Nonlinear Thinking

Sustainability Becomes Mission Critical

After myriad proclamations over the past decade that the notion/concept of sustainability as a corporate imperative had crossed the Rubicon and entered the mainstream, it appears that maybe a destination of sorts has been reached.  A recent panel of senior executives from consulting, banking and the chemical industries sat down to debate and discuss this critical shift during the recent Wharton Social Impact conference and generally agreed that the movement has finally become a central part of the mission statement at many enterprises.

If building a sustainable enterprise was a fashionable trend five years ago, today it is a business imperative. Forward-looking corporations have figured out that a focus on environmental, social and governmental (ESG) factors is not just a bid to burnish their image, but rather it is a necessity in today's marketplace. And if done well, it is a true competitive advantage.

An important, and critical, divide seems to be opening between those companies that get it and those that don’t.  Despite protestations from a sub-stratum of firms that view an embrace of the green/sustainable strategy as a cost rather than an opportunity, more and more high-profile enterprises are engaging at varying levels of investment.

In fact, for savvy companies, a strategy built around sustainability can be a critical advantage, Boston Consulting Group senior partner Martin Reeves pointed out. Even when government action puts more burdens on business, Reeves said there can be an upside. When you change the rules of the game, you "are putting a floor on certain behaviors [and] raising barriers to entry." Case in point: the establishment of the Food and Drug Administration, which Reeves contended "essentially took a snake oil industry and turned it into an industry with very strict scientific standards."

When anticipating the learning curve for macro level changes in behavior, it is generally believed that it requires a generation for new behaviors to achieve mainstream acceptance and incorporation into strategic and tactical decision making going forward.  As the tail end of the Boomers and Generation X ascend to leadership positions in business, it would appear that sustainability will be a fundamental consideration for the most savvy and market attuned enterprises moving forward.

Among the panel's key messages was that the need to address ESG issues will only intensify over time, in part because the next generation of business leaders is demanding it. One of the audiences most keenly interested in the report Citigroup puts out annually on its sustainability record, Eubank noted, is the company's recruiting operation. "Students these days are much more environmentally aware, and they want to know what a company's sustainability policies are," Eubank said. "Bankers want to know that they are working for a company that is being responsible."

 

Chaos, Boundaries and Innovation

As I am a visual thinker, I do love a good graphic.  Jeremy Gutsche, Chief Trend Hunter at TrendHunter.com, included some nice ones in his book, Exploiting Chaos last year.  At the core of his thesis, that in times of chaos, companies must learn not to create structure and stability, but rather, to adapt quickly, is this evocation of a process that is aligned with much of my thinking.  While I have nits to pick with some of his conclusions in the book, I appreciate the codification of the thinking around chaos and the opportunities that learning to manage chaos to the enterprises' (and individual's) benefit serves in creating elements of competitive advantage.

The key elements of what Gutsche refers to as the Exploiting Chaos Framework are outlined below:

Culture of Revolution

Culture is more important than strategy. Culture underlies your organization’s ability to adapt, and times of dramatic change magnify this importance. Most likely, your organization perceives the need to adapt, but uncertainty and resistance are paralyzing innovation. By creating an organizational culture of revolution, you can spark a new paradigm for creative change.

Trend Hunting

Innovation and strategic advantage hinge on your ability to anticipate trends and identify the next big thing. By using the cutting-edge framework in this book, you can filter through chaos and identify clusters of opportunity to focus your innovation.

Adaptive Innovation

Engineers, designers, and scientists have invested billions of dollars to perfect human creativity. By applying the best of their proven practices to your own field, you can think big while acting small. You can rapidly identify and evaluate new opportunities.

Infectious Messaging

The Internet has created a world cluttered with chaos, but it has also created the world’s first viral platform for ideas. Well-packaged stories travel faster than ever before. Unfortunately, most marketers are stuck in a world dominated by traditional advertising and cliché. By cultivating infection, your ideas will resonate, helping you to leapfrog ahead of the competition.

