KNOWLEDGESTREAM AT-A-GLANCE
The Future of Ethics & Corporate Sustainability in Retail
ABSTRACT
Infusing ethics within a retail company's core
PARTICIPANTS
OBJECTIVES
1. Employee Engagement: To what degree do ethical dimensions enhance / detract employee engagement?
2. Structural Implications: How might ethical factors create shifts in cost structures, management structures, and organizational structures?
3. Technological Innovation: What technological innovations can play disruptive roles in enhancing the ethical profile of retail?
4. Consumer Role: How will consumers drive the ethical imperatives for retailers, and conversely, how can retailers proactively steer consumers toward more ethical choices?
End Date: Aug 21, 2018
CONTRIBUTIONS
ACTIVITY
160 Days
7 Themes
15 Contributors
839 Posts
272 Comments
319 Followers
OUTPUTS
4 Slide Deck
5 Video
CALLS ATTENDED
• "Pre-launch" Call with Danielle, Yvonne, Peter (Accenture), Bill (Facilitator), and Nick, Yashpaul, Alex (Convet.it)
THEME #1
Product Creation and Transparency
THEME #2
Environmental Position
THEME SUMMARY
The Theme focused on the environmental position of ethics & sustainability in retail, across the value chain from upstream design & product creation to transport & sales downstream to product use.
- One strong theme was the
- Another strong theme was future oriented, with the rise of Millennial influence as well as technological developments that are disrupting current retail business models
SURVEYS
Value Chain Impacts
In the majority of cases, the largest impacts from a product occur up and downstream. Conversely, many sustainability practitioners focus their efforts on impacts which arise within the direct control of the company – which may be as little as 20% of the overall value chain impact.
There is a growing requirement for considering sustainability in the context of collective value chain effort, for the simple reason (which is especially pertinent for retail) that the ambition for sustainability performance improvement of a retailer can only be delivered through the actions of other parties, not through their own direct control
Retail Establishments of the Future
In the near future, it's easy to imagine stores with smaller footprints that are little more than showrooms. You would make your selections using an automated system, receiving "service" from an AI or robot and then receive the merchandise at your doorsteps in a relatively short time, likely by drone I suppose. In the somewhat more distant future I think the showrooms will all be virtual and we'll be able to access them from the comfort of our homes. It's rather funny how prescient the Jetsons turned out to be. :)
3D printing is a current/ emerging technology which does share some aspects of this sort of vision. What are the implications for retailers? Enormous, it is possible that such technologies could totally decentralise the very concept of supply and demand, making the raw materials and the technology to assemble those central to the dynamics of the system. Likewise, the recipes, blueprints and designs gain currency too.
3D Printing
The fashion industry is trying to understand the implications of creating clothing through 3D using individuals' own measurements and then building real time to be delivered within a day. This would mean that the retail stores would have much smaller footprints as mentioned above but also factory sizes would be much smaller.
From our work with 3D printers, I think that it will be a long time (if ever) before we will have 3D printers at home that can print everything we need. At least in the short term, I think we'll see more of a Kinko's concept where they have multiple machines (one for metal, one for plastics, one for glass, etc.) and experts to run them. This in itself is a new retail model.
Online v Bricks & Mortar
Is it preferable to have outlets in every mall in America or is online the environmentally preferable way to distribute merchandise?
There have been a number of LCAs done which show that in most cases online retail has fewer impacts than brick and mortar. But retail’s big impact is not environmental, it’s societal. It employs over 10% of our workers and it provides services used by everyone in society. Local businesses provide even more of a benefit, donating two to four times more to charity than chain stores. If we look at retail’s value to society from a monetary lens, the environmental impacts are way down in comparison with the societal impacts. So if you ask me which is better from a sustainability or ethical standpoint, I think a local hardware store wins out over Amazon any day, even though it may have a higher footprint.
Culture v Compliance
RILA is primarily a US institution and while their Retail Sustainability Initiative includes numerous educational programs, their focus is more on compliance. They help retailers navigate the patchwork of local, state and national regulations, they don't necessarily drive sustainability disruption or leadership. This gets to the core of culture vs. compliance.
Making sustainable choices the norm, rather than the exception, is the major means by which sustainable intent will turn into sustainable action. Concepts such as the multiple capitals seek to address under-priced value, or the dissonance between sustainable value and economic price.
