driving sustainable value creation_2011

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Business at its Best:

Driving Sustainable Value CreationFive Imperatives or Corporate CEOs


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About Accenture

Accenture is a global management

consulting, technology services,

and outsourcing company with

more than 215,000 people serving

clients in more than 120 countries.

Combining unparalleled experience,

comprehensive capabilities across all

industries and business unctions,and extensive research on the worlds

most successul companies, Accenture

collaborates with clients to help them

become high-perormance businesses

and governments. The company

generated net revenues o US$21.6

billion or the iscal year ended August

31, 2010. Its home page is www.

accenture.com.

About CECP

The Committee Encouraging Corporate

Philanthropy (CECP) is the only

international orum o business leaders

exclusively ocused on raising the level

and quality o corporate philanthropy.

Membership includes more than

180 global CEOs and chairpersons

o companies that collectively accountor more than 40% o reported

corporate giving in the United States.

Founded in 1999 by the actor and

philanthropist Paul Newman (together

with John Whitehead, Peter Malkin,

and other business leaders), CECP

continues to inspire and challenge

leaders in the private sector to ind

innovative ways to meet community

needs and to lead the way towards

better alignment o business and

societal strategies.

Download additional copies o thisreport at:

www.CorporatePhilanthropy.org/research

www.accenture.com/sustainability

When reerencing indings rom

this report, please list the source as:

Accenture / CECP, 2011.


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Business at its Best:Driving Sustainable Value Creation

Five Imperatives or Corporate CEOs


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Preace 1

Executive Summary 2

Chapter 01: Tapping Opportunities or High Perormance 4Imperative One: Recognize the Opportunity 8

Chapter 02: From Opportunity to Action 14

Case Study: Novartis AG 15

Imperative Two: Recalibrate Your Radar 16

Case Study: GE 18

Imperative Three: Research, Develop, Repeat 22

Case Study: S.C. Johnson & Son, Inc. 24

Imperative Four: Rewire the Organization 25

Case Study: The Campbell Soup Company 27

Chapter 03: The CEOs Role: Setting the Tone and Pace 32

Imperative Five: Reinorce the Value 33

Inspire Employees 34

Guide Consumers 36

Educate Investors 37

Engage Partners 38

Conclusion: Accelerating the Journey 40

Report Authors and Acknowledgements 44

Appendices 47Reerences 47

CECP Board o Boards CEO Conerence Poll Questions and Results 48

Suggested Reading 53

Table o Contents


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Can businesses sustain meaningul

growth, drive innovation, and,

simultaneously, address some o the

most important societal challenges

acing communities and nations allover the world? The CEOs whose

insights orm the basis oBusiness

at its Bestsee the answer to that

question as an unequivocal yes.

These CEOs are helping their

companies identiy business

opportunities at the convergence o

core strategy and societal issues. They

are moving beyond traditional ideas o

philanthropy, but beyond traditional

strategy as well, and they are lookingor competitive advantage and

sustainable proitability in new ways.

In this converged space between

inancial success and societal progress

is Sustainable Value Creation, the

subject o this joint report. Based on

extensive interviews and polling with

CEOs across industries and around

the world, the report is not a step-

by-step guide, but rather a set o

tools, rameworks, and other practicalexperience that can help companies

accelerate their own journey.

Sustainable Value Creation is, above

all, a business strategyoering

compelling ideas about achieving

growth and high perormance.

Certainly it presents numerous

challenges to current assumptions

and ways o conducting business. Yet

these challenges are being addressed

by many pioneering CEOs whoseideas are represented in this report.

The result is a set o relevant and

compelling insights made available

to leaders rom all industries and

geographies who seek to create

competitive advantage by designing

products, services, and practices

that deliver both commercial and

community beneits.

Preace

We have been honored to bring to

bear on this important strategic

business opportunity the experience

and complementary capabilities o

our two organizations: the CommitteeEncouraging Corporate Philanthropy

(CECP)an international orum o

CEOs ocused on raising the level

and quality o corporate engagement

on societal issuesand Accenture, a

leading technology, consulting, and

outsourcing company with experience

across traditional business strategy,

sustainability, and international

development.

Business at its Bestbuilds on mucho the recent and relevant work done

by our organizations. CECPs 2010

report, Shaping the Future, based on

research by McKinsey & Company,

laid important groundwork or

helping CEOs see the possibility o

addressing societal problems in a way

that simultaneously delivers tangible

bottom-line results. Accentures

report, A New Era o Sustainability,

written with the United Nations

Global Compact, explored strategiesor embedding sustainability more

deeply in the business practices and

supply chains o global companies.

Both research initiatives highlighted

a common concern among senior-

level executives: having a vision is

one thing; implementing it is another.

Thereore, this report ocuses on

moving beyond theory to present

actionable insights that CEOs can

bring to their organizations today.

We invite you to join us in this

ongoing conversation about business

at its besta strategy unrestricted

by the traditional division between

choosing whats best or the business

and whats best or society. Its a

collaboration requiring both insight

and resolve, but one with potentially

immense beneits or all.

Bruno Berthon, Managing Director,

Sustainability Services, Accenture

Charles Moore, Executive Director,

Committee Encouraging Corporate

Philanthropy

Business at its Best: Driving Sustainable Value Creation 1


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2 Business at its Best: Driving Sustainable Value Creation

Chapter 1 provides guidance in

inding those opportunities and also

provides an in-depth deinition o the

Sustainable Value Creation concept.

2. Recalibrate Your Radar: Once the

relevant societal issues have been

broadly identiied, achieving the goals

o Sustainable Value Creation requires

pinpointing the optimal role that

the company can play in helping to

address those issues. To accomplish

this, organizations must invest in a

deeper level o understanding o their

uture growth path as it relates to

community needs. Thus, the ocus

o this imperative is on expandinginternal and external networks to tap

into trends; it is also on improving

the companys ability to screen ideas

based on need, uniqueness, strategic

it, and core competencies. (See

Chapter 2.)

3. Research, Develop, Repeat:

A Sustainable Value Creation strategy

requires executives to adopt a

management philosophy that is akin

to how an R&D department runs: ahands-on approach to conducting

the local market research needed

to understand societal needs and

to accommodating a more iterative

development cycle. Leaders must be

comortable with the idea o trying

as well as ailing and applying lessons

to reine the program over time. (See

Chapter 2.)

4. Rewire the Organization: As

companies realize initial successeswith Sustainable Value Creation,

they should then look to scale

programs across the business. Doing

so requires important organizational

changes: embedding incentive

programs, governance structures, and

measurement practices across the

company in support o the strategy.

(See Chapter 2.)

Executive Summary

What does a business looklike at its best?

This report makes the case that a

business at its best is a company

that has overcome the traditional

strategic and operational divisions

between advancing the perormance

o the enterprise and promoting

the wellbeing o citizens and

communities. Its a company that

recognizes an opportunity to

play a positive role in addressing

undamental societal issuesseeing

those issues not merely as problems

to be addressed through charity alone,

but instead as the seeds o innovationand growth.

This mode o business,

Sustainable Value Creation,

is a core business strategy

ocused on addressing

undamental societal

issues by identiying

new, scalable sources ocompetitive advantage that

generate measurable proit

and community beneit.

And, as this report makes clear, its

more than theory: Leading companies

rom a variety o industries are

already pursuing groundbreaking

initiatives at the convergence o core

strategy and societal beneit. For

example, in rural Mexico, PepsiCoaced business constrictions on

supplies o corn provided to its

actories because regionally supplied

products oten ell below quality

standards. Analyzing this strategic

issue, senior leadership recognized

that important root causes were in

the existing skills o local providers

and an inadequate arming and

transportation inrastructure.

