The word sustainability became widely used in an environmental context in 1987, after it appeared in a United Nations report by former Norwegian prime minister Gro Harlem Brundtland. Brundtland defined sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

Over time, the meaning of the word has become somewhat diluted. As Michael Pollan, author of The Omnivore’s Dilemma, writes: “The word ‘sustainability’ has gotten such a workout lately that the whole concept is in danger of floating away on a sea of inoffensiveness. Everybody, it seems, is for it whatever ‘it’ means.” Pollan touches on the dark side of the interest in sustainability, a business phenomenon called greenwashing: when companies focus more on communicating their green efforts than improving their practices.

Sustainability is also frequently used to describe the philanthropic efforts of an organization to protect the environment. Indeed, many business leaders file the word away in the part of their brain that deals with philanthropy, public relations, and compliance.

Being a sustainable business means thriving in perpetuity. In this business context, sustainability is bigger than a public relations stunt, bigger than a green product line, bigger even than a heartfelt but part-time nod to ongoing efforts to save the planet. Imagined and implemented fully, sustainability drives a bottom-line strategy to save costs, a top-line strategy to reach a new consumer base, and a talent strategy to get, keep, and develop employees, customers, and your community.

Seven Tenets of a Strategy for Sustainability
Nature’s rules very much inform my business assumptions. I assume that our planetary resources are scarce, precious, and diminishing; that our human population is diverse, dispersed, and increasing; and that organizations must increase their internal and external transparency, engage their great repository of knowledge and talent, and connect more ­purposefully to their social, economic, environmental, and cultural (SEEC) ­systems.

So, before doing the situational analysis and scenario planning that underlie most companies’ strategies, companies have the opportunity to rethink and challenge their own assumptions and the consequent practical implications for strategy. The model must not only factor in the following seven tenets but also include measures of the effects of each strategic alternative on the social, economic, environmental, and cultural systems. That means a different set of what-ifs and a multidimensional set of outputs.

1. Natural Resources Will Become Increasingly Scarce and Expensive.
Until recently, businesses have planned and implemented their strategies as if their natural resources were cheap, abundant, and easily accessible as long as the kingdom or country that claimed them was not hostile toward your kingdom or country. Such thinking drove many innovations of the industrial age. Now imagine if your company had to provide your employees and supply chain with the following resources or other benefits:

• Clean air to breathe
• Potable water
• Protection from ultraviolet light from the sun
• Protection from pests and exotic diseases
• Nutrient cycling (like nitrogen fixation and phosphorus cycles) to store, process, and break down nutrients
• Honeybees to pollinate flowers, and mice to carry seeds in their scat
• Predictable weather patterns that don’t cause damage or delay

The list goes on and on. Most businesses today rely on inexpensive natural resources and high-functioning ecosystem services to bring their product to market.

Ecosystem services are benefits provided by the natural ecosystem. They include natural resources like water, fuels, and plants; processes like decomposition, weather patterns, and nutrient cycling; and biological and genetic diversity. But few businesses are actually taking these benefits into full account in the formation of their strategy.

All businesses require basic ecosystem services to function. According to an oft-quoted paper published in Nature, the total value of ecosystem services is about $33 trillion per year. These are services that you depend on as surely as businesses depend on their accounting or customer relationship management (CRM) ­system, but for which they are not ­accounting.

2. Massive Demographic Change Is Occurring.
Just as climate change is a slow-moving tsunami, so too is the rapidly growing population of the planet. The demographic reality of three-billion more people on the planet by 204—mainly where humanity has not achieved a stable standard of living—means that market dynamics will change rapidly in our lifetimes. Far from just considering the money to be made through micro transactions with the world’s poor, businesses must integrate the changing consumer landscape into their strategies.

In so doing, we have the chance to deal with global inequities that destabilize business and society. For example, those of us in the developed world must share natural resources equitably with those in the developing world: which American can rightfully destroy twenty times more of the atmosphere than an African? Remember, most people on the planet still need more and better access to safe, reliable, and affordable energy supplies. These people bear an energy deficit—and that number is increasing daily. And so, businesses should not only look for opportunities to bring massive amounts of clean energy online, but also wean their operations from old, dirty energy sources.

3. People Are the Most Important Renewable Resource.
Saying “Our people are our most important asset” is like saying that you believe that people should respect the wisdom of our elders. Yes, of course. But what are companies doing to care for and develop people, as nature would its young? What is their actual plan to protect and grow this asset as the most important part of an organization?

Some companies use benefits to make the point. General Mills employees wait anxiously for the period of open benefits, when they can choose their benefits for the coming year. They know that any benefits offered, like the Total Health program, are best in class, and they do not want to miss that window of choice.

Some companies, like Google, invite their employees to participate in the innovation process. In the same way that 3M gave its engineers legendary freedom, Google allows its engineers to spend up to 20 percent of their time working on innovation projects. At Live Labs, Microsoft’s disruptive innovation campus, employees compete for “start-up” funding funneled to the best new initiatives. Benefits or flexibilities aside, employees are the company, yet many leaders never tap into their full creativity and power.

