Dr. Larisa Kryachkova Takes the Growth + Profitability Summit Stage
In 2009, Dr. Larisa Kryachkova was a Global Pricing Director at O-I. She enjoyed her job but in 2015 came to realize that something was missing. She wanted to give back to the world. She wanted to be a better citizen. She wasn’t exactly sure what the future would entail, but she knew that whatever she did, she wanted to continue working in the commercial excellence and revenue recognition space. She set out to pursue a doctorate program for Sustainability and B2B Value Based Pricing and received her Doctorate of Business Administration from SBS Swiss Business School in 2020.
Dr. Larisa Kryachkova took the stage at Vendavo’s Growth and Profitability Summit in May 2022 to deliver a keynote presentation on pricing for sustainability. This dynamic presentation began with Dr. Larisa Kryachkova’s problem statement and research paradigm:
The inability of manufacturing firms to implement value-based pricing (VBP) linked to sustainability strategy, could effectively lead to losing competitive advantage and not sustaining economic performance long-term.
“Price is what you pay. Value is what you get.”-Warren Buffett
Throughout her keynote, she demonstrated the importance of addressing sustainability and social drivers as part of your value-based pricing strategy.
The Business Sustainability 3.0 Framework
The world around us is changing – and so is academia, frameworks, and definitions around value-based pricing. Dr. Larisa Kryachkova presented the four Ps of marketing – Product, Place, Price, and Promotion and illustrated that three additional Ps are now equally important: People, Planet, and Profit.
When it comes to the enterprise, value-based pricing is being redefined. Standard conservative accounting principles of the past have been challenged. Total cost accounting now includes environmental P&L, social P&L, and economic P&L.
Dr. Larisa Kryachkova presented the following sustainability framework ranging from Business-as-usual to Business Sustainability 3.0. (Dylick and Muff, 2016)
Enterprises that fall into the Business Sustainability 1.0 category have the following qualities:
- CEOs are opportunists
- Business is in reactionary mode
- No process changes are made
- Concepts like shared value are being considered
- Three dimensional concerns
- Somewhat refined shareholder value
- Inside-out organizational perspectives
Enterprises that fall into the Business Sustainability 2.0 category have the following qualities:
- CEOs are integrators
- Exploring how to change products, services, and processes
- Triple bottom line
- Inside-out organizational perspectives
Enterprises that fall into the Business Sustainability 3.0 category have the following qualities:
- CEOs are classified as alchemists thinking about opportunities to improve the world around them
- Considering making changes to their products, processes, and services so they can improve the world and social well-being
According to her research, only about 1-2% of all CEOs are alchemists. In 2020, she wanted to assess the Business Sustainability of the UK manufacturing market. She analyzed 107 large manufacturing companies and found that most of them fell in between business-as-usual and Business Sustainability 1.0.
So, there’s a long way to go.
How Environmental Sustainability Can Become the New Normal for Value-Based Pricing
Dr. Larisa Kryachnova urged the audience to consider how environmental and social sustainability can become the new normal for value-based pricing. First, she addressed environmental sustainability.
Prior to the pandemic, and before the war in Ukraine back in 2020, the economic costs of greenhouse gas emissions, loss of natural resources, loss of nature-based services such as carbon storage by forests, climate change, and air pollution-related health issues were estimated to be globally around $4.7 trillion a year.
The majority of environmental externality costs were from greenhouse gas emissions (38%) followed by water use (25%); land use (24%); air pollution (7%), land and water pollution (5%) and waste (1%).
She mentioned that Deloitte has been working on the Environmental Priority Strategies (EPS) framework. She praised the framework as the tool of the future as it links to a customer’s willingness to pay index and should be incorporated in your cost or value creation considerations.
Puma’s Environmental Sustainability Success Story
Of course, some companies are more progressive than others when it comes to the topic of environmental sustainability. PUMA, for example, started calculating their environmental P&L to ensure that PUMA and its suppliers reduce any negative impact on the environment.