PepsiCo contributed to the overall

development o low-income

arming amilies in corn-producing

communities by means o technical

and business training, transers otechnology, and arming contracts,

thereore reducing costs and

improving product qualitywhile also

raising the standard o living in the

community. This is the win-win o

Sustainable Value Creation: helping

the business and helping people at

the same time.

Accelerating the journey:Five key imperatives

Based on extensive CEO interviewsand pollingas well as analysis and

experience rom the Committee

Encouraging Corporate Philanthropy

(CECP) and AccentureBusiness at

its Bestis organized around ive key

imperatives or planning, managing,

and scaling a Sustainable Value

Creation strategy (see igure on

next page) and provides or each

some practical guidance that can

help to accelerate the journey o

all companies looking or a more

sustainable approach to achieving

high perormance.

Five imperatives or drivinga Sustainable Value Creationstrategy

1. Recognize the Opportunity:

Successul companies already have

proven mechanisms in place to

generate proitable ideas both in the

short and long term, yet the businessopportunities within undamental

societal issues are oten overlooked.

By rigorously analyzing the root

causes o existing core business

challenges, companies oten uncover

underlying societal problems that, i

addressed, may lead to new sources

o competitive advantage.


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3Business at its Best: Driving Sustainable Value Creation

5. Reinforce the Value: This inal

imperative, discussed in Chapter 3,

ocuses on the distinctive executive

leadership capabilities required to

drive success with Sustainable ValueCreation. CEOs in particular must set

the tone and pace o the program

and reinorce the value with key

stakeholders: employees, consumers,

investors, and partners.

Transorming "business as usual"

Sustainable Value Creation is,

in many ways, an extension o

the same capabilities at which

leading businesses already excel:understanding consumer needs,

investing in innovation, mobilizing

around change, creating markets, and

managing a complex ecosystem o

stakeholders.

At the same time, the strategy

holds enormous transormative

potential or an enterprise beyond

business as usualand that dictates

the development o additional

strategic, operational, and leadership

capabilities. Traditional either/or

mindsetsassumptions that

companies must choose betweencompetitiveness and sustainability

must be overcome. Decision-makers

will need to learn how to target

undamental societal issues that

have traditionally allen outside their

scope. More iterative approaches to

implementation must be adopted

as companies scale their initial

successes. Leadership will become a

much more hands-on proposition.

The CEOs interviewed or thisreport stressed that, as with any

competitive strategy, seizing the

ull advantage o Sustainable Value

Creation requires immediate action.

Business is under increasing pressure

to rise to stakeholder expectations,

increase transparency, and identiy

new sources o growth. At the same

time, the severity and complexity

o societal problemsissues that

can hamper a companys ability

to thriveare rapidly increasing.

Sustainable Value Creation presents

an elegant resolution: whenever andwherever possible, use corporate

interests with societys interests. The

concept is simple, but the execution

o the strategy is complex. It is that

complexity that prompted CECP and

Accenture to undertake this eort to

synthesize advice rom top leaders

about how to bring the strategy to lie

in a way that drives better business

perormance.

Ultimately, Sustainable Value Creationhas transormative power both at the

level o the individual enterprise

where the strategy serves as a ilter

through which all new business

opportunities and investments are

evaluatedand more broadly: helping

companies rom all industries to

engage with their communities as true

partners working together or mutual

advancement.

Five Imperatives or Driving a Sustainable Value Creation Strategy

Research,

Develop, Repeat

ThreeRecognize

the Opportunity

One

Recalibrate

Your Radar

Two

Rewire the

Organization

Four

Reinforce

the Value

Five


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CEOs across industries and around

the world share common challenges

and questions when it comes to the

uture o their businesses: How to

create a new era o growth, how toimprove market position, and how

to achieve competitive advantage

and high perormance. There is

urgency in answering these questions,

given mounting business pressures:

increased competition, changing

customer attitudes, growing calls or

transparency, globalization, the war

or talent, and more.

At the same time, companies are also

under more intense scrutiny about

their impact on society. The recent

inancial crisis has damaged trust

among consumers and increased

regulatory concerns. Younger

generations in particular are asking

tougher questions about a companys

relationship with the community

and its eects on the world. As

Novartis AGs CEO Joe Jimenez

puts it, Changes in the external

environment and a generational shit

are creating a greater awareness

amongst businesses and a greaterneed to act to address societal

problems.

The convergence o societalissues and strategy

How, exactly, are companies to

address those societal problems? The

traditional answer has been through

corporate philanthropy and employee

volunteerismand certainly those

eorts will continue to be important.

Yet, today, the domains o business

strategy and societal concerns

are converging. A deeper level

o proitable engagement with

undamental societal issues is

available to CEOs who look at those

issues not reactively, but proactively:

not merely as sources o charity, but

Leading CEOs are

proactively engaging with

critical societal issues not

merely rom a charitableperspective, but as part

o core strategy and an

opportunity to grow the

business.

01

Business at its Best: Driving Sustainable Value Creation4

Tapping Opportunities orHigh Perormance


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Fundamental societal issues

Purposefully targets societal issues such as illiteracy, poverty, inadequateaccess to social services, or hunger. By contrast, minimizing production waste,fostering employee wellness, and lightening the social burden caused by afirms product portfolio are not fundamental societal issues. Although theseactivities certainly influence society, they are more inwardly focusedonmitigating the companys own impactthan they are on external issues.

Scalable

Leads to solutions or methodologiesthat can be replicated. Whileperhaps initially begun with oneregion or product line, Sustainable

Value Creation should ultimatelymobilize the full resources of acompany and be scalable across thebusiness, yielding transferable ideas

and going beyond one-off projectsto deliver whole-business impacts.

Measurable

Generates a quantifiable positiveimpact on the business and onfundamental societal issues.Ongoing corporate involvementwill depend on accurate and timelyassessments of whether thefinancial returns exceed (and

justify) the investments andresources required.

Core business strategy

Addresses a pain point oropportunity faced by the companythat is critical to its long-termsuccess. Initiatives to improve

society must be linked to thefundamental model by whichcompanies create value.

Competitive advantage

Yields access to new or previouslyunderserved markets, highermarket capitalization, reducedcosts, increased revenues, and/orgreater value of intangible assets.

New

Emphasizes innovation and

creativity, pushing past a

trade-offs mindset to consider

previously unrecognized

possibilities.

Sustainable Value Creation is a core business strategy

focused on addressing fundamental societal issues by

identifying new, scalable sources ofcompetitive advantage

that generate measurable profit and community benefit.

Figure 1-1: Sustainable Value Creation Defned


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as part o core strategyand as an

opportunity to achieve dierentiation

and grow the business. Ultimately, this

orientation around societal issues is

business at its best.

Purpose o this report: Fiveimplementation imperatives

This report explores the challenges

and opportunities o Sustainable

Value Creationa core business

strategy ocused on addressing

undamental societal issues by

identiying new, scalable sources o

competitive advantage that generate

measurable proit and communitybeneit. (See Figure 1-1 or a

breakdown o this deinition.)

Insights and commentary throughout

this report are provided by prominent

CEOs rom around the world as well

as by executive polling conducted by

CECP as part o the Committees 2011

Board o Boards CEO Conerence.

This report details how CEOs can

reorient strategies in this direction,

how they can meet some o the

implementation challenges that will

inevitably arise, and how they canapply their leadership talents in new

and courageous ways.

Many will be amiliar with the

term shared value, popularized by

Michael Porter and Mark Kramer,i

which ocuses on business actions

that redeine productivity in the

value chain, re-conceive products and

markets, and enable the ormation

o localized clusters o economic

development to create positivesocietal and business outcomes.

Sustainable Value Creation, with

its ocus on undamental societal

needs, is aligned to the rethinking o

products, services, and community-

development elements o this

concept.

Changes in the external

environment and a

generational shit are

creating a greater

awareness amongst

businesses and a greater

need to act to addresssocietal problems.