4. Cash Flow Matters More Than Quarterly Earnings.
Even though every business school teaches that a company derives its value from the present value of its future cash flows, analysts continue to use quarterly earnings as the single determinant of a firm’s health. Michael Mauboussin’s work for Legg Mason Capital Management has shown that the gap between valuations and future cash flows is substantial. He recounts that in one catalog of sell-side analyst reports, 99.1 percent mention earnings and price-to-earnings multiples, while only 12.8 percent use some variation of discounted cash flow to derive target prices.

Focusing on earnings leads to unsustainable business for at least three reasons, all of which relate to slippery metrics and the lack of transparency. First, earnings do not account for the cost of capital, and so there is no absolute link between the growth in earnings per share and the building of shareholder value. Second, earnings can be calculated in several ways, all of which are equally acceptable, according to current accounting standards. Companies can account differently for inventory and depreciation, for example, which can radically alter the appearance of their earnings. Third, earnings do not include additional capital that a company will need for future growth.

Some investors would argue that the daily valuation of the markets imposes discipline on a company’s management, effectively leveraging and growing its capital, but this view undermines the long-term responsibility that managers have as stewards of the company, its customers, its employees, and its community. One study showed that 80 percent of the executives polled said they would forgo a value-creating project to present smooth earnings.

5. Every Organization’s Operating Environment Will Change as ­Dramatically in the Next Three to Five Years as It Has Changed in the Last Five.
In the current business strategy model, tinkering with your core business strategy is like changing your engine while driving down the road. Some CEOs provoke a crisis so that people will pull the car over and will realize that something must change. But most often, strategy is formed while normal operations continue, even though the current strategic design process—where you stop everything and review—is ill-suited for this.

Like it or not, we are in a period of historic change, in which the pace and scale of those changes dwarf our past experience. Strategic planning must be much more dynamic in this future, with contingencies and, more importantly, organizational flexibility to react when the challenge occurs. This flexibility is core to a strategy for sustainability.

The implication is straightforward: your process for developing strategy must accommodate nonlinear, lockstep change. Traditional strategy making and executing is linear. There are a number of different models for how companies form their strategy, but most strategic processes boil down to the following sequence of steps:

• Discover:  Assess the business context, establish a mission, a vision, and values.
• Define:  Define competitive advantage, and establish goals.
• Plan:  Translate the strategy into an operations plan with measurable objectives.
• Execute:  Execute with cult-like passion and excellence.
• Measure:  Measure, review, and refine.  

The preceding list is what traditional, great gurus of strategy might call a “ready, aim, fire” approach to strategy. Internet gurus advised businesses to accelerate the process, advising strategists simply to “Aim, fire! Aim, fire!” But in today’s chaotic world, you cannot wait to complete one step before you start the next. Sustainability calls on businesses simply to “fire.” Businesses must adapt constantly. Instead of trying to be right with every decision, organizations need to empower themselves to make thousands of decisions and accept that they’ll make some mistakes in the process.

This tactic is necessary because the time horizon for strategic development is getting shorter.

6. A Chaotic External World ­Requires Internal Cohesion and Flexibility.
At their founding, companies must connect with the human need that they are solving. As they mature, they often lose touch with the outside need and fall into a moat of circular logic that protects them from criticism. It goes, “We are an acknowledged leader in our industry because we excel at what we do. Addressing your feedback is impossible in our current strategic paradigm and/or business model, therefore we must reject it, thank you profusely, and keep doing what we are doing because we can afford to, as an acknowledged leader in the field.”

From an ecological standpoint, few companies can “go it alone,” regardless of their internal capacities or resources. The challenges will be too great. From a consumer-insight perspective, no company can function and not know what the customer is feeling. Thinking more broadly, you can’t ignore what those who affect the customer perceive. You can’t be disconnected from trends in ­society and believe that those trends won’t quickly invade your customer ­relationships.

7. Only the Truly Transparent Will Survive.
Opacity is the enemy of sustainability (and, as we have witnessed lately, an incubator of managerial paranoia, incompetence, isolationism, and corruption). You must have pertinent, accessible, and engaging information readily available inside and outside the organization.

Scary? You bet. But the death of your company or your career is scarier, right? Far too many initiatives fail because of the lack of basic communication inside the organization about how the strategy will work, how it will improve performance, and what role each person should play. Easy information is the core lubricant of this process. It is not really a question of whether the information exists or whether a company has attempted to communicate that information; the question is whether the information has successfully been integrated into practice and belief. SLDT
Reprinted by permission of Harvard Business Press. Adapted from “Strategy for Sustainability: A Business Manifesto” (July 2009). Copyright (c) 2009 Adam Werbach; All Rights Reserved.