Clarity concerning the corporate purpose and its impact on the business model is important. But embedding sustainability in the overall strategy of the business and cascading it through the organisation is vital. This short summary on executing sustainable strategy draws on research performed for the recent book “Reinventing Strategic Management” (Springer, 2019).
Sustainability is now mainstream and has become part of the C-level conversation. But how many companies have succeeded in integrating these aspirations into their management processes? Two changes are required: Firstly, sustainability objectives must now become part of the overall strategy framework – best-in-class organisations no longer waste valuable management time arguing about the obvious. Secondly, there´s a need to go beyond the C-level messages of its importance to clear guidance about focus and trade-offs. Actions integrated into everybody´s every day job demonstrate its importance to company culture far more strongly than stand-alone soundbites.
End-to-end strategic thinking
The first step is to achieve clarity about how the drivers of sustainability will be embedded – end-to-end – into the Integrated Management Process as a whole. Which aspects will require incremental change, and which will require more radical transformation? A way to visualise this journey is shown in the graphic below. It takes the company through structured analysis from the defining the relevant areas of their organisation, the stakeholders who need to be engaged with through to the risks and opportunities offered by different levels of ambition: But it´s important to acknowledge that sustainability isn´t viewed as a stand-alone subject but both as a driver of change in the business environment and an opportunity to focus strategic objectives.
The more radical the changes in the business environment brought on, for example, by climate change, the more questions in strategy formulation need to be asked. What impact will these changes have on our business model? What assets risk in future becoming “stranded”? Avoiding the trap of failing to acknowledge robust conclusions of the analysis phase is vital if the future strategy is not to be built on “more of the same”. Equally, copying the actions performed by competitors is no guarantee that customers and stakeholders will honour the company´s efforts with the demand for products required to bring the strategy to a successful conclusion. Recognising trade-offs and interdependencies between objectives is a key to successful communication of the strategy – a topic that is dealt with in the next section.
Implementation is the stumbling block for many strategies. Add the demands of a disruption through changing sustainability demands, and the strategy team risks adding a new level of confusion and complexity. The less clear the implementation message, the greater the risk of more “business as usual” at mid and lower-levels of the organisation. Integrating objectives into a coherent framework, the subject of the next section and setting up the appropriate governance structures is a key element in successful strategy execution.
Integrated Management: The Key to Implementing Sustainable Strategy
Failing to acknowledge that introducing sustainability into management practice is challenging and sometimes ambiguous for an organisation is a recipe for failure. A research project at the Cambridge Institute for Sustainable Leadership (publication forthcoming) recently showed how few organisations had yet succeeded in cascading objectives down to mid-management decision-making. No wonder: almost none of the organisations analysed had integrated sustainability objectives into overall strategy, and few had communicated how the drove both company purpose and the future business model. Deficits in top-management communication coupled with poor guidance about how to deal with conflicts between objectives and corresponding trade-offs then led middle management to assume that it was “business as usual”. Failure to set clear, cascaded objectives, targets for key performance indicators and to embed these into reward policies added to the impression that top-management were communicating for PR purposes – and that the real priorities remained intact.
Telling the story of the strategy is then a vital part of changing the strategic performance culture of the organisation, particularly those that thrive on clear, top-down priority-setting and performance control. Successful companies make these changes explicit: A Sustainable Strategy Map (see below) allows for a dialogue between managers in the same team about how objectives fit together, on company priorities – and on the role that sustainability plays to the overall success and long-term future of the organisation.
The firstexample above shows a Sustainable Strategy Map as an example of incremental change – reducing the carbon-footprint of the company. The six different types of capital seen above have been adopted from IIR Integrated Reporting framework and have been embedded in the Map to show their interdependencies. The “red” strategy aspects are those critically affected by these changes and will be the focus of the objectives that need to be adapted. Implementing this initiative will require corresponding adaptations to existing objectives and performance measures.
The secondexample shows another organisation, where strategic analysis concluded that a more significant level of change was required. This Sustainable Strategy Map, taken from the automotive industry, shows the impact of climate change on all aspects of the organisation. Here every aspect of the corporate strategy has been affected, as the organisation transforms itself to deal with the challenges posed by the introduction of electric power and self-driving vehicles.
Integrating Sustainability into the Management Process
A key finding of the research which drove these recommendations, backed up by the findings of the Cambridge project cited above, was that sustainability strategy needs to go mainstream if it is to have an impact on corporate strategy processes. Integrating sustainability objectives into the management process planning and monitoring cycle is a prerequisite for relevance in an environment where management attention is often the most scare resource in the organisation. This means setting measurable targets, cascading these to the areas of the organisation that are responsible for implementing and monitoring progress. Where applicable and appropriate, sustainability needs to become part of the rewards and recognition framework, from the C-suite downwards.
Conclusion: Hope is not a Strategy
For CEOs and sustainability professionals alike, simply hoping that their sustainability agenda will become part of everyday decision-making is mistaken. Hope is not a strategy. Integrated Management offers a structured approach to embedding sustainability into strategy and making it everybody´s everyday job.
Rethinking Strategic Management (ed. Thomas Wunder), Springer, 2019 – Chapter: Integrated Management for Capital Markets and Strategy, Andrew Mountfield, Matthew Gardner, Bernd Kasemir & Stephan Lienin