Joe Jimenez, CEO, Novartis AG

"


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Figure 1-2: Five Imperatives or Driving a Sustainable Value Creation Strategy

Chapter 1

Chapter 3Chapter 2

Research,

Develop, Repeat

ThreeRecognize

the Opportunity

One

Recalibrate

Your Radar

Two

Rewire the

Organization

Four

Reinforce

the Value

Five

Business at its Bestis structured

around ive critical implementation

imperatives or CEOs to act upon

as they plan, implement, manage,

measure, and communicateSustainable Value Creation initiatives.

(See Figure 1-2.)

Chapter 1 highlights the overall

mindset that must be nurtured and

embedded across the organization

the imperative to recognize the

strategic opportunity o addressing

societal issues that underpin core

business priorities.

Chapter 2 ocuses on threeimplementation imperatives

covering how companies can

identiy the most critical issues;

adapt to the iterative nature o

Sustainable Value Creation; and

structure organizational charts,

incentives, and metrics to optimize

the outcome o their eorts.

Chapter 3 explores a inal,

overarching imperative: the need

or decisive and visionary CEO

leadership.

This report explores the

challenges and opportunitie

o Sustainable Value

Creation as seen throughthe eyes o prominent CEOs

rom around the world.


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8

The Dow Chemical Company,

or example, has embraced the

convergence between addressingundamental societal issues and

the bottom line. The company has

tasked itsel with developing at

least three breakthroughs that will

dramatically improve the worlds

ability to solve problems in the areas

o aordable and adequate ood

supply, decent housing, energy and

climate change, sustainable water

supplies, and improved personal

health and saety. By pointing its

research and development capabilitiestoward major problems aecting

people around the globe, Dow has

the opportunity to beneit society

as it positions itsel or competitive

advantage in the uture.ii

Does every societal challenge that

aects business lend itsel to a

commercial solution? No. And not

every corporate obstacle or strategic

issue is necessarily linked to a

undamental societal problem. Thatswhy corporations, private oundations,

individuals, governments, and other

unders must continue to support

issues and causes that support

thriving communities. But or many

undamental societal issues, the

strategy o developing products and

services that address those issues

in a way that also generates better

inancial perormance represents

an untapped opportunity and a

strategic imperative. As MarceloCardoso, Executive Vice President

or Organizational Development and

Sustainability at Natura Cosmticos

S.A., in Brazil, explains: Focusing

our business strategy on inancial,

societal, and environmental goals

in tandem allows the company and

society to succeed.

What, speciically, does it mean

to see business opportunity in

undamental societal issues and togenerate proitable innovations rom

them? How might a Sustainable

Value Creation strategy be plotted

or speciic kinds o companies across

dierent sectors?

Consider Figure 1-3, which ollows

the Sustainable Value Creation logic

or several industry sectors. It details

a sample core strategic issue acing

each industry, the possible root

causes that underpin each issue,the opportunities or Sustainable

Value Creation, and then the

approaches and beneits in

addressing the societal problems.

In the managed health-care industry,

or example (see the irst row o

Figure 1-3), companies are dealing

with a variety o core strategic

issues, one o which is that costs are

rising as a percentage o premiums.

Is there a societal problem thatis actually a root cause o that

strategic challenge? Yes: In this case,

one underlying cause is unhealthy

consumer behaviors, such as lack o

exercise and eating habits that lead

to rising rates o preventable diseases.

A Sustainable Value Creation

opportunity or a managed health-

care company could be to design

innovative health interventions to

provide consumers with inormationand resources that support personal

wellness, positively inluencing the

behaviors that have led to rising

costs. To do this, a company could

collaborate with third partieseven

competitorsto engage in research

and program design. They could also

partner with corporate clients to

implement these interventions with

their employees, cooperate with

governments to raise awarenessamong citizens, and work with

schools to educate students.

The result is a series o important

beneits to society and to the

business: Society beneits rom

healthier community members while

managed health-care companies

beneit rom a possible reduction

in the number o high-cost claims

and the potential expansion o their

research base, which may inorm thedesign o uture interventions.

As Figure 1-3 also shows, this

same logic can be applied to many

industries and needs. Shortages o

talent in areas like IT or engineering,

or example, could be addressed

through proactive investments

and partnerships with educational

institutions. In the inancial services

industry, training and programs that

support college savings planningin disadvantaged communities

can beneit both students and

companies. Such initiatives can

simultaneously help students gain

access to post-secondary education,

increase their inancial literacy, and

provide the companies with a deeper

understanding o this untapped

market to support the design o

appropriate products and services.

Speciic opportunities will vary,

since the underlying societal issuesare ultimately company-speciic.

The common theme, however, is the

need or innovation and executive

vision; many o the most important

breakthroughs will arise rom the

ability to see potential solutions that

may initially seem non-intuitive.

Imperative One:Recognize the Opportunity

Business at its Best: Driving Sustainable Value Creation


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Figure 1-3: Locating the Societal Issues Underlying Core Strategic Issues

Sample IndustrySectors

Sample CoreStrategic Issue

Possible Root Causeso the Strategic Issue

Opportunity orSustainable ValueCreation

ApproachesRequired

Societal andBusiness Benefts

Managed Health Care Costs rising asa percentage opremiums.

Consumer behaviordetrimental to health,causing rising rates opreventable diseases.

Design healthinterventions thateducate and equipindividuals withinormation andresources that supportpersonal wellness.

Partner withthird parties andcompetitors orresearch and programdesign.

Partner withbusiness-to-businesscustomers to roll outinterventions withtheir employees.

Team withgovernment andacademia to educatecitizens on anongoing basis.

Possible reductionin number o high-cost claims.

Improved health oemployees or B2Bclient employees.

Expanded researchbase.

Consumer Staples Packaged Foods

Rising commodity andtransportation costs.

Inputs are not locallysourced due to pooror inconsistent qualityrom local vendors,oten caused by a lack

o raw materials andtraining.

Partner with localgovernments, NGOs,and armers orcapacity-building.

Multi-year investmenthorizon andcommitment to localcommunities.

Establishing cross-

sectoral partnershipsand identiying localleaders.

Improved economicand living conditionor local communitand armers.

Stable and high-

quality commoditysupply.

Diversifed FinancialServices

Slow rate o newconsumer loans.

Students deterredrom highereducation, given risingtuition costs.

General lack ofnancial education.

Develop training andproducts that supportcollege-savingsplanning.

Cross-sectorpartnershipor curriculumdevelopment anddelivery.

More in-depthconsumer research tounderstand previouslyuntapped market.

Greater opportunitiand access to post-secondary educatio

Improved householfnancial literacy.

Higher trust anddeeper relationshipwith communitiesand localstakeholders.

Inormation TechnologyConsulting

IT talent shortage andrising wages.

High dropout ratesor post-secondaryeducation.

Partnership withcommunity collegesto support training,mentorship, andrecruitment o high-potential students.

Cross-sectorpartnership orprogram design.

Modifed recruitingand on-the-jobtraining practices.

Employee-volunteermentors.

Strengthenedtalent pipeline.

Greater incentivesor students toremain at school.

More robustcurricula.

Lit to employeemorale.

Materials Rising costs oextraction and limitsto supply.

Low consumerrecycling rates spurextraction rather thanreuse.

Growing levels oconsumption roman expanding globalmiddle class.

Invest in convenientand cost-eective recyclinginrastructure andconsumer-educationinitiatives.

Signifcant up-ront R&D andinrastructureinvestment.

Partner withcommunities oneducation andcollection.

Research intoconsumer attitudes.

Reduced landfll us Lower energy

and other costsassociated withrecycling ratherthan extraction.

Improved recyclingtechnology.

Opportunities orsharing technologieand insights.