 

An expanded view of the Framework adds some color to the canvas.

The first chapter of the eBook is available for free download here and the book can also be purchased at the same location.

Innovation Is A Strategic Priority!

Innovation is the heart and soul of what I try to do for clients at Campfire Strategies.  As the velocity of change attacks enterprises at both the macro and micro levels, embracing the dynamics by innovating thru products, services and customer care is paramount.  The graphics below, courtesy of Forrester, BCG and BusinessWeek, confirm that in the midst of economic uncertainty, companies that expect to lead in a market place that doesn't currently provide a clear path forward are making innovation a top strategic priority.

The Only Constant is Change: Addendum

When it rains, it pours, or so it seems.  On the heels of a recent Forrester report on the future of IT services which I wrote about here, management consultant A.T. Kearney weighs in with their own, very similar view on that future.  This recent op-ed in Businessweek by Arjun Sethi and Olivier Aries sees most of the same external drivers highlighted in the Forrester report  but offers a different and altogether more interesting futurescape for IT services.

“ In the next five years outsourcing as we know it will disappear.  The legion of Indian service providers will be sidelined or absorbed. U.S. and European companies that pioneered this corner of the high tech industry will suffer similar fates if they don't wake up.  Who will emerge as the new leaders?  Google and Amazon.com , brands that we associate with search and retail, will become better known for outsourcing."

Longtime readers of this blog will know that I have been harping on the threat that Amazon and Google, in particular, present to the old guard of IT service providers as I have written about it here, here and here. SaaS/cloud technologies, under any name, have been a game changing disruptive force for the past 10 years. When IBM acquired Corio five years ago, that should have, de facto, been some kind of canary in the coal mine.

In their commentary Sethi and Aries also conjure up a vision of what the new outsourcing model will look like.

“In the new model, outsourcers provide standard, off-the-shelf software on a "pay-per-drink" basis. For that, they will leverage so-called cloud technology, which lets users tap into computing power available via the Internet, rather than on a desktop or computer server housed locally. The appeal is scale, flexibility, and efficiency: Thousands of server computers can attack a task more quickly—and cheaply—or handle a patchwork quilt of different technologies that companies use to run their businesses. This approach will let businesses outsource entire tasks such as the tracking of inventory, paying only for the information accessed or used.”

The commentary also mentions who might be the losers in this new model (mid-tier Indian outsourcers), possible winners (SAP, Oracle, Microsoft, Salesforce), and a several major players that are not moving fast enough (Accenture, Xerox, Dell, HP).  

I am guessing that this commentary and the Forrester report will be far from the last discussions regarding the changing IT services landscape.  I would also imagine that we will see more and more discussion of the death of the internal IT department beyond the many books and reports already written.  Fasten your seatbelts.

The Only Constant is Change

"To improve is to change.  To be perfect is to change often." - Winston Churchill

Forrester has a new report out discussing the dynamic evolution that traditional IT services providers are going to experience over the next several years.  This analysis is very timely and it addresses a combination of external drivers that I have been writing and speaking about for the past several years.  The authors, John C. McCarthy and Pascal Matzke have done a masterful job in codifying the thinking around these externalities and their impact to the existing IT service provider business model. This excerpt from the executive summary delivers the high-level on the emerging metamorphosis.  

“The tech services market is about to undergo a massive transformation that will call traditional provider business models into question. Four factors will combine to dramatically change the dynamics, economics, and competitive landscape of IT services over the next three to four years: 1) the “restructuring economy”; 2) innovation moving to the edge of the enterprise; 3) the redefining of buying and governance dynamics in accounts; and 4) “as-a-service” becoming the norm.”

