1.4 Value Drivers

Have you identified the value drivers?

Let's discuss value drivers. From everything we have said so far, it is clear that  the business need for sustainable sourcing  is enhanced by stakeholder pressure to address specific sustainability issues that occur along the food and beverage value chain. Stakeholders help highlight both risks and opportunities for the firm that in turn propel and support  the value drivers (see the graphic below) that contribute to shareholder value. 

Sustainability initiatives often get "stuck" in business because they tend to focus on how to address environmental and social issues. In business, we want to sell more, make more profit, excite and entice customers, reduce costs, and manage risks. For sustainability initiatives to be supported and successful, they need to be formulated in the language of business and achieve business goals. There may be differences between “sustainability” and “regular” business though. These possibly include the need to take a longer time horizon and consider more explicitly the needs of others, particularly those who may not normally be able to express their opinion.

To be business-credible, a sustainable sourcing strategy must not be afraid to call a spade a spade. It is about building supply, creating competitive advantage, and making money. The concept of creating shared value is patently not about redistributing existing value in supply chains, but about creating additional value—marketing value, improved quality, supply chain efficiency, increased productivity—that can be shared among supply chain actors.

Both tangible and intangible (quantifiable and unquantifiable) sources of value creation must be brought to the fore. The key is to analyse not only your company’s needs and abilities, but also your supplier and buyer needs and abilities. Here are some typical questions you might ask yourself about the value drivers propelled by your strategic choices: 

  • Competitive, first mover advantage: As in the case of Lipton Tea, a distinctive first mover advantage can be identified from Unilever’s moves to make a popular mainstream tea brand sustainable. Think about whether you can also access a first mover advantage. Why not stand out from the rest as a leader?;
  • Create new products: Again, as in the Lipton Tea case, a fresher, new Lipton Tea product to delight the consumer was created by using a sustainability lens to amplify its impact. Can you attempt something similar with one or more of your products?;
  • Process efficiencies: Can your sustainability activities in sourcing provide opportunities for cost reduction and process improvements on the operational level?;
  • Create new supplier relationships: As in the case of Friesland Campina, you may be able to improve capacities of your suppliers upstream. Can you improve farmer loyalty and assure long term relationships and security of supply by doing something similar?;
  • Develop new competences: Will your strategy improve the knowledge and competence of your managers, suppliers, or other stakeholders in the value chain? Such improvements may be difficult to replicate amongst your competitors;
  • Reputational benefits (with consumers, customers, farmer communities), as well as NGO and media image: Does your strategy help you to improve brand value and reputation, increase trust in your company and brands, enable you to differentiate your brands and provide your company with an increased “licence to operate”;
  • Improved risk management: Does sustainability allow you to raise new risk management needs and/or assure regulatory risk mitigation in the future?;
  • Attract and retain talent: Will your strategy increase employee satisfaction/engagement and help assure both farmer and employee succession?;
  • Leverage public partnerships and funding: Are new value-adding relationships possible through your strategy that will help your company manage the uncertainties and volatilities it is facing in the business context (either short term or long-term)?;
  • Assure price stability: With most agricultural raw materials, price stability is a serious business issue. Can you, through your actions, assure uplift to market price that will allow farmers (and you) to stay in business in the future?
Note that all of these questions are about turning risk into opportunity. In fact, your sustainability strategy should have that ambition at its core. 

 

Diagram 4: Value Drivers

“Materials developed by IMD for the IMD/SAI Platform Master Class Training in Embedding Sustainable Agriculture Sourcing Strategies and based on research in Ionescu-Somers, A. And Steger, U. (2008) Business Logic for Sustainability: A Food and Beverage Industry Perspective, Palgrave Macmillan, UK”

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