SMEs M2 - Debunking Misconceptions

Debunking Sustainability Misconceptions

Sustainable SMEs : Module 2

After today, we will be able to:

Define its long-term benefits for your business

Understand why it is relevant for SMEs

Discuss the costs of sustainability

Investment!

Being sustainable is expensive

GREEN

PREM

-IUM

As consumers, we are used to associate sustainable products (organic, fair trade, ecolabel) with higher prices.

A common belief

However most of the markup for these products does not come from higher costs for the business

A common belief

Production

Volume

Certification

Premium

Food

Non-food

Sustainability price markups

70%

80%

15%

10%

Kearney (2021). Why today's pricing is sabotaging sustainability.

The profit formula

Costs

profits

At a basic level, for sustainability to make economic sense it should either:

Reduce costs

Or both

Increase revenues

REVENUES

The profit formula

Pollution often is a form of economic waste.

When scrap, harmful substances, or energy forms are discharged into the environment as pollution, it is a sign that resources have been used incompletely, inefficiently, or ineffectively.

Some examples:

Reducing thickness of carton -> material efficiency
Switching to LED lights -> operational efficiency
Reducing size of secondary packaging -> transport efficiency

Costs

The concept of resource productivity opens up a new way of looking at both the full systems costs and the value associated with any product.

While resource inefficiencies are most obvious within a company - in the form of incomplete material utilization and poor process controls, which result in unnecessary waste, defects, and stored materials - there also are many other hidden costs buried in the life cycle of the product.

Internally to the companies, wasting implies additional activities that add cost but create no value for customers, such as handling, storage, and disposal of discharges.

If the material is instead discarded by distributors or customers, they would not only be incurring additional waste disposal costs (direct or indirect) but also the opportunity cost of paying for a part of the product that is of no use to them.

The profit formula

Sustainable business demands a higher level of data gathering and detail-attention, which can result in new opportunities.

Also, for some customer segments, sustainability is correlated to higher willingness to pay.

Some examples:

Improved product durability -> higher value
Reduced energy intensity -> higher desirability
Increased supply chain information -> higher supplier synergy

REVENUES

According to ...

E.g. higher willingness to pay for an air conditioning system that lasts longer and consumes less energy. Or an electric car.

Case study: UKOS Ltd.

UKOS Ltd. is a British SME providing office supplies and services.

See how they joined the sustainability race in search for lower bills, but eventually found much more.

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Case study: UKOS Ltd.

UKOS's Commercial Director was exploring ways to cut costs on utilities (gas and electricity) when he discovered the potential of sustainable business.

Case study: UKOS Ltd.

“We produced a business systems manual that details how each person and each department should do their job. This helps us to manage employees and measure their performance. It also meant we could apply for ISO 9001 and other accreditations. We realised that a sustainability strategy could make us very different to our competitors, save us money and give our customers good reasons to buy from us.”

Jerry Young

Commercial Director, UKOS

ISO 9001 is an international standard that sets criteria for a quality management system in order to ensure quality products and services to customers.

Learn more here.

Case study: UKOS Ltd.

Using durable materials

Waste collection and recycling

Cutting energy costs

Instilling processes to record metrics

The company delivered 70,000 disposable boxes a year.

Through its Box4Life program, UKOS shifted to more durable materials instead of single-use cardboard for its operations and deliveries. In order to make up for the additional cost per box, they developed a box recollection system that allowed for long-term reusability.

In Jerry's words: “We set this up with customers that wanted it... collecting the empty cardboard boxes when we deliver each day. Customers like it because it credits their own environmental strategies. We also looked at our delivery routes. The industry norm is next-day delivery, but for some customers, we can change this to regular deliveries three times a week. Some customers have changed their buying patterns to fit our delivery schedule."

Having set up their box reusability scheme, UKOS quickly discovered that there was value in recovering other items such as printers and ink cartridges - if not for their own use, just to sell them to specialized recycling centers!

Through an improved energy tracking system, UKOS cut its energy costs by an average of 5% year on year since 2017.

As a first step, UKOS set up a comprehensive measurement system, including energy and material expenditures.

Incentivized by the firm's leadership, delivery drivers built the habit of tracking the miles per liter of gas used on their journeys, which allowed them to find the most efficient routes.

Case study: UKOS Ltd.

“There is some investment to be made, of course, but it is mostly
an investment of time rather than money. The project is led by me in terms of administration, while the marketing manager handles the promotion of the sustainability agenda to customers and staff. The finance department is very important. It produces the measurements and results, and we have the discipline to do it regularly,”

Jerry Young

Commercial Director, UKOS

In summary

Original statement:

Being sustainable is expensive

Corrected statement:

Not being sustainable is expensive

Being sustainable

is for large companies

QUIZ

Sustainability for big corporations

PLAY

All of the above

Which of the following risks affect large companies?

