The Benefits of Sustainability-Driven Innovation

The majority of managers who say that their company’s sustainability activities have added to profits also say that sustainability has led to business model change. What connects corporate sustainability with business profits? According to our 2012 global executive survey on sustainability, an important factor is business model innovation. Managers who say that their company's sustainability activities have added to the company's profits are more than twice as likely to say that sustainability has caused their organization to change their business model than not.

This is the fourth year that MIT Sloan Management Review has teamed up with the Boston Consulting Group (BCG) on our Sustainability & Innovation Global Executive Study. Our inquiry includes a survey to which more than 2,600 executives, managers and thought leaders from around the world and from a wide range of industries responded. The sample was drawn from a number of different sources, including MIT alumni, MIT Sloan Management Review subscribers, BCG clients and other interested parties.

We give the name Sustainability-Driven Innovators to those respondents who have changed their business model because of sustainability and also generate profits from their sustainability-related activities and decisions. They represent 23% of our survey pool.

In our survey, we presented a business model framework developed by the Boston Consulting Group (BCG) to respondents when they answered questions about sustainability and their business models.  This framework describes business models in terms of a value proposition and an operating model. The value proposition answers the question: What are we offering to whom? The operating model answers the question: How do we profitably deliver the offering?

Seventy-five percent of those who changed their business model because of sustainability say their organizations either break even or show a profit…

Using this framework, we asked respondents how (if at all) they have changed their business model in response to sustainability. Their answers are revealing: 48% changed their business model, up from 40% in 2011. Seventy-five percent of those who changed their business model because of sustainability say their organizations either break even or show a profit from their sustainability activities, and 46% say their sustainability activities added to profits.

What’s more, 50% of our survey respondents who have changed three or four business model elements say they profit from their sustainability activities, compared to only 37% of those who changed only one element of their business model. Respondents from organizations that have changed their business model because of sustainability are also more likely to be aware of sustainability’s influence on their profitability.

Certain combinations of sustainability-related business model changes appear to have a bigger link to profitability than others. Respondents whose companies changed both target segments and the value chain, for instance, are more likely to say their sustainability activities add to profit than respondents whose companies changed other combinations of business model elements.

Sustainability-Driven Innovators often do more than just change their business model. They are also more likely than other survey respondents to have a business case for sustainability, to work closely with key stakeholder groups on sustainability issues and to have the attention of top management focused on their sustainability efforts. Our survey suggests that having a business case for a company’s sustainability efforts bolsters the influence of business model change on sustainability-based profitability.

By David Kiron, Nina Kruschwitz, Martin Reeves and Eugene Goh


Photo: ecological technology by Shutterstock.com

This article is adapted from “The Benefits of Sustainability-Driven Innovation” by David Kiron, Nina Kruschwitz, Martin Reeves and Eugene Goh, which appeared in the Winter 2013 issue of MIT Sloan Management Review.


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