Remixing McKinsey’s “Capturing Value” Through Sustainability
McKinsey & Company is a world-wide management consulting firm that happens also to provide consulting services related to sustainability. In support of that aspect of its business, McKinsey periodically surveys companies to learn more about how they incorporate sustainability into their businesses. Last year it published a report (free registration required to download) based on that survey. The report is rich with information about how companies and CEOs view sustainability, and shows that recently more and more companies are embracing sustainability.
Page 13 of this report addresses how companies put sustainability into practice, particularly when it comes to capturing value from sustainability. Exhibit 1 specifically illustrates this concept graphically:
This diagram, created by McKinsey & Company, illustrates the mechanisms by which companies create value using sustainability.
As I was reviewing this portion of the report recently I realized there is another way to organize the information in this chart. McKinsey has essentially organized the areas by contemporaneous functions. However, I think it makes more sense to organize the areas into three planning domains: Strategic, Reputational, and Operational like this:
Modification of the relationship among the areas in which McKinsey sees the opportunity for businesses and organizations to capture value.
Let me first explain these new categories.
The strategic category includes functions that address the where, what, and when of the organization: Where are we going? What should we be doing? When are we going to get there or do that thing? These are all forward and future thinking functions, so in the modified version I used fuchsia (or at least what I think is fuchsia) for “Strategic” because it sounds like “future.”
The operational category includes functions that address the how of the organization: How are we going to get where we are going? How are we going to do what we should be doing? (Notice how I referenced the questions from the strategic category?) This is orange because it starts with the same letter as “operational.” Interestingly, this was the only category that included functions from McKinsey’s diagram that actually use the word “sustainable.” Historically, the bulk of Verdis’ work with clients has focused in this area, because this is often where organizations see the largest opportunity for financial benefits. Therefore, it is probably not a coincidence that McKinsey listed them in the “returns on capital” category.
I think “reputational” may not officially be a word, but it sounds good so I’m running with it. The reputational category includes functions that address the who questions: Who is the business? Who knows about the business? Who cares about the business? Who does the business care about? Interestingly, McKinsey’s graphic included a reputational function in each of its three areas. This really shows up in my version where each of the three shades of brown from McKinsey’s graphic fall under the red (R = red, R = reputation, get it?) group.
I think there is one more aspect to this. The why questions. Why are we doing X instead of Y? In my view, the why questions fall under both the reputational and organizational categories and help to drive the strategic functions. The reverse is also true. Strategies and strategic plans tend to drive operations and help make decisions that affect the company’s reputation.
One other way to visualize the strategic, operational, and reputational aspects of a business is in this little sketch I made:
A diagram to show the dynamic interaction of strategy (S), operations (O), and reputation (R).
Here, you can see the forward-thinking strategic functions (S), the internal ongoing operational functions (O), and the reputational functions (R) that influence how the organization interfaces with the outside world. Obviously this grossly oversimplifies many organizations, but provides a framework for thinking about sustainability. As I mentioned, most of our work focuses on the operational aspects, but we constantly encourage our clients to consider how sustainability integrates into the larger strategic plan. Most organizations that can successfully incorporate sustainability at a very high strategic level find that the operational savings and reputational benefits follow naturally.