In response to the rising demands of stakeholders, companies are racing to put out sustainability commitments, with 92% of the S&P 500 now publishing these reports.  

It’s an important shift. Companies with established environmental, social, governance structures have integrated ESG thinking into every aspect of their business – increasing transparency, rethinking environmental impact and improving how they treat employees and other stakeholders. Job seekers, particularly the newest entrants to the workforce, will disproportionately want to work for organizations with an established ESG strategy over others. New hires are also more likely to stay if the intensity of the business’ actions matches the commitments. Lastly, ESG matters more to investors, with 85% of investors now mulling a company’s ESG status before buying shares. 

Many companies, though, are struggling to connect their commitments to action. They set ambitious targets–and that’s a good start. But once it comes to integrating ESG across the business, change leaders often don’t know how to navigate the path from ambition to demonstrable impact. It can be hard to build positive business cases for ESG initiatives. This is because there often isn’t a clear operating model for driving durable change and an ESG strategy requires collaboration across all parts of the business.  

We think another major problem is that many companies still see ESG primarily as a compliance and risk mitigation tool, almost exclusively. 

But we recognize it as a bigger opportunity, offering the potential for shared value creation. And there are many reasons to believe that ESG will be the next big driver of growth and transformation in the coming decade.  

As companies use ESG strategies to find more purposeful, inclusive and regenerative business models, they create value in important ways: 

Attract Talent, Boost Retention and Increase Employee Well-Being

It’s hard to overstate how important positive environmental, social and governance practices are to the modern workforce. A recent study from Marsh & McLennan finds a strong correlation between high employee satisfaction and companies with the best ESG scores. These ESG outperformers are also especially attractive to students and young professionals, with 86% of employees preferring to work for companies that care about the same issues they do.  

Improve Customer Acquisition and Retention to Build Brand Strength

People care–and deeply–about how companies contribute to solving key issues in our culture and society today. Consumers and B2B buyers alike want to do business with organizations that are environmentally responsible and fair to employees. They want businesses to stand for something.  

Ipsos reports that 66% of U.S. adults say they prefer to buy brands that reflect their values, up from 50% in 2013. The global average is even higher, at 70% of respondents, with those in emerging markets especially likely to agree. 

Optimize Supply Chains, Drive Efficiencies and Create New Opportunities

While pandemic-era shortages may have vaulted supply-chain concerns to the popular consciousness, they’ve been growing in complexity for some time. They present dizzying ESG challenges, with the average company having 3,000 suppliers for every $1 billion it spends. Supply chains are fraught with risk, with the World Economic Forum estimating they account for about 90% of all emissions and widespread human-rights problems. 

Using ESG principles to optimize and build resilience into supply chains is a huge growth tool, as companies with advanced supplier collaboration and innovation outperformed their peers by 2x in growth. 

Power Innovation and Lead to New Business Models, Products and Services

As companies move through the early phases of ESG–from mitigating risks and achieving efficiencies–they reach the point where the assets and capabilities that power ESG performance can simultaneously become growth tools for competitive strategy and innovation. This requires deeper bridge-building across all parts of the organization. ESG may have first emanated from investor and regulatory pressures, but as it becomes more understood throughout organizations – including product, commercial, and go-to-market leaders. This should open up new pathways to business model innovation, new services and inspire new ways of working.  

Here again, bold and clear goals pay off. In a study of 1,000 companies with climate objectives, those with the most ambitious carbon targets invested the most and made significant operational changes. The result? They also drove the most innovation. 

We clearly see how the principles of sustainable and socially responsible business can unlock opportunities for new products and services. The circular economy offers a $4.5 trillion economic opportunity. New business models focused on reuse, recycle and regenerate are unlocking new opportunities for innovation. Additionally, inclusive design, which embraces a larger view of the human spectrum, has proven to drive innovation that leads to business advantage.  

Moving From Ambition to Impact

Companies must find new and better ways to close the gap between ambition and impact. This requires designing scalable ESG solutions, exploring requirements for change throughout the organization and developing plans that integrate ESG into companywide strategies and operations. 

We’re not suggesting a common path. It’s essential to address what’s material to your industry. For example, water usage and resource availability will be crucial to CPG companies but less to professional services firms. In an analysis of 2,000 U.S. companies, a Harvard Business School study found that companies that consistently addressed material issues in ESG strategies significantly outperformed competitors. Those that paid more attention to immaterial problems, however, significantly underperformed.  

Stakeholders and consumers know when companies are authentically supporting their stances with strategy and when they are greenwashing, rainbow washing and virtue signaling. 70% of Gen-Z and Millennials are skeptical of virtue signaling from organizations, and roughly 80% of companies are just going through the motions and not holding themselves accountable with measurable action, continuing to erode public trust.  

It’s also important to take the ESG maturity of the organization into account. Some have been establishing and finetuning policies and programs for decades, while others are just beginning. 

That said, there are five fundamental shifts common to every organization seeking to sharpen ESG strategies to create new value. 

