Rafael Kaufmann
Product Operations Manager
Google

 

 

In the past few years, environmental, social and governance factors (ESG) have risen to the forefront of investors’ concerns, with the recent statement from the Business Roundtable — which “redefines the purpose of a corporation” in terms of long-term stakeholder value — underscoring ESG’s landing from a fringe movement into the mainstream of business and economics.

However, most companies have yet to deeply integrate ESG into their management culture and strategic thinking. This is unsurprising — traditional thinking is deeply ingrained, culture change is slow even under the simplest scenarios, and all organizations are currently dealing with a number of concurrent challenges and change initiatives (digital transformation, workforce change, business model transformation, agile, design thinking, etc.) While all of those changes can be understood as part of a larger paradigm shift, the reality on the ground for managers is still one of multiple competing priorities.

Yet we argue that, among those, the integration of ESG into culture, particularly into product strategy, is particularly urgent for large companies. The good news is that your company can use existing frameworks for product strategy and development to create ESG-native products, by introducing a few new tools and approaches.

Why ESG matters for product strategy

Put simply, ESG raises the bar for businesses and the products they put on the world. Companies will have an increasingly hard time attracting investors, customers and employees if their products have negative social or environmental impacts, or if their business viability depends on free-riding and extracting value from convenient circumstances in the supply or demand sides, rather than adding value to customers and stakeholders. This holds true both for traditional companies and much-hyped “disruptor” startups, and across all industries: Uber and Purdue Pharma, the entire oil and gas and automotive industries, ads, media, are all having to rethink their entire models, while even emerging industries like video games and cloud are facing criticism over their negligence of ESG factors.

Conversely, product teams will be under increasing pressure to deliver not only great products that can be produced at positive margin, but also products that deliver positive impacts to the environment, to society, and that align with the corporate mission and values. This is especially urgent in industries with long development lifecycles, where the risk of being disrupted out of existence is particularly great.

Incorporating ESG into the design and development process

Product development is currently understood as a cycle of iterative ideation and validation, very similar to the scientific method. The key notion here is that, as a potential solution moves along the circuit, hypotheses are validated (“de-risked”) in the order of their expected effect on the feasibility of the idea. Complete deal-breakers (“this issue means this product can’t exist at all”) are tested out of the gate, ideally before any substantial effort is put in; relatively minor issues requiring tweaks are tested later on.

There are two distinct but complementary approaches to incorporate ESG into your product development cycle:

  1. Broadening your search: Reframe your problem analyses and ideation exercises to explore not only customer needs, but also broader stakeholder/systemic needs. Consider those future needs under scenarios of higher social and climate stress (as proxied by energy prices, labor costs, etc.) Pay particular attention to opportunities for positive-sum (win-win-win) situations.
  2. Increasing rigor in opportunity evaluations: Seek to list and validate not only hypotheses relating to customer value and business or technical feasibility, but also to environmental and social impact and alignment to your corporate mission and values. Identify metrics, track them and tweak or pivot if your solution doesn’t stack up. Your company will thank you later!

These approaches can be incorporated into any methodology — whether it’s a modern one like the Lean Startup/Business Model Canvas methods, or a traditional “waterfall” process. However, since ESG does introduce a longer list of possibilities and risks to consider, the relative merits of using a modern, lightweight, iterative method are increased even further.

Challenges and solutions

By taking the approach described above, your product solutions will look radically different from what you would end up with if you took a more conventional analysis. You will often find that your organization can’t solve the reframed problems in a silo — you will increasingly need to build a network of partners and rethink the part your company plays in the ecosystem. The good news is that many of these areas will be common needs, and there are established industry consortia and open innovation communities that you can tap into. Still, developing in-house expertise — in ESG generally, and particularly in the themes that touch your business most directly — is a great idea, as long as you embed those experts into cross-functional product development teams, instead of keeping them siloed off in a new department.

Another common difficulty is identifying the relevant risks in advance. This is particularly hard for ESG risks, which involve intrinsically complex systems with many unpredictable higher-order, long-term effects. For this you can use strategic scenarios: low-fi, but directionally meaningful and internally consistent narrative of the future. Tools like mind maps and system dynamics can help you develop scenarios with rigor and clarity, avoiding our many forecasting biases. Whether you use a formal tool or not, strategic scenarios are immensely useful, but only to the extent that they are actually used by your team. One great way to use scenarios is to use roleplaying and other training techniques to “practice the future”, simulating your solution in the context of each of the various scenarios in turn, so that the team gets a chance to think through the product in action, with concrete examples.

Finally, the grit in the oyster is often lack of leadership buy-in. Although a great deal can be accomplished through skunkworks and grassroots culture change (aka “guerrilla transformation”), getting your new, ESG-native products out the door will eventually require active sponsorship by senior management. Here, the best you can do is to make it very easy for leads to say yes. Luckily, the approach above will help you in that: if you’ve already leveraged partners and experts to develop a solution to a broader problem, and used modern methodologies to validate the solution across the full spectrum of ESG and market risks, you’ll have a much easier time fielding objections and skepticism. The remaining part of the sale involves helping leads see how your solution fits into the company’s ESG story, which is where senior sponsors who are committed to the ESG vision can be truly helpful.

Conclusion

Most companies are still at the beginning of their ESG transformation, so we’re still learning what works. The above recommendations are based on my observations at Google and other companies, but yours might be different. Either way, I’m excited to continue seeing this field evolve and ever more companies create products that not only add value to customers, but also make a positive contribution to the health of our global society and environment.

Rafael is an experienced entrepreneur, chief technical officer, product manager, business consultant and occasional technical lead. Currently a Product Operations Manager at Google, NYC, he is passionate about the future of work: scaling collaboration, accelerating innovation, and creating global optima through individual and organizational transformation. Contact Rafael at rkauf.me

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