International businesses are under intense pressure and expectation to adjust to sustainable development. This requires them to make sweeping changes to their business models and value propositions. Most recently, the pandemic response has given businesses a window into their level of exposure to external challenges and how innovation and bold strategic change can lead to new markets, transformed ways of working and, importantly, open pathways into new areas of growth.

As we continue to advance our concept of sustainability, businesses must reconsider and broaden their definitions of value.

Changing concept of value

Businesses and organizations have to reconsider how they create and understand value. Traditionally, companies viewed themselves as having a secure position along a value chain, providing the inputs and outputs of raw materials to produce goods to realize their role in adding to the value chain. But modern organizations up and down the ecosystem are increasingly choosing to create new concepts of business value. These new options draw together ecosystem players’ respective knowledge, skills and capabilities across the customer and partnership networks to create new opportunities.

How does being sustainable create value?

There are compelling findings from across industries that sustainability can create a very positive business outlook, but it does require a new way of understanding how businesses can create value. Incorporating sustainability into the heart of operations can support the design and creation of new products and services, improve the brand and deepen customer loyalty. It can also reduce operating costs, increase the support from financial investors, and encourage company pride and commitment among employees.

Companies have started in earnest to create new value, using such strategies as new low-carbon products like steel and meat-free dishes and a transparent supply chain across retail and fast-moving consumer goods (FMCG). Furthermore, investments in green products support the sustainability mission and create whole new pools of value.

Why haven’t more businesses made a move to sustainability?

There are many reasons why businesses are not yet sustainable or whole-heartedly on the sustainability change journey.

Here-to-date success for international businesses has revolved almost exclusively around financial results: substantial revenue, the pursuit of profit, positive returns for the shareholders, and typically focusing on quarterly progress.

The pressure to perform for company shareholders has encouraged a belief that sustainability is a cost and should be managed with a dedicated but isolated corporate social responsibility (CSR) investment. This view has been reinforced by company sustainability reporting not being integral to business unit strategic decisions and P&L business unit operations.

In addition, many sectors with powerful vested interests have deliberately questioned sustainability and climate change research and action, delaying progress across their industry.

Despite decades of campaigns for sustainable development and climate change warnings, most individuals have not altered their behavior. The “intention-action” gap remains wide open; behavior change has been slight due to embedded habits, social norms, optimism bias, a preference for near-term loss avoidance instead of future gain, or a sense of futility. Whether as leaders, customers or employees, individuals have not led the charge for sustainability, so the “intention-action” gap remains.

Sustainability and new value creation

However, there is increasing momentum across global and local organizations towards a concerted business transformation with sustainability at heart. The first movers, be they in retail, FMCG or global consulting, are demonstrating that they can create a greater pool of value for themselves by investing in and fostering the creation of value within the communities in which they operate. Social innovation can help businesses differentiate and save on costs by creating new products, enhancing productivity across the value chain and improving the whole business environment for all customers and companies.

What does this look like in practice?

Companies that are changing their business models to create shared value will be the beacons of international business and the guardians of nascent “pay it forward” momentum over the next decade.

Centering sustainability at the heart of strategic decisions, operations and culture is not just a good thing to do; it is the most astute and economically wise thing to do. That is where future value is and will be found.

IBM is looking at long-term value creation and is committed to building sustainable societies by investing in cultivating the skills of local communities. Building a talent supply chain beyond our current employees makes organizations more sustainable. We believe skills-rich communities encourage fair societies. IBM is committed to being part of the global ecosystem of talent by building sustainable skills in local and global communities. IBM has committed to training 30 million people across the globe by 2030.

Businesses can be sustainable and profitable. The key is to reconsider the definition of value by thinking about creating shared value and seeing the bigger, longer-term richer picture rather than purely the numbers.

The post How does addressing sustainability change how businesses understand value? appeared first on IBM Business Operations Blog.