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The Innovation Bottom Line

February 05, 2013 by David Kiron, Nina Kruschwitz, Knut Haanæs, Martin Reeves, and Eugene Goh
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    In This Article
    • Climate change, demographic shifts, and population growth are increasing the sustainability demands on businesses.
    • But companies need not see these demands as a cost burden—sustainability is both a business necessity and an opportunity.
    • Even moderate changes to company business models can unlock significant financial rewards.

    Sustainability is paying off for a growing number of companies, according to our fourth annual survey of executives and managers, conducted jointly with MIT Sloan Management Review. Thirty-seven percent of respondents say that sustainability-related actions have added to their company’s profit, up 23 percent from the previous year.

    This increase owes much to business model innovation. Nearly half of the companies have changed their business models as a result of sustainability opportunities—a 20 percent jump over last year. This type of innovation addresses the fundamental choices a company makes about what it is offering to whom, as well as how it leverages its value chain, cost models, and organization. Such changes are significant, but no less so than the changes facing businesses.

    Companies in resource-intensive industries have been dealing with sustainability issues for a number of years, but the pressures are now registering far and wide. In an effort to trim costs, companies in many industries are turning to their supply chains to reduce energy use, simplify packaging, and mitigate commodity price risks. For their part, consumers are increasingly aware of a product’s sustainability credentials and willing to pay a premium for environmentally sound products and services. Employees’ attitudes matter, as well. Their growing commitment to sustainability makes a company’s environmental footprint a key element in attracting and retaining talent.

    Nonetheless, plenty of companies still struggle to view sustainability as an opportunity. Almost half the survey respondents find it difficult to quantify the intangible effects of sustainability, and 37 percent say it conflicts with other priorities. Forty percent report that higher operational costs take away from profit, and 33 percent cite increased administrative costs connected with sustainability programs as another profit drain.

    To understand what it takes to make sustainability a boon rather than a burden, it helps to look at the companies that are not only profiting from their sustainability efforts but also changing their business models to generate that profit. We call them Sustainability-Driven Innovators, and they make up 23 percent of our survey respondents.

    This year’s report focuses on these companies and the steps they have taken to ensure that sustainability adds to corporate profits.

    To Contact the Authors

    • Executive Editor, MIT Sloan Management Review’s Big Ideas initiatives
    • Managing Editor and Special Projects Manager, MIT Sloan Management Review
    • Principal
    • Dubai

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