Business leaders need to better understand the connection between innovation and sustainability.
In our 2021 Global Leadership Study: Where, How and What Leaders Will Compete with in the New Decade, ANZ business leaders rated environmental sustainability as the number one cultural attribute, slightly ahead of innovation and the need to be quality driven.
Globally, leaders ranked other priorities including innovation, diversity and inclusion, equal opportunity, quality and customer centricity above environmental sustainability. All are important, but innovation is essential to each of them, making it a key focus area for anyone wanting to bring about real change.
Digital transformation has accelerated during the past decade and particularly in the past two years, with the COVID-19 pandemic forcing organisations to deliver rapid change in a short timeframe to ensure continuity.
Continuity hasn’t typically featured in strategic C-level discussions, but that has changed. The pandemic has resulted in deeper conversations around delivering value through innovation drivers like customer centricity and efficiency, but the connection between sustainability, digital transformation and innovation is still underestimated.
ANZ’s relatively smaller, less diverse leadership circles can make it difficult to find variance of opinion and debate on issues. This lack of diversity of thought can make innovation likely to occur only in traditional areas. Our research found most senior leaders are more focused on optimisation than innovation or transformation for organisational growth and profitability between now and 2025. Simply put, viewing areas of business in silos is detrimental to transformational progress on economic, social and environmental metrics.
Leaders told us they expect continued growth and profitability to come from new collaborators including their competitors, new digital offerings, new industries and ecosystems. In this fast-changing climate, the most successful businesses will seek to gain advantage. If the pandemic and ongoing climate discussions taught us anything, it’s that organisations can’t afford to stand still.
We need further change
Many businesses still think of innovation in silos like product, customer service or cost optimisation. Some prioritise optimisation and efficiencies in traditional areas like processes and design, even though business leaders agree that sustainability, climate change and resource availability are serious risks. With our growing awareness of the impact climate change is having on our planet, companies need to focus on these issues strategically, rather than at an operational or tactical level.
Innovation practices often leverage the sweet spot of being desirable, viable and feasible. But what if we added an ethical lens that looked at desirability, viability, and feasibility from the viewpoint of stakeholders, communities, ecosystems and the planet?
This would put us in a better position to understand solutions that work for customers, what works best for business and also be in sync with ecosystems while nurturing societies
There are three main chasms holding back leaders and organisations that want to be front runners in sustainability:
The sustainability paradox
Demand for sustainable products and services exists, but research shows customers are reluctant to pay a premium. Organisations need to take the lead and embed environmental, social and governance (ESG) values at the centre of their operations and leverage economies of scale. This can prove challenging in smaller markets and for businesses with low levels of digital adoption. This puts businesses in the vicious circle of making a choice between doing good and financial viability. To make real change possible, companies need to prioritise using technology and develop partnerships to improve knowledge of their value chain. Leveraging a strong digital core and investments in data, analytics and AI, organisations can unlock levers to further sustainability impact while delivering customer value. In the same vein, ways and means of financial accounting and measuring growth are changing, allowing many companies to measure success more holistically. We are also close to a tipping point when producing unsustainable products and services will become unviable owning to regulatory requirements. Industry level shifts are happening now.
The need to integrate sustainability
True innovation on sustainable practices cannot be achieved while operating in a silo. Leaders need to work with robust sustainable suppliers, vendors and partners, and champion sustainability across the value chain. And they need to embed sustainable practices throughout the organisation, across IT, marketing, procurement and product development. This approach will achieve real all-round benefits and ensure the business is doing more than just greenwashing. Microsoft for example is making carbon reduction an explicit aspect of procurement processes for their entire supply chain, starting next year.
Every leader needs to be a sustainability champion
Knowledge of sustainability and a foundational understanding of an organisation’s material issues in the environmental and social domain is not just a C-level requirement. It needs to be a core part of all leadership pathways. With today’s complex, interconnected and ever-changing problems, there is no single solution.
We need leaders who understand how to bring about systemic change for the benefit of wider society. Business owners that pursue sustainability increase their chances of becoming innovative leaders. This innovation is the driving force needed to discover and create new products, technologies and materials.
We know there’s no time to waste. There is a clear imperative for businesses to leverage innovation to meet or exceed sustainability goals. Every leader needs to be a thinker and a practitioner in sustainability. Safeguarding the future of the planet like we know it and business success, like we know it, are not divergent goals. The time to act is now.