9. Toward a Sustainable Global Enterprise

When the hijacked planes flew into the World Trade Center towers and the Pentagon on September 11, 2001, many believed that the world had changed fundamentally. They were wrong. The world was exactly the same as it had been the day before. The horrific events of 9/11 simply focused our attention in a new way: It was now clear that the world was inextricably interconnected and that unrest in one part of the globe would not remain geographically isolated.

Many in the wealthy nations of the West—particularly the United States—became aware, perhaps for the first time, of what others in developing countries had known for a long time: When people are desperate, disenfranchised, or humiliated, they will resort to just about anything to relieve that condition. Most will seek resolution through modest means, such as working harder, migrating to find new opportunities, or perhaps even resorting to petty crime. Others will turn to organized protest or seek political solutions. A few will resort to the ultimate expression of alienation and repudiation: terrorism.

There is little doubt that the leaders of terrorist organizations are, more often than not, driven by extremist ideologies. Militant Islam, for example, weaves together fundamentalist religious beliefs, moral values, and a radical political agenda to create a particularly virulent form of such extremism. As the leaders of such groups know, however, special circumstances are required to attract the large numbers of people needed to effectively advance the cause. Most people are not born to be suicide bombers or militia members. It takes a lifetime of neglect, despair, dashed hopes, thwarted opportunities, or worse—intimidation, exploitation and humiliation—to drive most people to such extremes. Only by reversing the conditions that breed such behavior—poverty, inequity, hopelessness, loss of dignity—will we deal with the root causes of the problem. Yet while thousands of lives were lost or altered forever by the events of 9/11, and hundreds of known terrorist leaders have since been killed or captured, these underlying conditions remain largely unchanged—or have perhaps even worsened. Terrorism, in short, is a symptom; the underlying problem is unsustainable development.

Draining the Swamp

The Middle East in the early twenty-first century provides perhaps the starkest example of unsustainable development in modern history.¹ Oil has made a few elites enormously wealthy and powerful, while the masses have seen little of the benefit. Western dependence on oil has allowed dictators and despots to reign supreme, as long as they ensure that the oil keeps flowing. Indeed, Washington and the West have supported the very Muslim tyrannies that al Qaeda and other extremist groups seek to destroy.² Tragically, then, the developed world’s growing dependence on oil from the Middle East virtually ensures that this vicious cycle will continue. And to make matters worse, the massive consumption of fossil fuels with its attendant carbon emissions endangers the very climate system upon which we all depend.

A proud culture boasting scientific and artistic achievement second to none, the Arab world today is a shadow of its former self, rife with hopelessness, despair, and a profound sense of humiliation. Journalist Tom Friedman describes the problem in the Middle East as not so much a poverty of money, but rather a poverty of dignity.³ Western popular culture, often a direct affront to Islamic values, has permeated every corner of the region. Indeed, Islam’s traditional emphasis on charity, social security for all, and the integration of the sacred into everyday life seems, to many Arabs, to be at odds with the Western conception of development and modernization.⁴

Tens of millions of young Muslim boys in the Middle East are coming of age at a time of record unemployment and lack of opportunity. Doctors, lawyers, and other professionals are churned out of universities only to work as day laborers and waiters. Religious extremism and nihilism provide potentially attractive escapes from the grinding sense of frustration and humiliation. Should we be surprised that growing numbers of young Muslims are attracted to a cause that takes away their pain by providing a sense of purpose, however misguided, as well as affiliation and economic security?

What is needed, therefore, is a compelling and persuasive alternative to extremist ideologies and terrorism—a vision of hope, mutual respect, and opportunity—that can offer the prospect of a better life to the masses in the Middle East. What if we spent a small fraction of the money committed to military effort to empower and support small-scale enterprise development throughout the region? What if we flooded the region with teachers, health care providers, social workers, small business developers, and microfinanciers rather than merely soldiers and Western contractors?

What if we saw the Middle East as the ultimate challenge in the creation of a more sustainable world? Couldn’t all the strategies discussed in this book—clean technology, the Great Leap Downward, creative destruction, radical transactiveness, native capability—serve as potential antidotes to the current vicious cycle of violence? Imagine, for example, incubating the renewable, distributed energy system of the future in the very belly of the petroleum beast itself. Could there not be a more delicious irony? But more important, could there not be a more pressing need?

The Next Tsunami

On the day after Christmas in 2004, a great tidal wave washed over most of the coastal communities of South Asia, leaving death and destruction on an unprecedented scale in its wake. With over 150,000 dead and tens of billions of dollars in damage, the world rallied to the aid of the millions of victims: Governments rose to the challenge by contributing hundreds of millions of dollars in disaster relief; charitable contributions from private citizens from across the world reached record levels in an outpouring of support and sympathy. Companies ramped up production to supply the needed goods and services from water purification equipment to emergency shelter to medical supplies. NGOs, disaster relief agencies, and even the military mobilized on a massive scale to airlift and distribute emergency aid to the hundreds of remote communities that had been devastated by the disaster.

