Doing good, doing better. Changing the fundamentals for long term profit and growth

1. Doing good, doing better.
Changing the Fundamentals for Long Term
Profitability and Growth
2008

2. Whitepaper: Doing good, doing better.
Table of Contents
1 Introduction .......................................................................................................3
2 A new Era .........................................................................................................4
3 Definitions .........................................................................................................5
3.1 Sustainability ............................................................................................5
3.2 Corporate Social Responsibility ...............................................................5
4 Challenges and Opportunities related to Corporate Sustainability ...................5
4.1 Taking the Perspective of the Finnish Industry Challenges .....................5
4.2 Opportunities............................................................................................7
5 Trendy or Sustainable?.....................................................................................8
6 Sense of urgency?..........................................................................................10
7 Finpro’s Role...................................................................................................10
8 Authors ...........................................................................................................11
9 Appendix.........................................................................................................12
9.1 Corporate Governance...........................................................................12
9.2 Corporate Citizenship.............................................................................12
9.3 Corporate Sustainability .........................................................................12
10 Literature.........................................................................................................13
Table of Figures
Figure 1: Example of a fast growing sector. .................................................................................................................4
Figure 2: The four areas of competitive context ...........................................................................................................7
Figure 3: Visualization of Competitive Edge.................................................................................................................9
Figure 4: The four sustainability challenges facing a company..................................................................................13
Editor
Kristina Modee, Senior Consultant, Region Europe, Munich, Germany
office +49 89 542 6470, mobile +49 172 8631 429, kristina.modee@finpro.fi
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3. Whitepaper: Doing good, doing better.
1 Introduction
Acting in a responsible way towards the community is nothing new for most companies – they have
been doing this since their foundation; through the creation of work places, through active
involvement in local communities, through sponsoring and similar activities. What is new, however,
is the increased attention firms are getting from various stakeholders1 concerning their actions on
the market.
“Consumer intimacy” is a global phenomenon and a result of the growing importance of the user/
consumer perspective. Even in traditional industries such as construction, the community
perspective has taken over and the success of a project is no longer only judged by the functional
purpose of a project, but by issues such as its societal impact, mobility options, environmental
impact, space convertibility…
In other words, additional to functionality, the social consequences of a project is growing in
importance.
The impacts of climate change have also led to the emergence of strategic challenges in several
industry sectors in areas such as raw materials, water, mobility, renewable energies, alimentation,
etc. Globalization and external pressure from NGOs have led to the need to take responsibility for
production and working conditions within global supply chains. The financial markets are also
increasingly getting interested in the sustainability performance of the companies in which they
invest.
Many companies have already taken action to meet these challenges, but often these activities have
been island solutions, not integrated in the main company strategy. Examples are implementations
of environmental management systems such as ISO 14001, increased stakeholder communications
(mainly through PR departments), introduction of codes of conducts, health & work place security
activities. In particular there has been a divide between environmental matters and social aspects of
company operations.
1
Stakeholders are individuals or groups that have a material or immaterial claim on a company [2].
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4. Whitepaper: Doing good, doing better.
2 A new Era
Due to the increased pressure arising from the globalization of markets (costs, competition…) as
well as the diminishing role of the state, business has, however, now entered into a new era. In this
era companies are no longer being measured solely by traditional indicators of success such as
profits, dividends and jobs created. Additional measures of social worth now include an
organization’s relationships with its employees, its communities, its customers and the physical
environment [3].
This requires a broader approach involving all company processes, products, stakeholders, markets
– in short: sustainability has to be integrated into the overall main company strategy.
For firms doing international business, this means an additional risk due to higher demands and
expectations from foreign customers and other stakeholders, but also a large potential through
possibilities of new products or services, differentiation, image improvement, increased efficiency,
marketing, etc.
Figure 1: Example of a fast growing sector.
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5. Whitepaper: Doing good, doing better.
