Enablers

The following four enablers are key to support the transition to an economy that works:

Long term

Long term

WHY IT MATTERS

Long-term prosperity requires careful planning, and while we cannot predict the future, we can get an idea of the shape of things to come by looking at global forces of change – so called ‘megatrends’.

Good management involves managing for the short and long term simultaneously. In other words, it means being able to address current priorities without losing our ability to meet long-term objectives. In recent years, business and political decision making has been skewed towards short-term gain at the expense of long-term resilience. Yet this ability to focus on the long term is one of the key characteristics of true leadership. In the words of the ancient Greek proverb: “A society grows great when old men plant trees whose shade they know they will never sit in”.

Many of the challenges we face require leadership and long-term vision, such as the urgent renewal of the UK’s infrastructure (including energy, transport, water and ICT). The Kay Review found that short-termism in capital markets is increasing, with a trend away from an engaged, long-term investor and towards the anonymous, short-term trader.The average UK equity holding has fallen from eight years in the 1960s to seven months in 2007.

As a result, short-termism has become “a characteristic of corporate leadership, and may be characterised both as a tendency to under-investment, whether in physical assets or in intangibles such as product development, employee skills and reputation with customers, and as hyperactive behaviour by executives

whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business.”

What success looks like

  • Increased investment and R&D budgets to address long-term needs
  • Long-term impacts taken into account when making policy and business strategy decisions
  • Reduced national and household debt and increased long-term investments
  • Increased resilience to economic boom-and-bust cycles by increasing savings
  • Increased competitiveness as Britain develops the technologies and processes needed by our trading partners to develop their infrastructure
  • The UK rated a top location to do business in

WHAT IS IN IT FOR THE UK ECONOMY?

Ultimately, the transition to an economy that works can only happen if we take a long-term perspective. While there will be some difficult choices to make, the prize is substantial – a better future for Britain and its people.

Policy Exchange highlights, “Long-term infrastructure investment has significant advantages over attempts to boost consumption. The key difference from a macroeconomic perspective is that it creates assets to offset against the borrowing, while at the same time contributing to aggregate demand.

But it has an additional and, arguably, more important role: it addresses the productivity and competitiveness of the British economy by improving the energy, transport, communications and water systems which make a substantial contribution to the costs of consumers and businesses.”

WHAT ABOUT BUSINESS?

Long-term thinking provides critical business security. It enables business to identify potential opportunities, become more resilient and make informed investment decisions that will deliver value for years to come.

How can business help create a long-term economy?

  • Reward long-term performance in share options and fund performance remuneration
  • Improve communications with investors to reduce the financial community’s reliance on quarterly reporting as a proxy for performance

  • Build products that last longer and create new revenue streams through enhanced service offerings
  • Provide information to investors so they can build models that adequately account for long-term performance
  • Provide a clear long-term vision of success, such as this report, the World Business Council for Sustainable Development’s Vision 2050 or M&S’ sustainable business plan below

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

  • Create strong and continually evolving business policies that identify growth sectors and use a range of funding, fiscal and training interventions to help new enterprises expand
  • Ensure long-term planning is insulated from short-term political agendas or electoral terms, for instance through statutory requirements
  • Revise the way long-term benefits are valued in economic models, focusing on discount rates, accounting for natural capital and the forward costs associated with key resource use

  • Redefine fiduciary duty to strengthen long-term performance
  • Redefine corporate and asset manager incentives to reward long-term performance
  • Consider transaction fees to dissuade extreme short-term trading
  • Reduce obsolescence by extending warranty periods to reward greater product longevity

M&S’s long-term plan to make the business more sustainable

Source: Please download or view our Report online for a full list

 

 

Innovative

Innovative

WHY IT MATTERS

We may not be able to predict the future, but we do know that we face an ever increasing pace of change. Adapting to changes requires regular innovation to build resilience and enable our economy to thrive.

According to the OECD “Much of the rise in living standards is due to innovation – this has been the case since the Industrial Revolution. Today, innovative performance is a crucial factor in determining competitiveness and national progress. Moreover, innovation is important to help address global challenges, such as climate change and sustainable development.”

Today, because of environmental pressures, we face a new innovation challenge: how to maintain quality of life while reversing environmental damage.

There are many types of innovation:

  • Product innovation: creating a product or service that did not exist before, such as the hybrid car engine
  • Process innovation: changing the way existing products and services are made or delivered, for instance, online shopping
  • Business model innovation: changing the way a company makes money. For instance, when Apple introduced iTunes it changed its business model from a hardware and software producer to a digital download provider
  • Governance innovation: addressing the core institutions and frameworks that govern how major decisions are made, for example through devolved governments in Ireland, Scotland and Wales

WHAT SUCCESS LOOKS LIKE

Innovation is often related to R&D spend but it is more complex than that. A couple of international indices give us a strong indication of key success criteria:

The Global Innovation Index, a study from Insead Business School, Cornell University and the World Intellectual Property Organization, measures how innovative countries are by evaluating five input measures that support future innovation, and two output measures that assess the extent of innovation achieved. These are broken down into further subcomponents as shown below.