In Indonesia, Thailand, and Sri Lanka, extremist movements, terrorist groups, and warring factions set aside their differences, at least for short term, to address the human suffering and devastation that lay in the great Tsunami’s wake. Indeed, the possibility for unity—between rich and poor; Christian, Buddhist, Hindu, and Muslim; corporate, government and civil society; developed and developing—was palpable. The flood had created the pretext for collaboration and common cause, at least for a while. But what happens after the immediate tragedy passes and world attention is drawn away to other issues, as it inevitably will be? With the passage of time, will the aid dry up leaving these communities destitute and impoverished? Will the region then become an even greater hotbed for extremist movements and terrorist activity? Or can we envision another wave after the Great Tsunami—one based upon the principles developed in this book?

Indeed, with the South Asia coastline in ruins, there is an opportunity to drive the reconstruction process through an enterprise-based model organized around a vision of sustainable development. For visionary companies, this offers the chance to leapfrog directly to clean technology, wireless telecommunications, distributed generation of renewable energy, point of use water purification, sustainable agriculture, and environmentally-sound building techniques. For the financial sector, the opportunity exists to help local people pull themselves back up by the bootstraps through micro-finance and micro-entrepreneurship, rather than perpetuating a deepening cycle of aid-based dependence.

In short, the next wave could be an orchestrated effort to bring inclusive capitalism to the region, with the potential to diffuse forever the insurgency movements that result from inequity, poverty, isolation, and hopelessness. Imagine the possibility of creating common cause with Indonesia—the largest Muslim nation in the World—to create a sustainable future for the country’s devastated west coast. It might be possible to transform an entire generation’s view of the United States and western capitalism. The time is now for the major corporations of the world to step up to this challenge—to forge the partnerships with the multilaterals, governments, NGOs, and local players necessary to make it happen.

In the wake of September 11, 2001 and December 26, 2004, then, we find ourselves at a crossroads. Political solutions to the world’s social and environmental problems have not been forthcoming, the framework conditions needed for global governance have remained elusive, aid and philanthropy have not been adequate to the challenge, and the use of force appears to create more problems than it solves. Economic globalization has shown promise, but thus far, it has not managed to reach the majority of humanity. Increasingly, people around the world are asking the question, must capitalism’s thirst for growth and profits serve only to exacerbate poverty and environmental deterioration? If the answer to this question is yes, as a growing chorus of antiglobalization activists believe, then there is little hope.

As I propose in this book, however, the answer to this question must be an emphatic “no.” The major challenge—and opportunity—of our time is to create a form of commerce that uplifts the entire human community of 6.5 billion and does so in a way that respects both natural and cultural diversity. Indeed, that is the only realistic and viable pathway to a sustainable world. And business can—and must—lead the way.

Becoming Indigenous

The chapters that came before charted the course to a more inclusive and sustainable form of commerce. Exhibit 9.1 summarizes the journey that we have taken in this book. As we have seen, greening has been an important first step because it eliminated the myth that a trade-off exists between a firm’s financial and societal performance. Driven by the realization that pollution is waste and dialogue with stakeholders is superior to court battles, greening opened the door for companies to take a proactive stance toward social and environmental issues. Indeed, pollution prevention and product stewardship have succeeded in reducing waste, emissions, and impact, while simultaneously reducing cost, risk, and stakeholder resistance. The incremental gains associated with greening, however, have been clearly inadequate: They only slow the rate of destruction rather than fundamentally changing course.

Exhibit 9.1. The Path to Inclusive Commerce

Moving beyond greening, therefore, is critical both to a sustainable world and to a sustainable enterprise. Driven by an accelerating rate of technological change and the growing realization that something fundamental must change if we are to accommodate a population of 8 billion to 10 billion human beings on the planet, beyond greening provides the motivation for companies to think in terms of reorientation rather than just adjustment. Leapfrogging to inherently clean technologies through disruptive business models at the base of the pyramid enables companies to confront directly the two biggest problems facing humanity: poverty and global-scale environmental degradation. These also provide the basis for the repositioning and growth that will be needed for companies to thrive in the future.

