Incorporating sustainability into an organisation

The world has evolved through what can be described as cycles of change and waves of innovation, partly driven by incremental and disruptive innovations (Utterback and Acee, 2005). Silva and Di Serioa (2016) argue that every organisation is under pressure to embrace sustainability because of the depletion of resources and the competitive performance that can be realised by developing and sustaining innovative solutions to societal problems.

Incorporating sustainability into an organisation’s goals and operational strategies can generate economic, social and environmental benefits both for the organisation and society as a whole. The societal problems described so far in this course ‘provide opportunity for action and highlight the need for sustainable innovation systems, incentive policies and support for sustainability, as well as the development of technologies that enable organisations to combine economic, environmental and social objectives’ (Silva and Di Serioa, 2016, p. 129).

To illustrate, consider two types of sustainability.

• Financial sustainability: the capacity of an organisation to secure the necessary financial resources to continue operating over an extended period, as seen in cash-flow management.
• Environmental sustainability: a term that has a range of definitions, but is concerned primarily with the impact of organisations on the natural world. These impacts can range from local air and water pollution problems to much broader ones, such as the depletion of scarce natural resources, biodiversity loss and global warming arising from greenhouse gas emissions.

Later in this course you will also consider organisational sustainability and social sustainability.

Activity 5 Sustainable innovation through compliance

Timing: Allow about 30 minutes

Watch the video below exploring how enterprises can connect societal challenges to sustainable innovation. Then answer the questions that follow.

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[MUSIC PLAYING]

NARRATOR:

To become sustainable, companies need to recognise their roles and responsibilities in addressing employment conditions and social and environmental impacts within their supply chains. Compliance is an important element in helping companies achieve this.

A business's compliance programme is made up from the internal processes and policy decisions employed by the business to meet the standards set by the government laws and regulations. Key elements of a typical compliance programme include managing risk, meeting global standards, preventing corporate loss, insurance systems are in place that would reduce any penalties incurred in civil or criminal judgments, improving the business's public image. Together they represent the many things that the compliance programme aims to achieve. And they are the first steps companies need to take on the road to sustainability.

Compliance is complicated with laws and regulations varying country by country, and perhaps, region by region or city by city. But once enterprises have learned to keep pace with regulation, they are likely to become more proactive about sustainability issues and social and environmental impacts within their supply chains.

On their own, traditional compliance programmes do not always produce sustainable change. New approaches to compliance are needed, particularly to address environmental and social performance issues in supply chains. These might include shifting from pass/fail to continuous improvement, replacing audits with collaborative assessment and root cost analysis, helping suppliers identify the business case for better social and environmental performance.

A well-managed supply chain will aim to reduce the cost and complexity of the production process and environmental cost at all stages of the process. Sustainable supply chains offer a win-win situation. They are profitable for the businesses involved and they are beneficial for the environment.

Value chains are the processes or activities a business uses to add value to its end product or service. The traditional value chain is a linear system with upstream suppliers providing component parts for products, and downstream entities providing product distribution and point of sale. The key elements of a value chain, as first described by the American academic Michael Porter, are inbound logistics, including acquiring and storing raw materials; operations, the processes needed to convert the raw materials into the finished products or services; outbound logistics, getting the product or service to the end users; marketing and sales; and after sales service.

Each step in the value chain offers opportunities to add value to the product or service. Enterprises develop sustainable operations by analysing each link in the chain and looking for ways to improve its efficiency. These improvements are enabled by what Michael Porter calls, the support activities of the value chain: procurement of the raw materials, technological developments to improve the processes, human resource management, and company infrastructure.

But in practice, value chains are often far from linear. Businesses need to take into account a whole range of stakeholders when seeking to create social, environmental, and organisational sustainability.

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1. Can you think of another example of compliance as opportunity? For instance, a new technology, a product, or a less tangible sustainable innovation such as a process or service. Describe your example in the box below.

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Discussion

Compliance can be seen as opportunity by examining the component parts. In the video some component parts were internal to the enterprise (internal processes and policies) and others were external (laws and regulations). The management team of an enterprise can be upfront and create products and services that exceed the legal requirements, rather than focusing on the costs involved. Such an enterprise is well placed to achieve sustainability. For example, an enterprise that sets a target of 4 per cent carbon emissions in its production process even though the regulatory limit is 6 per cent. Compliance helps companies to be more aware of how the enterprise can be innovative in its production and marketing processes, taking into account societal challenges (e.g. environmental damage) that need to be addressed to achieve sustainability.

2. How has the value chain been used in the three specialist area examples given to obtain sustainable innovation? You could select a new technology, a product, or a less tangible invention such as a process or service. Describe your example in the box below.

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Discussion

A sustainable supply chain is beneficial to an enterprise where it helps the enterprise to be successful (e.g. in generating profits or other rewards) while contributing to protect the environment. This can be achieved by focusing on the value added and/or waste reduction across the supply chain rather than simply viewing the supply chain as a linear process from raw materials to point of sales. In the video this is described as value chain. For example, a value chain can be used to create a sustainable innovation by rethinking how a product is produced and delivered to end users – how the enterprise maximises material and energy efficiency, creates value from waste or substitutes with renewables and natural processes. Examples can include energy-efficient vehicles and alternative power sources.

3. Can you think of another example of sustainable products and services? For instance, you could select a new technology, a product, or a less tangible invention such as a process or service. Describe your example in the box below.

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Discussion

The example of an energy-efficient vehicle can be an illustration of a sustainable product depending on whether the organisation that produces it addresses the compliance, and supply and value chain issues discussed in the answers to the first two questions above.