3 Definitions
3.1 Sustainability
The origins of the world sustainable can be found in the beginning of the 19th century in the forestry.
The definition was “to cut down only so much wood in one year that the forest could yield and still
grow enough wood to be continuously harvested in coming years”.
Today the definition of the Brundtland-Commission (1983) is the most valid:
Sustainable Development is a development that meets the needs of the present without
compromising the ability of future generations to meet their needs.
3.2 Corporate Social Responsibility
According to the definition stated by the European Commission, CSR constitutes the integration in
company operations of voluntary actions directed towards the solution of social and environmental
problems in the society. Furthermore, the concept constitutes the basis for the commitment of
engaging relevant stakeholder in a continuous dialogue with the company [4]. This means that CSR-
activities are going further than legal obligations and are always on a voluntary basis.
Sustainable Development is a development that meets the needs of the present without
compromising the ability of fu-ture generations to meet their needs.
4 Challenges and Opportunities related to Corporate Sustainability
4.1 Taking the Perspective of the Finnish Industry - Challenges
The vision of an economic sustainable development, which takes social responsibility and
environmental protection into account, has grown stronger over the last 15 years. Business is
required to take more responsibility for societal problems and companies are given a central role in
delivering on the promise of this vision. The concepts of Corporate Social Responsibility and
Corporate Sustainability are therefore becoming essential parts of all companies’ strategies.
For Finnish companies that need to internationalize at an early stage due to the small home market,
this development creates a number of challenges:
• Transparency and accountability
First of all, like all companies around the world, companies in Finland face the
task of responding to the increasing pressure of various stakeholders to give
account of their business operations since customers are increasingly looking
behind the brand. This needs to be done in a transparent and credible way
otherwise companies may suffer from image loss and reduced customer
acceptance. Nokia, one of the leaders in CSR today, suffered from a massive
loss of reputation in Germany in the beginning 2008 due to its closure of a
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production facility in Bochum and its communication policy related to this.
Interestingly, not only the image itself was damaged, but also the views on
quality, price-performance ratio and employer attractiveness changed
dramatically. [5] As of July 2008, the image still has not recovered and is now at
the same level as Sagem.
• Increasing demands on members of the supply chain
Finnish companies with international activities are quite often engaged in
business-to-business operations. This means that they normally are part of a
larger company’s supply chain. These business clients are to a growing extent
expecting sustainable operations from their suppliers. If this condition is not met,
they will find other suppliers elsewhere. On the other hand, Finnish companies
must also be in the position to control and monitor the sustainability of the
operations of their own suppliers.
• Confusion regarding meaning and methods
Each company operates within its own context and has its specific core
competences and sustainability issues. The planning, implementation and control
of management methods or systems to improve the sustainability of operations
therefore need to be matched and adjusted to fit the conditions of the individual
company. There is, however, already today a great number of different
sustainability tools and concepts. Furthermore, there are also differrent
understandings of what corporate sustainability really means. From such a wide
field of possible solutions, a company must be able to choose the option best
suited for its operations.
• It’s no longer “what” to do but “how” to do it.
On global and partly saturated markets differentiation increasingly lies in how
things are done rather than what products are sold. Where the “what” leads to
revenue growth, the “how” leads to profit, not least because customers reward
“good” companies and thus are less resistant to pay a premium price.
“The point is sustainability cannot be simply about being nice. It has to be about business
logic.”2
2
Patrick Cescau, CEO Unilever, 2008 [6]
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4.2 Opportunities
Although the current development brings challenges, one must not forget the many opportunities
and chances that may arise through a consequent consideration of sustainability issues:
• Cost-efficiency
There can be a lot of potential to save costs in the streamlining of production
processes in order to reduce the input of raw materials, water or energy and
improving waste handling systems.
• Enhanced Competitiveness
Every company operates within a competitive context (see fig. 2), which
significantly affects its ability to carry out its strategy, especially in the long run.
