Companies must not only create value but also capture it in the form of profits. And, excellent companies garner superior profits by achieving higher revenue than their rivals through typically higher prices or higher volume.
To follow this rule of thumb, it is essential for excellent companies to be better than their competitors rather than cheaper — that is, competing with differentiators other than price, and prioritizing revenues before cost. Fundamentally, to link these two objectives, sustainability is a remarkable approach to spur increased revenues, embrace enduring cost reduction whilst demonstrating deep loyalty to customers and setting a high bar against governance failures.
Indeed, companies seeking sustained profitability need to pursue strategies that are consistent with following a non-price position. Yet, a company that competes on dimensions other than price will see competitors seeking to give the perception of being me-too competitors in an effort to confuse customers and blur hard-won differentiation. Or, at worst, they find formulas for success in ways where their sustainability is clearer, verified, material and better communicated. Therefore, to be excellent, a business must be robust across the entire spectrum of sustainability.
Equally, my extensive experience in fleet management and IT always geared me to differentiate by illustrating, not just the solution, but also the whole life cost of contract to deliver clarity and evidence against competition that gave the perception of being cheaper, will often have proven to be the more expensive option. As such, the value is not in the price but in the use and the contract, as is sustainability. It is the translation of sustainability into the language of business where reporting, as well as action, so often sub-optimizes outcome, since typically, sustainability teams struggle to give tangible expression to their work.
Moreover, as supply chain costs are high in terms of financial, environmental and social cost, which percolates down the chain and impacts customers, this too is an area of great competitive opportunity: coming to grips with the hidden cost, and what risks have been sown, in order to highlight innovation. Thus it is important to understand what KPIs are material. In sticking to this guidance, it can show companies what problems exist, and act as a guide on how to solve them.
Above all, capturing the circles of sustainability, across all business units, demonstrates clearly the interdependence of all business functions to deliver unequivocal understanding. Indeed, howsoever the functions may vary their interdependence is assured. Yet, for example, how many sales teams are involved in sustainability programs? At a recent presentation, I asked the question; the room hoarded silence like a miser. Yet, sales teams are energized by sustainability as it helps and supports their efforts. Thus, the circles of sustainability support revenue as a main driver for financial performance.
Furthermore, being able to drive out inefficiencies through life cycle analysis tools, and innovating with clients and suppliers alike on shared value opportunities from point of source through to end-of-life solutions, or creating symbiotic relationships with other industries, further develops higher revenue and greater customer value to support higher margins.
Thus, finding a workable strategy requires creativity, flexibility and adaptability. And, in using the circles of sustainability leads to research excellence to yield higher value and discover trapped value throughout the life cycle of accounting mechanisms, thinking, and regenerative opportunities of closed loop systems. Hence, the delivery of Return on Asset (ROA) advantage will aid superior gross margins through improved asset and resource utilization. And, by developing variations on existing products and services using LCA restorative methodologies, companies can enjoy the discovery of waste, and opportunity, stemming from similarities in what they currently do and the changes made to do it better.
In contrast, companies whose strategy is to take a low-price position and drive volume, the circles of sustainability can fortify further improvements in asset utilization, with results often high enough to deliver superior profitability, as companies with a lower-price position tend to rely on lower costs to achieve the required outcome. But, be mindful that a new player in the market, using sustainability as their guiding model, will thus undermine the assets of the incumbent, and create destruction. Therefore, to compete on price, companies should also concentrate on creating value and capturing value through the circles of sustainability.
Equally, whilst understanding the company’s competitive position and profitability formula, using sustainability as the model, inject the history of the business with a fresh meaning for the present. For the brand will be judged on the enhanced value of proposition for customers to acquire the added benefits. As such, the quality of sustainability, its reporting, and communications with the absence of common platitudes and typical verbosity and confusion, but with meaning and context, will aid excellence in the future.
Therefore, sustainability is not just a good idea to keep a company in the race, but for excellent performance, robust interpretation of the data is essential to lead to the outcomes sought. Indeed, sustainability embedded into the core of the business model will give sight and meaning to the various ratios used in business.
Companies do not become great by reducing costs or assets: companies earn their way to greatness. Sustainability adds robustly to the non-price position. And, whilst it is typical for businesses to accept higher costs, in support of a non-price position, I suggest sustainability will dislocate that link, to control and reduce costs, risks, and smooth input volatility. Without excellence through sustainability, companies are most likely to destroy what they most want to elevate.
Christopher Gleadle is author of Sustainable Growth Through Sustainable Business and founder & CEO of the sustainability performance agency The CMG Consultancy.