When Will Business As Usual Change?

Last week was “boot camp”. 200 MBA students engaged in a week of sustainability.   Lectures,  panels, movies, workshops, and case studies.

It was an intense period that precedes their projects (we launched 34 student projects at the same time), and is meant to give students an understanding of the issues faced (environmental, social, and economic), the role of the firm, and the responsibility that leaders will face going forward as they (1 )correct the failures of their business model or (2) build a business model that provides solutions to the problems faced.

It is a process where we look to take a balanced view, where we look at business, government, and consumers as the primary actors, and spend a significant amount of time discussing who is to “blame”, who will catalyze change, and who will ultimately be the leader.

And there are no clear answers.

Of particular interest though, regardless of who is to lead, is the “when”.  When will a leader emerge, and what are they waiting for.  Why is it that even when we are confronted on a daily basis with known issues of sustainability, there has yet to be leadership on the issues….. and why is it that those who say they are leaders, have yet to execute on their vision.

It was a topic that I saved for the last day, and opened with the three slides you see above. Slides that focus on three conditions that must be in place before true leadership will show itself.

1)  the problems grow too large to ignore.  In developing countries, this is sadly a far more common occurrence, although some would argue that Hurricane Sandy was a warning sign not to be ignored.  the problem with this as a primary catalyst, or the sole catalyst, is the fact that the by product of the problem (red algae blooms) are not necessarily felt by those who benefited from the systemic failure that led tot he algae bloom.  In short, the externalities that was enjoyed by a group was paid for by another group.  Which is why it take a massive failure for action to occur.  Melamine in the milk did just that, but as we have seen in the weeks that followed hurricane Sandy, the destruction along the Eastern seaboard was not enough to push the needle in the United States on global warming.

2)  stakeholders align against the business as usual model.  This is perhaps the most powerful catalyst for change, when it is harnessed in the right manner, and grows in direct proportion to the size of the problem. For many who are focused on sustainability, NIMBY is perhaps the most obvious example of where this can happen. As are government regulators.  but in Asia where the pressure is growing is inside the firm.  On the factory floor.  A result of economic development, urbanization, education, and the permanent settlements of migrants (by the millions), what were once docile workforces willing to eat / chew bitterness are now actively pressuring firms to improve pay, working conditions, and offer more than a days wage for a days work.  They are voting with their feet, and for firms who are disconnected, they will find themselves unable to find the labor they need to keep lines operational.

3)  business models go extinct.  Tied loosely to the first two conditions, this condition can take place through a number of means, but there are two that I think are important for this post.  The first is that the negative externalities of the industry become accepted as too great, or at least great enough, so that taxes/ regulations come into play.  Tobacco being a prime example, but big food and auto being industries where the business as usual model is under threat.  The second is that the product or service falls out of alignment with market realities, its internal inefficiencies / weaknesses expose them self, and the firm is forced to fold.  Hostess being perhaps the most recent example of that, but auto and big food are industries that have been seeing this for years.. and some are struggling to recalibrate the models to survive.

which leads to a concluding point.  When thinking about the dynamics that allow business as usual practices to persist, many look immediately to the actions that government and consumers can take to force a firm into “compliance”.  This what many are familiar with, and is consistent with an overall model where the sustainability gap is defended.  In other words, nothing in the core is materially changed.

But the trend that is beginning to sho itself is that there are actors actively seeking ways to the business model into a position where the gap itself is reduced/ removed.  this pull dynamic is pulling firms into a new orbit.  Into a new business model.

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