Companies engagement in sustainability
Given sustainability’s importance, it’s surprising that only 27 percent of respondents say their CEOs or other C-level executives run their companies’ sustainability initiatives on a day-to-day basis. Thirty-one percent say business units or functional managers take on this responsibility and 25 percent say their corporate social responsibility department do so.

Around 20 percent of executives say their companies don’t engage in sustainability efforts. One potential reason is that many have no clear definition of it.  Among those that do, their definition varies but the majority clearly sees sustainability as creating real value.

Uneven management efforts

Despite sustainability’s importance to various corporate activities, only 25 percent of executives say it’s a top-three priority on their CEOs’ agendas. The lack of weight in leadership’s top agenda shows in the relatively small number of activities companies actually pursue related to sustainability: only 28 percent agree that their companies actively seek opportunities to invest in sustainability, 29 percent indicate that sustainability is integrated into their companies’ business practices and a mere 16 percent say their companies actively shape relevant regulation.

What the proactive do differently
Other findings indicate how much sustainability is a part of the fabric of these companies. Their executives, for instance, are more aware than executives at other companies of the metrics their companies track. For example, 84 percent of respondents at engaged companies are aware of whether their companies measure their carbon footprint, compared with 40 percent of respondents at less engaged companies.

Dealing with regulation
Regulation, particularly environmental regulation, can have a very strong effect on companies’ sustainability activities. However, only about 35 percent of executives say their companies have quantified the potential impact of environmental and social regulation on their business; only 40 percent feel prepared to deal with regulation in the next three to five years and are personally confident about handling climate change issues.

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Companies face increasing pressure from governments, competitors and employees to play a leading role in addressing a wide array of environmental, social and governance issues in company’s supply chain. But do they create financial value? Gathering the data needed to justify sustained, strategic investments in such programs can be difficult, according to McKinsey Quarterly authors Sheila Bonini, Timothy Koller and Philip Mirvis.

Nevertheless, many companies are creating real value and some have developed hard data to measure even the long-term and indirect value of environmental, social and governance programs. The most widely known way that these programs create value is by enhancing the reputations of companies – their stakeholders’ attitudes about their tangible actions.

It has been clear that financially valuable objectives – such as better regulatory settlements, price premiums, increased sales, a reduced risk of boycotts and higher retention of talent – may depend, at least in part, on a company’s reputation for environmental, social and governance programs that meet community needs and go beyond regulatory requirements or industry forms.

Growth
The authors highlighted five areas in which these programs have a demonstrable impact on growth, as follows:

• New markets
• New products
• New customers
• Market share
• Innovation

Returns on capital
The authors have seen companies generate returns on capital from their environmental, social and governance programs in several ways – most often through operational efficiency and workforce efficiency.

Risk management
Companies often see environmental, social and governance issues as potential risks and many programs in these areas were originally designed to mitigate them – particularly risks to a company’s reputation but also, for example, problems with regulation, gaining the public support needed to do business and ensuring the sustainability of supply chains.

Today, companies manage many of these risks by taking stands on questions ranging from corruption and fraud to data security and labor practices. Creating and complying with such policies is an extremely important part of risk management, though one that isn’t likely to be a source of significant differentiation.

Management quality
CFO’s and professional investors often see high-performing environmental, social and governance programs as a proxy for the effectiveness of a company’s management. The authors observed that these programs can have a strong impact in all three areas that investors typically consider important:

• leadership strength and development, both at the top and through the ranks
• the overall adaptability of a business
• and the balance between short-term priorities and a long-term strategic view

Assessing value
Companies can directly value the financial effects of many such programs, even in short term; the impact of environmental programs, for example, can often be measured quickly with traditional business metrics such as cost efficiency. Companies that understand the pathways to value and identify the short- and long-term effects of environmental, social and governance programs will succeed in defining a few targeted metrics to assess them.

