The Innovation Bottom Line: How Sustainability is Paying Off

The Innovation Bottom Line
How Sustainability is Paying Off
February 2013

1
Copyright©2012byTheBostonConsultingGroup,Inc.Allrightsreserved.
Presenters
David Kiron Ph.D. is executive editor of
MIT Sloan Management Review’s Big
Ideas Initiatives
David Kiron Eugene Goh
Eugene Goh is a Principal in the Oslo
office of The Boston Consulting Group,
and a core member of its Strategy
practice

2
Introduction to the BCG-MIT SMR Sustainability partnership
The BCG-MIT SMR Partnership
The BCG-MITSMR Sustainability &
Innovation Partnership is a joint
undertaking with the objective of
determining how the challenges and
opportunities presented by
sustainability will transform
management in the twenty-first century
2012 Study fourth in the series
201120102009
2012

3
We found a core of companies combining profitability and
sustainability through innovation...
...we call them Sustainability-Driven Innovators
37% say they have profited
from sustainability activities...
...and of those:
9% don't know
28% have not
changed their
business model
63% have
changed their
business model

4
Four key elements driving profitability of sustainability
Business model innovation
Business case
Customer collaboration and focus
Top management attention
1
2
3
4
Best practice
Key driver

5
...and customer
collaboration
and focus
87 %
...that also have
a business
case
73 %
Companies with
3 or 4 business
model changes1
59 %
Companies with
business model
innovation (average)
46 %
Companies with
no business
model innovation
26 %
40
20
0
...and top
management
attention
Share of companies who say sustainability adds profits
100
80
60
90 %
Companies combining four key elements more likely to profit
from sustainability
1. Including both "target segments" and "value chain processes"
Source: 2012 BCG-MIT SMR Sustainability and Innovation Survey
1 2 3 4

6
Six elements of business model
1
Value proposition
Operating model
Business model
Target
segment(s)
Product/service
offering
Revenue
model
Value chain
Cost
Model
Organization

7
Business model innovators more likely to profit from
sustainability
-47%
+74%
10 %
Do not know impactSustainability
breaks even
29 %
46 %
26 %
20
0
Sustainability
reduces profit
11 %
Companies' evaluation of financial impact of sustainability
80
14 %
27 %
60
40 37 %
Sustainability
adds profit
Companies with business model innovation
Companies with no business model innovation
Increased
awareness
Increased
profit
1

8
Changing 3+ business model elements increase profits
0
50 %
2
40 %
1
37 %40
60
80
20
0
59 %
3 or 4
(average)
26 %
3 or 4 including
"value chain
processes" and
"target segments"
1
Number of business model elements changed

9
Kraft example: Pioneering in sustainable sourcing
opening for new consumer segments and double-digit growth
1
Rainforest Alliance Certified
Seal generating double-digit
growth
Sales of instant and espresso
coffee doubled when
introducing 100% sustainable
sourcing
Committed to only using
sustainable raw materials in
European coffees from 2013
15% of brands carry Fair
Trade or Rainforest Alliance
labels
Value chain innovation
with sustainable sourcing... ...opening for new consumer segments

10
Dell example: Packaging innovation to satisfy customer
needs leading to a sustainable solution
• Clients want strong packaging to avoid damage
• Dell wants lighter packaging to reduce shipping
cost
• Fast-growing and sustainable bamboo as
substitute for paper
• 70% of notebooks shipped in bamboo
Customer dialogue on packaging... ...leading to packaging innovation
1

11
Business model innovators more likely to have business case
...thus better able to demonstrate that sustainability adds to profits
1. Of which both "target segments" and "value chain processes" are changed
20
Share of companies with business case
80
60
40
0
26 %
Companies
with no
business model
innovation
38%
+99%
58 %
Companies
with business
model
innovation
(average)
51 %
20112010
30 %32 %
60
40
2012
20
+25%
80
Share of companies with business case
0
38 %
Companies
with 3 or 4
business
model
changes1
2
More companies establish a
business case for sustainability
Twice as many business model
innovators have business case

12
Marks & Spencer example: Plan A outlining
sustainability commitments in 7 areas
2
Source: Marks & Spencer - How We Do Business Report 2012

13
Marks & Spencer example: Plan A outlining
sustainability commitments in 7 areas
2
Source: Marks & Spencer - How We Do Business Report 2012

14
Sprint example: Focus on hard numbers
and intangible values from sustainability
2
• Sprint accepts lower hurdle rates in
sustainability business cases
– E.g. when investing in making phones
easy to take apart to recycle waste
• Sprint recognizes that many sustainability
activities are difficult to measure, but have an
inherent strategic logic
– E.g. value of achieving high positions in
global sustainability rankings
Hard numbers in business cases Intangible values for the brand

15
For the innovators, customer collaboration & focus and top
management attention are additional contributors to profits
Note: Only respondents replying that they have changed their business model are included
3/4
80
55 %
36 %
No
customer
influence
Customer
influence
Not
permanent
on agenda
Permanent
on agenda
20
40
60
53 %
Not
increased
collaboration
Increased
collaboration
39 %
0
61 %
38 %
100
Customer
collaboration on
sustainability issues
Customer influence
on sustainability
agenda
Top mgmt attention
on sustainability
agenda

16
Five recommendations for profitable sustainability
Lead from the top and integrate the effort
Measure and track sustainability goals and performance
Collaborate beyond the boundaries of your organization
Understand your customers and their willingness to pay for
sustainability
Be prepared to change your business model

The Innovation Bottom Line: How Sustainability is Paying Off

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