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Sustainable Value Creation:What's dierent?

Is Sustainable Value Creation simply

the pursuit o proit under a dierent

name? Whats truly dierent or

new about this strategy? In some

important respects, Sustainable Value

Creation is business as usual. The

unction o business remains intact:to identiy consumer needs and to

create innovative products or services

that meet those needs at a price

that optimizes demand versus cost.

Henrietta Holsman Fore, Chairman

o the Board and CEO oHolsman

International, notes, There needs

to be a proit margin at each step

o designing a Sustainable Value

Creation strategy because at its heart

its an economic and business-driven

decision.

Figure 1-4 demonstrates, using

PepsiCo as a case example, that

Sustainable Value Creation is

indeed based on the oundation o

a companys traditional iduciary

responsibilities to shareholders and

its undamental drive or proit.

Similarly, corporate commitments to

social responsibility and philanthropy

also continue, because, as noted,

not every societal issue that aects

business will necessarily lend itsel to

a commercial solution.

As the igure also indicates, however,

what is new is the added layer o

opportunity at the top: the manner

in which Sustainable Value Creation

moves businesses beyond some o

the restrictions inherent in traditional

philanthropy and actually views

corporate participation in the solutiono undamental societal issues as a

source o competitive advantage.

As PepsiCos Chairman and CEO Indra

Nooyi noted during her remarks as a

panelist at the 2011 Board o Boards

CEO Conerence, Theres not enough

money that we can give away to be

viewed as a responsible company in

200 countries. And we cant do it

sustainably. So the only way it can

work is to weave responsibility into

the core business o the company.

Consequently, PepsiCo is rethinking

its strategic challenges by

pursuing opportunities aligned

with Sustainable Value Creation.

For example, in the Mexican region

o Jalisco, PepsiCo is investing in

armer training and providing small

and medium-size corn growers the

seeds, ertilizers, agrochemicals, and

water-usage guidelines that help

them produce abundant crops. The

objective is to improve the quality

o corn supplied to the companysactory by local producers (whose

products previously ell below its

quality standards). While generating

increased business value to the

company through a more eective

supply chain, these investments are

also raising the living standards o the

local community.

This example makes clearer how

Sustainable Value Creation takes a

company beyond business as usual.Another company in this situation

might well choose simply to absorb

the luctuations in transport and

raw material costs rom sourcing its

inputs rom outside the local area.

But rather than endure rising costs or

inconsistent quality as a continuing

pain point shaped by external orces,

PepsiCo chose instead to conront

the underlying problems head-on: in

a way that led to better value both

or the business and the community.This is a powerul example o inding

business opportunity in undamental

societal issuesa goal at the heart o

a Sustainable Value Creation strategy.

Theres not enough

money that we can give

away to be viewed as a

responsible company in200 countries. And we

cant do it sustainably. So

the only way it can work

is to weave responsibility

into the core business o

the company.

Indra Nooyi, Chairman and CEO,

PepsiCo


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Figure 1-4: Snapshot o a Complete Business Strategy

Createnewproductsand

services that addressundamental societal needs.

Collaboratetosimaltaneously

raise the well-being ocommunities and corporateproitiablity.

Sustainable Value CreationA company cannot lose sight ofits fiduciary responsibility, butmany CEOs realize that thepursuit of a return by anymeans necessary isntinherently sustainable.

CSR and philanthropy are

important components ofcorporate behavior and willalways be needed. However,they cannot alone resolvethe fundamental societalproblems underpinning corestrategic business issues.

As Sustainable ValueCreation is scaled acrossthe company, it beginssimultaneously to fulfill thecore business mandate andto support societal goals.

Elements of PepsiCos

Business Strategy

Return a profit to owners. Create products and/or

services that meetconsumer needs.

Pay taxes and complywith applicable laws.

Core Business Mandate

Create new products andservices that addressfundamental societal needs.

Collaborate to raise,simultaneously, the wellbeingof communities and corporate

profitability.

Sustainable Value Creation

Use all resources responsibly. Conduct business ethically. Contribute cash, product,

and/or volunteer time tosocietal issues with nocommercial resolution.

Corporate SocialResponsibility andPhilanthropy

Delivered 33% revenue growth

from 2010 to 2011.

Aim to improve waterefficiency by 20% by the endof 2015 and provide access tosafe water to 3 million peoplein developing countries.

In 2010, PepsiCo Foundationcontributed nearly $26million toward charitablecauses including nutrition,activity, and education.

Investing in farmer trainingand infrastructure in Jalisco,Mexico, to improve thequality of corn supplied to

the companys factory whileraising the living standardsof the local community.


Business Strategy


Business Strategy


16/62


Why the urgency?

Why havent companies pursued a

Sustainable Value Creation strategy

beore and why is there an urgency to

do so now?

Some companies and industries are

eeling a push toward Sustainable

Value Creation. The irms corestrategic targetsor example, the

pursuit o new operations: the desire

to grow in emerging markets or in

an increasingly competitive ield

are putting societal concerns more

directly in the path toward achieving

those objectives.

For others, there is a pull toward

Sustainable Value Creation. Over

time, the business model is becoming

less compatible with deeply rootedsocietal issues that are nearing

a breaking point, such as health

concerns or a dependence on inite

resources. The industry, geography,

and maturity o the business will

all play a role in determining the

exact timeline along which to pursue

Sustainable Value Creation. However,

whether driven by an external

or internal strategic mandate,

Sustainable Value Creation is a

strategy that all high-perormance

businesses will have to conront.

Given the time and eort to roll out

such a strategy, being proactive yields

a greater suite o possibilities or

implementation.

In the words o Kris Gopalakrishnan,

President and CEO oInfosys

Technologies, Inc., The long-term

sustainability o the company hinges

on the larger society eeling the

beneit o the companys existence.

Sustainable Value Creation is in the

sel-interest o the company.

Advancing the vision

The undamental imperative explored

in this chapter is, in the end, about

vision: recognizing the untapped

opportunities in undamental societal

issues and engaging with those

issues as part o core strategy. As the

steward o the corporate direction,

the CEOs role early in the journeytoward Sustainable Value Creation is

especially important.

Although many companies are still

at an exploratory stage, the CEOs

interviewed or this report were

almost unanimous in their conclusion

that a Sustainable Value Creation

strategy is rapidly becoming non-

optional. Fundamental societal issues

lurk behind many o the challenges

business will ace over the nextdecade. Companies can address those

issues now, proactively, when the

ull suite o possible responses is still

availableor they can react to them

later, when optimal solutions may be

more expensive and the opportunities

to achieve competitive dierentiation

ewer.

CEOs, however, are acutely conscious

o the challenges that arise as a

company moves rom early planning

phases to implementation. Learning

to identiy and screen opportunities

more eectively, adopting more

iterative management approaches,

and supporting a Sustainable Value

Creation strategy with the proper

structures and incentives: these are

among the hurdles to be aced.

Inormed by lessons rom companies

already progressing along this

path, Chapter 2 explores three

implementation imperatives designed

to overcome these hurdles and

accelerate the journey.

The long-term sustainability

o the company hinges

on the larger society

eeling the beneit othe companys existence.

Sustainable Value Creation

is in the sel-interest o the

company.

Kris Gopalakrishnan, President and

CEO, Infosys Technologies, Inc.

"


17/62



18/62

CEOs o pioneering companies

that have driven the irst wave o

Sustainable Value Creation stronglyemphasized the challenges involved

in pursuing a business strategy

that sometimes appears to be just

business as usual. For example,

implementing a Sustainable Value

Creation strategy requires many

o the same change-management

techniques as the deployment o any

sizable, strategic corporate shit.

Yet these techniques must be adapted

to account or the linkage to relevantsocietal issues. This requires the

capability to see opportunities, screen

them, manage programs iteratively,

and support the entire endeavor

organizationally.