As we have seen, however, strategies for the base of the pyramid and clean technology, if narrowly construed, still position companies as outsiders, alien to both the cultures and the ecosystems within which they do business. The next sustainability challenge, therefore, is to become indigenous. By hearing the true voices of those who have previously been bypassed by globalization, and by learning to codevelop technologies, products, and services with nature and local people, MNCs can become native to the places where they operate. This requires a healthy dose of humility and respect, as well as a greater appreciation for the many and varied ways that people choose to live. Through bottom-up innovation on a human scale, MNCs effectively become part of the local landscape. In so doing, the corporate sector becomes a primary driving force for global sustainability. And in the process, visionary companies realize opportunities of untold proportion.

Enabling existing companies to first recognize and then pursue these opportunities is no small challenge. As we have seen, shattering the trade-off myth associated with pollution and prosperity was a crucial first step in realizing the full potential of greening. Moving beyond greening and becoming indigenous will require that we break free from the tyranny of another set of implicit trade-offs and assumptions. Indeed, the air is filled today with rejoinders such as “We can’t serve the poor profitably,” “Business should not be expected to solve the world’s problems,” and, most recently, “You are either with us, or you are with the terrorists.” These are all false dichotomies that oversimplify and therefore obscure the possibilities for more nuanced and inclusive solutions. Focusing creative energy on dissolving these trade-offs—and the orthodox thinking that supports them—can provide an avenue for companies to identify the breakthrough business strategies of the future.

In this book, I have tried to suggest what companies might do to pursue the path of sustainable global enterprise—the strategies, practices, and capabilities that are required. What is less clear is how to pursue this path, particularly within the context of large, incumbent, multinational corporations. Indeed, as Raghuram Rajan and Luigi Zingales point out in their book Saving Capitalism from the Capitalists, it is precisely the large incumbent corporations that most often stand in the way of fundamental change.⁵ I close the book, therefore, with some thoughts on what it will take to make sustainability happen in the real world of budgets, quarterly earnings reports, discounted cash-flow analysis, and the discipline of the investor community.⁶ Leaders in companies will need to avoid the top-down bias, think as a disrupter, reinvent cost structures, transform the meaning of scale, and align the organization. Most important, to enable employees to build the sustainability cathedral, senior managers will have to step up to the challenge with visible and tangible commitments that far surpass what they have been willing to do to date.

Avoid the Top-Down Bias

Large corporations have great difficulty fomenting innovation from the bottom up. When firms are left to their own devices, new programs and strategies are decreed by senior managers and then sent down the reporting chain for implementation. Unfortunately, when it comes to sustainability, a top-down approach to implementation can seriously limit and even damage the company’s hopes of realizing the opportunity. In fact, a strong market presence at the top of the pyramid can actually blind managers to the possibilities elsewhere.

P&G, for example, has had great difficulty shaking off the influence of its renowned brand-management system when entering low-income markets or looking to commercialize leapfrog technology. When the firm was test-marketing its new nutritional beverage product, Nutristar, for example, initial efforts were negatively affected by the company’s traditional approach to product launch at the top of the pyramid. The local subsidiary in the Philippines was not familiar with the low-income segment of the population, and the company’s standard approach failed to hear the true voice of the new customer. Ultimately, the team had to abandon this test market. They later decided to launch a pilot project in a country where the company did not currently have a local subsidiary. This enabled them to construct a true “learning” market by working with local communities and NGOs to do the pilot testing. Ironically, then, the corporation’s strong presence around the world became a liability when it came to incubating new businesses at the base of the pyramid.⁷

DuPont has also struggled to devise ways to make the Great Leap Downward. Senior management has made reaching the base of the pyramid a strategic priority for the company; business leaders have been charged with initiating efforts in this regard. Indeed, a process has been put in place to identify, evaluate, and invest in new business opportunities in emerging markets. Yet despite this commitment, the process, which works through the company’s existing business units, seeks primarily to extend existing technologies and products into underserved markets. In this sense, it is fundamentally an incremental initiative. Although there is nothing wrong with such a process (looking for product line extension opportunities is a good way to generate near-term growth), it underscores the difficulty that MNCs have when it comes to breaking the hold of the current business system.⁸

Even the vaunted Hindustan Lever’s initial attempts to reach the base of the pyramid were incremental in character: minor formulation changes for soaps and shampoos, and single-use sachet packaging so that poor people could afford to buy it. Getting to bottom-up innovation through true engagement requires a fundamentally new and different approach. To enable this, senior managers need to create the structural conditions that enable internal entrepreneurs to break free of the current system. At a minimum, this calls for a separate investment fund and special incubation organization where these ventures can germinate without the same hurdle rates, corporate overhead burdens, and growth expectations carried by the existing business divisions.⁹ It does not require a massive investment of resources. As we have seen, even a few million dollars committed in this manner has the potential to buy important options for the future—and create a growth engine that can help the company avoid saturation and stagnation in the current businesses. As noted economist E.F. Schumacher would say “Man is small, and therefore, beautiful. To go for giantism is to go for self-destruction.”¹⁰

Think as a Disrupter

As the experience of the Grameen Bank shows, it is critical to think in terms of creative destruction rather than continuous improvement when it comes to the pursuit of sustainability. Often this means turning the existing technology and business model on their heads. That, in turn, means getting outside the current corporate straightjacket of central research and development. Such a system is particularly well suited to the current top of the pyramid model, with its emphasis on world scale, global supply chains, and one-size-fits-all products. It is singularly inappropriate, however, when it comes to bringing forward the sustainable technologies and business models of tomorrow.

