Strategic Sustainability Risk Management in Product Development Companies

Abstract: Society’s transition towards a sustainable state entails rapid and disruptive change in all sectors. This change is the source of profound uncertainty. From a company perspective, it can either pose existential threats if current practices or products enforce unsustainable development, or it can present opportunities if the company can provide solutions to the sustainability challenges humanity is facing. Such sustainability-related threats and opportunities, i.e., risks, can be related to, for example, reputation, legislative change, litigation, the ability to attract and retain talented employees, or the ability to meet customer needs on increasingly sustainability-driven markets. While more and more companies recognize the importance of building capabilities for sustainable product development to remain competitive, the relation between social and environmental aspects and economic performance is still oftentimes viewed as a trade-off where some profit must be sacrificed to be sustainable.Based on an interactive qualitative research approach, this thesis shows how a risk management lens can be used to support decision-makers at product development companies in understanding the dynamic interplay between socio-ecological sustainability aspects and business implications. The conceptual understanding of sustainability risks was advanced by identifying their characteristics and by proposing a new definition, utilizing literature review and the Framework for Strategic Sustainable Development. In the next step of the research, today’s situation and preconditions at some product development companies in Sweden were studied. Using multiple data collection methods, current risk management practices were investigated and hypotheses for sustainability integration were derived. Based on interviews with industrial and academic experts, the hypotheses were further developed into key aspects for sustainability risk management that can be used as recommendations for practitioners. Utilizing the newly developed definition and key aspects, a conceptual approach for strategic risk management within the sustainability transition was conceived. This approach was then adapted and operationalized as a workshop method for multifunctional teams in the context of product portfolio planning. Finally, the Sustainability Impact and Effects Analysis was developed and tested through an action research approach to provide decision-makers in early phases of the product innovation process with practical support for identifying, assessing, and managing sustainability risks. Uncertainty is neither good nor bad – it is just an inherent part of reality. This thesis showed how a risk management approach can be used to guide decision-making in uncertainty within the sustainability transition in a product development company context. Thereby, companies can take the strategic leadership that is required to benefit from the opportunities that can be found in this time of deep uncertainty.

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