Ideas for Leaders #650

Sustainability-driven Hybrid Companies Challenge Business Dogma

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Key Concept

The corporate world has embraced sustainability, but without challenging the basic rules of competition and economic success. Hybrid companies that blur the lines between business and societal/environmental missions prove that these rules can, and should, be challenged.

Idea Summary

Corporate sustainability has become mainstream. Few companies would argue today – as they argued in the past - that the only responsibility companies have to society is to make a profit. Today, corporations proudly describe their social responsibility initiatives.

Nardia Haigh of the School of Business at University of Massachusetts, Boston and Andrew Hoffman of the University of Michigan’s Ross School of Business argue, however, that the concept of corporate sustainability has been diluted by the limits of standard business assumptions and beliefs.

Current corporate sustainability efforts strive to make company practices less unsustainable. That’s not good enough. To achieve sustainability, defined as ‘the possibility that humans and other life will flourish on earth forever,’ business (as well as other societal actors) must focus on practices that make the world more sustainable.

However, to make a positive impact on nature and resources rather than simply avoiding a negative impact, companies can’t just do things better; they have to do things differently — and that requires changing fundamental business mind-sets and assumptions about business operations, markets and competition.

To understand exactly how corporations must change their thinking, Haigh and Hoffman studied what they call ‘hybrid’ organizations — organizations that produce profits but that have sustainability missions at the heart of their reasons-for-being. One non-profit example of a hybrid organization is Kiva, an organization that provides microfinancing for entrepreneurs in the developing world. A for-profit example is Eden Foods, a natural food company that works to advance sustainable farming practices and food processing techniques.

Based on a comprehensive review of the research into hybrid organizations, also known as fourth sector or social enterprises, Haigh and Hoffman developed four propositions that describe how the hybrid organizations challenge standard business beliefs, a fifth proposition that explains their rationale for launching these challenges, and a sixth proposition that covers the way in which they enact sustainability.

These six propositions are as follows:

Proposition 1: Hybrid organizations decouple organizational success from the assumed need for perpetual economic growth. Hybrid organizations reject the notion that perpetual and infinite growth is required for economic success. Instead, they manage the pace of their growth so that they can focus as well on their social and environmental goals.

Proposition 2: Hybrid organizations adopt innovations that subordinate profit and create shared value. Sustainability does not need a ‘business case’ to prove its value. Creating shared value through initiatives that may hurt profits but improves sustainability is good enough.

Proposition 3: Hybrid organizations create shared value by cultivating close relationships with social and ecological systems in which they operate. Traditionally, companies adopt an internal-external dichotomy that places business-related issues as ‘internal’ issue while sustainability initiatives are viewed as helping ‘external’ stakeholders or systems. Hybrid organizations do not disassociate themselves from social and ecological systems.

Proposition 4: Hybrid organizations strive for an understanding of the intrinsic value of nature that goes beyond utility resource value. Finally, the traditional view of nature’s value is as a resource to be used. For hybrid organizations, nature has intrinsic value beyond its role as a resource.

Proposition 5: Hybrid organizations challenge notions of control over resources, causal ambiguity, and market protection - and rather exemplify transparency of knowledge and information. Hybrid companies believe you can maintain a high level of transparency (e.g., open source technology) and still be competitive.

Proposition 6: Hybrid organizations simultaneously facilitate reducing negative environmental/societal impacts and increasing positive environmental/societal impacts. When enacting sustainable business models and practices, hybrid organizations don’t only focus on becoming less unsustainable, but are especially focused on becoming more sustainable. The company Sun Oven produces solar cooking equipment, for example. At the core of its mission is the desire to improve the standard of living in developing countries, were unhealthy, indoor open-fire cooking is not uncommon.

Business Application

If as a corporate leader, you view sustainability as an ‘external’ issue, separate from your business imperatives, your company’s journey toward social responsibility has just begun. You and your company may have taken significant steps to help society and the planet, but you can do more.

A first step: Do not be satisfied with only doing ‘less harm.’ How can your company make a positive impact on the environment and society?

Another important step is to change your perspective on nature as only a resource. While protecting resources is important, nature has more to offer your company than you might realize. For example, companies that use bio-mimicry, such as adopting the ‘engineering’ of the humpback whale fin to surfboards, fans, turbines or pumps, recognize the intrinsic value of nature beyond its resources.

The most important and most difficult step in achieving sustainable goals: Challenge the basic tenets of business success, from profit and growth assumptions to accepted competitive advantage and value chain imperatives. Rejecting the basic rules of business may seem both self-destructive and impossible. The fundamental lesson of this research is that challenging the dogma of business can be done: just ask the fearless heretics known as hybrid companies.

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Authors

Institutions

Source

Idea conceived

  • September 2014

Idea posted

  • April 2017

DOI number

10.13007/650

Subject

Real Time Analytics