How Competitive Strategy Can Shape Corporate Sustainability

Sustainability’s impact on the competitive landscape is best tested and viewed through the lens of Michael Porter’s watershed Five Forces Model of Competition: suppliers, buyers, substitutes, new entrants, and industry rivalry.

As my forthcoming book, The Future of Value, shows in great detail, Sustainable Market Leaders are embracing sustainability not for altruistic purposes but for demonstrable, competitive differentiation. Their peers’ decision to not adapt to sustainability’s concerns and interests provides in itself another level of differentiation for Sustainable Market Leaders. Let’s examine changes in each of the five forces.


When Sustainable Market Leaders commit to sustainability, they place many new demands on already overburdened suppliers. Procurement requirements range from demonstrating ISO 14001 compliance to maintaining decent worker practices in the suppliers’ factories.

book coverFor example, Travelocity recently accepted Hilton Worldwide hotels into the company’s Green Hotel Directory, a move that sent many of Hilton’s rivals asking Alison Presley, manager of Travelocity’s Travel for Good program, to be included as well. She summed her response up, simply, as: “Find an auditor and then show us the proof of the pudding. And if you do measure up, we would be happy to accept your program.”

To bring their new compliance requirements to life, Sustainable Market Leaders ask a lot of their suppliers: Self-assessments, on-site audits, remediation plans and more. The end result is that buyers can dictate a large number of sustainability actions, or the supplier will lose the buyer’s business. In this way sustainability has weakened suppliers’ power in many of their business relationships.


To better understand their current state of power, we need to distinguish between institutional buyers and individual consumers.

For institutional buyers, in a business environment driven by sustainability, buyers capture power from suppliers and vice versa. Gap Inc.’s selection of Monadnock Paper as a primary supplier had as one effect a push to send its peers racing to step up their green certification efforts.

For individual consumers’ relationship to producers, the outcome is still unsettled. Consumers have yet to vote en masse, with their wallets, for sustainable goods. But there is the potential for green-focused shoppers to wield their power in a way that would force companies to make environmentally and socially conscious manufacturing methods the new “traditional” approach to value creation.


In the business-to-business market sustainable substitutes are gaining power. Monadnock’s FSC-certified commercial printing paper is an example of a product that is earning new revenue for its organization. Monadnock Paper saw an opportunity in a very crowded market: the packaging paper business. They sensed that a high-quality, high-environmentally friendly paper product could lead to new sales in a new market for the company.

Next page: How ‘co-opetition’ affects sustainability

In the individual consumer market, there have been a few notable successes. The Toyota Prius was the first mass-produced hybrid vehicle when it was introduced in Japan in 1997. By September 2010 more than two million “Prii” had been sold worldwide. But until consumers change their buying behavior by placing a greater emphasis on sustainability when making purchases, sustainably produced substitutes will struggle to gain market share.

Potential Entrants

In both the consumer and business customer markets, many new sustainability-conscious entrants are trying to capture market share. But the best measure of their success effect to date is not how much share they have captured but how many subsequent maneuvers incumbents have made in response to the new entrants’ efforts.

For example, consider the environmentally friendly household cleaner market niche. Startup Seventh Generation’s progress eventually convinced Clorox to also enter this niche. To gain a foothold there, Clorox pioneered a game-changing relationship with the Sierra Club, which shows one way that NGOs are gaining power in the manufacturer-consumer relationship.

Similarly, Tesla, the Silicon Valley electric vehicle startup, has affected the automotive industry without gaining even 1 percent of the market. Their mere presence, and the celebrity-like attention their founder has received, have led car manufacturers such as Nissan and GM to allocate billions of dollars to their own electric vehicle development efforts.

Industry Rivalry: “Co-opetition” and Competitive Differentiation

The industry rivalry force in Porter’s Five Forces model refers to competition among companies in a given industry. I believe Sustainable Market Leaders’ pursuit of sustainability ahead of their peers has changed the terrain of competition. Fifteen years ago Barry Nalebuff and Adam Brandenburger coined the term co-opetition to describe “a revolutionary mind-set that combines competition and cooperation.”

Their message was clear: look beyond the traditional boundaries of competition for growth opportunities and risk mitigation tactics. I believe that industry rivalry has morphed into a curious state of uneven co-opetition.

More and more progressive companies are finding that collaborating with strange bedfellows, including their competitors, is good for all involved.

For example, HP, Dell, and Lenovo remain fierce competitors in multiple markets. Yet they’ve put their competitive instincts aside to develop, alongside other competitors, a standard set of sustainable manufacturing expectations for their common suppliers. Numerous other industries – from financial services to chemicals — are following suit, acknowledging that their self-interests over the long term are inextricably linked with the common interest.

On the flip side, competitive differentiation is a widespread motivator for Sustainable Market Leaders: 90 percent of the companies I interviewed for this book described sustainability’s role within their organizations as some variant of “Sustainability is core to our competitive strategies.”

Implicitly, these companies believe that leading their peers in adopting and committing to sustainability will help them capture market share. And even as more suppliers begin to adopt sustainable practices and more industry standards are created, Sustainable Market Leaders will further enhance their sustainability efforts, making it even easier to ensure the Sustainable Market Leader’s long-term success.

Thus, industry rivalry has become both more complicated and more intense due to sustainability. And, at the same time, competition is raising the bar across the board for corporate sustainability.

Source / Fuente:

Author / Autor:  Eric Lowitt

Date / Fecha: 10/09/11

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