In Search of New (and True) Value

What the car industry can teach us about building more sustainable and resilient business models
By: 
Jean-Baptiste Litrico
A roundabout called The Circus in Bath, UK.

The deteriorating environment of our planet and the global pandemic are forcing a painful reckoning in our society. These two events are triggers that take me back to the mid-1990s when I worked in the automotive industry. This was an industry that experienced its own painful reckoning when Japanese automakers shocked their North American competitors with a strategy based on a new dimension of value. As we face today’s crises, we can learn from what the car industry went through (and where it’s going next). 

For as long as anyone could remember, when you thought of value and cars, you thought of performance. Quality was an afterthought. Japanese carmakers such as Toyota, Nissan and Honda were disruptive agents that bet it all on quality as the defining value. The bet paid off: Quality became the competitive differentiator that revolutionized the industry. Today, quality is table stakes for all car manufacturers. And it’s the centre of a vast ecosystem of management concepts, international standards and consultants.

What the automotive industry experienced decades ago, the rest of the economy is beginning to experience now. The slow-motion climate crisis and the rapid-fire pandemic crisis are battering rams to our notion of national prosperity and corporate purpose. Take the climate crisis, for example. Corporations have long acted as if they had no role or responsibility to address this existential issue. We are past that point now. More recently, the COVID pandemic laid bare the economy’s vulnerability to black swan events that could place human and financial capital in extreme duress. Perhaps national prosperity should involve more than a favourable GDP. Perhaps corporations should be accountable not solely to shareholders and customers but to employees, communities in which they operate and other stakeholders.

Sustainability as disruption

Like the quality push in the auto industry more than 20 years ago, sustainability is the new dimension of value that will disrupt many industries. Over the coming decade, organizations will have to navigate an accelerated transition toward more sustainable and resilient business models and practices. This transition is based on the recognition that the process of making and using a product has a broad impact that goes beyond the end user. There is not only commercial value but also social value—the wider social, economic and environmental benefits that derive from an organization’s work.

New ideas about how organizations should be structured and oriented are being formulated—“stakeholder capitalism”, benefit corporations and social enterprises being just a few examples. New assessment and measurement tools for social impact are now available and are being implemented by specialists.

If sustainability is the new dimension of value that will shape the competitive landscape, corporate strategists should consider the social value their organizations provide in a world of environmental distress and vulnerability. Organizations committed to pivoting to sustainability are initiating wide-ranging conversations around these types of questions:

  • Is the value we offered yesterday the same as what we need to offer tomorrow?
  • What are the sources of social value from the development, production and delivery of our products or services?
  • What does the “value” of our products or services mean to our employees and to the communities in which we are based?
  • Would redefining our business model and aspects of products or service offerings enhance their value for customers, employees and other stakeholders?
  • What impact management framework can guide us going forward?

The rise of impact management

Value and impact are twinned concepts. If something is of value, it has an impact that, in the business world at least, must be understood and managed. So, as firms move from strategic conversations to implementation, they should institute some form of impact management framework. This is a system that identifies, tracks, measures, assesses and guides a wide range of corporate impacts on stakeholders.

Impact management requires a holistic perspective. Many negative impacts in the sustainability sphere are not captured by traditional market forces. That’s partly why we’re in this mess. The necessary instantaneous feedback loops and high levels of transparency that would efficiently capture the impact of polluting a waterway, for example, simply do not exist. We need to devise more holistic, coherent ways to assess impact—using accounting disclosures that are material, consistent and reliable—while acknowledging some impacts cannot be quantified.

Sooner rather than later, organizations in each sector of the economy will work out how sustainability affects their value promise to stakeholders. The automotive industry has understood that it is about to experience a major transformation. Having spent the last two decades building bigger and heavier cars, the industry seems to be finally waking up to the opportunities that exist in the present challenges. The most evident example is the pivot to electric vehicles, with several automakers committing to phasing out the internal combustion engine in the near future. But an even more dramatic pivot should follow: Applying the principles of the circular economy to automotive manufacture and use promises to help carmakers to minimize the negative environmental impact of cars over the entire life cycle of the product.

The circular economy is a closed-loop system designed to eliminate waste and to reuse, refurbish, remanufacture and recycle resource inputs. The so-called Circular Cars Initiative aims to help firms up and down the automotive value chain to develop vehicles that produce zero materials waste and zero pollution during manufacture, utilization and disposal.

It’s quite the moon shot. But if the automotive industry, once the poster child for ever-growing greenhouse gas emissions, can manage this pivot, we should see other industries follow.   

 

Jean-Baptiste Litrico is Distinguished Faculty Fellow of Strategy and director of the Centre for Social Impact at Smith School of Business.

Smith School of Business

Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

Follow us on:

Queen's logo