To think as a disruptor, it is necessary to conduct R&D and market research focused on the unique situations and requirements of the poor, by region and by country. As a first step, such research can seek to adapt current technology to local needs. In fact, disruptive thinking can sometimes help to turn current shelf technology (technology that has yet to find a commercial application) into gold. Think about it: Many technologies are on the shelf because they are disruptive to the current business system. Empowering a team to look at these technologies through a new lens—the base of the pyramid, for example—can open up new horizons of possibility.

Many companies have resorted to donating patents to universities as a form of philanthropy and good will. Perhaps it would be wise instead to take a fresh look at these technologies, with the perspective of a disrupter. Over the past few months, for example, we have started a project at Cornell to re-evaluate the shelf technology in the university’s intellectual property office.¹¹ Literally hundreds of patents are sitting dormant, mostly because no large corporation could be found with an interest in licensing them. In the space of a couple of weeks, a few MBA volunteers versed in sustainability and the Great Leap logic were able to identify more than a dozen patents that could provide the basis for start-up ventures focused on disruption and the base of the pyramid.

Perhaps even more important, however, research should seek to identify useful principles and potential applications from local practices. In the BOP, significant knowledge is transmitted orally from one generation to the next. Being respectful of traditions but willing to analyze them scientifically can lead us to new knowledge. Acupuncture was laughed at 30 years ago. Meditation was dismissed as a fad. Body Shop’s creative CEO, Anita Roddick, built a business based on understanding the basis for local rituals and practices. For example, she observed that some African women use slices of pineapple to cleanse their skin. On the surface, this practice appears to be a meaningless ritual. However, research shows that the active ingredients in pineapple clear away dead skin cells better than chemical formulations.

To think disruptively, MNCs must develop major research facilities in developing regions such as China, India, Latin America, and Africa. The focus of these facilities, however, should not be conventional R&D. Instead, they can and must serve as jumping-off points for radical transactiveness and the development of native capability. Few MNCs have made much of an effort in this direction. Unilever is an exception: It has highly regarded research centers in India, employing more than 400 researchers dedicated to the problems of India’s urban slums and rural villages.

Reinvent Cost Structures

Managers must dramatically reduce cost levels relative to those at the top of the pyramid. To create products and services the poor can afford, MNCs must reduce their costs by orders of magnitude to say, 10 percent of what they are today. This cannot be achieved by fine-tuning the current approaches to product development, production, and logistics. The entire business process must be rethought with a focus on functionality, not on the product itself.

As suggested earlier, focused R&D and technology development will be critical to reducing costs. Companies such as N-Logue in India, as we have seen, are focusing their R&D energies on affordability by creating Wireless Local Loop technology that dramatically lowers connectivity costs in rural area. Galanz has also used the unique expectations of low-income Chinese as a driver in developing highly affordable and energy-efficient microwave ovens. Thus, viewing the constraints imposed by the BOP as innovation drivers provides one important avenue for driving down costs.

The distributed and localized nature of most clean technology and BOP opportunities also offers opportunities for lowering costs through business model innovation. MNCs typically think in terms of capital intensity and labor productivity, based upon their experience at the top of the pyramid. Exactly the opposite logic applies in the BOP. Given the vast number of underemployed people at the base of the pyramid and the fragmented nature of the distribution system, the business model must provide jobs for many, as did Ruf and Tuf jeans from Arvind Mills: The company employed an army of local tailors as stockers, promoters, distributors, and service providers all rolled in one, even though the cost of the jeans was 80 percent below that of Levis. Thus, designing people-intensive rather than capital-intensive businesses provides another important vehicle for reinventing cost structures.

Lowering cost structures also forces a debate on ways to reduce investment intensity. This will inevitably lead to greater use of information technology to develop production and distribution systems. As noted, village-based phones are already transforming the pattern of communications throughout the developing world. Add to this the Internet, and we have a whole new way of communicating and creating economic development in poor, rural areas. Creative use of IT will emerge in these markets as a means to dramatically lower the costs associated with access to product and services, distribution, and credit management.

