Module 3:

The Five Sustainability Strategies

Schulich School of Business

York University

1 Note that this slide deck cannot be distributed or

copied without the consent of the instructor
 Module 2 Objectives
• Understand some of the pros and cons of the pursuit of profitability

• Identify the parallels between Nike and Facebook as they pertain to their downfall and their
role in society
– Both companies denied responsibility for negative externalities they did not control
– Both companies aimed to limit their responsibility to maximize profit
– Both companies faced major public backlash as a result
– Both companies have had to rethink the boundaries of their responsibility

• Recognize that the class (and broader society) sees value in profit maximization but only in a
way that is deemed fair by stakeholders

• Know the difference between shareholder and stakeholder capitalism and how they inform
the role of business in society
 Today’s Objectives
1. What is the value creation/capture framework and why is it relevant in our
understanding of the source of tension between the F&B industry and society?

2. Using the F&B industry as an illustration, what are the different strategies
companies use to respond to sustainability?

3. PepsiCo Case Analysis

– What strategy is PepsiCo pursuing?
– Why are they pursuing that strategy?
– How are they pursing that strategy?

4. What is the key difference between an objective reality and a socially constructed
reality and why is that important in our discussion of the role of business in
society?
 PepsiCo
As one of the world's leading food and beverage companies,
PepsiCo plays an important role in helping people lead healthier
lives. We are focused on providing new offerings that meet
consumer needs for both nutrition as well as convenience - and
are responsive to the concerns of governments and non-
governmental organizations, as we broaden their focus on health
and wellness.
Can a company like PepsiCo play a
constructive role in the Obesity
Epidemic?
 In Small Groups

Left Side of Class – Arguments For

Right Side of Class – Arguments Against
 Business Strategies for Sustainability

Paradox

Scope of Business Case

Responsibility

Risk
Mitigation

Denial Defense Isolated Embedded Transformational

Sustainability Strategy
 What is Business Strategy?
• Competitive Positioning
– Unique consumer value proposition that sets the firm apart from its competitors (e.g. low
cost/no frill airlines)
– Objective: position firm somewhere few competitors exist

• Core competencies
– Something valuable and very difficult for competitors to imitate/substitute (e.g. efficient
manufacturing processes)
– Objective: build capabilities that take a long time/are complex

• Culture/identity
– Accepted beliefs in organization about who they are/who they are not supported by
processes/procedures/policies
– Objective: build a strong cohesive culture the motivates employees to excel in competencies and
positioning
 Denial Strategy
• Not only irrelevant to strategy but strategy often in stark contrast
to sustainability

• Unrelated philanthropy to offset impact of existing strategy and

core operations (e.g. oil company sponsoring kids camp)

• Positioned as corporate citizen

• No relevance of sustainability to daily routines and behaviour

 Denial Strategies
• CIBC Run for the Cure

• Sugar industry denial of their own science

• Nike’s denial in the 1990s

• Tobacco industry

• Facebook and fake news

 Denial Strategy
Consider Exxon

• Exxon knew of the realities of human-induced climate change

in the 1970s
– Warned of the potential impact
– Led research efforts to study CO2 in air
• By the 1980s, Exxon changed course
– $ millions to fund efforts to reject the findings of its own science

Source: Democracy Now, Sept. 17 ,2015

 Defense Strategy
• Admit that strategy leads to unsustainable outcomes, but
defends through
– Philanthropy to offset their own operations
– Focus on other value add
– Small improvements (business case)

• Fundamental objective is risk management (i.e. no strategic

value)

• Incrementally less impactful yet fundamental business practices

unchanged
 Green Mining
• “Making green mining less of an oxymoron”
– Power reduction
• Comminution efficiency (bigger rocks to smaller rocks)
• Low power separation of metals from ore
– Fuel and maintenance reduction
• Fuel additives/filters
• Improved lubricants
– Emissions reduction (dust management)
– Water reduction (water filtration/desalination)
Wait! What?
 Defense Strategy

• Coca-Cola has begun to acknowledge linkages between obesity

and food/beverage consumption
• Advertisements to convince consumers that despite this
problem
– Coca-Cola makes people happy
– Is a reward for those who exercise
 Recall Nike’s Pivot
• Denial Strategy (early 90s)
– “Without an in house manufacturing facility, the
company simply could not be held responsible for the
actions of independent contractors”