Recycling, Upcycling, Downcycling
We are downcycling a lot of material and still landfilling a great deal. The recycling markets are functioning poorly and appear to be getting worse as opposed to more fluid. Few retailers are employing circular concepts extensively. We need more companies like Patagonia who are willing to disrupt themselves by encouraging consumers to buy smarter and to return garments for recycling.
There are two telling omissions to the retail waste stream. The first is a disconnect between price and cost. Consumers see zero price impact at the register from buying throwaways. As an economist, when the price is zero for waste consumption then the result is a tragedy of the commons like a massive sea of plastic in our oceans. The second omission is an incorrect focus. Recycling is like trying to catch the critter after it has escaped its cage. The correct focus is on cradle to cradle product design. The obvious solution is to link price to values. When the economics of waste are sufficiently high then economic's "invisible hand" will create cradle to cradle product solutions. At some point, retailers must seek disruption rather than recycling. Or accept that at some point when the tragedy of the commons becomes too large for voters and governments to ignore, disruption will be imposed on retailers.
THEME #3
Social Impact
THEME SUMMARY
This theme focused on Social Impact, particularly as it intersects with Community Impact, exploring best practices (as well as gaps) for leveraging business benefits from ethical retail
- Social Impact is traditionally viewed through the split lens of social benefits versus social costs; this theme flipped this perspective to propose pivoting social impacts into benefits.
- The conversation was wide-ranging, from the systemic impacts of retail to customer obsession driving (un)sustainability.
Joss Tantram proposed a shift in focus from Social Impact to Social Utility, assessing the alignment of self-interest & common interest by exploring interdependency, free choice / opportunity, etc
Bill Roth proposed that bias is a business opportunity / cost, and thus falls under the CFO purview to quantify.
Bias is an economic distortion and an inefficiency. For bias to be successfully addressed by a business organization, the CFO must quantify and report bias impacts on revenues, costs and risks. Until bias is accounted for as a business risk and cost, it will never be effectively managed by a business.
Bias in terms of race, religion and sexual orientation generates the following costs: 1) Ineffectual business decision distortions that damages profits; 2) Brand devaluation measured by customer and revenue loss 3) Supply chain distortions measured in reduced quality control and increased costs 4) Legal/PR costs created when bias is adjudicated in courts and public opinion.
Maria Leo proposed that ethical & sustainable retailers include social responsibility in their mission statement and business plan to embed it in their DNA.
Disruptive technologies such as Artificial Intelligence can be used for good or ill, but they hold strong promise of enhancing efficiency in transforming consumer values into supply chain criteria.
The emerging artificial intelligence (AI) marketplace will be driven by societal aspirations. The AI marketplace will convert our social media posts into societal procurement criteria. The consumer's aspirations will enrich AI's deep learning. It will generate values and value procurement decision making.
I think we are far away from the point where we will understand whether AI is net positive relative to sustainability outcomes or not. I suspect it initially may not be so positive.
THEME #4
Political Activism
THEME SUMMARY
What is the proper role of retailers when it comes to politics, particularly looking through the lens of ethics and sustainability? This contentious issue sparked energized discussion!
- Ushma Pandya made the clear-sighted distinction between issues and politics.
- The point arose that politics differ widely between individuals and also across cultures, making it very hard for retailers to align with political messages
Issues v Politics
I would argue that brands should be active on issues (that align with their brand value/promise) because their consumers may expect it, but brands should stay away from politics - that is a fine line to walk.
There is a very fine line and in some ways I think we might have to define "politics" -- in terms of candidates or parties vs human equity issues.
Activism Beyond Boundaries
Companies truly engaged in sustainability will need to undertake activities within their own direct spheres of control and influence, but also engage in wider activities designed to evolve norms, values and the rules of business.
Assuming there are values, drivers and rules that we can adjust to accelerate sustainable business, how do we identify them? Once identified, how do we go about adjusting them? I think if there were processes to each of these steps, we could move much more quickly.
Citizens United --> Moral Dilemma
Citizen United creates two business leadership challenges: The first is morality; A second leadership issue arises when a competitor uses Citizen United to win competitive advantage.
Citizen United has legitimized lobbying as a business strategy for winning marketshare. An optimist would expect businesses to lobby for values that align with their customer's values. An economist would expect businesses to use the powers granted in Citizen United to win competitive advantage.
Perpetual Political Activism
Companies are politically active all the time, and those of us involved in sustainability and responsibility may perceive many of these activities as being positive, or problematic/ indicative of the use of power for political ends.
