November 15, 2017

Focusing on What 90% of Businesses Do Now Is a Big Mistake

I have a new quarterly column for MIT Sloan Management Review. Logically, I'm the sustainability guy, but I'll be leaning into technology topics as well. Here's my first piece (also here), where I talk about the change in expectations of companies and in the goals they set on environmental and social issues. I'll have more on how those goals have evolved in a future blog (I just ran some great data from pivotgoals.com). Enjoy.

I was driving through rural Pennsylvania recently and saw a fascinating billboard. Sponsored by an organization that promotes coal and natural gas, the sign declared, “The truth is that 90% of our energy comes from fossil fuels.”

Technically, that’s true (ish), but it’s also meaningless.

Side%20mirror%20%28pexels.com%2C%20133826%2C%20smaller%29.jpg

On the surface, the facts are a bit exaggerated — fossil fuels provided more like 80% of our energy in the United States in 2016. But even if it’s roughly correct, who cares? The future belongs to renewable energy and clean technology.

The majority of the new energy capacity put on the electrical grid — both globally and in the United States — now comes from renewables. In 2016, wind, solar, biomass, and hydroelectric energy accounted for 63% of the additional capacity built in the United States, and an amazing 86% in Europe). As for our transportation systems, a growing list of countries, including France, Norway, the U.K., India, and China, have announced either future bans on selling diesel or gas cars or official targets for electric car sales.

Automakers are also moving quickly: Volvo, for instance, has said that in just two years, it will stop making cars that have only an internal combustion engine — that is, every car will be electric or hybrid, with both a battery and smaller engine. So the fossil-fuel sector is waging a losing battle.

Rearview-mirror strategy is a bad idea

But the billboard got me thinking about a more general point for business: It’s not smart to base any part of your strategy on what you see in the rearview mirror. And that’s particularly true when you develop strategies for navigating modern, thorny environmental and social challenges. If you run a business (or a government) as if the future will look exactly like the past, you will become irrelevant.

Consider the sheer fact that there were points in human history, not that long ago, when:

The list goes on and on. Many of the companies in those industries have ignored the “dead man walking” aspect of their business, especially when those that dominant market shares. But their downfalls became classic cautionary tales — think film company Eastman Kodak Co. and video rental chain Blockbuster LLC. The history of technology adoption is pretty clear, and it’s speeding up. Try to imagine some past billboards announcing (proudly!) that 90% of TVs are black-and-white, or that 90% of food preservation is from salt, not this newfangled “fridge” thing.

Now make the small leap to think beyond shifts in what’s normal in technology or the energy sectors. Social change also comes to the world — and to business — fast and furious. At distinct moments in the history of the developed world, 90% of elite college students (and corporate new hires) were white males, and 90% of companies would not even think of having domestic partner or LGBT policies. In Saudi Arabia, until just a few weeks ago, men drove about 100% of the car miles.

Expectations About How Companies Manage Sustainability Issues Are Moving Fast

My larger point is that change is coming to business — and executives need to adjust. The norms and expectations about how companies manage environmental and social issues are shifting fast.

Just six years ago, only 20% of the S&P 500 companies produced sustainability reports. By 2016, 82% did, providing public, detailed looks at their environmental and social actions and performance. A growing number have integrated these sustainability reports into their annual financial reports.

My company keeps a public database of the sustainability goals set by multinational businesses. These commitments include statements such as “reduce greenhouse gas emissions by 50% by 2025” and “ensure women make up 40% of management roles.” Roughly 85% of the 200 largest companies in the world now have public targets on social or environmental performance — and it’s actually over 90% if we exclude Chinese government-owned enterprises, which don’t often set individual targets separate from government planning. More than 100 of the world’s largest companies have now committed to 100% renewable energy. Ten years ago, the number of large companies with renewable energy goals, or any sustainability targets, was negligible.

We’re in the early stages of big shifts in how companies do business more sustainably, with much more attention to their role in society. Most companies are aggressively reducing their own operational footprints.

But that’s arguably just table stakes. A growing number of companies are engaging with the broader world in ways that were rare until quite recently. U.S. CEOs are taking public stands on issues from LGBT rights to immigration. After the state of North Carolina passed a bizarre bill that mandated which bathrooms transgender people could use, dozens of large company CEOs wrote an open letter to the state’s governor saying that the legislation is “not a bill that reflects the values of our companies.” What percentage of large companies would’ve spoken out on something so socially sensitive five years ago?

So what’s coming next? On technology, as always, plenty.

For example, I’m sure that 90% of companies do not have artificial intelligence deeply embedded in their operations today. But how long do you want to bet it will be until Siri, Alexa, and Watson get together to change that statistic?

Technology is always changing, so that’s nothing new. But a far deeper change is brewing. Business faces rising expectations from society, and that shift is changing the nature of strategy and competition.

On all megatrends, but particularly sustainability, look beyond what the 90% are doing right now. Even with all the talk about carbon footprint and renewable energy, the vast majority of companies have not made climate action or sustainability a top priority. Based on my experience with multinationals, I’m confident that 90% of large company C-suite execs still believe that their primary (and often only) goal is maximizing shareholder value.

But leading companies are now expanding their definition of corporate success. They’re listening, in part, to the shocking 87% of millennials who agree that “the success of a business should be measured in terms of more than just its financial performance.”

It’s a new world for business, and expectations keep rising. Looking at yesterday’s norms will make your business outdated and irrelevant. So, look forward to be part of — or better yet, to help create — a thriving future.

*****

If you enjoyed this article, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston

Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

Comments

On November 16, 2017 10:54 AM, Marc Gunther said:

This is another great blog post, Andrew, so thanks. But I'm afraid that you glide over an important way that the coming transition from fossil fuels to clean energy differs from the technological and social transformations you cite. The end product of fossil fuels and clean energy is essentially identical--electricity--so there is no clear and compelling consumer benefit that will drive the energy transition, unlike earlier adoptions of superior technology (horses to cars, black-and-white TV to color, landlines to mobile.) This transition will require strong government action. So I hope you encourage your business readers in future columns to get active politically on behalf of a clean energy future.

On November 16, 2017 11:07 AM, Andrew Winston said:

Marc,

Thanks for reading as always.

I hear you and it's a fair point on the difference. And absolutely we need government support to go faster on climate mitigation and clean tech.

BUT, I don't think it's as clean cut as you describe -- there are differences for the end user in many clean tech applications...cars for example. Driving a Tesla creates a different experience for the user. And while electricity is a commodity, putting solar on your roof does create some feelings (what critics call smugness).

All that said, the real driver here -- and why the 90% fossil fuel number is useless -- is economics. The cost of clean tech keeps dropping, so the share of energy taken by fossil fuels is only going down...

But, again, your point about companies needing to be proactive and engage on policy is important. And we're seeing it real-time in Bonn now, and in movements like wearestillin.com. Companies are getting more vocal.

Post A Comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)