The latest European Commission articulation of corporate sustainability—“companies taking responsibility for their impact on society”—is a seductively simple idea; yet translating this idea into practice is extremely complex. Most business leaders now seem to accept the need to run their firms responsibly and sustainably —especially in the face of the recent global financial crisis and growing sustainability challenges such as climate change—but they struggle with it when it comes to everyday business decisions. This struggle is accentuated in business environments with weak accountability demands. As researchers and consultants to firms in emerging markets, we recognize this, and people often ask us: “How do we embed sustainability ideas in the organization’s DNA, where do we start, and how do we go about it?”
There are as many approaches to this as there are academics and professional consultants. The ones that we find helpful conceive of and treat commitment to sustainability as a business philosophy rather than a set of technical organizational competencies that organizations can acquire and dispose of at will. The latter tends to treat sustainability as a fashion or fad with a limited lifecycle. In such instances, the pursuit of sustainability becomes an add-on and hardly goes beyond superficial treatment. In most cases, it easily mutates into “greenwashing.”
A microfinance bank recently engaged us to help embed sustainability orientation in its culture and operations. After much to and fro, we found inspiration in the value chain approach linked to the work of strategy guru Michael Porter. A value chain is simply how an organization creates value for its customers or service users, and consists of often interwoven core and support activities. In this instance, the simple question, “How does the bank create value for its clients?” drove the project.
We came to the view that meeting the needs of clients in a sustainable and responsible manner would automatically lead to value for other stakeholders, including shareholders, employees, regulators, and the local community. This of course required that we understand how the microfinance bank created value for its clients. Mapping that process in itself was daunting! It required detailed thinking, categorization, and documentation. At the end, we concluded that the microfinance bank basically did five things: 1) recruit clients, 2) relate to clients, 3) retain clients, or 4) release clients; and 5) re-engage with clients who were previously released, if they met new criteria. We intentionally framed these activities as action words (verbs) to signify and amplify the focus on practice.
This categorization helped us understand what the microfinance bank did. For each of these activities, we explored what the bank needed to do to act responsibly and sustainably. We encouraged the bank to think about its possible negative and positive impacts in each activity, and looked for ways it could minimize negative and enhance positive impacts in each area. Many other activities support each of these core activities, and often involve interactions between internal and external groups. For example, recruiting clients requires significant travel to rural areas where most of the bank’s clients reside. Travelling comes with an environmental footprint and exposes employees to potential road hazards. The bank is now investing in mobile technologies to minimize these impacts and risks—a change that required creative engagement with employees, clients, banking regulators, telecommunication firms, and others.
Based on this approach, the bank also developed policies specifically for each of the core and supporting activities. For instance, it refined its lending policies to take into consideration the social and environmental impacts of its overall loan portfolio. Given that most of the bank’s clients depend on firewood for energy, it also introduced more sensitization programs on issues like energy efficiency when recruiting clients.
Of course, policies in themselves were not enough. The bank put in place measures and mechanisms to drive culture change, understanding that root-level transformation requires negotiation and changes in attitude and orientation. It now ensures that new hires buy into this mode of thinking and acting through training and performance management interventions. The bank is also currently working on its sustainability reporting as a way to further its cause and commitment to its broad stakeholders—something very unusual in most developing economies, where there is less pressure on firms to report on their sustainability. In this case, sustainability reporting is an innovative expression of self-governance through voluntary public commitment to retain sustainability as an organizational philosophy.
Despite the challenges and complexities involved in working through an organization’s value chain—many organizations are complicated systems—we find that it is useful for embedding sustainability practice in an organization’s culture. It can be an engaging approach; it helps members of the organization get involved and, in the process, own the outcomes—important for implementation. Companies can also apply it at an organizational level, or at the product- or service-line level. This flexibility allows for customization to fit unique organizational needs and circumstances. As unwieldy as it may seem, the value chain approach engages departments, units, and inter-firm relationships that would otherwise remain isolated. In that regard, it helps foster a common ownership of the sustainability agenda and philosophy within an organization; it becomes the “how” of an organization’s work.
Upon reflection, we can summarize the value-chain approach to translating sustainability into practice in the following non-linear steps: 1) Map the activities of the value chain, 2) identify the positive and negative impacts of these activities, and their implications on the sustainability vision, 3) negotiate these impacts with both external and internal stakeholders, and 4) develop appropriate interventions. We call this the MIND model. This model is integral to the value chain approach to embedding sustainability culture in an organization, and helps make the process less complex and easier to put into practice.