As sustainability increasingly moves from fringe to mainstream, getting into the green game has become a corporate imperative. Because most established companies were founded before sustainability was truly a management concern, they lack a green heritage and competencies in managing environmental challenges – and opportunities. To respond to this reality, most companies need to take two tracks. The first is developing internal know-how and organizational structures for identifying, evaluating and managing the sustainability issues surrounding the company and its operations. The second is formulating strategies to develop new green product offerings suited to their market space. In this month’s Harvard Business Review my colleague Richard Ettenson and I lay out three broad strategies companies can use to get into the green product game.
A good place to start is with the company’s current portfolio of products and brands. Select companies will find that some of their existing offerings already have real green advantages that can be highlighted and built upon. Rail freight hauler CSX has done just this, emphasizing to eco-conscious customers that rail transport is environmentally preferable to truck or air shipping. Church & Dwight has positioned its Arm & Hammer brand baking soda and as “the #1 environmentally sensible alternative for cleaning and deodorizing.” The strategy has risks of course. Accentuating the green attributes of some products inevitably prompts comparison with the other offerings in your product line. A large discrepancy in environmental performance of your products can lead activists to decry even credible sustainability advances as “greenwashing.” As the old Crosby song says, while you “accentuate the positive” of your greener products you also have to actively “eliminate the negative” environmental impacts of the overall company if you want to be seen as credible on sustainability issues.
What if your review produces no products with leveragable environmental attributes? For some, the answer is to buy someone else’s green brand. A series of green acquisitions including Tom’s of Maine, The Body Shop and Ben & Jerry’s have helped established corporations acquire green product offerings and expertise. It’s common knowledge that mergers and acquisitions are tricky and frequently fail to fulfill their promise. The problems of integration can be exacerbated by a culture-clash between the green brand and corporate acquirer. Activists will also scrutinize the process and likely challenge the new parent’s green credentials. If the acquisition goes badly and market share declines, the acquirer may be accused of purposely killing off a green competitor. This happened to Coca-Cola’s acquisition of Planet Java and Mad River Traders brands, which were phased out after only two years. Despite the risks, the upside is enticing. Unilever increased the sales of Ben & Jerry’s 70 percent within the first year following the acquisition.
A third alternative for companies with the “right stuff” is to develop its own green products from scratch. This option is largely for companies with substantial new product research and development capabilities, and a sustainability-conscious work force and customer base. It can be the costliest approach, but it fosters the development of unique and inimitable competencies that can differentiate a company in the green space for years to come. Toyota made such an investment when it developed its Prius hybrid; as did Clorox when it developed its Green Works line of household cleaners. Detail about the process of green product development is beyond the scope of this article, but for readers interested in learning more, the Harvard Press Book “Earth, Inc.” covers it in detail.
While the three strategies can help get a company into the green game, the reality is that it’s just the beginning of a successful greening effort. Credibility in sustainability requires business leaders to continually access arising sustainability concerns and work to improve not just the environmental performance of the products in their portfolio, but also the performance of the company’s operations, business relationships and community engagement efforts. As one of the founders of the sustainability movement Barry Commoner noted, in nature as in business “everything connects to everything else.” The implication is that companies need to manage sustainability in a holistic manner. Going down the green path means a sustainability “Full Monty.” For this reason, business leaders need to carefully consider their sustainability initiatives. Responding to greening pressures opportunistically may provide short term benefits, but lack of a comprehensive commitment to sustainability will inevitably force business conflicts and compromises in the future that will undermine the company’s credibility. Just look at BP today and think back to its 2002 “Beyond Petroleum” rebranding campaign for a sense of the risks. Still, for companies with the right stuff, the future is green.
Gregory Unruh, Ph.D., is a professor of global business and director of the Lincoln Center for Ethics in Global Management at Thunderbird School of Global Management. Unruh is a leading expert on sustainable business strategy and an outspoken advocate of ethics and corporate social responsibility. In his forthcoming book Earth, Inc. (April 2010), he provides a framework for how managers can adopt the biosphere’s sustainability principles and transform their companies into both environmentally sustainable and financially profitable enterprises. Follow him on Twitter @gregoryunruh.