Sustainability for big corporations

Public activism

New regulations

Corporate fines

Try again

The answer is correct, but not complete!

WELL DONE!

The answer is correct! All of these are valid risks.

+ 89%

Brand value

+ 9%

+ 10%

Total Shareholder Return

Growth vs. traditional companies

There is no doubt that big corporations can benefit from this new way of doing business...

The importance of sustainability

...but some other considerable benefits apply to SMEs!

BCG BrightHouse (2022). Business and Organizational Purpose

Small businesses not only differ in size from larger ones, but are also subject to different challenges and opportunities.

Business risk

Sustainability for SMEs

Stakeholder importance

Access to investment

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Pictures of graphs that relate to the topic at hand and help you build better connections with the content

When you click on this button, a window just like this will open up and may contain:

Further explanations of the content on the main page
Links to videos, podcasts, websites that will open in another tab of your internet browser
Enlarged versions of pictures or graphs that might be on the main page so you can see them in more detail
Pictures of graphs that relate to the topic at hand and help you build better connections with the content

Business risk

Compared to large corporations, SMEs are usually less diversified in terms of market regions and product sectors. In some cases, business owners are legally liable for business debt.

Adhering to sustainable business practice can reduce business risk from unexpected changes in regulations and geopolitics - for your business and your supply chain.

Stakeholder importance

The number of stakeholders engaged by SMEs is smaller than that of big companies, and some of them can have real power over your business.

Improving stakeholder engagement is an essential part of sustainable business.

I.e. everyone who is involved with your organization

Simplified stakeholder map (stakeholdertheory.org 2022)

SMEs typically receive financing from the personal savings of owners, small business loans from banks, and gifts or loans from friends and family.

Sustainable practices can attract investors giving priority to Environmental, Social, and Governance (ESG) parameters.

Access to investment

Robeco (2020). Proprietary Research - Robeco ESG investing.

Case study: Xx

Xx is a French SME producing cosmetic products.

Our case study explores how their closeness to their stakeholders helped them take advantage from the COVID-19 crisis.

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Click to access the case study

In summary

Original statement:

Being sustainable is for large companies.

Corrected statement:

Being sustainable is for all companies

Being sustainable is

complicated

A complex task

Building an airplane is complicated.

It has thousands of parts which fit together and interact in a specific way. But, with enough time and energy, it's possible to build and then predict what will happen when you press a button on the control panel with a very high degree of certainty.

A complex task

Operating a sustainable business is complicated as it requires high levels of data collection and analytical rigour.

Also, as part of a changing global environment, results tend to be more unpredictable.

A complex task

In the same way that building an airplane would be impossible without a manual...

...implementing sustainable transformation requires specific methodologies and skills.

This course is designed to help you and your colleagues navigate your company's unique transformation journey.

While there are many sustainability standards and methodologies, most of them are needlessly sophisticated to be used within SMEs,

Simplifying complexity

Dealing with a limited amount of stakeholders and products, SMEs can utilize simpler approaches than their larger counterparts

Complexity of approach

Benefit

Representation of the Law of Diminishing Marginal Returns.

" A journey of a thousand miles begins with a single step "

Lao Tzu (老子)

400 BC Chinese philosopher

Simplifying complexity

As we will explore on "Module 4 - The Roadmap for your SME", the information gathering and analysis process is usually the most complex. This initial work will help your:

Decision-making

Obstacle Mitigation

Operational Efficiency

Setting up these basis early in the process will help you simplify, prioritize, and concentrate your actions moving forward.

Identifying the most positively and negatively impactful parts of your business.

Detecting current operational and resource inefficiencies.

Drawing constant diagnostics of potentially risky situations inside your company or along your supply chain.

Case study: Xx

Xx is a ...

Their case study reflects a perfect example on how simple sustainability actions can bring big benefits.

Click on the arrow to skip the case

Click to access the case study

In summary

Original statement:

Being sustainable is complicated

Corrected statement:

Being sustainable is complicated at first, but easier in the long term

Summary of today's module:

Is sustainability expensive?

Being sustainable is an investment / Not being sustainable is expensive.,,,,,,

is sustainability for SMEs?

Being sustainable is for all companies. For SMEs, in specific, it can help reduce business risk, increase stakeholder engagement, and bring investment.

Is sustainability complicated?

Being sustainable is complicated at first, but easier in the long term. Effective data collection systems help simplify, prioritize, and concentrate future action.

Module title

Congratulations, you finished this module!

SMEs M2 - Debunking Misconceptions

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