Transform the Meaning of Scale

The dominant logic for most MNCs today is that scale literally means “big”—world-scale factories, global supply chains, and international markets. Achieving scale means making big investments and spreading the costs over even bigger markets. Today’s large corporations do not think twice about investing more than a billion dollars in one new project, whether it’s a new car platform, a chip fab, a pulp mill, or an energy infrastructure project. Placing such big bets often produces spectacular success—but sometimes means horrific failure. Executives’ careers are made and broken based upon how well they manage these investments. New businesses must start big to cover the corporate overhead, clear the hurdle rate, and generate the growth needed to feed the corporate monkey in the near term. Indeed, project-evaluation and capital-budgeting tools are carefully tuned to identify the best of the big ones. Projects that do not fit this description, either because they are initially too small or because they have a delayed payback, are shunted to the side, regardless of their potential. Only square pegs can fit in square holes.

The quest for sustainable global enterprise, however, demands that MNCs transform (or, at least, broaden) the meaning of scale. As we have seen, most clean technologies are disruptive; disruptive technologies are typically smaller in scale and more distributed in character. Indeed, many of the most exciting emerging technologies, such as nanotechnology, completely reverse the logic of “bigger is better”: Production takes place at the molecular scale. Furthermore, effectively reaching the base of the pyramid requires a revolution in business models. Local engagement, codevelopment, and low-cost probes are the modus operandi. Achieving scale in this new arena means marrying distributed capability and learning with world-class technology and global reach. Growth is modular, not monolithic; it occurs from the bottom up through an organic process of coevolution rather than top down, through massive investment in world-scale facilities. It requires native capability, not global scale or local responsiveness.

Managers should therefore centralize only where there are clear and demonstrable advantages. Begin with the assumption that decentralization is the right choice until someone can prove to you otherwise. Question more intently the logic behind economies of scale implicit in world-scale proposals. Are they really a good use of scarce capital resources? Do they foreclose other pathways prematurely? Should some of the company’s investment capital be spread over a wider range of smaller, more distributed experiments? Do some projects that appear too small initially have the potential to scale rapidly through modular, organic growth and become very large businesses? Questions like these can help managers to broaden and ultimately transform the meaning of scale.

Align the Organization

Pursuit of a sustainable global enterprise is often thwarted by inconsistent or even conflicting elements in organizational infrastructure. Strategies cannot be realized unless the organizational structure and formal systems enable them. Goals cannot be reached without the right people with the right skills using the right processes. Visions can never become real without a serious intent to actually reduce them to practice.¹²

Exhibit 9.2 lists the elements of organizational infrastructure that are critical to align. There is no question that setting a compelling and challenging vision and mission for corporate sustainability is a key to success. This enables senior leadership to challenge its people to do something great, to establish a “big, hairy, audacious” goal (BHAG), in the words of Jim Collins and Jerry Porras, a goal that is worthy of their highest aspirations, hopes, and dreams.¹³ Ray Anderson, CEO of the Atlanta-based carpet manufacturer, Interface, has established a very hairy goal indeed for the company: to never take another drop of oil from the Earth. This is clearly audacious because the company’s current core product—commercial carpet made from PVC and nylon—is based entirely on petrochemicals.

Exhibit 9.2. Aligning the Organization for Sustainability

Although sustainability-based BHAGs are important, they cannot stand on their own because they define a future state that is well beyond the current grasp of most people in the company. It is necessary to articulate some tangible steps that allow people to make progress toward the vision. That is the purpose of clearly stated and measurable goals. DuPont, for example, has committed to a set of sustainability goals that move the company toward its vision of creating sustainable solutions essential to a better, safer, healthier life for people everywhere. One corporate goal, for example, is to reduce greenhouse gas emissions by two-thirds by 2010. This is an aggressive goal, to be sure, but it directs the attention of employees to the next steps they must take and clarifies appropriate strategies to pursue.

Too often, companies set lofty visions and goals for sustainability, only to have them fall apart at the level of strategy. When this happens, external stakeholders—particularly NGOs and civil society groups—conclude that the company is engaged in little more than public relations and “greenwashing.” It is important, therefore, for companies to be clear on what their actual portfolio of strategies will be. The sustainable value portfolio developed in Chapter 3, “The Sustainable Value Portfolio” (and elaborated further in Exhibit 9.1), is a useful tool for planning the right mix of greening, beyond greening, and even indigenous programs and initiatives. DuPont, for example, has used this tool to help ensure that it has the mix of strategic activities needed to drive the company forward toward its goals, particularly in moving beyond greening.

Even where there is clarity with regard to strategy, however, companies can and often do run aground when it comes to implementation. Compelling vision, lofty goals, and aggressive strategies never make it out of the starting gate if the organizational structure and formal systems conspire to kill the projects and punish the people responsible for them. In fact, this misalignment may be one of the most significant problems facing large corporations today.

