who achieved profitable revenue growth and beat their forecast.
Not many did, and the government has caught on. At this point, President Obama is all too aware that preserving America’s competitiveness is at issue – a point he drove home in his State of the Union Address. Last month, Michael Porter, the Harvard professor who is generally recognized as the world’s most influential thinker on this topic, drove home the same point when he released the results of Harvard Business School’s first Survey on U.S. Competitiveness. Among its findings was the troubling statistic that 66 percent of its respondents see the U.S. as falling behind, while only 8 percent see it pulling ahead.
CEOs, as team captains, play a significant role in winning this battle by effectively quarterbacking their own teams. And to succeed, they need to focus on Sustainable Profit Growth, and make sure its roots are deeply established within their companies, and incapable of being compromised. Yet many don’t realize what this concept is, and entails.
So what is Sustainable Profit Growth, and what do you need to have in place to survive? Here are its five key components.
1. A high tech product or high tech process.
You cannot survive without one of these two entities. Sustainable Profit Growth starts with a product or process that meets a current or unrecognized need, yet has the potential to push possibilities and boundaries in the future. Must it be high-tech in the literal sense? Not necessarily, but it must be technologically inventive.
For instance, look at something as simple as a stove. A little company named First Energy Private Limited in Pune, India developed a $20.00 stove that produces three times the heat of conventional stoves and is virtually smokeless. It runs on pellets of compressed agricultural residue. A kilogram of pellets costs a few cents and cuts down on carbon emissions and particulates in the air by up to 70%. The company is becoming a market leader in India and hopes to do the same in other countries where fuel for stoves is a real issue.
On American soil, in Bozeman, Montana, West Paw Designs has made pet toys and beds using IntelliLoft, a fiber created from 100 % post-consumer recycled plastic soda bottles, since 2006, diverting more than five million plastic bottles from landfills to date. They recently doubled the size of their plant and are expanding internationally as well.
Also, a company’s value chain must rely on suppliers with the same mindset. Food, beverage and dairy companies have selected my own company, Tetra Pak, precisely because of the technologically innovative and high-performance packaging we offer. Our classic Tetra Brik, used for common pantry items such as milk and broth, is a case in point. Its design uses the smallest amount of materials possible for a functional, protective package; maximizes renewable materials; and has a 4/96 product ratio (4% is package; 96% is product) that translates into high shipping efficiencies.
2. A culture of innovation — in a big way.
This requires a high level of insight, focus, collaboration and flat-out fearlessness. A company must anticipate what will be on the horizon, create what they think the marketplace needs and wants, then create demand for that product or service because the marketplace doesn’t always know what it needs and wants.
Apple, which just surpassed ExxonMobil to become the largest company in the world, is the poster child for this concept, and proof that innovation matters most. One of Steve Jobs more famous quotes is, “Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.” For this outsider, this seems to be a concept that works not just for Apple, with its top-down approach, but to enterprises that employ other tactics as well. Consider Google’s bottom-up innovation approach, which has clearly been equally effective. Perseverance is the common denominator here; denial is unacceptable to both companies.
Even traditional corporations such as GE are collaborating to accelerate their search for innovative solutions. Michael Idelchik, GE’s vice president of advanced technologies, admitted recently that “we are much more focused and connected to the outside world than we were several years ago.” And indeed, a recent article by Steve Lohr in the New York Times pointed out that GE is making investments with venture capital funds in clean energy technology and health care, and is working with other companies, government labs and universities on hundreds of collaborative projects.
3. A globally centric culture, not a country centric one.
According to the Population Reference Bureau in Washington, D.C., there were almost seven billion people on the planet in 2011, and only about 312 million, or about 4.5 percent of them, live in the U.S. – a percentage that is expected to remain stable over the next few decades. So if a company wants to profit and grow, it must have the capabilities and incentives to export, or it must be prepared to responsibly invest in other countries. Both require significantly expanded skill sets and beg the obvious: have you considered this path and are you ready?
Apple has sold almost 200 million iPhones on six continents since it released the device in 2007. And my own company, Tetra Pak, the largest food packaging company in the world, has sold billions of packages, also on six continents since its inception in Sweden in 1951. You can’t maximize growth without accessing the total marketplace.
4. A cost competitive platform with an informed global sourcing strategy
The benefits of global sourcing are undeniable: it gives us access to a skilled and economical labor pool; lowers material and transport costs; and can speed up our time to market. In America we tend to singularly focus on creating world-class manufacturing facilities, immediately assuming the ensuing benefit of the best-cost structure. It’s critical to strike a careful balance between sourcing in the U.S. and abroad.
There are risks and challenges to the global sourcing strategy when you consider that each country has its own business practices, legal requirements, cultural issues, environmental concerns and political climates. Everything from tariffs, trade barriers and unions to political unrest can intrude. But those who ignore this strategy will face a more compelling consequence – namely extinction – because the paradigm of doing business today has shifted.
Make it a practice to scan the globe for cost advantages driven by technology, labor and/or customer proximity and hold firm to your principles on quality, social responsibility and value-added supplier relationships. Value added supplier relationships are particularly important since they represent a new model for cross border collaboration, reducing costs and fostering new technologies for all parties involved. Global sourcing is a strategic imperative; companies such as GE, Mercedes Benz and Apple understand this and have their global partners in place.
For American companies, global sourcing may or may not be a competitive cost-related lever. Regardless, our companies still need to be cost competitive.
5. A bottoms-up and a top-down concern for the environment and its sustainability.
According to Socialnomics’ Eric Qualman, 52 percent of the world’s population is under 30, and growing. This generation is connected in ways my peers never were, and are socially active, concerned about the environment and educated to understand energy conservation; the benefits of recycling; the need to reduce our carbon footprints and pollutants; the importance of clean and accessible water; and more. They are a force to be reckoned with, and will use the internet to gather information and communicate violations with lightning speed. Environmental sustainability is our corporate responsibility and comparable to the responsibilities we have to our employees, the communities in which we operate and society at large. These are no longer optional.
Debacles such as the BP oil spill in the Gulf of Mexico and the failure of the Japanese nuclear power plant in the wake of damage from last year’s tsunami have taught us that any company hoping to be profitable in the future must not only play by a new set of rules, but be constantly striving to improve those standards. The World Economic Forum’s Global Competitiveness Report for 2011-2012 noted that “the literature on sustainability and its measurement is vast and growing rapidly,” and a key goal for world thought leaders right now is to “discuss strategies to achieve strong, sustained, inclusive, and clean growth that durably increases the prosperity of all while simultaneously protecting the environment.”
We must not just discuss all the parameter of this issue, but all have our plans in place. Let me assure you that Tetra Pak has a sustainability plan that is detailed, has goals and objectives, is tracked and measured and is at the heart of what we do.
But bottom line, in order to compete and succeed in today’s complex and globally interconnected economy, companies need to practice this discipline to profit and grow – which is why the term Sustainable Profit Growth needs to be understood and is so salient. It integrates all of these strategies, and creates a ‘whole’ that is far more effective than each of its ‘parts.’
Americans are screaming, “Innovation is what this country has always been about.” Sustainable Profit Growth – a way to keep innovation in the top spot it requires – should be the response!