This chapter addresses three speciic

implementation imperatives to

guide CEOs as they implement a

Sustainable Value Creation strategy.

The ollowing page brings these

imperatives to lie through theexample o the global pharmaceutical

company Novartis AG (see Novartis

case study: Three Implementation

Imperatives in Action).

Recalibrate Your Radar:

Successul companies become so

in part because they have a goodradar or recognizing growth

opportunities and they know how to

match those opportunities to their

experience, reach, and competencies.

But understanding how to translate a

societal issue into a business strategy

will require expanded thinking,

particularly in the areas o eectively

identiying and prioritizing potential

projects.

Research, Develop, Repeat:Implementing Sustainable Value

Creation isnt done on a whiteboard

in a conerence room. Instead, a

company must become more involved

in local communities and should view

implementation as an R&D eort,

especially in terms o being prepared

to test, ail, and learn.

Rewire the Organization:

As companies move rom initial,

limited successes to more scalableSustainable Value Creation solutions,

they need to adapt the structures

o their organization to make

sure new modes o operating are

adopted across the business. They

need commensurate governance

and reward mechanisms as well as

measurement and communication

strategies that gauge and support the

initiatives success.

From Opportunity to Action

02



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A Sustainable Value CreationJourney through Arogya Parivar

Launched by Novartis in 2006, the

Arogya Parivar (the Hindi phrase or

Healthy Family) program combines

health-care education and access to

aordable medicines in rural India.

This or-proit social initiative is

based on Novartiss belie that helping

patients in rural India should move

beyond philanthropy to a sustainable

business model that empowers

patients to take their health into their

own hands.

Recalibrate Your Radar

Detect and screen opportunities and

obstacles through the lens of societal

issues.

In creating this concept, Novartis

sought ways to leverage its reach,

scale, and competencies in emerging

markets. The company was inspired by

experts in the academic community

in particular C.K. Prahalad, thelate, distinguished proessor o

corporate strategy at the University

o Michigan who authored the book

The Fortune at the Bottom o the

Pyramid: Eradicating Poverty through

Proits. Proessor Prahalads research

showed that seemingly unreachable

populations at the bottom o the

economic pyramid make up around

one-third o the worlds population

and present a sizable opportunity to

extend access to health care. Novartisbegan to analyze statistics on rural

Indias population, purchasing power,

transportation inrastructure, and the

density o private doctors to identiy

communities or a pilot program.

Research, Develop, Repeat

Become more involved in local

communities and view implementation

as an R&D effort, experimenting and

refining on-the-go.

The key elements o the Arogya

Parivar project are built on a keen

understanding o local conditions.

The program ocuses on educating

patients about disease prevention

and management while also oering

treatment options rom across the

broad Novartis portolio. For example,

as many doctors in rural villages havelittle ormal medical training, Novartis

recruited villagers who closely

understood the customs, norms, and

needs in the villages to become local

health educators. Cells, each serving

around 100 villages, were created and

assigned a health educator to lead

inormation sessions on topics such

as preventative health and nutrition

and to reer sick people to doctors.

Educational materials are tailored

to meet local needs and have been

translated into 39 dialects.

On the commercial side o Arogya,

recognizing that many villagers

are ieldworkers who earn just a

ew US dollars daily, Novartis made

treatments more aordable by selling

medication in smaller packages

with doses or only 1-3 days. While

patients need to purchase the packs

more requently, this keeps weekly

treatment costs below USD 1.25. The

company also works to ensure that

local pharmacies are well-stocked

with medicines by setting up new

distribution networks that can supply

very remote locations.

As Novartis continues to adapt the

Arogya Parivar initiative to meet

the needs o patients in rural India,consultations with local stakeholders

have enabled the company to make

adjustments to the original concept.

For example, education about the

causes o diseases was ound to be

even more critical than aordability;

thereore, education became a major

ocus o the program.

Rewire the Organization

Embed new structures,

communications, incentives, and

metrics to scale.

Today, Arogya Parivar is present in

180 districts in 10 states across

India, covering an estimated 50

million people in the country with

the eventual goal o reaching 350

million people in the next decade.

Moving orward, Novartis plans to

orm a consortium o at least 20

NGOs in India to provide targeted

intervention in the causes o diabetes,tuberculosis, diarrhea, and clean

water. Also, the company is already

piloting a similar program in China

and there are plans to replicate and

adapt the model in other countries in

East Arica and Southeast Asia over

the next ew years.

Relecting on the success o the

Arogya Parivar project, Novartis CEO

Joe Jimenez commented: We knew

that i we could create a win-win,by both serving the patients and

creating value or the company, it

could create a level o sustainability

that traditional corporate citizenship

may not achieve.

Novartis AG: Three ImplementationImperatives in Action

Case Study



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Sustainable Value Creation involves

a process o inding the convergence

between core business strategy

and undamental societal issues.

Consequently, the radar withwhich companies detect oncoming

obstacles and opportunities must

be recalibrated to recognize the

relevance o societal issues to the

business.

Ultimately, a companys radar must

be orward-looking, assessing the

potential impact o issues beorethey

actually arise. Secondly, a properly

recalibrated radar will not only help

companies identiy the oncomingissues, but also provide enough data

to assist with prioritizing which ones

the company should (1) deal with

immediately, (2) simply monitor or

now, and (3) disassociate rom the

companys uture growth path.

Detecting obstacles andopportunities

Identiying societal issues that could

be translated into proitable productsand services isnt oten an existing

competency or many companies or

their leaders because it alls outside

the scope o traditional business. A

poll o the CEOs who attended the

CECP 2011 Board o Boards cone-

rence revealed that about one-hal

o these CEOs believed that

identiying and prioritizing issues

at the convergence point between

business goals and societal goals

was the biggest obstacle they aced(See Figure 2-1). One-on-one CEO

interviews conirmed this notion

that recalibrating a companys radar

or Sustainable Value Creation

opportunities is a signiicant

challenge.

Imperative Two: Recalibrate Your Radar

Figure 2-1

In implementing a Sustainable Value Creation strategy, which stage didyour company fnd most difcult?

Source: CECP Board of Boards CEO Conference, 2011; N=59

Figure 2-2

Which o the ollowing most likely points to underlying societal issues thatare relevant to your business?


Negative media or stakeholderattention for our industry or company.

Scientific studies highlighting unseenconsequences of our products/activities.

Changing regulations.

Regional or global demographic shifts. 19%

29%

9%

24%

19%Tightening access to resources that ourbusiness depends upon.

Identifying an initial set of societal

issues that link to our competitive

advantage.

Focusing our scope down to projects

where we can make an impact.

Deploying the project and learning

from early mistakes.

Scaling the strategy across the company.

Measuring societal and business

performance.

22%

0%

20%

9%

24%

25%

Not applicable to my company at this

time.


21/62


How can a company improve its

radar? What ollows is a selection o

approaches discussed by the CEOs

interviewed or this report.

Tap into trends

As with any new product or

strategic initiative, the irst source

o ideas is trend analysis. Cluesto important societal issues that

could be business opportunities can

be ound in a variety o places: a

companys inancial orecasts, positive

or negative patterns in its media

coverage, pertinent demographic

or scientiic studies, or actors

such as the increasing costs o raw

materials. Ideas can also come rom

examining regulatory trends and

rom paying attention to issues being

pursued consistently in the media.In the Board o Boards polling, CEOs

particularly emphasized these latter

two sources o trend analysis. (See

Figure 2-2.)

For some companies with an internal

research team, a reorientation around

societal issues can be a powerul

source o ideas. For example, to help

identiy societal issues relevant to

its business opportunities, inancial

services company HSBC Bank plc

created a Climate Change Centre

o Excellence, an in-house research

center that, according to the

Centre's Head Nick Robins, provides

a ocal point within HSBC to look

at climate change as a strategic

commercial issue. The Centre aims

to stimulate greater understanding

o the implications o climate change

and to translate these into business

opportunities or both HSBC and itsclients.