• Defensive Strategy (mid/late 90s)

– Andrew Young's analysis of Nike factory working
conditions: “Nike is doing well but it still has work to
do”
– “The goal here is to manage stakeholders by putting
forth arguments in response”

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 Isolated Strategy
• Strategic relevance emerges as isolated within the firm
– Specific function or department (e.g. CSR dep’t)
– Small component of revenue
• Product/service line (e.g. innovative compostable shoe)
• Part of multiple product/service lines (e.g. removal of polyester in all products)
– New technology (e.g. oil and gas company’s solar power innovation)

• Beyond incremental to radical changes

• Growing competencies, contradictory marketplace positioning,

identity/culture conflict
 Further to our Mining Example
• Beyond green mining

• Radical innovation in Toyota vehicles that do not require

ecological toxic lanthanum, neodymium, dysprosium
 Danger of an Isolated Strategy
Consider Volkswagen

• “We take environmental considerations into account

from the very earliest stages of the product
development process” (Sustainability Report, 2014)
– Natural-gas vehicles
– All electric vehicles
– Hybrid vehicles

• But 500,000 diesel-powered VWs were programmed

to provide false emission data during testing
 Embedded Strategy
• Responsible business represents one of the
primary differentiating factors

• Firm identifies itself as a leader in the industry

• Sustainability is part of firm DNA

• Culture often becomes source of competitive

advantage
 Embedded Strategy
Consider Chipotle

• Most/all decisions encompass social, ecological, and economic

dimensions
• Positioned as a challenger to the conventional fast food model
(“doing the impossible”)
• Employees well trained on product sourcing and impacts
 TerraCycle

• Upcycled 81 million tons of waste into products that would

otherwise end up in landfills
• Recruited 1.5 million people to collect trash
 NBD Nano

• Inspiration: Namib Desert beetle

• Innovation: Harvests moisture from the air
• Product: water bottle that captures air, then condenses and
stores up to 3 litres of water
• Market: Communities in Sub-Saharan Africa where 3 billion
people live in water-scarce conditions!
 Transformational Strategy
• Transform the context (e.g. industry, supply chain, local community, social
norms) that facilitates unsustainable practices

• Firm is part of a meta-organization (network) with a system level goal

(collaboration alongside rivalry)

• Competitive advantage revolves around relationship building and first

mover advantage

• Culture and identity of firm are tied to a broader collection of organizations

(i.e. part of something bigger)
 Transformational Strategy
Consider SEKEM

• Dramatically improved soil conditions throughout Egypt

• Transitioned 800 Egyptian farmers to biodynamic cultivation
• Influenced government regulation based on biodynamic
harvest success
Sustainable Energy Sustainable
Generation
Transportation

Energy Storage
 Transformational Strategy
Role of Meta-Organizations

• Unique networks of organizations that organize actions

around a system level goal by pulling together dispersed
capabilities
• Examples
– Equator Principles
– Fair Labour Association
– Kimberly Process
 Business Strategies for Sustainability
Strategy Positioning Competencies Culture/Identity

Denial Sustainability absent; Responsible for system We’re egregious but we

unrelated philanthropy degradation distribute profit
Defense Related philanthropy, Strong citizen brand, resource Sustainability decoupled
Incremental improvements efficiency from core operations
Isolated Particular product/brand; Innovation/innovative product Identity conflict, moral
sustainability one of several itself is the competence licensing justifies
strategic pillars externalities
Embedded Sustainability is the primary Core competencies Sustainability DNA of the
positioning among demonstrate how sustainability business; sustainability
competitors can be profitable identity very strong
Transformational Industry changer (quasi- Relationships, meta- We exist to resolve a complex
regulatory role), shaping organizations, market rebel, issue, change the world, alter
societal behaviour supply chain builder institutional practices
 Show me the money!!
Value Creation/Capture Framework

WTP

Price
How does a F&B company
low value
created create and capture more
Cost
value?
Supplier Cost
 Creating and Capturing Value
Willingness to Pay

Customer
Captured Value

Price to Customer
F&B Co.
Value Created
Captured Value

Cost to Producer
Supplier
Captured Value

Supplier Cost
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Which section of the cart provides more calories per
one consumer dollar
 Illusion of Control
• The tendency for human beings to believe they can control or
at least influence outcomes that they clearly cannot.