Social and environmental conditions form a key part in this context. Ensuring the
health of the competitive context benefits both the company and the community
[10].
• Innovation & New Markets
Many opportunities to pioneer innovations to benefit both society and a
company’s own competitiveness can arise in the product offering and the value
chain. Toyota’s response to concerns over automobile emissions is an example.
Prius, the hybrid electric/gasoline vehicle has given Toyota a lead so substantial
that Ford and other car companies are licensing the technology. Toyota has
created a unique position with customers and is well on its way to establish its
technology as the world standard [7].
Figure 2: The four areas of competitive context
Context for Firm Strategy
and Rivalry
The rules and incentives that govern
competition
Factor (Input) Conditions Local Demand Conditions
Presence of high-quality, specialized The Nature and Sophistication of local
inputs available to firms customer needs
Related and Supporting
Industries
The local availability of supporting
industries needs
Source: Porter & Kramer, 2006
• New Marketing Possibilities
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Marketing sustainable products is more difficult than marketing conventional
products because normally, one cannot see or taste the benefits of e.g. good
working conditions or low emissions. At the same time sustainable marketing
releases new potential of differentiation by reaching out to the emotions of
customers. Nowadays for instance, the sale of fridges without an energy class
branding is unimaginable. This type of classification would also be possible for
several other products. Increasingly, customers are also demanding information
on the environmental footprint of products. Those companies succeeding in
measuring and communicating this in the most trustworthy will have a major
advantage.
• Better Image & Reputation
Through higher quality products, through transparency and credibility, through
the combination of benefits both for society and the company and by caring more
on how things are being done, the image of the company can be raised
considerably. This leads to higher acceptance of the company’s products and
increases the willingness of customers to pay a “sustainability” premium. It will
also make it easer for the company to find cooperation partners, suppliers and
employees.
• Higher Employee Motivation
Employees want to work for a company with a good image, taking into account
environmental and social aspects of its business. Individuals are increasingly
looking to align their personal values with their careers. This raises the motivation
among employees, lowering the number of sick days and personnel fluctuation.
The cost of hiring employee sinks. A survey from 2003 already then suggested
that three in five people want to work for a company whose values are consistent
with their own and that they will stay with the organization whilst this consistency
remains [8].
"A new breed of job seeker is placing ethical issues above financial incetives when
considering a job offer. Future job packages need to reflect this new found ethical
consciousness among job seekers if companies are to maintain their appeal."3
5 Trendy or Sustainable?
It is not only about the impact of trends and signals, such as LOHAS (Lifestyle Of Health And
Sustainability), FUD (Fear, Uncertainty, Doubt), blue (water) to replace green, … nor about SRI
(Social Responsible Investment), greenhouse gasses, CO2, carbon emission management, … nor
about methodologies to address these such as ecological footprints, green sigma, …
It is fundamental; it is about already ongoing changing business fundaments.
3
Keith Robinon, Website Director, totaljobs.com [8]
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Let’s forget about trends and focus on industry disruption during the last years. In food industry,
traceability and especially the information of it to the end of the value chain changed the business.
Interesting is that not the industry but the consumers, motivated by their food safety concern, and
government bodies were the drivers behind the change. The energy sector is also facing a similar
upheaval, partly due to legislation (e.g. liberalization of the markets) and partly due to rising energy
prices. Consumers will play an equally important part in this sector as in the food industry.
The impact of user / consumer concerns, besides safety, such as “save the planet” (ecological),
“doing things right” (social responsibility and responsiveness), “caring” (e.g. take care of consumers’
health) will have an impact on business, regardless of the industry you are in. The impact (be it
limited, moderate or substantial in negative of positive way) will depend on your efforts. For most
industries this is no “shocking news” but the difficulty is not in understanding new ideas, but in
escaping from old ideas.