In the 2013 Innovation Index, the UK ranked third out of 142 nations, but worryingly ranked 60th in innovation efficiency, an indicator of future success. The UK’s efficiency ranking shows that we get less out of our innovative capability than Nigeria, India, China and Germany.

The EU’s Innovation Union Scoreboard assesses strengths and weaknesses of research and innovation systems for EU Member States. The UK is described as an “Innovation follower” ranking close to that of the EU average, but lagging behind Germany, the Netherlands and Scandinavia.

WHAT IS IN IT FOR THE UK ECONOMY?

In 1950 there were 412,000 patent applications worldwide; in 2011 there were 1.9 mn. The 21st century is likely to see more innovation than the previous 500 years.

UK growth and competitiveness will improve in line with our ability to exploit innovation. For instance, Green Alliance estimates that cleantech innovation could save the UK up to £160 bn in energy supply costs by 2050 and increase GDP for UK based businesses by up to £89 bn.

WHAT ABOUT BUSINESS?

Innovation can deliver two main benefits for business:

Competitive advantage: Sustainability is a key driver of innovation and profitability. Of particular interest to business are innovations that address global megatrends – digital revolution, urbanisation, resource scarcity, climate change and demographic change, including:

  • Energy efficiency
  • Circular economy
  • Bottom of the pyramid markets
  • Product to service revenue models

Build resilience: Building resilience at both the company and country level is critical, and in many cases, resilience starts with innovation.

How can businesses deliver innovation in an economy that works?

While incremental innovation is useful, the real breakthroughs come from ‘disruptive’ innovation that drives step changes. To achieve this we need to:

  • Look beyond product innovation and aim to innovate equally in processes and business models. This is where genuine change and competitive advantage lie
  • Embed innovation within business culture by creating an environment for experimentation and co-creation that supports disruptive innovation
  • Increase collaboration between businesses along the value chain and between business, universities and third sector organisations

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

Firstly, input factors need to be developed by:

  • Strengthening financial and fiscal incentives that promote R&D
  • Addressing innovation barriers including international trade barriers and anti-competitive regulation
  • Promoting international R&D collaboration
  • Supporting long-term economic and policy stability to encourage investment
  • Supporting social entrepreneurs and innovators

  • Strengthening the Technology Strategy Board to encourage partnerships
  • Encouraging innovation and knowledge creation in secondary and further education

However, input factors are rarely enough. The demand side needs to be nurtured as well, and the public sector has a critical role to play here:

  • Procurement decisions should prioritise innovations that offer full-lifecycle solutions rather than focusing on upfront cost
  • Progressive regulation sends a signal to the market and can be a powerful driver of innovation

Global Innovation Index components

Source: Please download or view our Report online for a full list

 

 

Inclusive

Inclusive

WHY IT MATTERS

According to the UN’s Expert Group on Promoting Social Integration, an inclusive society puts aside differences of race, gender, class, generation and geography, and instead focuses on inclusion and equality of opportunity. Equally important is enabling all members of society to help determine a set of social institutions that govern how that society is managed, ordered and represented.

In an inclusive society everyone feels they belong and have a stake. Individuals co-operate at all levels of society to achieve collective goals. People feel empowered to both enjoy the benefits of society and to contribute to it.

The individual benefits of an inclusive society include:

  • Dignity, respect and a sense of self-worth
  • Confidence, positive self-expression, participation, giving as well as receiving and empowerment
  • Independence, self-determination, freedom of choice, decision and action

Wider societal benefits include:

  • A positive link between democracy and life satisfaction
  • Membership of organisations increases life satisfaction
  • Trust with other members of society and with key public institutions, is shown to be highly correlated with life satisfaction88
  • A greater pool of knowledge, by drawing on the expertise and skills of a vast part of society
  • More equality, with the advantages highlighted earlier in this report (p 12)

WHAT SUCCESS LOOKS LIKE

An inclusive society would have:

  • Equal access to public services, in particular health and education
  • Transparency of government decision making, including financial modelling and access to public information
  • Active citizen participation in the decision making processes, including civic, social, economic and political activities that affect their lives.

  • A strong civil society to make public policies and institutions accountable.
  • Forums to protect and promote basic human rights
  • An acceptance and appreciation of cultural diversity
  • Democratic representation through high election turn-out89

WHAT IS IN IT FOR THE UK ECONOMY?

