Articles
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It's 2024. Do you know where your sustainability strategy is?
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CleanTech as a Service
Its 2024. Do you know where your sustainability strategy is?
We are facing serious consequences by the end of the century if we cannot achieve some of the very modest goals the world documented in the Paris accord almost 10 years ago. But despite many good intentions, we have made far too little progress toward the emissions reductions needed to stay below 2 Centigrade of warming. In part, this may be the classic tragedy of the commons, in which something that is everyone’s responsibility ends up falling through the cracks of specific responsibility of individuals, groups or enterprises. In part, however, it is certainly also the problem of strategy execution, which is a separate, underfunded and generally ignored aspect of business management. Much effort goes into strategy development and even more effort goes into ‘operational excellence’, but far too little attention is paid to strategy execution except to assume that it will somehow flow into the operational plan and the sum of those operational plans will magically add up to the desired strategic outcome.
Getting strategy execution right is difficult enough when the strategy involves the organisation’s core competence, but it is almost impossible when only a few people in the organization really understand the desired outcome and how to achieve it. In addition to knowing how to achieve those goals, that small group must then be able to communicate that strategy and the planning for its implementation to the rest of the organization, help them translate those efforts into each relevant group within the organization, help them set up a system for monitoring progress against key indicators and roll all those efforts back up to ensure that they move the needle at the top level. If achieving the goals requires some groups within the organization to substantively change the way they do things (and let’s face it, if becoming more sustainable were easy, we wouldn’t be so far behind), they will need help and additional resources to gradually change direction without tanking their operational productivity.
There are numerous examples of large corporations that were toppled by their inability to incorporate new ideas and change the way they worked, even when the innovations they needed to adapt to were surely within their competence to surmount. But sustainability is not the area of expertise for most companies. Some organisations that embedded this idea in their DNA from the outset have done very well in truly achieving their sustainability goals, such as Patagonia and Ecolab. But grafting a sustainability strategy on to the corporate strategy of an organization that didn’t previously think too much about it is likely to suffer from organ rejection. The likelihood is that it will be an afterthought at best. It will suffer from the classic hockey stick problem that is endemic to strategy execution: performance against the strategic priorities is always going to happen exponentially in year 3, which is always two years away. Most of the group’s resouorces will be spent on meeting the operational targets, any work on strategic initiatives will come a distant second. The more strongly the strategic efforts diverge from the comfort zones of those working on the initiative, the less time and effort are likely to be put into them. So if those initiatives focus on something entirely outside the group’s competence, you will need to ensure that they are well supported to undertake the strategic tasks and monitor the progress of those tasks more closely.
Fortunately, innovations have emerged to help with these concerns. There are systems for helping groups track, monitor and course-correct both operational and strategy plans. You can keep an eye on where the implementation of the strategy is starting to lag behind what is needed to reach targets and timelines. Often, employees are familiar with the sorts of performance indicator tracking and monitoring systems used for keeping operational productivity and would find it relatively straightforward to use a similar system for tracking performance against strategic initiatives as well. Such systems, including KPIs and OKRs, are well suited to helping translate the high-level sustainability strategy goals into more grounded targets within the purview of business unit groups. And coaching for getting back on track is cheaper and easier to do these days as well. When you can see where in the process implementation is breaking down, you can identify the potential problems that are causing your colleagues to shy away from getting the job done.
Root-cause analysis of the problem can help identify means of getting back on track. The simplest problem is that the strategic initiative is under-resourced and those managing the group undertaking the strategic initiative have more of a stake in their operational metrics than the strategic ones. The operational work will then tend to crowd out the strategic work with the implicit agreement of the group’s manager. Having metrics to show that the strategy is under-resourced supports the business case for better resourcing. However, other problems can also arise in achieving a sustainability strategy. Often, people are uncomfortable with processes that they only perform occasionally and need support to feel confident undertaking that job again. Internal videos for quick and specific training as well as detailed FAQs can help people get back up to speed without needing to wait for anyone else to respond. In addition, they tend to feel more empowered to ask questions and get help if they have a dedicated member of the sustainability group whom they have met and who has explained their dedication to supporting their group. Regular meetings, not necessarily frequent but reliably certain to occur, can also help. These meetings could coincide with the meetings to examine the sustainability strategy’s KPIs, since explaining progress against an initiative can bring up barriers and lead to questions about finding better ways to achieve those goals. Having a dedicated sustainability team member in those discussions would not only make answering questions quicker and easier, it would also remind the group that the organization takes its sustainability goals seriously.
For the organization, this has the added benefits of wasting less money on a strategy that never comes to fruition and avoiding the sorts of negative press that can result from failed sustainability goals. Not only can the fact that the company missed its targets lead to attention from activist investors and stakeholders, it can also potentially cause a company to have their ESG rating downgraded and large investors to reconsider their stock purchases. It is far less expensive to implement the strategy and meet the goals in a timely manner than have to take corrective action and still have to meet the goals. It can be done, it just needs the same sort of focus that good organisations naturally bring to their operational objectives and some support from dedicated sustainability resources. A dedicated strategy execution resource can also help make the difference between successful strategy implementation and failure to meet sustainability goals, with all its attendant negative consequences.
