Increasing profit through more sustainability: 6 companies show how it can be done

Increasing profit through more sustainability: 6 companies show how it can be done

This article was published on March 11th, 2015 in the magazine „Wirtschaftswoche Green “. The text was translated by shared.value.chain.

by Michael D‘heur

“Sustainability as a lever to reducing cost? It doesn’t work, it only costs money.” This, unfortunately, is still often heard in discussions with business representatives. But it is incorrect and rather the other way round: Sustainability offers great prospects to remaining competitive or even to increase competitiveness.

“Sustainability as a lever to reducing cost? It doesn’t work, it only costs money.” This, unfortunately, is still often heard in discussions with business representatives. But it is incorrect and rather the other way round: Sustainability offers great prospects to remaining competitive or even to increase competitiveness.

Currently, international enterprises particularly use three levers to reducing cost: Operative cost reduction through offshoring of production to regions where employees are cheaper or through outsourcing of production to external partners who can fulfil certain tasks under better or cheaper conditions due to specific competences or capacities.

The third lever being used is the reduction of staff costs which is usually viewed asS a measure realisable at short notice. However, such measure is questionable as it often disguises mistakes previously made by the management. It is also been used when companies chalk up record profits.

Cost reduction through sustainable practices

Despite their business logic, these levers do not consider conscious handling with natural resources. In addition, considering the entire added value chain network ‘from raw material to clients’ is very rare when identifying potentials for cost reduction.

The cost reduction toolbox should subsequently be completed with an innovative field of activity: Sustainability in products and in the entire value chain network. However, sustainable value creation can only be implemented when it is proven that the financial situation is enhanced.

Go green get gold

These cost savings can only be identified and improved when the reciprocity between product development, suppliers, and the company’s own manufacturing is understood, and when all connections with environment and society are visualised. Here are five examples of companies that show how this may work:

Product design for closed product cycles: According to the cradle-to-cradle approach, products are conceptualised in a way so that they are entirely released into closed cycles at the end of their product life.

Here, savings can be achieved as costs for extraction and production of primary raw materials are avoided. It can also be economic to substitute individual components with more renewable raw materials and recyclable components. Already partially integrating cycle concepts into the product design can save costs significantly as the ‘Component Recovery Programme’ of building machine manufacturer Caterpillar shows.

According to this programme, machines that are at the end of their operating life are taken to pieces and intact components, especially of gearbox, powertrain and brakes, are reused in other machines. With noticeable success: In 2012, proceeds of more than 100 million euros could be generated through reusing components. Whatever is good for the company does also accommodate customers. They receive appropriate machines for lower prices.

Commitment to sustainability in products: companies that have inspected their products for ecological efficiency for longer can produce noticeable success. In 2007, British retailer Marks & Spencer published its “Plan A” according to which all traded products have to be equipped with sustainability attributes by 2015.

After only two years’ time, the break-even point was reached by implementing said Plan A. Nowadays it contributes tens of millions to the company’s profit every year.

Reduction of “non-compliance” costs: Consumers nowadays are more sensitive, more attentive, and in a position to point towards grievances with public appeal because of new media wherefore it is relevant to avoid cost of non-compliance….

 

This post is also available in: German