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This new global middle class is particularly evident in Brazil, China, India, Indonesia, Mexico, Nigeria, Turkey, Vietnam and other countries with relatively large working populations and rapid economic growth rates.

Momentum in the Middle
The first step toward becoming a leading company for the global middle market is recognizing the pace of development in the countries where you hope to do business. They start as nascent economies and gradually evolve into mature economies. In between, there is critical stage of urbanization and economic momentum. These countries are the seedbed of the emerging middle-class markets. The authors numerate three types of corporate players jockeying for position in these markets:

• Local upstarts
• Global aspirants
• Multinational incumbents

Just as countries evolve overtime, so do companies. Many of today’s local upstarts will be global aspirants tomorrow; today’s global aspirants often become multinational incumbents. The differences among them appear primarily in the way they choose to compete and in the level of resources

A More Complex Market
To successfully serve middle-market customers, companies must identify which product attributes the customers in a specific market value and don’t value. Then, they must either add those attributes to or cull them from their existing products.

The developed middle markets are a huge and indispensable source of sales volume and market share can decline precipitously as local upstarts or global aspirants redouble their efforts. In most of these markets, competition is already intense. In addition, most developed middle markets are driven more by the rise and fall of macroeconomic cycles than by underlying fundamentals, such as an unusually fast-growing customer base. This means that during the stable parts of the cycle, the gains that new players make will come out of the pockets of incumbents.

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The problem is not globalization, according to strategy + business authors C.K. Prahalad and Hrishi Bhattacharyya, but the way our current institutions are set up to respond to this new demand.

The time has come to embrace a new business model that encompasses both the established advantages of industrial markets and the opportunities of emerging economies. Instead of struggling to apply a Western business model everywhere, you can adopt a business model that treats decentralization, centralization, current practices and potential disruptions not as trade-offs but as complements.

Companies can accomplish this only with a more comprehensive business model that (1) customizes their products and services in hubs around the world, (2) unites business units around a platform of proprietary knowledge and the building of competencies and (3) arbitrages their operating models to gain cost-effectiveness, productivity and efficiency.

An Operating Model without Trade-offs
Some companies are already following these three imperatives, pursuing all of them simultaneously. Only with the full operating model can a company gain the benefits of decentralization, centralization and outsourcing without making compromises.

• Customization. The key to this imperative is to deliver products and services in a locally competitive way. That means they must satisfy the needs and wants of diverse customers, in terms of features, affordability and cultural affinities.
• Uniting around a platform of competencies. This means aligning your entire global company with a common core purpose, a body of proprietary world-class knowledge and the competencies that distinguish your company from all others. The core purpose must be understood equally in all functions and geographies of the corporation.
• Arbitrage. The final imperative involves gaining effectiveness and reducing cost by finding less expensive materials, manufacturing processes, logistics systems, fund sourcing or infrastructure. Most companies have addressed this tactically, by offshoring back-office work or moving manufacturing to locations with lower-cost labor.

Bringing the Elements Together
Some companies recognize the benefits of customization: they are moving into new geographies through gateway countries. A growing number of companies are uniting around platforms of competencies. And, of course, many companies practice arbitrage. But until they join the few pioneers that combine these three elements, most companies will not get the full payoff of the new operating model.

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What’s needed is transformational change that enables leaps in policy, procedure and the very way we do business – the kind of change necessary to move from business decisions that are environmentally correct, but that devastate product lines and profits, to decisions that deliver business value and yet don’t damage the environment and create value for local communities as well. It’s what Michael Porter refers to as Corporate Shared Value.

Nontoxic Chemistry
It seems as though it should be common practice for companies to analyze their products and processes to determine their potential to harm the environment or human health. Yet only in the last few decades have the majority of companies begun to think about these impacts.

The green chemistry movement is out to change that. Starting to consider the environment at the design stage. So not just, re-use, reduce and recycle, but also redesign. Chemicals should be safe when they are designed: no waiting until they are in products and landfills to discover their dangers. One of the goals of green chemistry is to create molecules that do not endure beyond their intended use.

