by C.R. Herro, VP of Environmental Affairs, Meritage Homes, www.MeritageHomes.com
Sustainability means the capacity to endure, and in difficult times, sustainable business strategies can often mean the difference in a business enduring and not. For seasoned business professionals, using ‘business strategy’ and ‘sustainability’ in the same sentence can feel like an oxymoron. Because sustainability done wrong means increased direct and indirect cost that is often undervalued, and therefore not recovered, in the marketplace. Initially, sustainability required a company to spend more, sustainable products were a premium throughout the supply chain, and the final result required a consumer to get less that the ‘unsustainable’ products that were replaced. The gap between making more sustainable choices and the best P&L for your business pushed sustainability into the margins through that end of the last millennium.
Within every problem statement lies the solution: Sustainability must be a business strategy to promote improvements in direct consumer values they perceive and understand. The strategies also must be disciplined to ensure the consumer value of the improvements that are in line with the business costs incurred. In the last decade, the potential to improve the overall value to the average consumer has occurred within the construction industry. Suppliers that continue to perceive sustainability as an expensive subset of the market geared to a special interest group of customers, may be missing a critical change in the expectations of the mainstream.
Specifically in the construction business, there is a significant opportunity which is quickly transferring to a fundamental requirement, to leveraging credible improvements in the function, durability and health impacts of goods and services to demonstrate greater value to our customers. Sustainability, done right, produces an improvement in the direct value to potential customers. Like all good business strategies, it means spending more time up front in understanding the entire system to improve the result, with the potential to remove or reduce costs, or realize top line benefits, for the effort. The news is full of products and builders that can be competitive on cost and offer improved products to the consumer. Once consumer awareness and the economies of scale kick in, the old way of doing things is no longer legitimate, and businesses begin to change market share.
In direct terms, a sustainable business strategy has to be founded in improving the holistic sourcing, manufacturing, and operation of our products and services. An organization must then align these credible improvements with sales and marketing designed to create awareness, differentiation, and validation of your substantive improvements. That is where innovative strategies are quickly becoming business imperatives. Educational institutions, government programs, and the media are enabling average consumers to make more sophisticated choices. Programs like Energy Star, LEED, and Passivhaus are taking complex engineering and building science and converting it into marketing bites and energy scores. The EPA’s new Energy Star for Homes tagline is ‘Better is Better’. And that properly summarizes the business strategy of sustainability.
Understanding your goods or services from cradle to cradle and identifying opportunities to improve the direct value to your customer. Given a choice, consumers will always choose better value. In homebuilding, it may mean increasing your directs by $10,000 to improve the overall function of your house by $50,000 in operating cost. For suppliers, it is ensuring the premium you need to extract to build a better product is demonstrated to reduce the net present operating cost less than that incremental premium. For service providers, it is critical to be able to work through the marketing to understand the spectrum possible in sustainable construction, to identify and promote the best in a group of better. Sustainability occurs along a range of incremental improvements. Initially many have direct improvement to the consumer greater that the cost. Commonly, the extreme edges of innovation exceed the benefit. As you watch technologies such as lighting and HVAC, it is when the cost/benefit ratio favors the consumer, you see the adoption rate change dramatically.
A critical success factor in sustainable business strategies is in converting arcane sustainable science into easily relatable consumer benefits. Monetizing sustainability creates a great tool in both creating consumer awareness, but also in validating the benefits. Creating the cost benefit relationship at the consumer level also creates pressure on all associated companies to optimize the cost benefit equation. Pending legislation like the SAVE Act (Sensible Accounting to Value Energy) offers the opportunity to take the future financial benefits of improving product functioning, and creates present day benefits to drive better overall consumer decision. New green appraisal standards and energy labeling provide similar benefits to assist an average consumer to understand the net present value of future savings. Homeowners who spend less on energy and replacements will have more money to make mortgage payments and upgrade their homes.
An interesting, and challenging, part of sustainability is that it impacts the consumers in more ways than their direct finances. Demonstrating the value of comfort, heath, and safety can be much more nebulous, and difficult to justify initially on a P&L basis. While it is a significant challenge, building, especially home construction, is a very emotional decision. Creating sustainable goods and services directly speaks to the emotional needs of those consumers: creating safer, more durable, healthier, and quieter environments is better. For most consumers, better is better once they can become aware, differentiate, and validate the difference. Business that provide for improvements in both the financial, and emotional, needs of their customers, will do much better in the marketplace that those who do not.
Ultimately suppliers, trades, builders, and government officials will not determine the direction of sustainability. The first and last decision is always consumer choice. Sustainability initiatives offer a consumer the ability to get a better product or service.
It is good to figure out a credible way to be on the winning side of that decision.
Building Science resources provided by The Energy & Environmental Building Alliance (EEBA) and its National Education Partners. For further information regarding EEBA’s Building Science Track at SEBC or building science and home performance resources, please visit eeba.org.