In 2011 they analyzed key brands, and environmental impacts and went on a journey to transform some of their products and services to reduce harm to the environment. They created the InCycle collection of biodegradable and recycable clothes, shoes, and accessories. The result of this collection was that compared to standard products, InCycle shoes and cotton shirts impacted the environment 31% less.
How Humanity and Social Sustainability Plays a Role in True Value Pricing
Dr. Larisa Kryachnova presented statistics from 2020 before the global pandemic:
- 60% of people who live in poverty work in agriculture
- 800 million people are undernourished and suffer from hunger
- More than 1.9 billion adults are overweight, 600 million of whom are considered obese
- 1/3 of food produced is lost or wasted, amounting to around 1.3 billion tons annually
Deloitte, KPMG, and PWC are using a new framework called TIMM – True Impact Measurement and Management to gain transparency into how organizations’ products, services, and processes impact the environment – both environmentally and socially.
She highlighted some findings. Livestock farming costs the environment $1.81 trillion per year, equivalent to 134% of its production value. Meanwhile, crop production costs $1.15 trillion per year, equivalent to 170% of its production value.
These costs are not reflected in food prices, exposing us to supply disruption and price shocks due to climate change’s negative impact.
So, she asked, should food prices reflect only production costs or should they include the cost of environmental and social damage?
If humanity continues with the same resource management and consumption rate we’ve been going at, by 2030 we will need 1.5 planet of resources and by 2050, 2 planets of resources to support the way we’ve been consuming resources. So what are we going to do about it?
Dr. Larisa Kryachnova says it’s all about people, it’s all about us. Consider the following:
- There are more people suffering in slavery today than during the entire 400 years of the trans-Atlantic slave trade
- 40 million people suffer in modern slavery
- 160 million children are in child labor
Sustainability Development Goals and Becoming Risk Free of Human Trafficking and Modern Slavery
Dr. Larisa Kryachnova is part of an NGO in Geneva called slavefreetrade. With 17 Sustainability Development Goals, slavefreetrade is developing a human rights framework that helps organizations become risk-free of human trafficking and modern slavery. There are 10 principles within the framework:
- No forced labor
- No child labor
- No discrimination
- Grievance resolution
- Safe and healthy workplace
- Fair pay and hours
- Freedom of association
- Employment relations and contracts
- Dignity and respect
- Supply chain transparency
Dr. Larisa Kryachnova shared a shocking statistic: unfortunately, 99.9% of iPhones have child labor in them and slave labor in them. Chocolate is another familiar product that has significant problems. According to Dr. Larisa Kryachnova, there’s not a single bar of chocolate that’s produced without slave labor or child labor.
But not all is lost! Up-Up Chocolate is turning the chocolate industry upside down. They have used blockchain technology to track and trace the production of the chocolate from A to Z. Up-Up Chocolate will be the first chocolate certified to be free of child labor and slave labor.
The mission of slavefreetrade is to create a world where all the things we buy are made in freedom. They are focused on designing and implementing demand side solutions to human rights issues.
Create Value, Invest in Yourself, and Never Stop Learning
In the end, Dr. Larisa Kryachnova says it’s all about value creation. 70% of consumers want to buy slave free products.
We are facing hyper-inflation, supply chain issues, and global crises in our post-pandemic world. A couple weeks ago Warren Buffet’s shareholders met and he was asked about what we should do in our hyper-inflation, uncertain environment. His response?
“Stop being busy fools. Invest in a skill set. Continue learning. Get out of your sheltered lives and join the exciting journey of uncertainty.”Warren buffett
Dr. Larisa Kryachnova ended her keynote by echoing Buffett and reminding attendees that the whole world is changing. You must invest in yourself – your subject, method-specific, social, and personal competencies. Stay curious, never stop learning, and don’t forget to have fun.
It was a privilege to have Dr. Larisa Kryachnova as a keynote speaker for Vendavo’s Growth and Profitability Summit in Stockholm. Register for the North America version of Growth + Profitability here and join us in Denver, CO from September 12-13, 2022!