Expanding the win-win set for business and the environment.

By Vidushi Tekriwal

I was intrigued by a notion Professor Henderson introduced in the Walmart case, and I have been impressed by the insight it has added in several cases we’ve studied since then, particularly the McDonald’s case today.  I find it to be a very eloquent way of articulating the central dilemma that even the most committed companies face when tackling environmental issues.  It also has important practical implications, both for how more companies could successfully take on environmental leadership, and for political leaders who might attempt to affect change in this arena.

The concept is this: picture a Venn diagram with two intersecting sets. One set includes all the activities a company could take on that are Good For The Business (i.e. generate profits).  The other set includes all the activities a company could take on that are Good For The Environment (e.g. reduce carbon footprint, lobby for regulation etc).  The intersection of these two sets therefore represents the win-win scenario where the company takes on projects that are both profit-making and “Green”.  This might include initiatives such as more efficient packaging and lower energy utilisation, which drive higher profits and lower the environmental impact of the business.  An added complication, however is that unfortunately the lines between these sets are anything but clear!

Applying this lens to a couple of examples in the McDonald’s case yields some interesting insights:

1) McDonald’s stepped in to support sustainable fisheries in order to secure supply: “overfishing represented not only a threat to marine biodiversity and fishermen’s livelihoods but also a real threat to its ability to meet customer demand for Filet-O-Fish sandwiches” – this is both “Good For The Business” and “Good For The Environment”.  In some ways, such options seem like a no-brainer, since McDonald’s benefits from both better supply security, and positive media coverage.  Taking on such projects could invite accusations of green-washing, since one can make the argument that McDonald’s would have done it anyway, from a pure profit-maximising perspective, and are simply milking it for some bonus environmental kudos.  However, I give them a bit more credit – if the solution really were that obvious or simple, it would already have been implemented by others.  Although McDonald’s is indeed a very large player in food services, it is by no means the only one that had the clout and capabilities to effect this change, so they have differentiated themselves by being proactive.

However, the bigger implication is how low the bar seems to be in order to become a “leader” in this arena.  Such initiatives almost seem like low-hanging fruit, and in fact make good business sense, even in the old-fashioned, profit-generating kind of way.  And yet, simply having the foresight to recognise that this is the case, and the processes in place to execute on it, is enough to put McDonald’s way ahead of the pack.  The implication then for companies is to actively look for these opportunities, and the implication for governments is to give companies incentives to find them.

2) McDonald’s introduced eco-friendly brown bags, but customers didn’t like it, so they reverted to white bags, rather than risk their profit model, “Consumers value the environment but they seem to value convenience and low price more” – the brown-bag initiative fell into the “Good For The Environment, but not Good For The Business” category, and McDonald’s discontinued it.  The cynic might claim that this demonstrates a lack of commitment to make the hard choices.  However, I would argue that drawing this line is pragmatic and necessary in order to make environmental efforts sustainable (no pun intended!) within companies.

This is particularly true at the relatively nascent stage that most companies are at with their environmental programs.  If by focusing on “Good For The Business AND Good For The Environment” initiatives (and there seems to be plenty of headroom even in this category), companies can build internal momentum and credibility for environmentally-friendly initiatives, and win over key business personnel, this will serve them much better in the long run.  There is a fairly big difference and time-lag between saying “doing the right thing”, and actually putting action and meaning behind it.  The more companies can demonstrate that such ‘mantras’ actually have teeth, demonstrate their economic success, and build muscle memory around following through, the easier it will be to take more action in the future.  It seems that McDonald’s rapid response to Greenpeace’s accusations were a result of having profitably addressed these types of issues in the past, and having some organisational capabilities for dealing with it: due to the “prior existence of the Rain Forest Policy for beef: management did not have to start from scratch to understand the importance of the issue.”  The way I see it, by building these capabilities, McDonald’s was able to push out the frontier to include more activities that were in the Good For The Environment set, and include them in the Good For The Business set.

This analysis gives me some hope for the future.  Firstly, it seems that we are only scratching the surface of win-win scenarios.  Forget low-hanging fruit, if the examples we’ve looked at are indicative, there seems to be fruit lying around on the ground, simply waiting to be picked up.  The challenge is getting companies to firstly look for these opportunities, and then execute on them.  This leads me to my second conclusion, which is that sequence matters.  As companies experiment with environmental initiatives, a series of small, tangible wins, that are in line with commercial objectives, help to build confidence, capabilities and credibility early on.

There are many conflicting points of view on what really is good for the environment, and whether doing such things should be undertaken within the business, or as a separate philanthropic pursuit.  The most effective way of cutting through the noise is to demonstrate and prove that such initiatives enhance day-to-day, mission critical activities.  In the long-run, this is a better choice than trying to take on a big project initially, with unclear business benefits.  These riskier projects become easier to do, and more likely to succeed, once the company has some wins under its belt.  Finally, I am optimistic that as environmental programs mature, as the cost/benefit tradeoffs are better understood, and as we as a society move up the learning curve on how to manage our ecosystem, we can push the frontier and expand the set of win-win scenarios for both business and the environment.

References:

http://www.livescience.com/39134-saving-planet-is-good-business.html

http://www.entrepreneur.com/article/205594

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2 Responses to “Expanding the win-win set for business and the environment.”

  1. Vidushi:
    I think your comment about sequencing is right on target — because there are opportunities that would be both good for business and good for the environment, but the company has to develop the experience and the capabilities in order to “see” them — so that one should not be too sniffy about seemingly minor efforts because they may be building a bridge to much larger ones…

  2. I agree to a large degree with this post, and I also liked the Venn diagram framework. Your second example clearly illustrates the challenge of pushing the boundaries of what is good for both business and the environment, and a lot of this stems from the difficulty in changing consumer behaviour. In Prof. Gourville’s Consumer Marketing class we have learnt consumers perceive losses as about x10 as powerful as gains. This means that in order to change their behaviour or opinion, the advantages of the change need to outweigh the disadvantages of x10. Consumers rarely value environmental advantages, so they see this change as a net negative for them.

    At the same time, consumers adapt to the current status quo, and over time come to accept it. We perceive things as incremental changes to the status quo, rather than in absolute terms. The implication of this is that if McDonald’s had persisted with the brown bags for longer, consumers may have adapted and no longer seen this as ‘dirty’. The second implication is that in some cases, government legislation can force a change and the consumer will, over time, adapt to this new ‘status quo’ and forget what life used to be like before the change was enforced. We should look for opportunities in our leadership roles to identify temporary/illogical consumer preferences and find ways to force adoption and therefore adaption towards more environmentally-friendly behaviours.

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