Farming Up
Another example is the vertical farm, in which crops are grown in a water and nutrient mix (hydroponics) or in a nutrient-laden mist (aeroponics) in specially constructed, sunlight-maximizing high-rise buildings.  This farm, which could produce the equivalent of as many as 20 traditional soil-based acres per floor depending on the crop, could be a breakthrough solution for providing food to ever-growing and ever-denser urban populations.

Electric Cars, Smart Grid
Two General Motors executives argue that the 120-year-old conceptual model of the automobile is no longer tenable. Emissions, congestion, rising gas prices and probable fuel shortages are all problems that can be traced back to cars.

The authors of ‘Reinventing the Automobiles: Personal Urban Mobility for the 21st Century’ make a compelling case for new approach to fitting automobiles into society: not as a stand-alone cars, but are fueled by electricity and hydrogen and that function as nodes in a connected transportation network in which they communicate with one another wirelessly, thereby avoiding crashes and traffic jams.

We are about to witness the change. Electric vehicles will hit the markets in rapidly increasing numbers and the infrastructure to charge the batteries in public spaces is getting more and more visible.

Progress and Profits
The entrepreneurs and companies that undertake the industrial reboot will participate in the creation of new industries and the rebuilding of the infrastructure on which we all depend. In the end, profits remain quite compelling reasons to stave off some of our worst environmental nightmares. And yes, it can be done. People, Planet and Profit can go hand in hand!

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The traditional, gated product design process – what strategy + business authors Barry Jaruzelski, Richard Holman and Omar Daud call the first-generation approach – is rigid and linear, locking in customer preferences, potential risks and other features at the beginning of the process. Lean product development techniques, a second-generation approach that many companies have adopted in recent years, minimize waste and boost efficiency, but they also lock in product attributes too early and limit innovation.

Why New Products Fail
The gated model is a carefully choreographed approach that assumes almost perfect information and analysis at the beginning of the process. All too often, however, by the time the product is introduced, customer needs have evolved.

Orderly but frequently ineffective, the gated approach has lost some of its luster in recent years. Many companies have replaced it with lean product development. But lean techniques fall short at the front end of the process. The enhanced efficiency of lean is still highly dependent on early stabilization of requirements, rather than iterating optimizing and trading off requirements to get the winning product design.

Agile and Lean
Given these shortcomings, the authors believe that a new third-generation process is critical for success and that is a more agile product development system capable of addressing frequent iterations of multiple design options early in the process, based on continuous testing and highly sophisticated customer-driven design changes.

This early stage of the process has four characteristics:

1. Rapid, iterative development model
2. Modular architecture
3. Early risk identification
4. Intensive stakeholder and supplier involvement

Because mature product definition and risk management take place early in the process, the application of lean techniques to the back end minimizes the wasted effort and resources typically expended on product launches. This later stage also has four key characteristics:

1. Reusable platform and modules
2. Just-in-time information and resources
3. Lean supplier integration
4. Responsive change-control system

Order Out of Chaos
Companies that implement the next-generation product development model enjoy significant return, well beyond what they could expect with either the gated or the lean approach. However, it’s not an easy process. It requires significant behavioural change for most companies, which alone makes rapid transformation unlikely. Success with the agile front-end approach is dependent on a highly collaborative organizational culture, reflecting the idea that most disruptive innovations come from outside the organization.

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M-commerce, according to strategy + business authors Matt Anderson, Nick Buckner and Stefan Eikelmann, blurs the distinction between websites and bricks-and mortar outlets, linking disparate operations and making Internet a pivotal sales engine for the first time for many retailers – and highly dangerous for others.

A Rapidly Expanding Market
A recent  survey found that between 15 to 20 percent of consumers currently user their cell phones and personal digital assistants for price discovery and product comparison and 25 percent expect to do so in the future and because of this, some retailers are already racking up impressive sales from m-commerce. By 2013, as many as half the consumers in a typical retail store will user their smartphones for shopping.