Read between the lines to trackcustomer pain points

Another source o ideas and

opportunities is consumers and

enterprise customers. Yet companies

need to look or customer intelligence

with methods beyond some o the

traditional means o harvesting

customer-service inquiries and

complaints, because the products and

services to be designed touch on more

complex issues than companies have

targeted historically. The linkage to

societal issues oten requires more

subtle ways o reading between thelines into what customers are saying

and doing: looking or entrenched

pain points and needs particular to

the society in which they live and

then translating these pain points and

needs into opportunities.

Several leading companies have

already demonstrated the beneits

o harnessing the power o customer

understanding to develop innovations.

For example, GEs healthymaginationstrategy was developed in response

to both customer demands and

societal needs. By listening to these

constituencies and connecting

the dots between macro societal

trends and consumer eedback, the

company was able to create cutting-

edge products and technologies

that improve health and cut

costs. (See GE case study, Turning

Customer Feedback into Business

Opportunities.)

Empower passionate employees

A companys own workorce is

also an important source o resh

ideas. Passionate employees

outside traditional product-design

unctions and who have a vision

or turning a societal issue into a

competitive advantage can become

intrapreneurs on the companys

behal.

To harness employees close

amiliarity with products, services,

processes, customers, and culture,

companies must have mechanisms

in place to gather and consider

employee insights. That is, there

must be well-known and well-used

Youre really looking or

programs to be win-wins

with your employees and

your customers, as well asbeing the right thing to do.

We ound that the only way

to drive our sustainability

objectives orward is by

entering into dialogue with

stakeholders.

Irene Dorner, President and CEO,

HSBC Bank USA, N.A.

"


22/62

Customers call or a ocuson the environment

GEs path to Sustainable Value

Creation began with mobilizing the

company to tackle environmental

issuesnot only by optimizing

the eiciency o the irms own

operations, but by creating a product

portolio that delivered solutions

to environmental challenges. How

did environmental concerns rise to

the top o the companys shortlist

o issues? Focus-group sessions

with customers revealed widespreadconcern regarding government

regulations and rising oil prices.

Picking up on this theme, GEs

Chairman and CEO Je Immelt saw an

opportunity or a win-win strategy:

to improve the environment and the

bottom line by illing this growing

market need with next-generation jet

engines, power turbines, locomotives,

water-treatment systems, solar

panels, and other solutions.

Reconciling competingcustomer and employee visions

Launched in 2006, the now-amous

ecomagination program has been

a roaring success; the company

sold more than $18 billion worth

o ecomagination products in

2009 and expects that igure will

double by 2015. However, at the

time o ecomaginations launch, GE

employees were highly skeptical thatthe billions being invested in R&D

would pay dividendsthey dismissed

the initiative as a marketing gimmick.

In act, at irst Mr. Immelt and SVP

and CMO Beth Comstock were the

only believers. Reerring to the irms

employee base, Mr. Immelt amously

said to a journalist: It was like two

people against 300,000 the irst

day.

iii

Mr. Immelt and Ms. Comstockcombated that resistance by linking

employees directly to customers and

emphasizing the energy savings and

market successes along the way.

A move rom environmental tosocietal issues

The next phase in GEs Sustainable

Value Creation journey directly

leveraged the lessons learned

and employee acceptance gained

through the ecomagination project.

Again, GE developed a shortlist o

issues by connecting more deeply

with customers to understand

their concerns. This active listening

led to the companys next

opportunity: consumer health. As

with ecomagination, the company

ollowed up on customer eedback

by dispatching teams to assess the

market, audit the companys current

product portolio, and researchtechnology trends. The company

identiied needs in our major areas:

health reorm, technology, health

delivery, and consumerism and

primary care. Thus, healthymagination

was born: a six-year, $6 billion

commitment to health-care

innovation designed to deliver better

care to more people at lower cost, all

while growing GEs business.

Taking a long-term approachto innovation

Asked in a December 2010 New

York Timesarticle to relect on his

philosophy, Mr. Immelt described

himsel as a champion o large-scale

entrepreneurship, meaning that

the company identiies long-term

market shits and then marshals

its research, manuacturing, and

marketing resources to capitalize on

the opportunity. Summarizing his

approach, Mr. Immelt said: Its about

using the scale o GE, the majestyo the company, to drive growth and

change.iv

GE: Turning Customer Feedback into Business Opportunities

Case Study

It's about using the scale

o GE, the majesty o the

company, to drive growth

and change."

Je Immelt, Chairman and CEO, GE

"



23/62

Business at its Best: Driving Sustainable Value Creation 19

channels or employees to use or

contributing and vetting ideas and

management must monitor the

channel, provide eedback, and reward

employees accordingly.

Longstanding assumptions about

what makes a viable suggestion might

need to change. For example, a plan

to make a positive impact on people

in need through a new business

service or product must now be

seen in a dierent lightnot only in

terms o traditional philanthropy, but

as a potential business investment.

The longer time horizon required

by Sustainable Value Creation must

be igured into the mechanism or

harvesting insights. A proposal that

might take several years to mature

can no longer be dismissed out ohand.

Harnessing employee ideas and

passion can generate proitable ideas.

At the telecommunications company

Vodafone, or example, two

employees helped create M-PESA,

a mobile banking solution or people

in Kenya without traditional bank

accounts.v M-PESA has grown rapidly,

reaching 13.5 million users as o

September 2010 and counting morethan 80% o Vodaone subsidiary

Saaricoms customers as registered

or the service.vi

Ultimately, what companies require

is more collaboration and dialogue

related to Sustainable Value

Creationwith customers, employees,

and other stakeholders. As Irene

Dorner, President and CEO oHSBC

Bank USA, N.A., puts it: Youre

really looking or programs to bewin-wins with your employees and

your customers, as well as being the

right thing to do. We ound that the

only way to drive our sustainability

objectives orward is by entering into

dialogue with stakeholders.

Engage your critics

Leading CEOs report that important

eedback can be gained through

candid dialogue with consumer

organizations and nonproits

including those that have

traditionally been perceived as

adversaries. Oten, these groups

have complementary assets that candeliver important beneits at the

early stage o identiying Sustainable

Value Creation opportunities. Such

organizations are highly engaged in

their work with target communities;

they know the situation on the

ground and can be vital sources o

inormation about opportunity as well

as implementation. In eect, these

institutions have highly developed

radars to detect pressing social

issues and community needs that a

company can harness to promote idea

generation.

Some companies have ound it

worthwhile to invite critics to

comment on the companys uture

strategy and practices. Chad Holliday

implemented this collaborative

approach while he was CEO at

DuPont. On an annual basis, he

invited nonproits to review and

comment on the companys strategy

and direction. The sessions included

participants who were known to be

critics. Holliday notes, You dont

want somebody whos just going to

agree with you on everything; thats a

waste o time. You want people who

will push back.

External organizations are more

than just a source o eedback

and inormation; they can also besources o collaboration, where each

partnera business, a government

agency, or a nonproitcan contribute

complementary skills. NYSE Euronext,

or example, is looking to develop

partnerships that provide content

on inancial literacy, channeling its

dierentiating assetsits distribution

network and reputationto get this

inormation into the marketplace and

peoples homes.

You dont want somebody

whos just going to agree

with you on everything;

thats a waste o time. You

want people who will push

back.

Chad Holliday, Chairman o the Board,Bank of America and ormerCEO,

DuPont

"


24/62


Deciding when to act

Developing a better radar means

seeing more opportunities in more

areas and also iltering or prioritizing

them more eectively. The ultimate

goal is to narrow down the list

o potential societal issues into a

shortlist o those that are (1) clearly

a broad need, (2) unique, (3) linked toa companys strategic direction, and

(4) addressable by the companys core

competencies.

