Over the past two years, I´ve been cooperating with a sustainability consulting company, Sustainserv, founded by post-docs from ETH Zurich, where I teach, Harvard and MIT, some 15+ years ago. My task has been to try to introduce and adapt mainstream strategic thinking to include sustainability. Let´s call it sustainable strategy. Here are some of things that I´ve learned.
Mainstream strategic thinking tends to consider the purpose of a commercial enterprise to be to create value, and to measure its success in terms of financial results or shareholder returns. True, some people have included other stakeholders, such as employees, suppliers, customers or neighbours of companies into the measuring success, developing sets of external or internal performance indicators, often added on as additional reports or loosely defined material factors. The choice of indicators sometimes seems a little, well, random. And one of the criticisms that´s made of the stakeholder approach is that it has failed to robustly define its purpose, scope and how the various factors logically fit together.
So, one of the jobs we have when we try to create sustainable strategy, that is, strategy where sustainability is integral to the language of management, is to develop a framework which has impact both on the processes required to plan and steer the business, but also the on priorities of the leadership team and what and how they communicate. So sustainable strategy, by necessity, always has strategic and structural aspects driving objective-setting and performance management, and leadership and cultural issues related to the “way we do things around here”. Both are not simply the responsibilities of top management, but must be distributed and embedded throughout the entire business, if they are to be successful.
On the formal side of strategy, there are tools that we´ve developed that can make sustainability an integral part of strategy-making. The guiding principle is to use changes to the (business) environment to drive more demanding thinking about how the company will have to adapt and can benefit from opportunities. But it also requires an honest analysis of the threats associated with the change. And these factors need to be included in what will inevitably be more than the “more of the same” reviews that managers may have experienced in the past. These sustainable business model development plans then flow into a set of robust financial and non-financial objectives. We often apply the Six Capitals approach of Integrated Reporting. But instead of an external reporting focus, you can use an internal cascade of objectives, performance measures and action plans, covering drivers of a broader definition of value, including, for example, intellectual property, staff knowledge and capacities, and of course, natural capital itself. On this basis, our clients create Sustainable Strategy Maps, distinguishing between different types of value creation, but showing dependencies and cause-and-effect relationships. The aim, based on the more conventional work of Kaplan & Norton, is to provide the logical framework so often missing from non-financial performance measurement.
But these formal parts of the strategy journey are only half of the story, significant though they are. The leadership side of sustainable strategy needs to be addressed too, if strategy is to become sustainable in every sense, and both objectives and culture are to become embedded. The goal of the journey is to make sustainable strategy everybody´s every day job, and these leadership aspects are the focus of client projects in the coming months and the focus of the next article.