Companies must move from… 

Embarking on Your ESG Journey

Moving from ambition to action is a complex journey. Targets fluctuate as external factors and pressures increase. And as test-and-learn efforts enrich the company’s knowledge, they become agile and confident enough to take on new endeavors. 

To drive meaningful change, leaders need to evangelize the ESG mindset. Acting on these new tenets of sustainable and responsible business, they need to build coalitions, think creatively, iterate continuously and take risks. It’s a unique skill set but essential if ESG is to come to life throughout the company.  

We’ve found meaningful analogies to these shifts in digital transformation. We’ve helped dozens of companies take the role of digital executives from a single department to an enterprise-wide commitment. Digital thinking now forms the backbone of a modern company’s culture, operations, go-to-market strategies and business models. In many ways, chief sustainability officers are already traveling the same path. They’re driving the ESG mindset and bringing it to life throughout the company.  

---

In today’s disrupted markets, incremental sales gains aren’t enough. Companies need to find paths to uncommon growth, moving them ahead of competitors and potential disruptors. That can only happen when businesses answer two daunting questions: Where can we play to win? And how can we win there in a differentiated and relevant way?

We help companies identify those growth paths, even as new entrants surge into already crowded categories and core products continue to get commoditized. Deciding where to play requires a clear sense of which market a company is best equipped to play in, and then uncovering gaps of opportunity and developing a razor-sharp definition of the customers it believes are its best targets. Figuring out how to win calls for finding the best products, services, experiences and business models to reach them.

“Companies need to find paths to uncommon growth, moving them ahead of competitors and potential disruptors.”

Once these areas are fully developed, we can start to apply both in-category expertise as well as out-of-category thinking, finding innovative and unexpected avenues to more revenue.

It’s tempting to take shortcuts. Many companies do, and some even stumble into growth that way. But for growth to be uncommon, which we define as purposeful, profitable, transformative and sustainable, every future move needs to start from the customer’s perspective. That means focusing on humans first, with a detailed and holistic understanding of what they want, need and expect.

From that point of view, it’s possible to design and activate new offers with the best potential to increase sales and build relevance. Our experience shows these four steps–answering the who, what, how and why of any new approach–is essential.

Step One: Who is the Target?

Companies often start their growth strategy thinking about what products they can make or services they can offer. Insurance companies want to dream up new policies. Restaurants want to launch a new sandwich. But the key to sustainable success is to understand who makes up the market landscape and which groups are the best match for its capabilities.

Intelligent segmentation and targeting may reveal certain insights that change your strategy. Maybe the most potential segment for your insurance company wants fewer policy choices but better service. Or maybe restaurant customers want more bowls and less bread.

We drive our segmentation and targeting strategies by balancing two key things:

• We make sure target audiences can be identified using demographics, media behavior and other transactional data
• We guarantee that the audience can be understood by uncovering behavioral insights

Often, companies already have much of this information. To define the most attractive and winnable target segments, we combine client data with third-party insights and our own quantitative and qualitative research.

These can’t just be numbers and ideas on a page, though. A vital part of this work is moving beyond rough sketches and bringing these people to life through powerful personas. Everyone in the organization needs to understand who these new customers are and what makes them tick. That way, they can get excited about the prospect of winning with them and finding new ways to meet their needs.

Step Two: What’s the Unique Value Proposition?

It’s not enough to crystalize an innovative growth strategy. Unless

There’s a compelling value proposition – a thing that makes an offer different from its competitors – it’s difficult to persuade people to try a new brand (let alone give up on one they’ve been loyal to in the past).

Too many companies gloss over this step, moving straight from strategy to messaging without deliberately defining the core benefits they offer. Until they take the time to painstakingly codify its virtues, the product, service or experience, is unlikely to break through the clutter.

This step is crucial in crowded categories. In a world with hundreds of financial products, seltzer brands and car insurance companies, the value proposition serves as a filter. It clarifies a company’s promise to customers and becomes an internal rallying cry.

Step Three: How Should it Go to Market?

The pivot from product innovation to in-market thinking is almost always challenging. If these new ideas are to lead to uncommon growth, it’s pretty likely that they are different from previous launches. That calls for a departure from the company’s usual way of doing business. Maybe they’re reaching different customers, like a newly defined target. Or perhaps they’re serving existing customers in different ways via new channels. That often means that the right go-to-market strategy will require operational shifts. And it may even require changes in the company’s culture.

For example, how will the new offers be distributed and sold? How will they be marketed? What is the best channel to leverage for go-to-market? What’s the messaging? It takes careful alignment of all these elements to maximize success.

Step Four: What’s the Best Way to Define the “Why” (With Purpose and ESG)?

Environmental, social and governance strategy is still a relatively new discipline, and many companies continue to view it simply as a risk-mitigation tactic. We believe that’s a missed opportunity. When intertwined with a company’s purpose –its reason for existing in the world – ESG is a powerful way to create value. And it can lead to meaningful and sustainable engagement with multiple stakeholders.

