Network webinar | Making the Business Case for Step-Change

1. Making the business case for step-
change
#theBIGshift
Webinar –24 September 2013
DavidBent,DirectorofSustainableBusiness d.bent@forumforthefuture.org
BenKellard,HeadofSustainableBusiness b.kellard@forumforthefuture.org

2. Webinar housekeeping
Please send your
questions in
throughout the
webinar from the
question box. We will
try to get through as
many of your
questions as possible
throughout the hour
**don’t raise your
hand, type a question
Any problems email Kester at k.byass@forumforthefuture.org

3. What we’ll cover today
• How can sustainability add to my bottom line?
• How can I make the business case for sustainability activities that
create real step-change?
• Forum for the Future’s cutting-edge research into how companies that
have successfully made the business case for step-change did it
• New tools to help you to use a logical step-by-step approach to build
your own business case
• Live examples of companies that firstly made the case and then went
on to make sustainability happen for their business

4. Let’s start with a story
4

5. This research was made possible by the
Sustainable Business Models Group
5
This group of our leading partners have come together to find practical
ways they can create step-change towards sustainable business models.

6. Why focus on ‘step-change’?
• There is a need in the world for step-change
• Other business case research tends to focus on incremental change
• What we mean by ‘step-change’:
• An activity which has an intended outcome that is a large, fast
contribution to trajectory we need towards a sustainable future.
• Could be:
• Shaping the context – an external initiative (eg Nike’s Road to Zero)
• Innovating to win - an internal investment in, for instance: big goals,
R&D, new fixed assets.
6

7. Where the research took us
7
Specific focus:
business case for step-change
Prototype tool that helps
you to create the common
features for your step-
change decision.
Results of WRI’s research
in the handout
The general
business case
A small-but-growing
databank of credible
examples
Difficult to make a ‘general
case’ because such
variety in companies,
industries and issues.
“Making the case”
What are the common
features of step-change
decisions?
“Making it happen”
Once a step-change
decision has been made,
how can you implement it?

8. Making the case
What was emphasised by decision-makers?
8

9. Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specific
business
rationale
Appropriate
decision
tools
Dupont
Forum A
Nissan
GSK Openness
Telefonica UK
Nike R2Z
B&Q Timber
B&Q Green Deal
WRI 1
WRI 5
WRI 6
9

10. Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specific
business
rationale
Addressed
status quo in
fin tools
Dupont
Forum A
Nissan
GSK Openness
Telefonica UK
Nike R2Z
B&Q Timber
B&Q Green Deal
WRI 1
WRI 5
WRI 6
10

11. Making the case
What was emphasised by decision-makers?
Part of
journey
Senior
executive
leadership
Long-
term
view
Specific
business
rationale
Addressed
status quo in
fin tools
Dupont
Forum A
Nissan
GSK Openness
Telefonica UK
Nike R2Z
B&Q Timber
B&Q Green Deal
WRI 1
WRI 5
WRI 6
11

12. getting better at ‘making the case’
12
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes
4. Do you
have a
specific
business
rationale?
Yes
5. Have you
addressed
status quo
bias in
financial
tools?
Yes

13. getting better at ‘making the case’
13
1. Do you
have
a journey to
build on?

14. 1. do you have a journey to build on?
• Senior executives rarely make big commitments in new areas. Usually the first
decision will be low-risk and low-cost. Step-change decisions tend to be the latest
step in a longer journey. What favourable conditions do you already have?
14
Favourable condition Status Next steps
Successful track-record from past
sustainability initiatives
Acceptance of a general business case
across executives
Insights from stakeholder engagement
Public reporting for accountability &
transparency
Other conditions which help decisions
happen in your organisation:

15. getting better at ‘making the case’
15
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes

16. 2. do you have the right senior executive
leadership?
• Step-change decisions are risky, affect many parts of a company and have strategic
implications. So, they need board-level support - often from the CEO.
• Key question: Do you have a senior sponsor whose role and credibility matches the
risk, scope and strategic implications of the decision?
If no:
• Who are the key internal decision-makers?
• What do they want and how might your proposal help?
• Who or what influences the key decision-makers?
• e.g. their business school, their professional institute…
• What can you do to gain the right senior executive support?
Options include:
• Identifying who you need to work with to make change happen. Understand their
vision and use their language
• Framing sustainability issues as about delivering the current business strategy and
long-term value creation (see next slides)
• Identifying a burning platform
16

17. getting better at ‘making the case’
17
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes

18. 3. do you have a long-term view of how the
company creates value?
• Step-change decisions answer: how will the company be successful in a future
affected by sustainability issues? This requires: an enduring purpose and long-
term view on how the company creates value
• Here are three key questions to work through:
• What is the company’s enduring purpose (especially for customers)?
• What is the organisation’s long-term view on how it creates value – the
matching of the company’s purpose and capabilities with its future context?
• How does your proposal align to the enduring purpose and long-term view?
18

19. getting better at ‘making the case’
19
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes
4. Do you
have a
specific
business
rationale?
Yes

20. 4. do you have a specific business rationale?
• Step-change decisions have a clear, bespoke link from the particular action to value
creation for the shareholder.
• Try working through these steps
20
1. Develop specific
business rationale
Work through causal links from the proposed activity to shareholder value.
See next slide for a tool to help you do that.
2. Find evidence Look for compelling evidence for each link in the chain:
- Past experience
- Other examples
- Ask ‘what would need to be true for this to be a great decision?’
3. Quantify
magnitude
Put a financial range on the costs (upfront investment and on-going) and
benefits.
4. Track what
happens
Use 2. and 3. to put in place the information systems needed to measure
what happens

21. Shape
context
-Shared knowledge
-“More hands to the
pump”
-Encouraging greater
investment in green
chemistry
-Shape regulatory
context
Specific rational for
shaping the context
Nike: making the case for
Increase
Shareholder
value
Initiate
System
Innovation
Start
“Road to Zero”
Apply your
capabilities
-Innovation
-Turn sustainability
into performance
story that
reinforces brand
Pathways in:
-Revenue Growth
-Margin Growth
-Risk Management
Revenue:
-product innovation
Margin Growth
-reduce input costs
-share costs across industry
Risk management
-regulatory
-reputation

22. • In 2011 McKinsey published this
infographic of links from a
sustainability-related activity to
shareholder value.
• You could also use Forum’s
Pathways tool
• Consider each in turn in order to
identify the likely most important link
to financial value.
22
Putting into Practice, McKinsey, Oct 2011
Specific rational for
innovating to win

23. 4. do you have a specific business rationale?
• Step-change decisions have a clear, bespoke link from the particular action to value
creation for the shareholder.
• Try working through these steps
23
1. Develop specific
business rationale
Work through causal links from the proposed activity to shareholder value.
See next slide for a tool to help you do that.
2. Find evidence Look for compelling evidence for each link in the chain:
- Past experience
- Other examples
- Ask ‘what would need to be true for this to be a great decision?’
3. Quantify
magnitude
Put a financial range on the costs (upfront investment and on-going) and
benefits.
4. Track what
happens
Use 2. and 3. to put in place the information systems needed to measure
what happens

24. getting better at ‘making the case’
24
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes
4. Do you
have a
specific
business
rationale?
Yes
5. Have you
addressed
status quo
bias in
financial
tools?
Yes

25. 5. have you addressed the status quo bias in your
financial tools?
• Step-change decisions require financial tools that compare the proposed action with a realistic
base case; one that has the plausible consequences of not taking the action. Most financial tools
don’t take future resource constraints and thus higher energy bills, for example, into account.
• What to do about it:
• Rigorously improve the ‘do-nothing’ base case
> Check the base case for optimistic assumptions
• In times of disruption, compare the total cashflows of status quo and proposal
> Normally, Net Present Value calculations look at the extra costs and benefits. This
assumes fixed and sunk costs will continue to perform.
> Avoid an incumbency bias by comparing the total costs and benefits of different options.
• Use ‘discovery-driven planning’
> Start with the ‘reverse income statement’ – list the costs and benefits that would need to
be true for this decision to be worth doing in order of importance
> Test these assumptions, starting with the most important
25