Nike’s failed World Shoe initiative can be attributed, at least in part, to misalignment of strategy, structure, and measurement systems. The first mistake was to locate the venture within the athletic footwear business group; this forced the World Shoe group to make use of the manufacturing and distribution systems used for Nike’s high-end products. Indeed, because existing contract manufacturers were rewarded based upon contribution margin, there was a built-in disincentive for them to even produce the low-priced World Shoes in the first place. Similarly, the company’s pricing formula forced the fledgling venture to price the product beyond what its managers knew was acceptable to their target market, dooming it from the start. Finally, by forcing the venture to market its products through the company’s existing distribution channels—primarily high-end retailers in China’s large cities—Nike virtually guaranteed that it would never be able to reach its target customer base.

Establishing a separate venture for the World Shoe, one that had the freedom to design its own production, marketing, and distribution strategy apart from the established Nike pricing formula, might have given the venture a fair chance to realize its full potential, a market of potentially vast proportion. Instead, it was shut down after failing to make even the modest sales targets that had been set, defeated by the inflexibility of the corporate structure and formal systems.

It is thus of critical importance that large corporations make the organizational space necessary for innovative new ventures based on disruptive clean technologies and BOP markets to flourish. As we saw in Chapter 8, “Developing Native Capability,” creating a separate organization and funding mechanism is an important starting point. That is not to say that such ventures should be allowed to lose money for an extended period of time. On the contrary, there is no reason such ventures cannot be profitable from the very start. As Clay Christensen and Michael Raynor suggest, when it comes to disruptive new ventures, senior management should be patient for growth and impatient for profit; expecting such ventures to become very big very fast fails to appreciate the organic and modular nature of their growth.¹⁴

Furthermore, the people who have the courage to undertake these experiments and ventures should not be punished if they fail. New and innovative measurement and reward systems are therefore crucial in moving us toward a sustainable global enterprise. The critical need for alignment of formal systems, particularly measurement systems, can be seen through Monsanto’s experience in establishing a separate Sustainable Development Sector within the company in the mid-1990s.¹⁵ CEO Bob Shapiro’s instinct was exactly on target in establishing this sector. The company needed a place where innovative new ideas could be identified and pilot-tested if the businesses of the future were to come forward. During the mid- to late-1990s, the sector was working with a range of new technologies, as well as new partnerships in developing countries focused on the needs of poor, small shareholder farmers. Unfortunately, the pressures of the company’s measurement system rendered most of these projects stillborn. By imposing the same growth and profitability targets on the fledging new sustainability ventures as were used on investment proposals within the established business units (such as agricultural chemicals), the company effectively foreclosed its option on the future.

In addition to organizational structure and formal systems, it is important to align the informal (cultural) processes that exist within companies: the technology, product, and market-development processes, in particular. In fact, these processes may hold the key. It is relatively easy to change boxes on the organizational chart and alter the discount rate used to evaluate investment decisions; it is a bit more difficult—but perhaps more powerful—to change the way people behave in the company through the processes they follow. We have learned this lesson over the past two decades with such process-oriented programs as quality management, Six Sigma, and business process re-engineering, to name a few.

Designing processes that focus on the creation of sustainable technologies and businesses is a surprisingly underutilized tool in large corporations. It is a potentially very important way to guarantee some real action, unlike the rhetoric often associated with vision, goals, or even strategic plans. Philips, for example, has developed a very simple but elegant process for new sustainable business and market development. Philips businesses (and employees, in general) are invited to submit their ideas for projects that focus more effectively on the unmet needs of people worldwide. Project proposals need to outline the economic, environmental, social, and personal aspects of the solution that they intend to deliver. A separate pool of money has been created to fund the best of these new business experiments. In addition, the senior management of the company now requires each of Philips’s businesses to move forward with at least one venture focused on the base of the pyramid each year.¹⁶

This brings us to the final element in organizational alignment: people. This element has been virtually ignored by most MNCs, but it could turn out to be the most significant of all. Much could be accomplished if the message contained in the corporate sustainability vision statement were actually integrated into corporate recruiting, leadership development, and performance evaluation. I can speak from firsthand experience when I say that, despite the best of intentions, few companies ensure that the recruiters they send to business schools are knowledgeable about sustainability issues. Even fewer firms include some understanding of or experience in sustainable enterprise as part of their hiring criteria for MBAs.

