Businesses face major changes when the economy sours, disasters occur or the political atmosphere shifts. The challenge for business owners, then, is to learn how to sustain their business through boom-and-bust cycles and plan for the many unknowns that may happen.
“The known part of the business environment is the platform that’s used for formulating strategy,” says Paul Prabhaker, associate dean of the College of Business and marketing professor at Northern Illinois University. “The unknown part, it can’t be wished away — it’s there — but that’s where sustainability comes in.”
Smart Business spoke with Prabhaker about the practices that can inhibit a business’s long-term health and how to adopt the processes to make your company more sustainable.
What are the keys to creating a sustainable future?
Short-term businesses are meant to generate immediate-term rewards to stakeholders, while sustainable businesses will put that second. If you want to be sustainable, you need to reprioritize your corporate interests and move away from instantaneous gratification, whether it is immediate customer satisfaction or market rewards such as overnight stock price increases.
A long-term business will be driven by a top-down mission and vision, while a short-term business has more generic statements so they can be customized to every business opportunity. Sustainable businesses stay the course, regardless of short-term financial metrics. The biggest challenge is not what you should be doing but what you should give up. This means prioritizing your long- and short-term plans and determining who your real stakeholders are.
Why is it important for business owners to address sustainability?
There has been exponential change and an increasing uncertainty of the future. As you get better at what you do with your knowledge and your capabilities, in shorter and shorter cycles, and get rewarded for this with better returns, the temptation is to do more of the same. Hopping from one bubble to another seems obvious. It becomes easier and easier for you to ignore long-term sustainability — until the bottom falls out.
With sustainability, you have to listen to a number of different voices and not give in to one voice alone. When you listen to just one voice, you return to that vicious cycle, which gets faster and faster and leads to an unpleasant ending.
What characteristics does a business need to have to remain sustainable?
n A well-defined corporate character
n A willingness to prioritize customers who are aligned with business sustainability
n Champions of customer delight, beyond excellence and process improvements
n Co-creation with customers and other stakeholders. The customers and company are melded together, even in a shifting marketplace.
n Flexibility. The organization aligns with the market to blend into the environment while staying true to its character and belief system.
n Collaboration and knowledge sharing, which leads to the redefinition of ownership
Understanding sustainability and seeing it in others is not difficult, but practicing it is. When looking at a company’s corporate behavior, look at what is not influenced by the environment and short-term trends (i.e., long-term focus) and then at what products or services the business has that are designed to meet instantaneous market needs (short-term focus). These easily reveal which way the firm is weighted.
What practices can inhibit a business’s long-term sustainability?
This is where you understand the true drivers of markets — every product becomes standardized, all organizations slow down, all customers become smarter and all markets become saturated. Every market will decay, and every customer will get smarter. From there, products, customer satisfaction and company market values also decay, unless you put strategies in place to prevent or minimize that decay. Short-term market opportunities are a powerful temptation. This instantaneous ‘microwave’ mindset that drives some business strategy can be the death knell for an organization.
How can a company begin to adopt the ideas of ‘sustain-ability’?
First, sustainability is not a strategy but rather an ability or a character attribute. It involves long-term, embedded business practices. Corporate character counts as much as business strategy. Second, corporate strategy needs to be tied to new metrics and intangibles that can stand up to change. It’s not as easy as simply prescribing tactics to move from short-term to sustainability; it involves a fundamental shift in corporate philosophy. Most organizations are quick to implement opportunistic strategies to cash in on boom cycles and then attempt to wait through the bust cycles; some organizations ignore the boom-and-bust cycles and stay content.
Sustainable organizations are those that balance the two missions by blending corporate character and business strategy.
Third, focus on business strategy that drives sustainable performance versus opportunistic performance.
Fourth, learn your Sustainability Index (a tool that measures how sustainable a firm is). What portion of your business’s ROI comes from stable, sustainable performance and what portion from cyclical, opportunistic performance? Audit your profits, revenue and sales using this index. Combine these, and you have your Sustainability Index.
Remember, corporate character and business strategy combined judiciously result in organizational sustainability.
Paul Prabhaker is the associate dean of the College of Business and a professor of marketing at Northern Illinois University. Reach him at (815) 753-6176 or email@example.com.