Map the complexities tounderstand the deeper need

Its important to try to map some o

the interconnected cause-and-eect

issues related to the need. Societies

are complex interdependent systems

or example, obesity has a link topoverty; early childhood education

issues are oten connected to poor

nutrition. Mapping these complexities

early in the process helps ensure that

projects achieve the desired impact

with ewer unintended consequences.

By skipping this crucial analysis, many

companies uncover these linkages

only ater considerable time and

unds have been spentand then

must evaluate whether a change in

strategic direction is needed ater theroot causes o an issue are more ully

understood.

Examine ideas or uniqueness

There are advantages and

disadvantages associated with

developing a unique idea. A unique

program can become a distinctive

part o a companys brand and

perhaps generate advantageon

the other hand, there may be ewerknown paths orward, and more

missteps.

Either way, it is important or

companies to understand at the

outset whether the projects they have

chosen are distinctive or common

(or even potentially redundant). The

way to do this is to engage in due

diligence when iltering the initial

slate o opportunities. A rigorous

process needs to be in place, in order

to analyze the broader environment

and ascertain what opportunities

other unders, government agencies,

academic institutions, and nonproit

organizations are actively pursuingrelated to the selected societal issues.

Some topics or programs are crowded.

A bank, or example, might well

become interested in inancial literacy

programs or consumers in emerging

marketsonly to ind that many other

banks are already irmly entrenched

in that space. Companies should also

investigate, to the extent possible,

what their industry peers and supply-

chain partners are doing (or notdoing) related to the opportunity.

Match areas o social need withstrategic direction and markets

Leading CEOs then use their

companys orward-looking core

business objectives to determine

which projects to pursue. They work

to understand the overlap between

markets where the company is active

or where it wants to expand its

presence in the uture. This analysis,

as well as industry and geographic

priorities, serves as another important

ilter o potential opportunities.

Although assessing potential

inancial impact is an important

part o the iltering and screening

process, companies should not seek

to calculate in ull the net present

value o a Sustainable Value Creation

project at this stage. It may be too

early to expect detailed inancial

projections. Instead, executives

should deine high-level objectives

that eed rapid decision-making

and that involve stakeholders in

tracking success based on community

perspectives.

We are not trying to solve

every issue. Instead, we are

taking on things that are

core to our competencyand in geographies we

can manage. We do them

where they drive business

value, not just because they

sound good.

Doug Conant, President and CEO,

The Campbell Soup Company

"


25/62


Match priorities with corecompetencies

Executives should look or Sustainable

Value Creation projects that arewell-matched with the companys

unique assets and capabilities:

business know-how, employee skills,

supply chain, inrastructure, and

technology. Sustaining an initiative

like this over the long term and using

it to create competitive advantage

depend on inding a good it between

opportunity and competency.

As Doug Conant, President and CEO

oThe Campbell Soup Company,notes, We are not trying to solve

every issue. Instead, we are taking

on things that are core to our

competency and in geographies we

can manage. We do them where they

drive business value, not just because

they sound good.

Similarly, Verizon Communications,

Inc.s Chairman o the Board and CEO

Ivan Seidenberg says that Verizon

ocuses on areas that are uniquely

related to what our business is about.We take the core o our company and

extend into places where we think

we have natural credibility and can

deliver at scale.

Together, need, uniqueness, strategic

priorities, and core competencies

become a set o ilters that provide

practical guidance in determining

which Sustainable Value Creation

opportunities are potentially most

proitable. (See Figure 2-3.)

Figure 2-3: Screening Potential Sustainable Value Creation Opportunities

Short

List of

Societal

Issues

Sample

Pilot

Project

Core

Competencies

Strategic

DirectionNeed Uniqueness


26/62


Sustainable Value Creation projects

are business strategies subject to the

same rigor as any corporate initiative.

At the same time, they have to be

planned and managed in slightlydierent waysmore like an R&D

project: by rolling up the companys

metaphorical sleeves, getting involved

in local communities, taking risks, and

learning rom ailures. As noted, the

sort o traditional market research

that drives most growth initiatives

will probably not exist. Most likely,

the learning process will be iterative,

taking place in the community in real

time, and publicly, rather than in a

laboratory.

As with an R&D eort, the ocus

during implementation should be

on setting directional goals and

establishing a general target rather

than speciic and prescriptive

milestones too ar in advance.

CEOs interviewed or the purposes

o this report highlighted the need

to become more personally involved

in these earlier testing phases oa program to ensure that setbacks

do not derail the project when it is

in a ragile state. The ollowing are

some o the critical actions they

recommend.

Understanding thelocal context

To minimize unintended consequences

and increase the chances or success,

a Sustainable Value Creation projectmust involve, at an early stage,

understanding the context o the

populations that will be aected.

Such understanding helps to ensure

that the proposed initiative is truly

desired by the community and that

the company is transparent about its

initiatives intent. An important goal

o Sustainable Value Creation is to

work in a way that does not impose

a solution, but instead invests in

communities that are actively asking

or assistance on important societalissues.

Researching consumer needs,

tastes, and preerences is critical

but challenging. At early stages in

Sustainable Value Creation programs,

a company most likely will not have

the market research it needs to

proceed optimally. In many instances,

the target demographic has been

historically overlooked or past market

researchers have not explored thebehaviors and root causes o the

societal issue. Accordingly, the

company oten has to create this

market intelligence rom scratch.

Much o that research will be done

with boots on the ground, i.e., in

the local community rather than at

headquarters.

Companies must ensure that they

dont impose solutions that are

mismatched to local desires andneeds. In the words o Henrietta

Holsman Fore, Chairman o the Board

and CEO oHolsman International,

A company does not want people

telling the community what they

need, but rather someone with

very big ears who can hear what

the community needs. As this

understanding deepens, so does

trustwhich can pay big dividends

later in the process. John Reid,

Vice President o Corporate SocialResponsibility at The Coca-Cola

Company, explains, There is an

evolutionary pathway, which begins

with listening to the community and

iguring out what needs to be done.

This then evolves as the company

develops an authentic voice in the

conversation, in a manner that the

community genuinely appreciates and

that the culture and the corporate

priorities embrace as well.

The ollowing are some speciic

ways companies can better

understand local context to guide

implementation.

Navigate local power structures

Companies should test whether the

elected oicials or leaders within

a community accurately represent

the needs and wishes o the target

population. Every community has

both an oicial power structure and

an unoicial one and companies canwaste precious time and resources by

operating in a vacuum o inormation

about how things really get done.

As Klaus Kleineld, Chairman and CEO

oAlcoa, Inc., states, You can easily

go down the wrong path i you take

supericially voiced aspects rom some

people in the community who do not

really represent what is needed. It

may require some additional work to

get an accurate read on the broadercommunity. For its local initiatives,

Alcoa worked to create a governance

structure within the community and

with which the company could then

interact.

Leverage employees or externalorganizations with localknowledge

Sometimes the answer to

understanding local context may bewithin the business: with employees

in the target population or who

have close ties to it and can provide

insights into the nuances that can

make or break a project. Leveraging

these employee relationships can also

be an important way to build trust

with local communities.

Imperative Three: Research, Develop, Repeat


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Another eective approach is to tap

organizations that are well-connected

to the community. John Elkington,

Founding Partner and Executive

Chairman at Volans, recommends

working with one o the growing

number o organizations that try to

bring mainstream actors in the public

and private sector together withwider social change agents. Oten,

companies can also learn rom past

eorts, successul and unsuccessul,

made by other institutions.

