Creating sustainable value through operations

Sustainable development, and the global challenges it presents for business operations and business strategy, is multifaceted. Issues of an economic, social and environmental nature are inseparable from the way in which organisations are designed and run. Addressing sustainability across these three pillars – people, planet and profit, k­nown as the 3 Ps or the Triple Bottom Line (TBL) – is a key concern for businesses seeking to create sustainable value.

Sustainability not only has critical ramifications for the world and its global population, but can also drive shareholder value – an aspect often-overlooked by companies who perceive sustainability initiatives to be time-consuming and constraining. As such, implementing a sustainability strategy can lead to greater business opportunities and improved ways of working.

Whilst there is no isolated, corporate action that can solve the pressing, global issues of climate change, human rights abuses, economic instability, environmental degradation, amongst other crises, there are numerous impactful changes that can create step-change. So, what should businesses interested in incorporating value-creation into their business model and consider – and how might this impact their operations ecosystem?

Sustainable practices – what’s the current outlook?

Recent business sustainability statistics demonstrate that buy-in, adoption and intention to create value through practices is increasing:

• 57% of companies have started using energy-efficient or climate-friendly machinery, technologies and equipment
• Over 4500 companies have become certified B Corps as of February 2022 – meeting the highest standards of social and environmental performance, public transparency and legal accountability
• 67% of companies have started using more sustainable materials, such as recycled materials and lower-emitting products
• 55% are cutting down on air travel post-pandemic.

However, there’s still a long way to go: while 90% of business leaders think sustainability is important, only 60% of companies have a sustainability strategy.

The Sustainable Value Framework

Sustainability drivers – for example, resource efficiency, pollution prevention, transparent and responsive operations, technological innovation, renewable energy, social development and wealth creation – have a clear and positive impact on corporate payoff and business value. Depending on which drivers are prioritised, and how each is implemented, they can affect:

• innovation and repositioning
• growth path and trajectory
• cost and risk reduction
• reputation and legitimacy.

Mark B. Milstein and Stuart L. Hart developed the Sustainable Value Framework as a diagnostic tool to assess business value and performance across four key areas – each featuring a set of drivers, matched with a strategy, and impacting one of the value areas above. For example, drivers of pollution, waste and consumption may lead to a strategy of pollution prevention – achieved by minimising waste and emissions from operations – and positively affect cost and risk reduction. Similarly, drivers of disruption, clean teaching and footprint may lead to a strategy of clean technology – achieved by developing the sustainable competencies of the future – and positively affect innovation and repositioning.

Once there is a clear picture of how sustainability is, or isn’t, balanced across the business portfolio, leaders can identify opportunities to improve their practices.

What are sustainable business operations?

Corporate social responsibility (CSR) efforts must go far beyond surface impressions; leaders are increasingly aware of the urgent need to reduce the negative impacts that operations can have on the environment. Pressure to design and deliver truly sustainable business models now comes from team members, local communities, investors and customers – meaning businesses cannot afford to not take the issue seriously.

McKinsey is quick to reinforce the point that switching to a more-sustainable business model need not, quite literally, cost the earth. They highlight some examples of operations-focused initiatives that can make a huge difference to business sustainability:

Procurement – to lower carbon footprint. Organisations can review existing purchasing practices to help control external costs and minimise detrimental environmental impact. For example, sourcing raw materials from producers and suppliers near manufacturing plants – rather than nationally or internationally – can provide better value, support local communities and economics, and reduce shipping and transportation emissions.

Logistics – to reduce shipping costs and greenhouse gas emissions. The transportation and freight industry is a mammoth source of emissions. Leaders can examine their logistics practices to cut both costs and emissions simultaneously. For example, less reliance on transport methods – whether this is planes, ships or road vehicles – and restructuring transport supply assets to make routes shorter will make a significant difference. Various technologies and data tools are available to suggest route optimisation and better vehicle utilisation options.

Consumer goods – to optimise packaging through the supply chain. Customers are increasingly switched-on to issues of packaging – from non-recyclable materials and an over-reliance on plastic, to too much packaging full-stop. Most manufacturing, distribution and retail processes all involve a hazardous, environmentally damaging amount of waste, making it a supply chain-wide problem. Businesses should urgently look at redesigning packaging and developing sustainable solutions that do not compromise product quality as items move through the chain. As well as reducing packaging costs, huge amounts of landfill waste can be eliminated.

Manufacturing – to optimise process control and product formulation. The manufacturing of materials can critically impact the amount of greenhouse gas that enters the atmosphere. Across many industries, leaders are adopting strategies to support sustainability practices related to manufacturing. For example, re-retraining teams, optimising equipment and making better use of new technologies and analytics can help to reduce consumption and make processes more efficient. Businesses are making huge strides in the sustainability score of new products without making huge investments; the exception to this are switches to full decarbonisation equipment as this can be a large, and unviable, investment. Additionally, examining the properties of materials and related processes can lead to improvements in the fraction of recycled matter a product contains – while still delivering a high-quality item that satisfies consumers.

This handful of examples indicates there is much to be done in a bid to improve sustainability and environmental management of operations. As well as the benefits listed – such as cost-savings and streamlining of processes – leaders may observe increased competitive advantage, formation of lasting partnerships, extension of product life cycles, greater financial performance, new awareness of environmental issues, and short-term and long-term value creation.

Embrace and overcome sustainability challenges in your business

Are you interested in learning how to transition to sustainable business practices? Want to increase sustainability performance and shareholder value? Require the know-how to reduce negative environmental impact?

Gain the understanding and skills to push sustainability and CSR efforts to the top of the business agenda with Keele University’s online MBA Finance and MBA Entrepreneurship programmes. From green finance to sustainable supply chains to creating value through operations, our flexible master’s courses support you to succeed in both sustainability-focused and broader leadership capacities.