Companies try to capitalize on sustainability in some common ways: They reduce energy consumption, lower their carbon footprints, use water more efficiently; they waste less and act as more responsible corporate citizens. But the specific paths companies take depend on what they view as most critical to their business.
And as companies learn more, they can push the envelope of what can be accomplished. Here are profiles of two companies that are using sustainability to create competitive advantages in fresh ways.
The first is Nike Inc., which was stung by the campaign against its labor practices in the 1990s. As it faced a firestorm of criticism over labor practices at its Asian suppliers, the company embarked on a long process to reinvent its operations to meet broad sustainability metrics by 2020. Nike wanted to move beyond compliance and integrate sustainability into the fabric of its company -- from design to manufacturing to supply chain. Its early efforts involved a team focused on compliance and social responsibility. A turning point came when the team began to ask about the long-term implications of product design and manufacturing decisions. Where did the products come from? Were they toxic? What happened at the end of a product’s life? Looking into manufacturing, they found it took three shoes’ worth of material to produce just two -- at a cost of $700 million a year. Senior managers began to pay attention to this idea of zero waste, and that became one of the long-term goals to reach by 2020 -- along with zero toxic materials, closed loop systems and sustainable growth and profitability. Nike also created an in-house index to measure product design against these goals.
The company also brought partners into the process, like Dow Chemical, DuPont and BASF, because it knew it couldn’t achieve its goals without working within the supply chain. Then Nike began reinventing its design process, aiming to streamline its athletic shoe through cutting waste and material. The hope was that production efficiencies could offset the cost of more sustainable materials.
Nike began to implement zero waste and streamlined production around its Considered line of athletic footwear and apparel. That leading-edge line now comprises 15% of the company’s products. Nike aims to convert all its athletic shoes to its Considered design standards by 2011, all clothing by 2015, and all equipment like balls, gloves and backpacks by 2020. Compared with other Nike products, these products reduce waste by up to 67%, cut energy use by 37% and slash solvent use by 80%.
Another company working on sustainability is General Electric Co., which decided to consider sustainability a business opportunity rather than a cost and so began its ecomagination initiative in 2005. The products and services weren’t only for its customers -- they first transformed GE.
Looking at sustainability as part of a demographic trend, GE realized that scarcity would increase with population growth. Energy and water use, waste, carbon emissions: All would decline among the most efficient and sustainable companies. GE saw that going in this direction could also be profitable, and so set up its ecomagination unit to offer environmental solutions.
Following the implementation of regulatory rules that limited acid rain, GE also gambled that carbon would eventually be a cost, although there still isn’t a precise way to regulate carbon. But rather than wait, GE joined a climate coalition with nongovernmental organizations to press for a cap-and-trade system.
GE also began asking employees where they thought energy savings could be found. Ideas included turning off lights in an idle factory or installing switches so that lights could be turned off. The company began to evaluate how well managers could save energy, whether it was through recycling water at a nuclear facility or offering combined heat and power generation units at an Australian plant.
So far the company has saved $100 million from these measures, and has cut its greenhouse gas intensity -- a measure of emissions against output -- by 41%. GE has invested $4 billion in its ecomagination effort, much of it in research and development. But it reaped sales of $17 billion in 2008, up 21% from the year before, and the company is striving for $25 billion in sales in 2010.
This article is adapted from “The Mini-Cases: 5 Companies, 5 Strategies, 5 Transformations,” by Samuel Fromartz, which appeared in the Fall 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.