By S. Sinan Erzurumlu
A decade ago corporations were questioning whether they should consider social and environmental issues in conjunction with profitability. Today, a majority of global CEOs believe that sustainability issues need to be fully incorporated into their strategies and operations. If sustainability is the new path to doing business, corporate strategy must be modified to stop the economic and political manipulations, represent the real costs of business, and invest equivalently in ecologically smart infrastructure and social value generation.
This is a call for a new generation of entrepreneurs, leaders, and thinkers to shift the management paradigm from traditional to sustainable. When I speak with various managers and entrepreneurs (in mining, high tech, clean tech, energy, manufacturing, services), they proudly (and rightfully) mention their sustainability efforts. While some of these efforts make only tiny dents in the sustainability debt, some are very innovative, but still waiting for mass adoption and a shift in thinking and behavior. I do not think less of any corporation’s sustainability efforts, even if they have not made radical change. Realizing that you have to clean up your act and make this a core discussion in your business model is a significant step. A decade ago we were still in the denial phase, and now we are having conversations on how to define and deliver sustainability, a huge step in the right direction.
We should continue our conversations and our efforts, because first, sustainability is a continuous improvement process, and second, it will take generations to change our economic values and addictions, and instill a global culture of sustainability. On the economic front, this transformation has to start with leaders adopting the principles of sustainability thinking and generating business model innovations within the sustainability context. Some firms may tout their improvements in operational efficiency as big steps in sustainability –and these are indeed great news, considering where we have been. However, they may not be the real sustainability leaders.
Three Principles of Sustainability Thinking
A real sustainability leader should utilized these three principles of sustainability to achieve a fundamental transformation:
Environment is not a public good; pollution cannot be free.
It has been extremely cheap, and free in some cases, for businesses to use natural resources. The economic assumption of nature as an abundant resource and a limitless source for waste have led to the environment as a public good–abundant and freely accessible, like air. But, environmental resources like clean air or common-property fisheries, in the absence of regulation, are not priced or at least underpriced, meaning corporations are incentivized to use more of those resources than is socially efficient. So, the leader must fully understand the shortcoming of the traditional economic assumptions and its long term consequences.
Further, sustainable business models are concerned with diverse stakeholders. Then, the stakeholder recognition is material to the extent of sustainable business model innovations. Our first and foremost stakeholder in our economic activities is simply Mother Nature, who is probably the most silent one when we are making our plans. Such recognition (of tragedy of the commons) shows a level of responsibility and sense of respect by the thought leader.
Sustainability thinking is systems thinking.
The traditional linear thinking of economic systems may not hold the organization directly responsible for procurement decisions like resource extraction and after-sales decisions like end-of-life destiny of products. Yet, goods no longer flow in one direction. The supply chain itself is extended in both directions and involves many stakeholders. The incentives of this extended network of stakeholders demand a systematic evaluation of the environmental aspects of a product system. The true leader must realize diverse interactions and assess the impacts of a business through all stages of a product’s life cycle. Then, she can make decisions with minimum impact for the longevity of the system, not necessarily for one party.
Sustainable solutions require long term decision making.
In a traditional growth-induced and consumption-focused business model, sustainability efforts are accepted so long as they lead to cost reduction or profitability. If the manager can show how energy efficiency is converted to cost savings; how green product differentiation increases market share; or how carbon reductions avoid costly regulations, they are hailed by the organizations. But, these decisions are focused on short term view for generating more dividends, increasing stock value or maximizing shareholder value. The solutions to the problems we are dealing with require economic and social sacrifices, short term investment loses and longer time for return on investment. Thus, the real sustainability thought leader should evaluate the impact of decisions in the long term.
Entrepreneurial Thought and Action for Sustainability
Without demonstrating thought and action for these three principles, a sustainability strategy merely provides a way to move on to better, yet still unsustainable, status. The sustainability leader who develops business models with three principles of sustainability would have to generate novel ideas. Needless to say, this requires an entrepreneurial mindset. No matter how perplexing the constraints are, the entrepreneurial approach calls for optimism, experimentalism and collaboration.
The challenge for business education is to nurture the culture of entrepreneurial sustainability thinking in their curriculum design. The MBA programs on sustainability should offer entrepreneurial thought and action (ETA) for solving “big and wicked” problems. That means educational institutions have to carry out the mission to confront the old, debate the new and make way for the innovative. Sustainability innovations promote an economic and social environment that is going to change consumer behavior, seek a different regulatory framework, and delay financial earnings. That is ambitious. That is going against the Main Street, Washington and the Wall Street. Against all, simultaneously.
That brings another question to mind: Are the institutions responsible for educating next generation of sustainability leaders teaching a new framework for thinking, or are they simply offering to meet the needs for business as usual? I would like to see the former idea taking root in business schools. Anyone who wants to think within this framework must demand a thought and action paradigm that is going against the old economy. That is the major undertaking for the business education and that is what every MBA must demand.
S. Sinan Erzurumlu is an associate professor of Technology and Operations Management at Babson College. Sinan has published several articles and book chapters on the topics of sustainability, innovation, entrepreneurship, clean technology and energy.
As the No. 1 leader in entrepreneurship for 20 consecutive years, Babson College is globally recognized for our one-of-a-kind Entrepreneurial Thought and Action® (ET&A) methodology that teaches undergraduates, graduates, and executives to balance action, experimentation, and creativity with a deep understanding of business fundamentals and rigorous analysis as the ideal approach to creating economic and social value.