The Environmental and Competitive Disruptors That Lie Ahead
More than 100 directors gathered at The Ritz-Carlton, Denver on July 15 to hear expert speakers put a boardroom lens on the competitive and environmental forces that are having a far-reaching impact on companies across industries.
The half-day symposium was the second of three NACD Directorship 2020®events this year. The forums are addressing seven disruptive forces (competition, demographics, economics, environment, geopolitics, innovation, and technology)—the major trends and transitions expected to drive significant change for companies and industries in the near future—and the implications for directors.
Linda J. Fisher, vice president of safety, health, and environment and chief sustainability officer at DuPont, called attention to five key sustainability trends—population growth, water supply, climate change, resource scarcity, and “circular economies”—that will have significant influence on markets, regulators, and investors.
Population growth. The earth’s population already has surpassed seven billion and is expected to reach nine billion by 2050. Population growth will lead to increased demand for food and other goods, while supply may be limited. This could lead to price hikes, increased regulation, and shortages.
Water supply. Water will become limited somewhere within businesses’ value chains, potentially affecting—among other things—transportation of goods and power production. Data from General Electric Co. show that 66 percent of the U.S.’ water-reliant power production in 2012 resided in areas experiencing water stress. In December 2012 and January 2013, low levels in Mississippi waterways resulted in more than $6 billion in commodity losses when barges carrying goods were unable to pass through the river, according to waterways groups.
Climate change. The Intergovernmental Panel on Climate Change reported last year that they are 95 percent sure that human activity is primarily responsible for global warming. Carbon dioxide is at an unprecedented level not seen for the last 800,000 years, and ice sheets and glaciers have been melting over the past 20 years.
Resource scarcity. Focus also should be placed on resource efficiency, concentrating mostly on improving building performance and food waste reduction.
Circular economies. Also gaining traction is the trend of circular economies in which products are designed so they can be used, deconstructed, and have the remaining materials captured for reuse or recycle.
And while companies are accustomed to the government regulating environmental issues, concerned consumers now are playing a regulatory role. These consumers increasingly are business savvy, understanding the degree to which companies rely on their reputations and brands. Activist consumers can call negative attention to a company’s brand until they see the change for which they have advocated.
These increased demands mean that companies should stay abreast of environmental and sustainability issues. Directors can ask management the following questions to ensure the company is forward-thinking about sustainability:
- Climate change. What is the company doing to mitigate greenhouse gas emissions and consider adaptation to climate changes within its operations, its supply chain, and consumers’ use of their products?
- Resource efficiency. How is the consideration of the efficient use of resources being embedded into the company’s innovation and operational strategy?
- Supply chain resiliency. How is the company managing its supply chain to reduce risk and assure resiliency? What is the process for assessing, prioritizing, and managing for potential risks that could threaten their ability to deliver products/services?
- Circular economy. How is the company planning for products’ end of life? Or, if the company does not directly sell to consumers, how are the materials that the company provides aiding in the eventual disassemble/recycling/take back of the final product?
- Transparency. How prepared is the company for increased sustainability expectations around transparency from investors, customers, retailers, NGOs, and others?
Adam Hartung, managing partner at strategy consultancy Spark Partners, CEO of Soparfilm Energy Corp., board member of 6 Dimensions, and an NACD Fellow, shared his thoughts and concerns about the impact of competitive disruptors and how boards should help set the competitive edge at their companies.
People often think about bankruptcy filings as being the sign of business failure, but Hartung proposed that business failure begins when a company loses its relevancy.
Hartung said the biggest risk to companies’ competitiveness is getting stuck maintaining the status quo. The secret of being successful in today’s marketplace is to overcome the “lock-in” to past successes.
Boards can encourage company management to take four steps to stay competitive:
- Focus on trends and potential future competitors, rather than on companies that have been competitors in the past.
- Shift direction away from current solutions and customers’ desires and instead steer more toward marketplace needs and competitors.
- Ask how your company can disrupt the marketplace—not just how it can do things better, cheaper, and faster.
- Allow for white space innovation, in which creative thinkers can develop business or product ideas that are outside the status quo. White space innovation can lead to ideas that will set the competitive curve in your industry.
Following each speaker’s presentation, attendee directors developed key takeaways for boards. Those responses may be found in follow-up blog post Through the Boardroom Lens.