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Sustainability Strategies by Renato Orsato
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Transcript of Sustainability Strategies by Renato Orsato
Sustainability StrategiesWhen does it pay to be green?
Renato Orsato
Presented by:
Jako Volschenk
Date: 23-04-07
Background to book
• Renato Orsato (Orssatto)– INSEAD– Peer-reviewed articles in California
Management Review, Journal of Industrial Ecology, among others
• Sustainability from a mostly environmental perspective
Chapters
Part I: Fundamentals1. When does it pay to be green?2. What are sustainability strategies?
Part II: Competitive environmentalism3. Eco-efficiency4. Beyond compliance leadership5. Eco-branding6. Environmental cost leadership
Part III: Beyond competition7. Sustainable value Innovation8. Sustainability strategies and beyond
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PART I: FUNDAMENTALS
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Chapter 1: When does it pay to be green?
• Green as – Commitment– Core competence
• Non-competitive strategies– Co-opetition on aspects that companies do not differentiate on– Non-exclusive profit = not only private profit = Public profit
• Competitive strategies– Zero sum game = your gain is someone else’s loss– Involves choice
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Environment
PublicBenefits
Sustainability business models
The Win-Win Scopeof Sustainability
Strategies
Business as usual
BusinessPrivate Profits
E
B
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
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Environment
PublicBenefits
Sustainability business models
BusinessPrivate Profits
E
B
Zone ENon-rivalStrategies
Zone BCompetitiveStrategies
Business as usual
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
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Competitive Environmental Strategies
Sustainable Value InnovationStrategy
Existing Markets New Market Spaces
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Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
Chapter 2: What are sustainability strategies?
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Chapter 2: What are sustainability strategies?
• It is not operational effectiveness, i.e. reducing costs or risk• It involves a choice of position for a product or service (Porter)
or choice in what you do (RBV).• Some of the chapter spent on linking Position based & RBV
• Competitive Environmental Strategies– Not a stage model– Choice model (Typology)– Non-exclusive– Recognition that titles may be loaded in meaning
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STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental Cost
Leadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond Compliance
Leadership
Com
petit
ive
Adv
anta
ge
Competitive Focus
Organizational Processes Products and Services
Lower costs
Differentiation
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
Competitive Environmental Strategies
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Value for Customers
STRATEGY 5Sustainable
Value Innovation
Economic Costs
Contribution to Society
Environmental Impacts
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
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PART II: COMPETITIVE ENVIRONMENTALISM STRATEGY 1
Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Chapter 3: Eco-efficiency
• So is eco-efficiency different to resource productivity ? 1. Lean thinking can lead to breakthrough innovations & radical
improvements.2. Industrial symbiosis (SI)3. Emission reductions could become an additional revenue stream.
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Lean thinking
“To hell with your competitors; compete against perfection by identifying all activities that are muda (waste) and eliminating them” (Hawkin, Lovins & Lovins in Orsato p. 62)
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
Traditionally sold as animal feed
Can be used to grow mushrooms
Spent grain from breweries
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Industrial symbiosis• Manufacturing processes = parts of bigger system of production and
consumption (Industrial Ecology)• Waste becomes raw material – as you reduce waste, costs reduce
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
US-based Eco-Industrial Parks (EIPs) (p 52)
SUCCESS FAILUREKalundborg Eco Park, Denmark (p 51)Guitang Group, China
LESSONSLiability for other’s waste in US
Political, financial, operational, behavioural barriersMBAs taught to focus on core competence
Natural alliances (bottom-up)better thanTop down public programs
Result of organic collaboration rather than
planned infrastructure
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Making strategy 1 pay
• Lean manufacturing– Industrial markets (B2B)– High processing costs– High levels of waste/by-products
• Industrial symbiosis– Agriculture
• Emission reduction– Energy intensive STRATEGY 1
Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Chapter 4: Beyond Compliance Leadership
• In some industries (such as resource intensive)– Reputation = licence to operate– Reputational risk very big = biggest driver of Environmental
initiatives– Have to assure stakeholders that the company does more
than what’s required.• The Stuart Oil Shale Project & Greenpeace = poor stakeholder dialogue• Shell in the North Sea & Greenpeace
– What the company says about itself carries no weight.
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Voluntary Environmental Initiatives (or VEIs)
• Green clubs (VEIs) provide a way to reduce risk– Reputation insurance (p. 74)– Not much evidence that CERES, GRI or Global compact
provide reputational advantages
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Process certification
• Process carries more credibility• In 1990s ISO & Environmental Management Systems brought
hope of competitive advantage (CA)• BUT
– ISO 9000 = quality indicates a private benefit to consumer– ISO 14000 = environmental protection is a public benefit
• For B2B this can carry weight, but unlikely in in B2C– Would you choose a hotel based in ISO 14000?