Consequently, companies better address and respond to it over time. Timely adopters (rather than
first movers) can obtain a sustainable advantage and find a competitive edge. Once this stage has
been reached, the risk can be found in the temptation to lay back and stop evolving. The basis for
today’s competitive edge will, however, over time become mainstream. This means that “today’s
competitive edge is tomorrow’s competitiveness” 4as in Fig. 3 below. Therefore, companies need to
continuously reinvent themselves so that they can keep their competitive edge. Corporate
Sustainability helps companies reach this goal.
Figure 3: Visualization of Competitive Edge
Time
high
COMPETITIVENESS COMPETITIVE EDGE
(needed for existence) (needed for excellence)
Relevance
for Markets
(buyers)
TRASH BIN FOOLS GOLD
low
low Different from high
Competitors
“The challenge now is to create a unified environmental and social responsibility policy for
the whole group. … A company that behaves ethically stands out from the competition in its
field”.5
4
Petri Uusitalo (North) during Finpro’s A2 workshop, February 2008
5
Kati Ihamäki, environmental director at Finnair in “Blue Wings”, April 2008
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6 Sense of urgency?
It happened in food, it is happening in energy … Do You doubt it will happen in Your industry, affect
Your business? It is a matter of time and timing is cru-cial in business.
The timeframe depends on the industry’s user/consumer exposure and connectivity.
This connectivity is linked to the consumers’ wellbeing, i.e. when products or services have an
impact on consumers’ health or the health of their children.
Your industry might be stronger connected than expected. Therefore, we propose for you to
analyze Your industry sensitiveness, to follow what happens in other industries and to act
accordingly in order to turn this opportunity into a competitive advantage (rather than a risk).
Finpro industry and cross-industrial expert teams can be your partner in this process.
7 Finpro’s Role
Finpro’s role is, together with other national institutions, to support Finnish companies in their
internationalization processes. We try to reduce the risks and costs associated with doing business
abroad. A further important part of our work is to identify changes in the business landscape world
wide and to enable Finnish companies taking advantage of these. Today, sustainability is something
which poses both great risks and great opportunities for Finnish companies.
• Analyzing different options
Here Finpro can help in analyzing different options on how to handle specific
sustainability issues for individual industry sectors. We can provide benchmarks
and best cases on how to deal with them, provide the opportunity to discuss with
companies, organizations or experts from other countries and regions. Thanks to
our extensive network, this is something we can do at both a global and local
level.
• Identify opportunities
We are in the unique position to be represented through local experts on all
major markets. This makes it possible for Finpro to identify opportunities and
potentials related to sustainability issues and relevant for the Finnish industry at
an early stage. Together with our Finnish innovation partners, we can
conceptualize these opportunities and test them with the companies on foreign
markets.
• Utilizing “Cross-Pollination”
Sustainability is something which does not halt before a specific industry sector
or segment. It disperses throughout the complete industry and the complete
value chains. Through the different Core Industries and the cooperation between
them, Finpro possesses the means to see the big picture and to be able to act
accordingly.
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8 Authors
Kristina Modée, Senior Consultant and Market Expert for Energy & Environment
Email: kristina.modee@finpro.fi, Tel. +49 172 863 14 29
Marc Borremans, Head of Finpro’s Construction & Logistics Industry
Email: marc.borremans@finpro.fi, Tel. +32 477 234 852
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9 Appendix
9.1 Corporate Governance
CG concerns the impact of management-, control- and incentive structures on company
performance. Thus the main questions related to CG are: Who within the company should make
and/or exert influence on decisions? And how can managers be controlled so that they act in
accordance with company goals? [9].
9.2 Corporate Citizenship
For corporate social activities several concepts are used of which corporate citizenship is one. This
is usually defined as all activities in addition to the normal operations of a company that try to solve
societal problems. Normally, they are limited to the local communities of a company and relate to
e.g. donations, sponsoring, corporate foundations and corporate volunteering6 [4].