A key is to leverage organizations

that are networked, empowered,

and credible in the community. For

example, when Applied Materials

sought to vet an initial list o

partners and social entrepreneurs

with whom to work when expandingits community investments or

electriying villages and schools

with solar technology into India,

the company asked or assistance

rom the Clinton Global Initiative,

leveraging that organizations

network as well as its local experience

and credibility.

Applying lessons, especiallyrom ailures, to reine theprogram

Research, develop, repeat reers

most importantly to the spirit o

learning as you go. Such an attitude

characterizes an eective R&D eort

and was a competency stressed in the

CEO interviews. The ability to iterate

through a less speciied process

requires some special capabilities

among both managers and executives

and also requires a culture amenable

to risk-taking and to applying lessonsrom setbacks to chart a better course

orward.

As John Reid oThe Coca-Cola

Company notes, Nobody in our

company thinks were at the end o

the journey; were always looking

or a way to make things better.

Successul companies incubate

ideas in a part o the organization

that enables and supports iteration,

using each round as a learning

opportunitylearning rom it in a

way similar to any pre-commercial

strategy. Creating a management

style that is more agile and responsiveand investing small dollar amounts

in each iteration (while still providing

necessary oversight and controls) are

important elements o this approach.

According to Beth Jenkins, a research

ellow at the Harvard Kennedy

School, Success oten occurs when

companies are able to ail without

it being a huge deal. Where theres

pressure to get it right the irst time,

you never do. Youre in a new marketand youre experimenting. Whatever

the case may be, you cannot predict

everything thats going to happen in

advance. (For an example o using an

iterative process eectively, see the

S.C. Johnson & Son Inc. case study,

Mitigating Risk While Betting on

Success.) A company does not

want people telling the

community what they

need, but rather someonewith very big ears who can

hear what the community

needs.

Henrietta Holsman Fore, Chairman and

CEO, Holsman International

"


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A philosophy o sustainability

SC Johnson, one o the worlds

largest makers o consumer homecare

products, is a company that has long

embraced the triple-bottom-line

deinition o sustainabilityocusing

on people, planet, and proit. In

pursuing its commitment to driving

social change, the company has

adopted the philosophy o ail small;

learn big as the key to the people

aspect o its sustainability strategy.

SC Johnsons emphasis is on practical

learning and experimentation toovercome the lack o market and

customer data needed to accompany

an expansion into new geographies

and to work with less advantaged

consumer groups.

On-the-ground data collection

To gather the needed data on

consumer liestyles and local

traditions that shape product

design and marketing strategy, SC

Johnson has continued its strategy

o embedding its own employees

into target communitiessomething

the company has been doing in

parts o Arica or nearly ten years.

When seeking to create sustainableopportunities or the company and

local communities, a team rom

SC Johnson lived on-site in the

Mathare settlement in Nairobi, Kenya,

alongside nonproit and academic

partners to experience irst-hand

the issues aced by residents. This

experience generated invaluable

market data and also allowed the

company to build relationships

and determine the best partners

in a region where trust in largeinstitutions comes slowly.

Learning rom mistakes togenerate insights

Leveraging its brands and products,

SC Johnsons irst moves were to

introduce pesticide and household

cleaning products into the settlement.

These products help prevent

insect-borne and hygiene-related

diseases. Unortunately, pilot testingdemonstrated too big a gap between

consumer incomes and the products

costs. However, the SC Johnson

team gained valuable insights rom

these initial eorts, which led to

a breakthrough: the Community

Cleaning Services (CCS) program. As

part o this initiative, local residents

received valuable training in cleaning

public and shared lavatories in

buildings such as apartments and

schools. In essence, the company

created a totally new business model,

one providing meaningul income

or settlement residents working as

cleaners and marketing sta or CCS

and by improving hygiene or the

community at large.

S.C. Johnson & Son, Inc.:Mitigating Risk While Betting on Success

Case Study

A culture o patience, risk-taking, and learning

Careully managing the scale andinancial investment in such projects,

along with a corporate culture that

emphasizes learning, helps SC Johnson

determine which social initiatives

are viable and which are not. Such

management also helps share insights

across the organization. To make an

initiative work, employees involved in

product trials must publish and share

their lessons learned, explain how

insights gleaned in the past have been

re-applied, and show what steps are

being taken to make the venture truly

sustainable.

Summing up the approach, Kelly M.

Semrau, Senior Vice President Global

Corporate Aairs, Communication

and Sustainability, explains: We are

true believers in a holistic approach

to sustainability and were willing

to learn by doing in order to have a

positive impact in communities around

the world.

We are true believers in

a holistic approach to

sustainability and we're

willing to learn by doing

in order to have a positive

impact in communities

around the world."

Kelly M. Semrau, Senior Vice

President - Global Corporate Aairs,

Communication and Sustainability,

SC Johnson

"



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Link employee incentives and

rewards to the goals of the

strategy.

Create governance structures that

guide and support the strategy.

Connect senior leadership to

employees through site visits and

town halls.

Publicize ambitious targets in

the media to hold the company

accountable.

Use social media and other

channels to share successes and

generate dialogue.

10%

10%

20%

27%

32%

Invite credible outsiders to praise

the companys progress.1%

When a company has had some

initial successes with pilot projects

within its Sustainable Value Creationprogram, it then looks to scale those

pilots across other parts o the

organization or to larger numbers o

customers and constituents. I CEOs

are to bring their eorts to scale, as

with any large-scale strategic change,

rewiring their organizations will

be required over timeembedding

new structures, communications,

incentives, and metrics across the

organization to sustain new behaviors

and attitudes. Rewards, incentives,and governance structures are where

Sustainable Value Creation will

actually be promotedand where it

will succeed or ail, as indicated by

the polling o CEOs at the CECP Board

o Boards conerence (see Figure 2-4).

Aligning structureswith strategy

The structural changes needed to

embed a Sustainable Value Creationorientation in corporate behaviors

require new approaches to incentives,

governance, and communications.

Incentivize and reinorce

To reinorce and substantiate

the companys commitment to

Sustainable Value Creation, CEOs

recommend modiying incentives

so that new behaviors actually

become woven into the organization.As employees are incentivized to

contribute more eectively to the

goals o the initiative, and then as

they move into positions o greater

oversight and responsibility, the goals

o the program are more readily

promoted.

According to Samuel Palmisano, the

Chairman, President, and CEO oIBM:

We use an extensive set o incentives

to engage our employees: some

involve recognition and others areinancial, matching skilled employee

engagement with incentive grants.

But most important is a set o IBM

technology tools that maximize

IBMers ability to solve problems in

a truly sustainable way, which has

engaged more than 180,000 o our

employees to contribute over eleven

million hours o their time to societal

causes globally in the last ive years.

Embedding program goals intoindividual perormance assessments

is key. At Accenture, or example, the

company has an innovative corporate

social responsibility initiative, Skills

to Succeed, with an ambitious goal

o equipping, by 2015, 250,000

people around the world with the

skills to get a job or build a business.

Imperative Four: Rewire the Organization

Figure 2-4

Which approach to scaling a Sustainable Value Creation strategy across thecompany is most eective?



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The initiative is so important to

the company that perormance

objectives or the leadership team

include Skills to Succeedtargets.

Similar perormance objectives are

also in place or other levels o the

organization, including country-

speciic managing directors.

Ultimately, giving employees a

vested interest in the programs

success can be a way to build broad-

based, sel-perpetuating support

(see The Campbell Soup Company

case study: Scaling the Strategy

through Employee Engagement).

CEOs who have begun down the

path o Sustainable Value Creation

oten remark that many employees

derive great satisaction rom being

involved in this type o strategy. KarenMcArthur, Global Head o Corporate

Responsibility at Thomson Reuters,

believes that, or many employees,

Its a heart-based decision. It can

be transormati

driving sustainable value creation_2011

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