Research by my Cornell colleague Bob Frank suggests that ignoring students’ commitment to social responsibility, ethics, and sustainability in the recruiting process may be a missed opportunity for firms committed to such aims.¹⁷ Frank and his colleagues have found that there are significant salary differentials for “morally satisfying” jobs compared to those jobs seen as less socially motivated. In fact, research evidence clearly shows that students require large premiums before they are willing to work for less socially responsible employers. Thus, for companies, commitment to sustainability can serve as a magnet for recruiting the best people at a salary level below that of competitors lacking similar commitment.

When it comes to training and development, few MNCs have yet reached the point that they consider global sustainability a significant enough issue to make it an integral part of the leadership development process. Fewer still have made sustainability performance an integral part of the performance evaluation and promotion process. The time is now for corporations to close the loop on their own rhetoric by recruiting, developing, and rewarding people who display capability and imagination in moving the company and the world toward sustainability.

The importance of aligning these elements of organizational infrastructure should not be underestimated. Employees will quickly become cynical and even alienated if they run too frequently into roadblocks or have to take undue career risks to move the sustainability agenda forward. By pointing all the organizational arrows in the same direction, MNC leaders can send a strong signal that encourages employees to step forward and invest their creative energies in the enterprise. Ultimately, that is the only way to ensure success.

Building the Cathedral

In his book Reinventing the Bazaar, John McMillan argues persuasively that large firms can never mimic the creative and innovative behavior of small firms, for one simple reason: ownership.¹⁸ The owner of an asset has the right to any residual returns that it generates. If returns are unexpectedly high, the owner gets the windfall. Large firms can divide themselves into smaller units responsible for their own costs and revenues, thereby heightening incentives. Divisional managers can be paid according to their division’s performance. But large firms can never precisely duplicate ownership. A divisional manager does not have residual control, so decisions can be overridden from above. If the division turns out to be wildly more successful than anyone foresaw when the manager’s contract was written, the parent firm will probably find a way to harvest the profits. In short, not being an owner—lacking the rights to residual returns—puts a damper on the motivation to invest creatively and to take risks.

So how can MNCs possibly unleash the creative power of their people, a virtual prerequisite to realizing the full potential of sustainability? The answer is ownership! Not ownership of residual returns, but rather ownership of ideas and the ability to champion their development. MNCs must bestow on their people what my colleague Erik Simanis has described as the “license to imagine.” Companies must enable their employees to pitch and run with new ideas—ideas that help to move us toward a sustainable world—in ways that would never be possible on their own or in small start-up enterprises. MNCs must, in short, make meaning for their employees and allow them the chance to align their personal values with what they do on the job everyday.

I am reminded of the story of three people at work on a construction site. All were doing the same job, but when each was asked what his job was, the answers varied. “Breaking rocks,” replied the first. “Earning a living,” answered the second. “Helping build a cathedral,” said the third. Too many people in large corporations still view their work as either breaking rocks or, at best, earning a living. Sustainability is the cathedral building of the twenty-first century. There can be no more important goal, no nobler aspiration, and no greater business opportunity. What we lack in our companies is not resources or capabilities, but rather imagination. We must turn people lose to build the cathedral of sustainability.

Senior executives must develop the courage to speak out publicly regarding the importance of sustainable development and the role that they can play in its realization. Corporate governmental affairs must come to mean more than lobbying to maintain the status quo or bending the political process to serve the company’s short-term interests. Instead, business must champion the needed global framework conditions—international protocols and agreements—that governments, civil society, and multilateral agencies have been unable to deliver on their own.

Building the cathedral of sustainability also requires senior executives to create the structural space for disruptive new technologies and business experiments to flourish. This includes allocating the necessary investment capital to fund their development, protecting the ventures—and their entrepreneurs—from the tyranny of the current incumbent business, and recognizing and rewarding those who succeed in nurturing the businesses of the future.

While senior executive leadership is crucial, it is also important for each individual and employee to take the bull by the horns. The best place to start is by charting your own personal vision and action plan for sustainability. What can you do, within the realm of your current role, to move the company—and the world—toward sustainability? Write it down. Commit to it. When you have created a practical vision of what you want to achieve, take note of the current reality. As Bryan Smith, my colleague in the Sustainable Enterprise Academy, points out, current reality is not the problem—it simply defines the set of resources, people, and opportunities that you have to work with. Note your current reality and then assess the gap between it and your vision.¹⁹

The wider the gap is between vision and the current reality, the more “creative tension” there is. Your challenge is to put together a coalition of people and resources, and then build the momentum within the organization to close the gap. That is how you realize the vision. When the first one is realized, move on to the second. Enroll others within the organization to make a similar commitment. Creating a sustainable global enterprise is not about waiting for the magic bullet to be handed down from senior management. Instead, it is about hundreds or even thousands of people in the organization deciding to commit to the pursuit of their personal visions and action plans, with global sustainability as the driving force.