• “We wake up in the morning and we think that we make

decisions. But many of these decisions do not reside within
us.”

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 Sara Lee Bread

• Recipe for real bread: whole wheat flour, yeast, water, and salt

• Sara Lee Bread: enriched bleached flower, wheat flour, multi-barley

flour, niacin, iron, thiamine mononitrate, vitamin b1, riboflavin, vitamin
B2, folic acid, water, whole grains, whole wheat flour, brown rice flour,
rice flour, rice bran, high fructose corn syrup, whey, wheat gluten,
yeast, cellulose, hunt, calcium sulfate, vegetable oil, soy bean or cotton
seed oil, salt, butter, cream, salt, natural flavor, soy flour, dough
conditions, 8 other ingredients I can’t spell
• “This ‘whole grain’ bread is mostly refined white flour, the kind
of flour that health authorities recommend Americans eat less
of…Sara Lee is attempting to put a whole grain halo on a bread
that is not whole wheat. I call that a whole grain whitewash.”
CSPI executive director Michael F. Jacobson
[Link]
Source: NYtimes
 Summary Illustration
Breakfast Cereal
Promote
1. Find low-cost ingredients: corn meal, corn nutritional fad, WTP
starch, wheat derivatives, corn sweetener, soy psychological
vulnerabilities
derivatives, other chemical fractions Price “Value” add (e.g.
packaging,
2. Assemble into attractively novel form “Value” processing,
3. Add colour and taste Created nutritional fad),
certification
4. Replace lost nutrients with artificial vitamins Fortification
reduces cost
5. Add branding, packaging and promote added (e.g. corn, Cost
nutrients (e.g. fiber) and certification wheat, soy)

Registered dietitian Chelsey Amer told food

website the Daily Meal that a slice of pizza can
actually be a smarter meal than your typical bowl
of cereal. (TheStar: Feb 7th, 2018)
 How are they defending processed food and
thus increasing Willingness To Pay (WTP)?
WTP

1. Consumers are boundedly rational: they have little time to

navigate food trends and instead rely on external cues (e.g.
packaging, ads, labels, nutritional fads)
2. Strong marketing budgets dominate available information and Price
associate positive identity with unhealthy food
3. Consumers think that healthy options are available (e.g.
marketing, certifications)
4. Addictive ingredients/shapes, etc. like salt, sugar, fat disrupt Cost
rational decision-making processes
Supplier Cost
 Implications for Sustainability?
• A functioning market economy assumes that
– Consumers are rational in determining needs/wants
– Companies survive/are profitable by effectively responding to needs
– Companies ignoring societal needs go bankrupt

• In reality…
– Consumers are often irrational
– Irrationality is ripe for exploitation and opportunism
– Societal needs can be influenced/manipulated

• If this is true
– This is the perfect denial strategy (“we’re simply satisfying market demand”)
– Why meet societal needs/wants when you can create needs that better align with profitability?

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 Corporate Influence is Indisputable
"We are trying to change the way that people produce and consume
products.“ (WalMart Chief Sustainability Office talking about WalMart’s
efforts to reduce waste)

Cue Astroturfing
 Social Reality and Consumer Markets
• Reality is objectively set • Reality is socially constructed
– The market reflects consumer – The market reflects interests of those
needs/wants (e.g. consumers want in power (e.g. processed food is
processed food) extremely profitable)

– Consumer needs/ wants are – Consumer needs/ wants are

objectively set or predetermined constructed and reconstructed

– Companies do well by responding to – Companies succeed by effectively

needs/wants engineering needs/ wants that
maximize profitability

– Company behaviour does not – Company behaviour (particularly large

influence needs/ wants players) dramatically influences needs/
wants
PepsiCo’s Role For and Against

What does Stephen Colbert think?

Our Next Class – Institutional Theory
 Comments/Questions?

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