9.3 Corporate Sustainability
Corporate sustainability means that a company systematically tries to improve its operational
impacts not only to deal with ecological and social sustainability challenges, but also in order to meet
economic targets. This is often referred to as the “Triple Bottom Line” which stands for the
expansion of traditional reporting framework to take into account environmental and social
performance in addition to financial performance [10].
A company trying to act in a sustainable way faces different challenges (see also fig. 4):
1. Ecological challenge – how can the negative environmental impact of corporate
operations be minimized? (ecological effectiveness)
2. Social challenge – how can socially undesirable effects of corporate operations
be minimized? (social effectiveness)
3. Economic challenge concerning the management of environmental and social
aspects – how can environmental and social activities be implemented as cost
efficient and profitable as possible for the company? (ecoefficiency and
socioefficiency)
4. Integration challenge – consolidation of the above mentioned challenges as well
as the integration of sustainability management into the general management of
the company [11].
6
Corporate Volunteering describes the activity in which company employees (more or less voluntarily) are directly
involved in the work of social projects.
The triple bottom line-phrase was first coined by John Elkington who later founded the British consulting firm
SustainAbility in London.
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Figure 4: The four sustainability challenges facing a company
Economic Effectiveness
Economy
3 Eco-Efficiency 4 3 Socio-Efficiency
Integration
Ecology Social
1 Eco-Effectiveness 2 Socio-Effectiveness
Source: Schaltegger et. Al (2008): Sustainability Management in Business Enterprises, p. 6
10 Literature
[1] Dyllick, T. & Schmid-Schönbein, O. (2006): Nachhaltigkeit in der Unternehmens-strategie:
Mainstreaming Sustainability. 8. St. Galler Forum für Nachhaltigkeitsmana-gement. Institut für
Wirtschaft und Ökologie, Universität St. Gallen / E2 Management Consulting
[2] Schaltegger, S. & Petersen, H. (2007): Einführung in das Nachhaltigkeitsmanage-ment. MBA
Studiengang Sustainability Management. Centre for Sustainability Mana-gement, Leuphana,
Universität Lüneburg.
[3] Valentino, B. (2006): Corporate Social Responsibility – Corporate Social Innovation. 4th Forum
on China Corporate Social Responsibility. Beijing, Oct. 18, 2006.
[4] Loew, T. et al (2004): Bedeutung der CSR-Diskussion für Nachhaltigkeit und die Anforderungen
an Unternehmen. Kurzfassung. future e.V., Institut für Ökologische Forschung, Bundesministerium
für Umweltschutz, Naturschutz und Reaktorsicherheit. Berlin
[5] Umweltdialog (2008): Nokia erlebt Imageverlust, Marken-Monitor BrandIndex.
http://www.umweltdialog.de/umweltdialog/unternehmen/2008-01-21_Nokia_erlebt_Imageverlust.php
[6] Skapinger, M. (2008): “Taking a hard line on soft soap”. The Monday Interview. Fi-nancial Times,
07.07.2008. p. 16
[7] Porter, M. & Kramer, M. (2006): „Strategy & Society. The Link between Competitive Advantage
and Corporate Social Responsibility.” Harvard Business Review. December 2006
[8] Business in the Community & Arthur D. Little (2003): The Business Case for Corpo-rate
Responsibility. Beacon Press, UK.
[9] Schwerk, A. (2007): Strategisches gesellschaftliches Engagement und gute Corpo-rate
Governance. Backhaus-Maul, H. et al. „Corporate Citizenship in Deutschland“. VS Verlag
[10] Wikipedia (2008): Triple Bottom Line. http://en.wikipedia.org/wiki/Triple_bottom_line (Accessed:
17.06.08)
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[11] Schaltegger, S. et al (2007): Sustainability Management in Business Enterprises. Concepts and
Instruments for Sustainable Organisation Management. Federal Ministry for the Environment, Nature
Conservation and Nuclear Safety, Berlin
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