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New Bottom Line Volume 6.2 – Strategic SustainabilityTM (1): Dragged kicking and screaming to where we really want to go

January 14, 1997

Let the pundits wallow in problems. It’s time for solutions.

In the last New Bottom Line (Pick Your Progress: Regulatory Reform? Or Regulatory Insulation?), I wrote of companies whose environmental strategies brought surprising multiple benefits. Beyond the obvious benefit of pollution reduction, and the well-documented but still commonly under-appreciated benefit of substantial financial return on ecoefficiency investments, we now find the perhaps startling benefit of “regulatory insulation”–profitable, practical environmental initiatives that deliver results so far beyond the performance thresholds demanded by regulators that businesses gain unexpected bonuses in operating freedom… freedom from the “burdensome” regulations other companies just complain about.

I noted then that Swedish appliance manufacturer Electrolux AB “is a striking example of what I’ve come to call Strategic Sustainability[tm]. A growing number of companies have shifted environment from nuisance to operational function. A small group of leaders have shifted environment from operational function to core strategic driver of everything from business strategy to product design.”

Electrolux apparently didn’t choose this direction eagerly. Faced with losing a multi-million dollar contract when a major customer which had been working with The Natural Step (TNS) turned them down because Electrolux products violated TNS’s four “system conditions” for sustainability, Electrolux executives angrily demanded a meeting with TNS founder Karl-Henrik Robèrt. “What are you doing?” they demanded. “You’ve cost us millions!”

Dr. Robèrt, as he typically does in the face of such confrontation, returned to the basic thermodynamics and evolutionary biology underlying the TNS framework. The Electrolux executives, good scientists and engineers that they are, found the non-negotiable scientific principles…well…non-negotiable! With no choice but to acknowledge their validity, they moved on to the challenge of how to steer their company’s operations to be in line with the laws of nature. Now, five years later, Electrolux calls their billion kroner-plus investment in their Natural Step initiatives the best financial investment they’ve ever made.

For Electrolux the TNS metaphor of a “funnel”–defined by the shrinking opportunity space shaped by declining resource capacity (both physical resources and ecosystem services) on one hand and rising demand (driven by rising population, incomes and technology) on the other–became a key part of the company’s strategic landscape. Electrolux made a strategic decision to aim its company toward the narrowing throat of that funnel, rather than drift haplessly, like most companies do, toward the sloping walls. This hard nosed business decision embeds sustainability at the heart of business strategy, shifting “environment” from an operational function to a core strategic driver of everything from business strategy to product design.

For example, Electrolux pushes beyond traditional notions of recycling to rigorously consider the “value chain” throughout the product life cycle–the value added or lost at each stage of production, use, and disposal/recovery–to design for optimal “recycling value” of the product, thereby “pre-positioning” product recovery as an additional profit center in a future where product take-back is the norm. Innovative metrics–including a Recycling Value Index–guide decisions regarding trade-offs between increased production costs and increased recycling value.

Electrolux is a good example of an emerging trend to move compliance obligations to line and general managers, and have environmental managers and departments focus on strategy and design issues. This serves two purposes: it puts an environmental orientation more deeply into the operating organization, and it focuses “environmental” work on business problems, business solutions, and strategic competitiveness–the real areas where sustainability-oriented thinking can lead to major business breakthroughs.

The motivation for such changes are often external, sometimes internal. Germany’s packaging “take-back” regulations, and the promise or threat or product take-back requirements, have been the driver of environmental design and business strategy innovations for many companies. The inescapable logic of the Natural Step training has been the catapult for others. A personal commitment to crack the contradiction between dispassionate businessperson looking just at the numbers and loving grandparent looking at a child’s future has turned the tide for still others. For Electrolux, the immediate prospect of a significant economic impact focused and shifted the company’s attention, and the prospect of significant competitive advantage has held it. In many cases it is a combination of all these factors and others. The good news is: it works.

(c) 1997 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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