The trade-offs between business profitability and societal value are diminishing

I wrote this Blog post is from 2011. The sustainability of a business is still of great importance when it comes to competitive advantage. What have we learned as managers in the last six years?

Once we thought that the imposition of regulations on businesses would inevitably serve to undermine their profitability. In recent times our understanding of this situation has changed quite considerably.

For example, regulations intended to make companies operate in a more environmentally friendly manner require investment (sometimes considerable amounts of money) in more efficient machinery, plants, planning, monitoring, etc. Company investors are obviously not pleased by such regulations, as the necessary investments impact upon the annual financial performance of the company.

However, this is an overly simplistic view of how companies and how competition really works and, importantly, it fails to take into account the sustainability of a company’s competitive advantage.

Pressure for short term results is bad for company strategy and bad for society, as the two are intrinsically linked.

By now it must be clear to most that pollution is a form of waste of resources (energy, water, gas, etc.), and the day to day running of an outdated, inefficient production plant and production process ultimately contributes significantly to annual production costs and so eats into what would otherwise be company profits.

When governments impose sensible regulations they need not hurt a company’s competitive advantage but rather represent an opportunity to take this advantage to the next level.

Therefore, the perceived trade-off between sensible regulations and company profitability isn’t a reality, because one actually reinforces the other.

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