A Synchronized Experience
In a truly mobile, digital marketplace, no channel exists in isolation. Instead, retailers will increasingly design fully integrated shopping experiences to cater to well-informed, digitally enabled consumers – creating, in effect, a new electronic retail ecosystem.

Loyalty and Context
Currently, the least used multi-channel strategy is a well-integrated loyalty program. Yet according to the same survey, 54 percent of consumers would like to have a mobile loyalty account that provides credit, points and promotions across a variety of physical and virtual outlets.

Play to Your Strengths
If you are a retailer seeking an m-commerce strategy, your first step should be to make a solid assessment of your own business. There is no universal, one-size-fits-all path. Rather, a successful strategy should take into account the relevant core technical capabilities of your company, the commercial channels in which you operate, the competitive dynamics in your sector and the current state of the art of m-commerce itself.

However, the authors highlighted a common end game of all m-commerce implementations that is to give customers an enjoyable, rewarding and inventive channel in which to purchase your products and increase their loyalty.

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Every year, Booz & Company survey data on R&D spending performance for 1,000 publicly held companies around the world. This study, according to strategy + business authors Barry Jaruzelski and Richard Holman, has yielded a number of insights about the best way to design an innovation strategy. Among them is the recognition that successful companies tend to choose one of three distinct approaches, and that choice, in turn, determines how they can succeed, as follow:

1. A Need Seeker strategy directly engages current and potential customers to better capture their unarticulated needs, shapes new products and services, and strives to make the company the first to market with those new offerings.
2. A Technology Driver strategy follows the direction suggested by the company’s technological capabilities, leveraging its investment in research and development to drive both breakthrough innovation and incremental change, often seeking to solve customers’ unarticulated needs with new technology.
3. A Market Reader strategy monitors customers and competitors with equal care, but the company maintains a more cautious approach, focusing largely on creating value through incremental change and being a “fast follower” of proven concepts.

Research suggests that the three strategies deliver comparable financial success if tightly aligned with the company’s overall business strategy. The key isn’t to be good at everything, but rather to excel at what matters most to your success.

The authors highlighted that if you are seriously interested in open innovation, you will need to establish a systematic process for capturing the best ideas, whether from within or outside your company, and focus on the specific set of capabilities needed to capture, develop, and commercialize the good ideas that surface. Open innovation can keep you one step ahead of the competition, but only if it is approached with rigor and seriousness of purpose.

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A preference for local institutions
Almost 81% of these consumers in emerging Asian markets and 63% of consumers in developed Asian markets consider it important to deal with a local institution. The preference for banking with local institutions is especially pronounced in the upper-mass-market and mass-affluent segments across Asia.

McKinsey authors Kenny Lam and Jatin Pant speculate that these changes reflect Asian consumers’ anxiety over the safety of foreign banks in the aftermath of the financial crisis. So multinationals face a clear challenge in repositioning their brands.

Lost loyalty
Despite high satisfaction levels, banks across Asia have seen a dramatic drop in customer loyalty since the 2008 crisis. The results indicate that seven out of the top ten drivers of loyalty reflect the quality of the customer experience and services a bank offers. Consumers value banks that are more personal, flexible, proactive, and-most important- where employees go out of their way to help resolve issues.

Arrival of new channels
Consumers now use new channels, such as the Internet and mobile devices, for their banking more often than traditional ones, such as telephones and branches. The use of new channels rose to 3.2 times a month in 2011 while that of traditional channels dropped to 2.57 times a month.

The basis of competition in the next decade, according to authors Lam and Pant, will be understanding customer expectations better, delivering a consistent experience through multiple channels whether old and new. Players that can adapt to the customer-centric approach will be able to build a more profitable franchise through greater customer loyalty and a larger share of wallet.

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