For those that have been engaged in surveying the technology market landscape over the past decade, the conclusions McCarthy/Matzke draw from their analysis is no surprise.  Unfortunately, few of those individuals appear to actually work for the major players in global tech services because those firms have made few, if any, alterations to the business model they have employed for the past 15 years.  As innovation in IT moved from the data center to the business units, on-demand/as-a-service and other cloud-based solutions gained traction, and social/mobile activity emerged as integral parts of the technology platform, Nero fiddled.

And the hits just keep coming.  The Forrester report offers a forecast of why and how the IT services model of today will cease to exist by 2020.  

• Forrester sees at least nine new services entering the market as cloud/SaaS redefine the services business.
• Selective sourcing and utility pricing models broaden their footprints.
• Digital natives and the advance of business (unit) buyers push traditional IT into the background.
• Standardization in cloud/SaaS solutions create pricing transparency and profound pricing pressure on traditional service models.
• Cloud/SaaS drive increasing standardization and process industrialization of services leading to delivery models based on solution partner ecosystems.

From my perspective, the most provocative item in the report is the following table that contrasts the top ten service providers in 2010 with a forecast of what the top 10 will look like in 2020.

 

Looks like a whole lotta growth, death and consolidation in the sector.  Ten years may seem like a lot of time for the current top ten to embrace and adapt to this new environment, but the truth is that this evolution has been ongoing for at least five years.  Too many of the incumbents lack the cultural and operational survival instincts to revolutionize their business models.  Some of the logos we have come to recognize in the global tech services space have already vanished.  It will be interesting to watch how this all plays out over the next decade.

Business Models for Sustainable Consumption

Discovered an interesting report from the World Economic Forum published earlier this year discussing the need for new business models that are constructed on a platform of sustainable consumption.  The report offers a  “Business Case for Sustainability”  that provides “a cogent argument for sustainability as an issue that should be incorporated into the strategy and operations of business, not just as a matter of stakeholder responsibility but as a matter of business survival and value creation.”

 

Key elements of the business case include:

• Managing resource risks: Sustainability matters to business because it reduces exposure to volatile and rising resource prices, to the risk of increased scarcity of resources and to the risk that these (carbon, water, waste) are radically re-priced in the near future. Embracing models of sustainable consumption across the value chain will provide stronger resilience against external shocks.
• Shaping the regulatory environment: Principles of sustainability are increasingly being incorporated into the regulatory environment. If businesses wish to flourish in this environment, they must make themselves active participants in its construction.
• Engaging consumers as citizens: The biggest drivers of corporate sustainability investments are consumer concerns, employee interest and government legislation.8 For business, driving sustainable consumption can be an effective long-term strategy for deepening authentic engagement with consumers and employees.
• Engaging consumers as customers: Consumers increasingly want to be treated as customers, demanding not only more sustainable products and services, but also greater transparency over sourcing and content of existing ones. At the same time, the speed, spread and changing patterns of use of the media are forcing businesses to adopt pre-emptive strategies to manage their reputational risk on sustainability issues. Engaging proactively with the sustainable consumption is one way of managing these challenges in depth.
• Driving innovation: Businesses are the chief engines of value creation and innovation in society. The challenge of sustainable consumption presents an opportunity to enhance both, particularly when new partnerships and collaborations are opened along the value chain.
• Capturing opportunity: In the end, sustainable consumption matters to business because there will be winners and losers in the new economy, and those that move most swiftly are likely to reap the greatest benefits. Embracing sustainable consumption now offers a pathway to future markets and profitability.

What is made clear in the report is that continuing along a path of incremental adoption of today’s sustainability efforts will be insufficient as they are based on improvements to our existing model of consumption.  That model is, itself, unsustainable.  The graphic below illustrates the required shift from the traditional value chain to a closed loop value chain that incorporates reuse of consumed materials into the overall business model.

 

“The new normal for the global economy is one in which consumption is decoupled from negative environmental and social impacts, driven by a combination of innovation, evolving consumer values and more accurate product costs. In the end, it is not a world defined so much by scarcity and sacrifice, as a world defined by innovation and a new abundance.”