Copyright (c) by Karen Schroeder of Stratex Solutions. All Rights Reserved.
CleanTech As A Service
The idea of offering products as a service began with software but has spread to other areas where upfront costs are high, technology is complex and use of the technology is not generally the customer’s core competence. Beyond SaaS and mobility-as-a-service, energy-as-a-service has taken off, due in part to the large software component in energy management. Cleantech-as-a-service is a broader concept, incorporating not only emissions reduction and net-zero strategies but also waste and water management and other ESG elements. However, the same principle applies, which is to leverage the expertise of the cleantech company to do more than just provide products, especially as the products become more complex and potentially need to be monitored and tweaked to optimize their benefits. That requires specialized knowledge that the customer may not have in house, so it makes sense to rely on the expertise the cleantech provider naturally has. Complex products whose use is not intuitive can reduce stickiness for their producers because rather than acknowledge their lack of expertise and ask for help, customers sometimes simply write a product off and switch to a competitor’s product, even though the problem arose from user error. Providing an end-to-end solution in which the producer can control the user experience or a managed service in which the producer takes over that element of the customer’s non-core inputs and shares in the cost savings allows the producer to move out of a commodified position and partner with its clientele for superior value creation.
Many companies are struggling to keep up with the emission reduction targets they set just as activist investors and consumers are becoming more proactive about demanding evidence of progress toward those goals. The cleantech industry can better support achievement of targets by intervening in their customers’ processes where they have expertise their customers lack. By expanding their cleantech-as-a-service offerings, they can improve their return on the expertise they already have, make it easier for customers to integrate emissions or waste reduction technology, and help the customer reduce the cost of fulfilling their promises to investors and consumers.
This is important because despite the Inflation Reduction Act and the very generous subsidies it provides, the United States is not on track to meet its own Nationally Defined Contributions to global emissions reductions with the goal of staying below two degrees of warming. As of 2023, the US had achieved only slightly over one-third of its 2030 target. The assumption is that there will be a shortfall of at least twenty-five percent, highlighting the need to ramp more quickly.
The example of SaaS is very relevant to cleantech-as-a-service. The ability to use a virtual service in which the expertise for running the service remained the domain of the software provider and customers could use as little or as much of that software as needed made it possible for smaller companies to bypass the cost and integration complexity that was the hallmark of large corporate software packages. In essence this democratised the use of more sophisticated software and led to a much more rapid expansion of those software producers than would otherwise have been possible. That in turn drove improvements in internet service provision, with benefits for the broader economy. The rapid spread of more sophisticated tools to smaller companies supported growth and productivity which would not have been possible if the smaller companies had had to spend capital buying on premises software packages.
We currently need a similar expansion of cleantech products. The delay we have already experienced in reducing emissions and waste is starting to have devastating effects and we must ramp use of CaaS as quickly as possible to combat those outcomes. The positive aspect is that CaaS can have benefits for producers as well as customers.
On the customer side, the benefits include:
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Immediate savings
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Streamlined implementation
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Access to asset-level data
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Low or no capital outlay
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Expert partners with a vested interest in keeping the product running optimally
On the producer side, if the producer can get the business model right and leverage their expertise, the benefits include:
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Improved margins
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Revenue from services that might previously have been free or subsidised
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Access to aggregated data as an input to further R&D
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Lower switching costs
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Much better insight into customers’ use of current products and need for future developments
From the producer’s point of view, CaaS can make the difference between getting stuck in a commodified position and greatly improving their margins, upping their retention rates and lowering their cost of sales. That said, there are some distinct hurdles on the path to executing a strategic shift from a primarily product-driven position with a few services, which may or may not be adequately compensated, to profitably offering end-to-end solutions. A key concern is knowing the cost and value of the services embedded in those solutions extremely well. The difference between improving the company’s profitability through this strategy and making a costly mistake is in a thorough understanding of what the services cost to provide. A company that has been pulled into providing some services along the way may not realise the full extent of those costs and must examine them in detail before moving forward with this strategy. In addition to the time and cost of the service providers, there will be training costs for ensuring that the providers are able to cope with more interaction with customers than they may previously have had, the accounting for the service provision is in place and pricing has been vetted to adequately capture the value of the service.
In addition to the service providers, the sales team may need training to sell at a different level than the transactional sales were taking place. The sale of end-to-end solutions involves more decision making at the customer end, since they will be placing more trust in the solutions provider. When they agree to a full solution, they are raising their own switching costs, so they need to have a higher level of confidence in the performance of the provider. The provider must be in a position to demonstrate that it can reliably and continuously outperform the competition, stay at the forefront of its area of cleantech and solve the customer’s problems even as conditions change. In other words, the provider needs to be able to assure the customer that its strategic needs are already being taken into account. It is a high bar, and if the provider fails, the cost of disentangling can also be high. As a consequence, such decisions are often taken at the C-suite level, if the cleantech in question is a vital component of the customer’s processes. That means that the provider, which may have been previously selling products at a fairly technical level, must now take a very different proposition to a different level in the customer organization. This is a shift in perspective that must be taken seriously in the provider’s strategy execution if the solution provision is to be successful.
Copyright (c) by Karen Schroeder of Stratex Solutions. All Rights Reserved.