Better resilience in a hotter world

Chain reaction Climate change not only changes the environment but it also has effects on companies that rely on both renewable and non-renewable resources. So what is the solution for this?, asks Andrew Winston.

It’s impossible to pin any one weather event on climate change, but the scientific consensus is that as the planet gets hotter, the frequency and severity of destructive weather will only increase. Along with and often because of these weather patterns, we’re seeing increases in the prices of most commodities that business and society rely on.

Major storms, droughts and floods are cutting the supply of some renewable commodities, such a s crops and clean water. Nonrenewable resources, such as oil and some metals, are also becoming scarcer.

Though companies today face many global-scale challenges, extreme weather caused by climate change and increasing limits on resources are both having an unprecedented impact.

Pivot strategy: A new framework

An extreme world calls for extreme change. Companies in the vanguard are beginning to make what I call “the big pivot.” This represents a profound change in strategy, operations and business philosophy that will make organisations more resilient and help them create new value in a hotter, resource-scarce world.

By making dramatic improvements in operational efficiency and cuts in energy use, waste and carbon emissions, companies become much more flexible and, possibly, anti-fragile. This discipline increases a firm’s cost and risk resilience.

Pivoting also increases what I call revenue resilience, providing protection against volatility in demand. As all customers begin to deal with climate change and resource scarcity, their expectations will change. By adapting to fulfill customers’ new needs, companies can ensure that sales remain steady or increase.

Vision: Asking heretical questions

Companies need to have a clear vision of how climate change and resource scarcity will affect their prospects and their ability to reach long-term goals.

To confront short-termism, you must ask what I call “heretical questions.” These challenge the way things are normally done within any function and at any scale, from the firm’s business model down to specific operations.

Heretical questions have helped companies reimagine how they make products to reduce reliance on key resources. At Adidas and Nike, innovators asked whether it would be possible to dye clothes, a very water-intensive process,   without using any water. Both companies have identified technologies that accomplish that goal. This can help them sustain even when water becomes scarce.

Organisations need to encourage heretical questions at operational and product levels and beyond, going so far as to challenge business models and basic assumptions about economic growth.

It’s easy to say, “Be heretical,” but the kind of innovation that tackles mega-challenges doesn’t follow from asking any question that pushes the envelope.

Valuation: Making better investment decisions

Companies need methods to gauge the value of the longer-term and indirect benefits of investment decisions. Such tools are now being adapted from industries that place bets further out, like pharmaceuticals and utilities, and applied to environmental and social initiatives.

Some companies, such as 3M and Intel, simply lower the hurdle rate for investments in areas like pollution prevention and green buildings. Others dedicate a portion of the capital expense budget to green investments. Another method is to create a portfolio of efficiency projects.

Companies must tackle problems together and even work with their fiercest competitors. For example, current refrigerants are mainly chemicals in the hydrofluorocarbon family which happen to be dangerous greenhouse gases.

Coca-Cola has teamed up with its suppliers to find substitutes, is investing in new technologies, and has helped lead a coalition including Greenpeace, Unilever and arch rival PepsiCo.

The powerful idea taking hold here is “precompetitive” cooperation – that is, working together on issues of common concern while competing elsewhere. They can compete on issues of taste, appearance and marketing strategies.

Pivot strategies are not just a sound defense but a smart offense as well. And beyond the business advantages they enable, they’re critical to our collective well-being.

In a world with tighter resources and a volatile climate, a big pivot is an essential investment in the future of your company and the global commons.