Societies and companies are confronting three enormous challenges that demand major changes to the way business has always been done:
Mega Challenge 1: Hotter (and Cleaner). Estimates by leading consultants, such as McKinsey and PricewaterhouseCoopers, suggest that individuals and businesses must reduce carbon emissions by at least 80 percent by 2050 in order to avoid damaging climate change. Although the challenge seems daunting, Winston believes there are encouraging signs around reduced carbon emissions. Pursuing science-based reduction targets is profitable for companies, many large companies have established and already attained aggressive reduction targets, and more and more companies have started to make the Big Pivot when it comes to climate change. The bank HSBC has estimated that by 2020, the climate economy will exceed $2.2 trillion each year.
Mega Challenge 2: Scarcer (and Richer). As people in developing countries become more prosperous and join the middle class, resources are becoming scarcer and more expensive. In the face of dwindling resources and rising prices, radical efficiency is the most practical option for businesses and economies at large. Water is of particular concern. It is a very local commodity that is not transferable, but is essential for industrial development and human life. Winston suggests that one of this century’s biggest challenges will be how societies manage water in the coming years.
The best way to solve these problems is through innovation. In addition, it will be necessary to question strategic choices and consider collaborative consumption. Innovation must focus on both resource efficiency and “heretical innovation” that reinvents the way businesses operate and reduces consumption levels.
Mega Challenge 3: More Open (and Smarter). With the power of the Internet, one customer’s voice can be heard around the world and make or break a company’s brand. Many businesses are taking a proactive approach and tracking online conversations so they can preempt potentially damaging publicity. Winston observes that “radical transparency” is not going away and environmental and social issues are getting more attention than ever before.
Big data is a resource that can be used to improve environmental performance, but maintaining the data centers to store and analyze this information requires significant amounts of energy. Data can be sliced and diced to empower buyers with the information they need as they make purchases. Consumers are also starting to engage in “collaborative consumption.” Firms that make longer-lasting, more sustainable products could gain greater market share.
Companies are turning to open innovation and engaging diverse stakeholders including employees, customers, and others to collaborate and solve complicated problems. This approach will be essential for addressing the mega challenges that exist today and that demand the Big Pivot.
The tools, techniques, and mindsets that companies used in the past to deal with social and environmental challenges will no longer be adequate. It is important to keep in mind that addressing the three mega challenges is not philanthropy. The Big Pivot strategies espoused by Winston focus on creating business value, as well as environmental and social value. Organizations that fail to make the Big Pivot will face reduced profit margins and lower value.
The first step is to decouple business growth from material use. In conjunction with this task, businesses must also reexamine what business growth means. The pursuit of consistent and compounding growth is not possible given the current reality. In lieu of constantly increasing profits, companies may instead focus on improving product quality, enhancing customer satisfaction, or boosting the health of communities.
Eliminating problems such as carbon emissions, toxic waste, and poverty are aggressive goals, but some organizations that are making the Big Pivot are using zero impact as the starting point for their efforts and expanding into restorative products and enterprises. An important way to attain zero impacts is to close every loop possible. A circular economy will demand new technologies, design changes, and shifts in mindsets. Although capitalism creates obstacles to sustainability, it can be powerful if used properly. It will be important not to prioritize short-term profit maximization over long-term prosperity and survival. Prism Philosophy quality programs focusses on how positive impact can be created.
Winston has identified four major hurdles that hinder most companies from pursuing the Big Pivot:
1. Scale and interconnectedness. The magnitude of global challenges is so huge and the problems are so interconnected that it can be hard for people to grasp. Radical efficiency (i.e., 80 percent to 100 percent improvements) is the only way to bring enormous problems to a more manageable scale.
2. Short-termism. Many companies focus heavily on short-term movements in their stock prices. This makes it hard to invest in initiatives that have a longer-term payback. Making the Big Pivot means making big bets for the long term.
3. Valuation gaps. In business, benefits that are hard to quantify are often assumed to have no value even though they could dramatically affect a company’s value. New incentives are needed so organizations will do the right thing for the long term.
4. Silos. Big Pivot solutions require a holistic world-view. Unfortunately, most organizations are siloed into different functions. Shifting to the Big Pivot requires systems-based thinking and working across functional boundaries.