Postscript

As we embark upon the new century, business has emerged as the most powerful institution on the planet. Seven-hundred years ago, it was religion; the world’s cathedrals, mosques, and temples stand as testimony to the primacy of organized religion in the world at that time. Two hundred years ago, it was the state; no tour would be complete without visits to the impressive palaces, capitol buildings, and governmental complexes of the world that remind us of how centrally important government was in the age of enlightenment. Today the most powerful institution in the world is business: Witness the office towers, banks, and commercial centers that dominate today’s largest cities. Although no one denies the continuing and crucial importance of government, religion, and civil society, there can be little doubt that commerce has become the dominant institution.

But, as we have seen, there are storm clouds on the horizon: Unless global capitalism can extend its bounty to the entire human community in a way that respects cultural diversity and husbands the natural capital upon which it depends, we may well witness the marginalization of this great institution in our lifetime. Unfortunately, there is no candidate institution waiting to step into the breach to assume leadership: Global governance is in its infancy, religious fundamentalism has become a divisive rather than constructive force, and civil society lacks the resources and technology to make a large enough impact on its own.

It now seems clear that environmental deterioration, global terrorism, and geopolitical meltdown all wait in the wings if business fails to step up to the challenge. The United States, the lone superpower in the world today, is mired in a parochial and counterproductive struggle between two outmoded ideologies: liberal versus conservative. Tragically, neither is appropriate for the challenges that lie ahead. We desperately need a third way, one premised on a combination of global interdependence, sustainability, and local self-reliance. Commerce may be the only institution with the resources, capabilities, and global reach to make it happen. Today capitalism truly does stand at a crossroads: My hope is that this book has shed some light on the appropriate path for business to take.

Notes

¹ For in-depth treatments of the causes and consequences of the radical Islamic movement, see Benjamin Barber, Jihad Versus McWorld (New York: Ballantine Books, 1996); and Fear’s Empire (New York: W.W. Norton, 2003).

² An anonymous intelligence veteran makes a compelling argument that it is not opposition to the West’s secular, democratic way of life that is behind the global Islamic insurgency, but rather the West’s unsustainable policies toward and practices in the Middle East itself. See Imperial Hubris (anonymous) (Washington, D.C.: Brassey’s Inc, 2004).

³ Tom Friedman (New York Times), presentation at Kenan-Flagler Business School, University of North Carolina, April 2003.

⁴ For an insightful discussion of the “hideous schizophrenia” implicit in Western conceptions of liberalism, see Paul Berman, Terror and Liberalism (New York: W.W. Norton, 2003).

⁵ Rajan Raghuram and Luigi Zingales, Saving Capitalism from the Capitalists (New York: Crown Business, 2003).

⁶ Portions of the following sections have drawn from C. K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business January (2002): 2–14.

⁷ George Carpenter (P&G), presentation at the Sustainable Enterprise Academy, April 2004.

⁸ Eduardo Wanick (DuPont), presentation at the Base of the Learning Laboratory meeting, Monterrey, Mexico, February 2004.

⁹ Clay Christensen and Michael Raynor draw a similar conclusion regarding the incubation of disruptive innovations in large incumbent firms in their book The Innovator’s Solution (Boston: Harvard Business School Press, 2003).

¹⁰ E.F. Schumacher. Small Is Beautiful: Economics as if People Mattered. (New York: Harper Torchbooks, 1973) page 150.

¹¹ My thanks to Dick Cahoon, Director of Cornell’s Center for Technology, Entrepreneurship, and Commercialization, for this opportunity.

¹² Among the few efforts to explore the leadership and organizational challenges associated with sustainability are Bob Doppelt, Leading Change Toward Sustainability (Sheffield, UK: Greenleaf Publishing, 2003); and Dexter Dunphy, Andrew Griffiths, and Suzanne Benn, Organizational Change for Corporate Sustainability (London: Routledge, 2003).

¹³ Jim Collins and Gary Porras, Built to Last (New York: HarperCollins, 1994).

¹⁴ Clayton Christensen and Michael Raynor, The Innovator’s Solution.

¹⁵ My thanks to Kate Fish and others at Monsanto for giving me the opportunity to work with the fledging Sustainable Development Sector.

¹⁶ Personal communication, Jan Oosterveld, Group Management Committee, Royal Philips Electronics, July 2004.

¹⁷ Robert Frank, What Price the Moral High Ground? (Princeton, NJ: Princeton University Press, 2004).

¹⁸ John McMillan, Reinventing the Bazaar: A Natural History of Markets (New York: W.W. Norton. 2002).

¹⁹ I am indebted to Bryan Smith for this approach to personal action planning, which draws from his work with Peter Senge and the Society of Organizational Learning.