The “new normal” is an economy in which:     

• Consumers are the driving force 
• Consumption is about loops, not lines 
• Collaboration is a key
• Core business practices are sustainable    
• Public policy frameworks support sustainable consumption

Reports such as this support an emerging recognition, by early adopters at least, that those companies that are proactive in embracing sustainability will find themselves at a distinct operational, cost and branding advantage in the near future.

Sensing the Shifts and Taking Advantage

The analysis of trends and external drivers plays a critical role in my process for developing strategies and scenarios for industries and markets, products and services.  In a world that is moving/evolving/changing as rapidly as ours, it is fundamental to the construct of a viable and adaptable path forward that we incorporate an assessment of the potential and/or probable impacts that trends and drivers might have on our planning assumptions.

External driving forces are things/situation/events that manifest outside of the company and are by and large beyond the control of company leadership. Examples of external driving forces include changes to industry structure, revolutionary technologies, dynamic economic activity, evolving demographics, non-traditional competition, and political interference.

Trends very often emerge as the result of external drivers.  Identifying and assessing emerging trends is fundamental to establishing some understanding of new market opportunities that lead to innovation in products and services.  For a corporate strategy to remain reliable and relevant it must integrate a recognition of the company’s internal drivers and core competencies with knowledge of industry structure and the external drivers/trends that create change and opportunity.

 

McKinsey and Company have always possessed the intellectual bandwidth to identify the macro-level trends that will impact our lives, business and governments before most others see them.  They have recently identified five forces, or crucibles, where the stresses and tensions will be greatest and thus offer the richest opportunities for companies to innovate and change:

The great rebalancing. The coming decade will be the first in 200 years when emerging-market countries contribute more growth than the developed ones. This growth will not only create a wave of new middle-class consumers but also drive profound innovations in product design, market infrastructure, and value chains.

The productivity imperative. Developed-world economies will need to generate pronounced gains in productivity to power continued economic growth. The most dramatic innovations in the Western world are likely to be those that accelerate economic productivity.

The global grid. The global economy is growing ever more connected. Complex flows of capital, goods, information, and people are creating an interlinked network that spans geographies, social groups, and economies in ways that permit large-scale interactions at any moment. This expanding grid is seeding new business models and accelerating the pace of innovation. It also makes destabilizing cycles of volatility more likely.

Pricing the planet.  A collision is shaping up among the rising demand for resources, constrained supplies, and changing social attitudes toward environmental protection. The next decade will see an increased focus on resource productivity, the emergence of substantial clean-tech industries, and regulatory initiatives.

The market state. The often contradictory demands of driving economic growth and providing the necessary safety nets to maintain social stability have put governments under extraordinary pressure. Globalization applies additional heat: how will distinctly national entities govern in an increasingly globalized world?

 

Are We Melting Yet?

 I understand and accept that the science surrounding climate change often appears to be inexact and that has driven some extraordinary polarization in the debate on the long term impacts, if any, that a changing climate might deliver.  However, I do believe that prudence should require every organization, and individual for that matter, to execute some scenario planning around the potentiality that a warmer planet might become the "new normal".  Personally, I think the Twin Cities have never looked better.

Mapping the Future

Mapping the Future was developed in 2007 by the Global Strategy Institute at the Center for Strategic and International Studies (CSIS).  The CSIS Global Strategy Institute is dedicated to promoting long-range thinking about the big global issues that loom before us.  To that end, they have produced this really cool graphic.  Be sure to click on it to get the "big picture".  If you go to the here and click on the nodes, you can get a description of each data point.

Today's leaders function in an environment marked by rapid change, ever higher levels of complexity, and ever shorter decision timeframes. This map is the CSIS Global Strategy Institute's modest attempt to help us all elevate our thinking beyond today's headlines and to anticipate the competing obstacles and opportunities we can expect to navigate in the future.