What does it all mean for business?

Paradigm_Shift

Diego Horcajada, November 2017

Building on my previous post “The Paris summit 2015 and the 17 Sustainable Development Goals (SDGs)”, I strongly believe we need to elevate the thinking process above the business level, where today success is defined by the market share and the speed of profit generation, fostering competition instead of collaboration. We need to talk therefore about industrial sectors, about open collaboration among the players within each sector, and then consider each sector as supplier and/or customer of the other sectors.  For example, the energy sector is supplier of many the other sectors, and at the same time is customers of other sector such us the machinery sector. It will be at the sectorial level where we need to define what success looks like, in other words how the optimal relationship among sectors should be. The key word here is optimal, which we can define as the situation where quality (not quantity) and efficiency are maximized, while the true cost is minimised (with carbon cost included and labor cost excluded, for example).

In his book “The New Human Rights Movement”, Peter Joseph proposes “five shifts to increase economic efficiency and reduce scarcity pressure” that will help reduce socioeconomic inequalities and the associated risks of social instability (migration flows, revolutions and wars) allowing us to rapidly address climate change trough a faster shift to renewable energies. I would go further and say that after fully shifting to renewable energies we can effectively address environmental restoration. It is important to signal here that all of these “five shifts” are already happening at a small and uncoordinated scale:

  1. Automation: move from a mode of “labor for income” to machine automation with the objective of maximizing productive capacity and efficiencies. We have automated many manufacturing and logistics activities since the 1950’s, and with the arrival of AI (Artificial Intelligence) we see already that many of the jobs currently being done by humans will soon be taken over by machines and algorithms. A prerequisite for social stability in this stage will be the implementation of the Universal Basic Income.
  2. Access: move from property and ownership mode to access mode to extend product quality and durability, reduce production intensity and increase product/service availability for all. The already ongoing Product-Service-System and sharing economy concepts are good examples of this second shift.
  3. Open source: move from proprietary research, knowledge and data protection to collaborative research and contribution. We have already examples like Tesla motors patents and acceleration of open science.
  4. Localization: move from globalized to localized supply chains, with the objective of maximizing efficiency in production and distribution. This shift will require shifts 1 and 2 to be largely implemented across the globe.
  5. Network digital feedback: in Peter Joseph’s words, “transition from fragmented economic data relay to a fully integrated, sensor-based digital system” this will help to maximize connectivity, feedback and usage of information to finally increase total economic efficiency. I think we are already moving in this direction with the Internet of Things and Block Chain technologies.

I know our current social and economic paradigms make us fear this fundamental mindset shift, but the size and urgency of the challenge humanity is facing require an adjustment of the definitions of terms such as “welfare society” beyond the current economic and political frames. Metaphorically speaking, this paradigm shift is like the transition from water to land, where the evolution from gills to lungs allow species to evolve from absorbing oxygen in an aquatic environment to a land environment where oxygen is absorbed from the air. An important clarification: money here is not the oxygen, but rather the aquatic environment, while happiness and wellbeing are the oxygen. We need to develop a new concept of the economy where money is not the driver for human decisions.

What does this all mean for business?

As before mentioned, we need to elevate the thinking process above the business level, and a good way to start is by changing the perspective applied by business leaders when they look to their business, society and nature.

In their article “What does sustainability for business really mean? And when is a business truly sustainable?” Katrin Muff and Thomas Dyllick propose a typology for business sustainability (BST) ranging from BST-0.0 (business as usual) to BST-3.0 (true business sustainability) that nicely illustrates the change in business perspective.

I will avoid any comment on BST-0.0 where the social and environmental concerns are noticeable by their absence in the development of business strategies.

Companies in BST-1.0 (refined shareholder value management) consider the social and environmental concerns only as an input in their strategy development process. Companies in the BST-1.0 will certainly pay attention to social and environmental concerns, but only to mitigate the risk to the company image, credibility and value (stock market). Social and environmental concerns are therefore considered only as risks.

Companies in BST-2.0 (managing for the triple bottom line) consider the social and environmental concerns both as input and output in their strategy development process. For companies in BST-2.0 the social and environmental concerns become part of their objectives and somehow their strategies. Metrics will be in place to measure the quality of the output in the three dimensions of the triple bottom line (people, planet, profit). Social and environmental concerns are therefore considered as risk as well as opportunities.

From a moral point of view, I do not perceive a major difference between BST-1.0 and BST-2.0. I do recognize the difference in the way the social and environmental concerns are considered in relation with the economic or financial concerns, but in both cases the economic and financial concerns drive the business strategies. Companies in BST-1.0 or BST-2.0 build their strategies by looking first at the needs of the company, and evaluating later how to reach them considering external factors such as society and environment. The needs of the company have a higher priority than the needs of society and the planet. In Muff and Dyllick’s words, companies in BST-1.0 or BST-2.0 have an “inside-out perspective”

Companies in BST-3.0 as well as companies in BST-2.0, have the social and environmental concerns as part of the input and output of their strategy development process, but there is a major difference between the two typologies: In a BST-3.0 company, the business leaders position themselves looking at their business from the outside world, then they ask themselves how can they use business resources for the benefit of the common good, developing products and services that generate positive impacts in society and planet while generating profit. In Muff and Dyllick’s words, companies in BST-3.0 have an “outside-in perspective”

BST-3.0 (true business sustainability) requires therefore to push the needs of innovation beyond the competition with other business players to collaboration with other businesses and organizations (for profit or non profit, social or environmental, NGOs etc.) in order to develop products and services that generate a positive impact on society and the planet while still making profit.

Companies in BST-3.0 have therefore different moral drivers than companies in BST-2.0 or BST-1.0. Do not misunderstand my purpose here; I do not intend to say that profit should not be an objective, I do not see anything wrong with making money. What to me is wrong and morally inacceptable is to have salaries with more that 6 digits at the top management level and even worse to still pretend to generate shareholder value.

Remaining questions:

  1. Is true sustainability (BST-3.0) accessible for existing corporations, or is it exclusive for new companies or B corporations?
  2. How do we elevate the thinking process above the business level?
  3. What role is the financial sector willing to play?

Many thanks for your interest.

Diego Horcajada

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