Is it only good activism if we agree with its goals or they align with our own agendas? Perhaps the distinction is between activism for private gain versus activism for the public good (which may also include private gain).
Advocacy IS Tricky
It is quite difficult to align political positions with the view of leaders, shareholders, employees and partners. Because those groups are often large and their own views are typically quite diverse, navigating that landscape is treacherous.
The omnipresent "business case" for CSR, i.e. sticking to issues with a clear nexus to the business, means that some of the most influential actors in today's world, namely large companies with enormous resources, will steer clear of situations where they might be able to do some real good.
Political Activism Optional
To push the conversation a bit, if the company is privately owned and especially if family or founder owned, they have the right to support activism in any way they want. And in a free economy employees can be free to work there or not, consumers can also vote with their dollars.
When advocacy aligns with the business goals, I think it makes sense and can be the ethical thing to do. But I don't think that a company that doesn't advocate is unethical. A person can be ethical without having to be outspoken about their values.
THEME #5
Theme #5: Short-Termism Versus Long-Termism
THEME SUMMARY
This theme explored the dynamic tension between short-termism driven by market demands, and long-termism fueled by sustainability and ethical demands -- as well as future value creation.
- Disruption plays a pivotal role in shifting from short-termism to long-termism -- especially technological innovations that deliver sustainability profitably, at a reduced cost to consumers
- The roles of investment, demographics, policy, culture, and ownership were also explored as potential drivers of a shift from short-termism to long-termism.
Disruptive Technologies
Consumers will buy more sustainable products because they cost less while also enhancing their welfare. Businesses will adopt sustainability because it grows revenues, wins market share and increases profit margins.
The dynamism of technology changes cuts against some long-term planning. What is available today in terms of energy efficient products and services may not even resemble the marketplace 5-10-15 years forward. Businesses should create strategies that are based upon a high degree of flexibility.
Investment
Some of the worlds biggest, long-term investors (public sector pension funds) are using ESG indexes to avoid risks that could break capitalism through environmental or systematic failure.
The structure, measures and norms of capitalism are all about shorter term risk and reward, bolstered by mechanisms such as the discount rate, which explicitly tells us that future value, by its very nature, must be discounted against present value.
Demographics
Does the aging population create a threat to sustainability because of the pursuit of yields, or does it instead lead to an ultimate private/public sector "sustainability contract", where society shifts its value creation measurement to long-term sustainability of resources and modest financial ROI.
In terms of sustainability and environmental buy-in, the tail end Boomer generation and Millennials are more inclined to look long term for their children's sake
Policy
The car industry lobbied against seat belts and airbags as costly add-ons that consumers would never pay for. Regulation, enabled by voter sentiments, pushed the industry to install seat belts. Initial consumer response was divided. Today of course, auto companies now market vehicle safety.
Ownership
Family owned businesses often have an innately multi-generational perspective baked into the culture, unlike listed businesses (which may have existed over decades or centuries) whose culture is dominated by market dynamics, which, with the advent of automated trading, has become sub-second.
SC Johnson and Kohler are great examples of family-owned businesses prioritizing long term initiatives with long term payback. SC Johnson has been steadily improving its ingredients, reducing waste & working on social impacts. Kohler has implemented LCA in its stage-gate development process.
THEME #6
Scenario Analysis
THEME SUMMARY
This theme built on all previous themes by applying scenario analysis to project likely future trends in sustainability and ethics in retail, and proposed a series of considerations for scenarios.
- Tension between incremental versus transformative approaches to achieving sustainability emerged more clearly as we project into the future.
- Bruce Klafter proposed a list of key considerations to include in scenarios, with Lise Laurin and David Feidner piggybacking to delve to the next level of granularity on these (and other) factors.
Sustainability: Incremental or Transformative?
A Life Cycle Assessment of the F150 found a small fuel efficiency increase from 17 mpg to 19 mpg, but the size of their US fleet resulted in more annual GHG emissions reductions than all hybrid and electric vehicles sold combined. So I would say this is a sustainability success.
Today’s sustainability practice says aluminum bodied vehicles are a sustainability success. But they're still fossil fueled vehicles that requires a massive expenditure of greenhouse emissions to manufacture, so it's an incremental success that pails in comparison to the global warming challenge.
