I’m working on a paper right now that is flagging some of the inconsistencies between business strategy and sustainability. In a nutshell, business strategy is all about differentiating firms from their competitors. We strategic management scholars develop frameworks to explain how and why companies outperform competitors in their respective industries. So how does Sony work to outperform Panasonic, Coca-Cola outperform Pepsi, Air Canada outperform WestJet, etc. There are many ways in which they do this but fundamental in the strategy discipline is an attempt, if at all possible, to create a monopoly situation. Microsoft is the model here because they’ve monopolized the operating system market (although Apple is trying to take chunks out of their market share). Google has a dominant position in the online advertising and searches while Apple is dominant in the online music and handheld music device industry and now more recently a growing dominance in the handheld smart phone industry. This is interesting to strategy scholars because it explains why companies are outperforming others.
But when we consider this strategic behaviour in the backdrop of sustainability, it starts to breakdown because if firms are working to lock-in industries so that enough inertia is created to make change impossible, we may not be able to respond to major social, ecological, and governance issues as they arrive. Consider the energy sector or better yet the oil and gas sector. These industries have been very successful because a number of companies and industries are dependent on the supply of oil. This is a model example of strategic success when we consider how dependent we all are on oil and imagine how difficult it would be to move away from our dependence on plastics, gasoline, combustible engines, fertilizers, etc. There’s no wonder that this industry is so profitable ($40B – Exxon in 2007) and why it’s difficult for competitors to take chunks out of their market share. This same story can be told in the food industry where food barons have successfully monopolized the food system to their liking making consumers and suppliers very dependent on what they do. More recently, large businesses are starting to monopolize the fair trade movement weeding out many small players – ironically the ones who created the fair trade movement.
The point I’m trying to make here is that strategy encourages the locking in of companies and products/services so that enough inertia is created that change is all but impossible. In a society where we need relatively quick and radical change to address social, ecological, and governance issues, we can’t afford to have these sorts of monopolistic positions.
I’ve spoken about Better Place before. They are working to build the necessary infrastructure to replace gasoline stations so that you can purchase an electric vehicle and, instead of filling up with gasoline, you go into a service station to replace your battery. Now this is the first and presently only company to be thinking about this so they are certainly primed for a monopolistic opportunity. But when asked whether his company is attempting to earn a monopoly position, here was the CEO Shai Agassi’s answer:
Agassi: “We asked governments wherever we go to…force all the [competitors]…to do two things. One, [to] only use international standards so that nobody can control it. The plug has to be standard and everyone will be able to use that same standard so there is no way to lock anybody out. Two, [to] force every network that is created to allow everyone else to access it so there is open access across the network. [Governments] usually ask us if we’re crazy to be the first [to market] and not ask for protection but to [instead] ask for openness. And my view is: god forbid that we would have two standards coming into the market [where] we’ll have VHS and BETAMAX and the consumer sits back and says, ‘I’ll just take my time’. …collectively we don’t have time, we ran out of time. We already did that in the last [few] decades. Now the only thing we have to do is [not] think how to make the most profit out of every single consumer but how we switch as fast as possible.”
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Now this is business leadership and, to me, questions the very foundation of what strategic management represents and more importantly suggests that we need very different business management frameworks that build in triple bottom line thinking into managerial decision-making.