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Why a ‘Tesla’ for Fashion May Be the Fix for Sustainability

Join McKinsey & Company, NewTimes Group, Arvind Limited, Asmara, Google, Bluesign, the Retail Prophet and more at Sourcing Journal’s Virtual Sourcing Summit, R/Evolution: Overhauling Fashion’s Outmoded Supply Chain, Oct 14 & 15.

Fashion, according to Rebecca Henderson, may need its own Elon Musk.

Whatever the world’s feelings about the Tesla CEO, the business is one that has nurtured an environment where sustainability and profitability coexist, the Harvard University John and Natty McArthur professor said, speaking at Sourcing Journal’s Fashion’s Business Model for Sustainability event Wednesday.

The marriage between the two is something many in fashion have grappled with—though too many have landed in the arms of one over the other. In today’s world, and the future we’re facing, sustainability without profitability, and vice versa, may be as uncompelling as peanut butter without jelly.

What Tesla has hit on, Henderson said, is the shared value opportunity. The electric car manufacturer has been able to create a business centered around purpose. And while ‘shared value’ and ‘purpose’ may evoke, for some, the same tree-hugging warm fuzzies that ‘eco-friendly’ did some years back, they’re not nice-to-haves. According to Henderson, they’re lucrative opportunities fashion is missing out on.

“There are billion-dollar opportunities that can be reaped by addressing some of these major problems,” Henderson said. “Many, many people would prefer to work for a company that’s doing the right thing. Creating shared value, doing well and doing right increases employee engagement, reduces risks, reduces costs, drives differentiation.” That all has a key role to play in advancing sustainability.

In fashion, where change has proven even harder than in other industries, moving from a capital-first model to one that pulls shared value and purpose up to the same plane won’t be simple.

“Becoming an authentically purpose-driven organization takes time and commitment, and often requires short-term costs in the service of long-term benefits, but it has enormous upside,” she said. “And I think it’s our secret weapon.”

When companies start exploring these new kinds of business models that improve an industry’s ability to sustain itself, Henderson said, “they have ripples right across the industry and right across the world.”

“You can see that with Elon Musk, whose insistence that electric vehicles were the future has probably brought down the price of batteries by—you pick a number, 20 or 30 percent—and accelerated the transition to new kinds of cars by maybe five years,” she explained. “He’s demonstrated a business case, he’s driven the technology down the learning curves. And, as firms start to move in this direction, they can change consumer tastes.”

That’s exactly where fashion may need to be as it works its way out of a pandemic-prompted demand crisis that has simultaneously kicked consumer consciousness up a notch and sent tolerance for lacking environmental and social concern tumbling. If it can follow a similar model, bringing the cost of sustainability down and the value of it up, fashion may be able to catch up to more innovative industries currently leaving it in the dust, and perhaps even meet the consumer where she already is.

“As we seek to remake the firms and organizations we work with, as we think about transforming an industry as large and as complicated and as important as the fashion business, we need the secret weapon. We need a shared sense of purpose, a sense of why we’re doing this and how it will change the lives of so many people,” Henderson said. “I think the world is on the edge of a major structural transformation. I think the push to build a just and more sustainable world is going to completely revolutionize nearly every industry, and nearly every firm.”

To get there, it’s going to take reimagining capitalism. And it’s going to take a reckoning with what she calls a current and major discontinuity.

“Natural and social capital used to be free, but now they’re fundamental to our success,” Henderson said. “So, what we need to do is innovate.”

While she admits innovation is easier discussed than done, doing it with purpose—and without perceiving profit as the sole provider—will be what drives future success.

“I understand how important it is to make money,” said Henderson, who has 25 years of cumulative board experience and was named one of Financial Times’ ‘Outstanding Directors’ in 2019. “While making money is important, ideally, it’s not the goal of the firm. The goal of the firm is to create great jobs, give consumers products that they really want and need, and to make sure that the supply chain leaves the earth at least as good as we found it.”

One step in that process, which Henderson outlines in her newly out book Reimagining Capitalism in a World on Fire, will be to rebuild governments’ role in keeping free markets in balance. The only way to address “massive” issues like sustainability and inequality, she said, is by holding businesses to account. Companies and governments will have to find ways to work in tandem.

Still, collaboration, whether between companies and governments, buyers and suppliers or one industry with another, won’t suffice for fashion’s transformation. Neither will environmental, social and governance (ESG) metrics on their own. Nor upping the organic cotton quotient.

It’s about fashion finding a new way to do things.

“Often, industries that are in maturity are not very profitable. Competition has become dog-eat-dog,” Henderson said. “Extended supply chains, enormous complexity, the pressure to be always on and always delivering the latest is just chewing up the supply chain and the companies involved.”

There are ways to think about new business models in much more flexible and exploratory ways than many companies use on a day to day basis, Henderson said. And while they’re expanding their thinking, they should be embracing ambidexterity, too.

As brands and retailers work to navigate doing new things in old organizations and aligning a team who may be steadily backing their outmoded methods, they’ll have to balance managing things the existing way with simultaneously—and intelligently—inserting the new.

“Some firms say, ‘okay, we’re just going to leap into the new,’ but that’s kind of risky,” Henderson explained. “Most organizations set up small freestanding organizations to explore these new futures, and then the existing organization keeps the wheels on the bus. The issue is, if you do this, you need to put in place new goals, new metrics new incentives, because if you manage these new little exploratory ways of doing things in the same way, with the same metrics as the old way of doing things, trust me, it’s not going to work. You’ll let it kind of mumble along and as soon as it starts to demand real resources, you’ll shut it down.”

For fashion, new business models may adjust apparel’s seasonal calendar, or altogether eliminate it. They may eschew far-flung foreign supply chains for closer-knit, closer to home vendor communities that support improved speed and flexibility. They may radically rethink what transparency means and how to deliver it.

Whatever the focus for the industry’s path to greater sustainability, purpose needs to be embedded in strategy.

“It can’t be just philanthropy or CSR or something off at the side,” Henderson said. “At real purpose driven firms, it runs through everything they do.”

Having an authentic purpose, she added, can mobilize a shared vision and a shared identity across an organization, which, in turn, contributes to strategic alignment and intrinsic motivation for major issues, both key elements in improved performance.

So, how will fashion businesses get there?

“Start by developing your own sense of purpose…and if we can mobilize that, we can move mountains,” Henderson said. “We need an avalanche—and it’s pebbles that drive avalanches. I think we can all be pebbles.”

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