26. The problem with standard financial decision-
making tools
26
DCF and NPV
methodologies
implicitly make this
comparison
Companies should
be making this
comparison
Adapted from Innovation Killers, Christensen et al, HBR Jan 2008
A. Assumed cash
stream from doing
nothing
A
C. Projected cash
stream from
investing in step-
change C
B. More likely cash
stream from doing
nothing
B

27. 5. have you addressed the status quo bias in your
financial tools?
• Step-change decisions require financial tools that compare the proposed action with a realistic
base case; one that has the plausible consequences of not taking the action. Most financial tools
don’t take future resource constraints and thus higher energy bills, for example, into account.
• What to do about it:
• Rigorously improve the ‘do-nothing’ base case
 Check the base case for optimistic assumptions
• In times of disruption, compare the total cashflows of status quo and proposal
 Normally, Net Present Value calculations look at the extra costs and benefits. This
assumes fixed and sunk costs will continue to perform.
 Avoid an incumbency bias by comparing the total costs and benefits of different
options.
• Use ‘discovery-driven planning’
 Start with the ‘reverse income statement’ – list the costs and benefits that would need
to be true for this decision to be worth doing in order of importance
 Test these assumptions, starting with the most important
27

28. getting better at ‘making the case’
28
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes
4. Do you
have a
specific
business
rationale?
Yes
5. Have you
addressed
status quo
bias in
financial
tools?
Yes

29. making it happen: strategies to deploy
Recommendation In practice this means Who is doing
this?
Set goals that integrate
environmental considerations
into core business decision
making
- Selecting suppliers based on their
economic, social and environmental
performance
- Developing products and services that
help customers reduce their
environmental impact
- Natura
- AkzoNobel;
Alcoa; Greif;
Siemens
Implement internal mechanisms
that ensure environmental
sustainability is valued
- Allowing funds saved in operational costs
on environmental projects to be allocated
to capital budget needs
- Bundle high financial return/low GHG
reduction projects with low return/high
GHG reduction projects to diversify risk
and deliver overall corporate value.
- Johnson &
Johnson
- Diversey
(Sealed Air)
29
• Based on our research, five recommendations emerged that can help companies
implement sustainability strategies:

30. making it happen: strategies to deploy
Recommendation In practice this means Who is doing
this?
Vest the CSO with greater
authority over capital budget
decisions and engage the
sustainability team early in
project planning
- Giving the CSO authority to ensure all
capital budget requests integrate
sustainability considerations
- Ensuring the company’s sustainability
specialists are engaged early in project
planning
- AkzoNobel;
Alcoa
- AkzoNobel
Establish and manage metrics
that comprehensively indicate
risks and opportunities across
corporate value chain
- Instituting supplier programs that put a
price on externalities like CO2 emissions,
water use, and waste generation
- Natura
Support public policies that put
a stable price on externalities
- Consistently supporting public policies
that benefit the environment and
companies’ financial performance
Identified as a
need, but no
companies active
30

31. getting better at ‘making the case’
31
1. Do you
have
a journey to
build on?
2. Do you
have the right
senior
executive
leadership?
Yes
3. Do you
have a
long-term
view of how
the company
creates value?
Yes
4. Do you
have a
specific
business
rationale?
Yes
5. Have you
addressed
status quo
bias in
financial
tools?
Yes
Questions?

32. Upcoming Network activities
- The World We Made | October | London, New York, Atlanta & San Francisco
- The Future is here: workshop & tour at the Design Museum | 22 Oct | London
- Informal Cities Dialogue | 24 Oct | webinar
- Energy drinks: #theBIGshift & the Energy System | 11 Nov | London
- Blue Skies, Sustainable Thinking: the new innovation frontier | 21 Nov | London
- #theBIGshift: how to be a system innovator | 5 Dec | New York
- #theBIGshift: in conversation with Paul Polman and Jonathon Porritt | 9 Dec |
London
- End-of-year network event & drinks| 16 Dec | London