Scenarios: List of Key Considerations
Here's a list of critical elements for a sustainable scenario analysis of the future of retailing: 1. Mix of e-commerce v brick & mortar 2. Human interaction v AI, robotics, etc. 3. Responsible sourcing and its many challenges 4. Fast fashion (and variants) v heirloom products that last (Part 1)
Part Two of list of critical elements for a sustainable scenario analysis of the future of retailing: 5. "Mass customization" v mass production 6. Big box vs. localization, specialization 7. Competition v collaboration on sustainability 8. Transparency & disclosure 9. Millennial attitudes v the "OG"
Scenarios: Deeper Considerations
Some deeper thinking on Bruce's list: 1a. What will e-commerce look like? Will Amazon & Ali Baba become more dominant (or even merge) or will Etsy, Walmart etc carve out spaces for themselves? 1b. Will the online retailers open up brick & mortar stores or take space in existing stores? (Part 1)
Retailer scenario analysis must continuously prepare companies for emerging, conflicting consumer behavior, balancing individualistic trends such as big data personalization, retail everywhere, AR etc. vs collectivistic trends such as urbanization, radical transparency, the circular economy etc.
Consumerism
It is hard not to think about the role of consumerism in discussing sustainability & ethics. Retailers could associate sustainability efforts with the basic drive to "consume" by pairing innovation, influence, creativity and self expression along with emerging trends tied to milestone deadlines.
The emergence of blended digital/physical commerce highlights how sustainability impacts consumers’ individualistic vs. collectivistic behavior. Technology and big data/AI create the ability for very personalized offers, while increasing awareness of the tragedy of the commons drives collectivism.
Spheres of Influence: Large vs. Small Retailers
We've seen time and again where large legacy retailers (Walmart, for one), have set and met environmental goals while simultaneously influencing the rest of the industry to follow along. When a giant retailer sets a standard, there's no choice but to follow along.
Does the sphere of influence have to start big? The combined actions of government policies, environmental groups, and other retailers pushed giant Starbucks to announce the dramatic sustainable goal of phasing out plastic straws. Could the same process work on other sustainable measures?
THEME #7
Scenario Analysis: Deeper dive on actual v virtual
THEME SUMMARY
As the final theme in this Discovery Board, we extended the scenario analysis to a specific area -- the intersection of human and virtual interaction in retail -- then wound down with final thoughts.
- Participants used specific case examples -- such as Apple, or the blending of in-person restaurant experience with online retail -- to illustrate their points.
- Final summarization extended the focus on digital disruption as a potential enabler of ethics and sustainability.
Apple Case Study
Apple as a case study offers these specific steps for a legacy retailer: 1) Leadership 2) Consumer aspirations focus 3) Personal, value/values-added consumer connection 4) Authentic marketing voice 5) Disruptive change is the new norm.
We are starting to see the rise of values driven brands which are aiming to provide utility and customer satisfaction with the ethics “baked-in”.
AI enabled customer service
One of the many potential conflicts that will arise in the future is the need for more and more private information to enable effective machine learning
There is a massive gap in personalized retail customer service that creates a huge sustainability opportunity if sustainability professionals engage with the technology folks to populate a legacy retailer’s services & AI engagement with value/values triggers that behaviorial economics is documenting
Restaurant + brick & mortar
Leveraging the weekend breakfast and lunch crowd and evening dining crowd by co-locating with a restaurant and/or providing an inviting, fun experience while waiting for a table has the potential to keep sales and brand value high.
Kind of like at airports: sit at the table with a monitor, order food to be brought to your spot; why not the same with merchandise? Go to lunch with the family and have CVS bring toothpaste or deliver running shoes to the juice bar.
Agile Innovation
An innovation mindset should be embraced more to achieve a greater level of success and to stay relevant for the future without being too disrupted and left behind
Facing an environment that is both complex and rapidly changing, requires agility. Rather than strictly trying to predict the future and invest accordingly, retailers are adopting the agile movement playbook!
Summarize & Synthesize
Commercially, retailers must move at the speed of competition to innovate/simplify -- incremental change in today’s economy is “slow death.” Ditto for sustainability: it's achieving incremental change when massively disruptive innovation is required to address climate change, global obesity, etc...
Legacy retail has long supply chains, but the increasingly direct to consumer model eliminates the information gap, and consumers engagement also provides information back, creating a virtuous cycle, which enables democratization of sustainability, and that can only be a good thing.