• Yet – Industry leaders can create CA by lobbying for stricter regulations– GM and Ford announced in 1990 that paint suppliers should be ISO 14000 certified
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Negative Positive
Reputation
Beyond Compliance Leadership
VEIs - Green Clubs
Beyond Compliance
Non-Compliancelaggard
LeaderAverage
Consumer engagementConsumer boycotts
Stakeholder criticism, negotiation and dialogue Stakeholder opposition and confrontation
ReflexiveReactive and Defensive
Building Positive ReputationAvoiding Negative Reputation
Sustainability leader in the industryBeyond Compliance
ToFrom
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
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Making strategy 2 pay
• In conclusion– These companies can invest in Eco-efficiency but because of
reputational risks, beyond compliance should be the focus
• VEI– Effective in managing risk– Reputation of club impacts credibility– Joining early reduces costs for companies while putting pressure on
others
• STAKEHOLDER DIALOGUE/ENGAGEMENT A MAJOR REQUIREMENT
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Chapter 5: Eco-Branding
• What is different for differentiation on environmental attributes?– Normally a brand appeals mostly to private benefits– Not only private benefits embedded in eco product– Also public benefits such as biodiversity, water recycling, CO2- reduction– Consumer needs to be informed about issues.– Consumer must believe the benefit is worth paying for and is real
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Labelling
• One way to present information is through eco-labels– Eco-labels facilitate consumer choice– But is the consumer willing to pay?
• Product labels– Type I: Multi-party agreement on criteria and 3rd party certification– Type II: Packaging, etc. (Provided by manufacturer) – Type III: Measureable data - Life Cycle Analysis
• Seems to be more effective to avoid disadvantages than generating CA
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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From Eco-labelling to Eco-branding
• Coop Sverige – Ӓnglamark– Products perform as well as products in categories– Difficult to imitate
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Making strategy 3 pay
• Can create CA when1. Uncontroversial information about environmental performance is available2. The differentiation is difficult to imitate3. Customers are willing to pay for costs of ecological differentiation4. Ideally, private and public benefit should converge
• B2C shows potential– B2B less potential as B more rational (less emotional)
Orsato seems sceptical of affluence leading to eco-behaviour, instead stating that it seems to lead to higher material intensity…but “we cannot deny the potential”.
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Chapter 6: Environmental Cost Leadership
• Most difficult of strategies– Not only lowest cost, but also lowest environmental impact
• Ecolean packaging/ pouches– 25% cheaper than competitors– No FDA approval required– When incinerated it reduces acidity of fumes– Yet the company does not market this – consumer won’t pay.
• Other instances– IKEA’s flat packaging reduces transport cost and emissions– Biofuels
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Servicising
• Convert functional product to service– Water heating instead of geyser– Xerox photocopiers
• Decouples economic growth from consumption– Throw away society
• Barriers– Culture shock to let others work in your processes– Not easy to identify economic gains– If core competence is manufacturing – won’t be keen– Consumers have ingrained perceptions
• Servicising ignores emotional attachments such as status
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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Making strategy 4 pay
• B2B– Compete on price
• Commodities– Fuel (bio-fuel)
STRATEGY 1Eco-Efficiency
STRATEGY 4Environmental
CostLeadership
STRATEGY 3Eco-Branding
STRATEGY 2Beyond
Compliance Leadership
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PART III: BEYOND COMPETITION
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8Value for Customers
STRATEGY 5Sustainable
Value Innovation
Economic Costs
Contribution to Society
Environmental Impacts
Chapter 7: Sustainable Value Innovation (SVI)
Car industry as example•Red Ocean
– Breakeven for models at 100k to 150k units p.a.– Plant capacity needs to run at 65% to be viable– Operating margin typically 3.5%
•Polluting industry– 80% of a car’s emissions is during its use– 2.4 of every 100 litres is used to transport the driver (p 158)
•Car industry aims to overcome pollution in 3 ways1. Smaller cars2. Cleaner fuels3. Alternative powertrains
•None of these provide CA
Value for Customers
STRATEGY 5Sustainable
Value Innovation
Economic Costs
Contribution to Society
Environmental Impacts
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SVI in car industry• Station cars Liselec
– 50 cars in 7 stations– Individual public transport
• Stations avoid cost of parking areas• Electricity utilities sees EV as future consumers• Regulators supports less traffic
• Better place– PPP with Israel govt to provide transport in “transportation islands”– Similar to mobile phone contract
• Low cost of car• Subscription to service provider = battery replacement, maintenance, etc.
• Car sharing (Mobility & Zipcar)– 80 000 members & 2000 cars – Book vehicle on internet for round-trip use – (2hrs/taxi < CSO< 2 days/ rental)– Lower cost plus access to multiple types of vehicles– 30% of members delayed buying a new car or sold car
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8Marginal, but exponential growth
Orsato, R. 2009. Sustainability strategies: When does it pay to be green?. Palgrave Macmillan: Houndmills, United Kingdom.
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Smaller car Alternative drivetrain
Chapter 8: Sustainability Strategies and Beyond
• Being green requires some specialisation = choice• Being green can align with stakeholder expectations• When it pays is > Whether it pays• Sustainability strategy needs to align to corporate strategy
– Wall Mart
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In conclusion: About the book
• Anecdotal– Book by its own admission does not provide a clear
explanation of the answer to the central question.– But a VERY strong conceptual framework
• Multiple South African cases can extend the context of Orsato
• A very significant contribution to management of green issues– Does a lot to show how it relates to Position based
and RBV.