  • Greater diversity of ideas to address the challenges we face and the opportunities that present themselves

  • Greater competitiveness, leading to new opportunities
  • More stability in society as people feel involved and included

 

WHAT ABOUT BUSINESS?

Inclusivity can deliver benefits to business, such as:

  • Greater trust between business and stakeholders
  • Greater awareness of stakeholder perspectives and ability to influence through proactive engagement
  • Access to a greater talent pool through recruitment outside the usual channels
  • Enhanced learning and development opportunities

How can business help create an inclusive economy?

  • Commit to full transparency of its own operations and supply chain
  • Harmonise auditing and measurement methods for greater transparency
  • Conduct active stakeholder engagement to share company activities and gather stakeholder input and ideas
  • Review executive and advisory board composition to address any gender imbalance and include broader representation to wider stakeholder groups
  • Enhance job opportunities for individuals from disadvantaged backgrounds
  • Provide learning and development opportunities for all employees

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

Participation

  • Promote mechanisms for the advancement of marginalised groups, such as public, parliamentary and civil society forums for engagement with government
  • Decentralise power to regions and cities to increase local inclusion and accountability
  • Support inclusive models of value creation such as crowdfunding, sharing economy and local community initiatives
  • Promote the use of the internet and other ICTs to remove barriers to participation such as location, education, class, gender, race and linguistic knowledge
  • Promote and respect religious and cultural diversity

Transparency

  • Strengthen governance through increased transparency in decision making and accountability among civil servants
  • Strengthen freedom of information legislation to ensure full transparency of government decision making
  • Increase product transparency through product labelling
  • Increase transparency of financial modelling and of corporate performance through integrated reporting, using the framework developed by the International Integrated Reporting Council

IIRC Integrated reporting framework

Source: Please download or view our Report online for a full list

 

 

Strengthens communities

Strengthens communities

WHY IT MATTERS

An economy that works will not only be achieved through the efforts of business and policy makers – it also requires the active participation of UK citizens, both as individuals and through their communities.

Communities have a critical role to play if people are to be motivated to act while supporting the transition towards an economy that works.

Communities usually share a geographic location, interests or values. As a result, any initiative undertaken to strengthen these common characteristics is likely to get the support of the community, increasing the chance of success.

Many community initiatives across the globe, including the Transition Network, show that when people are given the opportunity to be part of the solution, they are far more engaged and active in addressing the issues that matter.

Lack of community can also have important implications. According to recent research, loneliness can be twice as unhealthy as obesity, particularly for older people. Research shows that people who reported being lonely have a 14% greater risk of dying than the average.

WHAT SUCCESS LOOKS LIKE

  • Larger societal participation
  • Greater community autonomy
  • Connected communities that share ideas and best practice

  • Active communities that take the initiative in addressing local challenges and meeting local needs
  • Communities embracing sustainability, such as the One Planet Living concept

WHAT IS THE OPPORTUNITY?

  • Greater autonomy and shared responsibility from communities to deliver an economy that works
  • Greater civic participation as citizens take responsibility for creating the society they want

  • Less pressure on the public purse as communities become more engaged and self-sufficient
  • There appears to be a positive relationship between volunteering, altruistic behaviour, time spent socialising and subjective wellbeing

 

WHAT ABOUT BUSINESS?

Supporting the wellbeing of communities can offer revenue generating opportunities for business95 by:

  • Developing local business clusters
  • Developing brand loyalty by addressing consumers’ rising concerns with the environmental and social challenges
  • Creating market opportunities through the development and commercialisation of low-impact products and services
  • Revenue generation opportunities by embracing business models that strengthen communities

How can business help create strong communities?

  • Adopt business models which reinvest wealth locally
  • Use marketing skills and the ability to communicate with consumers and build ‘communities of action’, committed to developing solutions
  • Identify ‘Bottom of the Pyramid’ opportunities that can create revenue opportunities while generating economic activity in poor communities

WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?

Building community involvement
The Cabinet Office has outlined a number of initiatives that will support broader community and civil society engagement:

  • Give communities more powers and require them to integrate sustainability into their policies and programmes
  • Encourage people to take an active role in their communities
  • Transfer power from central to local government
  • Support co-operatives, mutuals, charities and social enterprises
  • Publish government data
  • Strengthen community organisations to enable them to achieve wider societal goals

Reinforce the role of education in shifting mindsets and developing creativity

  • Ensure the school curriculum generates in-depth knowledge about some of the societal challenges we face. For instance, the development of an understanding of the basic principles of ecology and ecosystems can inspire people to protect and restore nature97
  • Promote innovation and creativity from an early age to help develop solutions and opportunities
  • Strengthen the link between schools and local communities
  • Build sustainability considerations into the curriculum of business schools
  • Use local and mass media to raise awareness and support the development of creative solutions

One Planet Living Framework

Source: Please download or view our Report online for a full list