It’s not easy to define precisely how the world has changed over the last few years. An endless news cycle perpetuates negative outlooks on health, climate and communities. And people increasingly expect the companies they do business with to play a role in helping solve these problems. Businesses that accept that responsibility, making sure everything they do fits credibly into their ESG strategy, will win their respect.

At Prophet, we believe building a purpose-led organization is the key to achieving uncommon growth. But we also know simply articulating and communicating purpose is not enough. To create value, purpose and ESG must act together, providing a golden thread across the organization. In this position, at the center of all activity, it can drive transformation.

---

The global M&A market is blazing hot across every major sector. Just look at the headlines announcing a pending deal between Amazon and MGM. And before that, the big news was AT&T’s deal with Discovery Inc. With deal volume rapidly approaching $2 trillion in just the first half of 2021, that’s more deal activity than any corresponding period on record, according to Bloomberg. And there are signs the party is just getting started. With vaccinations trending upward, stimulus flowing in, borrowing costs at record low rates, corporate coffers awash in cash and global economies shifting into a new gear, companies are feeling more bullish about taking big bets on the future.

Many of these recent deals are substantial. The AT&T announcement to merge Warner Media business with Discovery Inc for $43 BN, joins a roster of other major deals such as S&P Global’s $44.5 BN purchase of IHS Markit and Canadian Pacific Railway’s $25 BN purchase of Kansas City Southern. These corporations are rightly looking to acquire new capabilities and access new business models that can help them adapt and grow effectively in a post-Covid world. With M&A deals likely to hit an all-time high in 2021, here are three things business leaders can do to maximize the value of post-pandemic deals:

1. Sharpen the Value Proposition

The pandemic reset customer behaviors and expectations, both globally and across categories. Companies that invested in digital customer engagement and agile operating models were able to pivot in order to address rapidly shifting customer needs and new, often virtual use cases. As the world emerges from lockdown, the needs and behaviors during the pandemic will combine with pre-pandemic use cases to shift market requirements, once again, into post-pandemic need states.

Shifting customer needs demand refreshed value propositions, which accelerating M&A activity seeks to address. Smart players will use M&A to not only acquire capabilities required to compete in post-pandemic markets but will push their organizations to refresh their comprehensive value proposition including – product, service promise, customer experience and branding.

Example: When Danaher acquired the life sciences assets of GE Health, it retooled the value proposition of that business. In creating a new operating company called Cytiva, Danaher brought a sharpened, stronger value proposition to its biopharma and research customers through a comprehensive product portfolio that dramatically and demonstrably accelerates the discovery-to-development-to production lifecycle of biopharmaceuticals.

2. Expand the Revenue Platform

Platform businesses have attractive revenue dynamics — cross-selling and customer penetration, low customer acquisition costs, the ability to extract first-party customer data and switching barriers that get higher as customers go deeper into the platform. Smart M&A uses acquisitions to not only acquire new capabilities, solutions or customers, it also actively adds and recombines to strengthen platform dynamics.

Example: When Cigna purchased Express Scripts (the largest single deal in 2018), it acquired ESI’s significant PBM and pharmacy assets. Last year, Cigna combined the ESI business with several legacy Cigna capabilities to create Evernorth, a robust health services platform with significant data assets. In combining and reconfiguring assets into Evernorth, Cigna is driving platform revenue dynamics through data-enabled solutions that draw from capabilities across the platform, and drive higher clinical outcomes while lowering costs, what the company calls “the value of integration.”

3. Clarify Purpose for Employees and Customers

Big deals can ratchet up expectations externally and raise anxiety internally. Post-Covid deals are likely to have an even more unsettling effect on the employees needed to power deal success. Office workers have endured a roller coaster year of change. After adapting to work from home, they face another round of seismic changes as re-entry begins and companies call them back into the office. Priorities for these workers have shifted during the pandemic and so has their status quo. Time with family is more precious, commuting is optional and office culture has gone online.

So, when asking employees to undertake a post-merger integration, there better be something meaningful to come back for. Companies undergoing a mega-merger should use this moment to clarify their purpose to the market and to employees. A 2019 Cone/Porter Novelli study found that purpose can drive real business impact, with 86% of respondents claiming that they were more likely to purchase purpose-driven brands and 79% claiming to be more loyal over time. Purpose also drives higher rates of retention, productivity and happiness at work among employees according to a 2017 Great Places to Work study.

Example: When CVS merged with Aetna, the newly combined entity promised to create a new data-driven healthcare model that’s more personal, more convenient and more tailored to individual patients than ever before. They’ve since continued to make good on their purpose to help people on their path to better health by creating a rolling thunder of moves aligned to their purpose and setting clear ESG targets for 2030 and holding themselves to account. Since the deal was announced in 2017 and closed in 2018, CVS Health has shown steady year-over-year revenue growth.

“These corporations are rightly looking to acquire new capabilities and access new business models that can help them adapt and grow effectively in a post-Covid world.”

---