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By: Mark LaScola
Over the past decade, the way many enterprises have viewed sustainability has changed. For many, sustainability was initiated as a compliance effort; others pursued it as a promising management idea, and fewer still because it was the “right” thing to do. Today, as businesses still work to recover from one of the biggest recessions since the Great Depression, many leading enterprises are recognizing that sustainability, as an embedded capacity and normal way of working, is the key to future prosperity. OTM’s organization design methodology is a vehicle for embedding this vitally important capacity.
Just 10 years ago, sustainability was a relatively new concept to many organizations. Also referred to as the “triple bottom line,” it was often perceived as a big, abstract and somewhat unrealistic idea. Even in the organizations to which the idea made sense and was perceived as having some intrinsic value, the question of how to implement loomed large.
Business leaders asked themselves:
Over the last decade, interest in the core tenets of sustainability has increased as our individual and collective desire to find ways to address the complex ecological, economic, and social problems that threaten our businesses, communities, and countries has grown.
One of the first areas of organization design to formalize sustainability is that of “Management Mechanisms”, in particular the area of reporting. Sustainability metrics, as legitimate and key measures for organization performance and health, have become more commonplace. Reporting of nonfinancial information, driven by pressures and/or mandates from investors, market influencers, and government, has grown significantly, particularly for companies with multinational footprints. According to the Global Reporting Initiative (GRI), only 44 firms followed GRI guidelines to report sustainability information in 2000 yet by 2010, the number of organizations releasing sustainability reports grew to 1,973.
This growing emphasis on reporting has positioned one of OTM’s strategic alliances, BrownFlynn, a global corporate social responsibility and sustainability consulting firm, at the center of the sustainability reporting conversation. Long committed to promoting sustainable business practices, BrownFlynn, is a Carbon Disclosure Project consultancy firm and the first United States-based certified training partner of the Global Reporting Initiative (GRI).
As the GRI training partner, they are educating clients on how to utilize GRI's framework for sustainability reporting as well as how to leverage the GRI management process as a means to achieve bottom-line impact. In 2010 and 2011, I was part of the BrownFlynn GRI training team and was impressed with the integrative nature of the GRI reporting framework and management methods. GRI truly gets the fact that sustainability requires a whole systems perspective and approach in order to derive value. Inserting reporting is a good start to embedding sustainability holistically, but it is not enough.
While sustainability reporting has been an important step in emphasizing the connection between sustainability metrics and enterprise performance, organizations are still struggling to realize the value of the sustainability efforts on which they are reporting. According to a survey conducted by the Economist, while 55% of organizations have established policies to reduce energy consumption over the past five years, only 19% have measurably reduced their energy costs and carbon emissions. In addition, 77% of the executives surveyed cited that their organizations are failing to meet their objectives because of challenges they face in the identification and establishment of meaningful sustainability benchmarks and key performance reports necessary to achieve their reduction goals.
They point out that effective performance metrics must align (be integrated) with the corporate sustainability strategy and any external reporting requirements. From an organization design perspective, this highlights that fact that while management mechanisms (like sustainability reporting) may be essential, they are not sufficient.
Today, leading enterprises are recognizing the need to embed sustainability into the DNA of an organizational system. As Greg Babe, President and CEO of Bayer Corporation and Bayer MaterialScience, points out in his forward to the book, Embedded Sustainability, the Next Big Competitive Advantage, “true sustainability involves applying systems thinking to anticipate unintended consequences that can occur when the entire system is not taken into account.” Nonetheless, for most organizations, sustainability remains siloed, structured as a project, a corporate initiative, a department, or a position.
Take for example:
As both Babe and GRI have stressed, the value of sustainability is derived through integration, a point that has been underscored through several relatively recent studies. A 2008 – 2009 study of nine of the world’s most sustainable companies identified a pyramid of seven core qualities associated with successfully implementing sustainability strategies and achieving triple-bottom-line results.
In this pyramid, there are three primary layers: Foundation, Traction and Integration. For a strong sustainability foundation (layer 1), there needs to be alignment between sustainability values and deeply held corporate values, visible support by management for sustainability, and sustainability being central to corporate strategy. To achieve traction (layer 2) the organization needs to engage employees, develop clear sustainability metrics, and align formal and informal organization systems around sustainability. Integration, the third layer toward the top of the pyramid, is where the many facets and functional domains of sustainability are coordinated in an integrative fashion. The study found that even these nine highly rated firms struggled with integration, a cross-boundary, multi-stakeholder, and integrative pinnacle.
Of similar note is a study conducted by the American Management Association that identified seven qualities of a sustainable enterprise. Starting with those deemed of greatest import, the list includes:
What is interesting is that the study found a sizeable gap between the perceived importance of these qualities and the degree to which these organization’s actually demonstrated these qualities. Similar to the findings from the pyramid, it appears that while sustainability as a concept, idea, philosophy is gaining more support, integration remains a challenge.
As these studies point out, organizations are still wrestling with the question of how to embed sustainability for optimum value. Organization design, in particular the OTM design approach and methodology, is a vehicle for doing just that. In general, OTM’s approach to organization design creates conditions for integrating sustainability. To begin with, it often helps reframe the way members see their organization by applying a whole systems lens. It helps shifts how people view change, from something you push (change management) to something you create conditions for (change readiness). It empowers the members of the organization (leaders and line staff) to develop the case for change, build stakeholder support, and create and implement the design to accomplish that change. And last, but definitely not least, it invites the whole person into the room, increasing the overall capacity of the group. Rather than just the head, you get the heart and the heart is the engine for transformation.
OTM’s business transformation methodology emphasizes the natural hierarchy of strategy first and the design to “fit” tactics working across the entire end-2-end value stream, structures, management mechanisms, governance, compliance, risk, technology, reporting, reward/recognition, people processes and culture. Thus ensuring an organization is fit for purpose – sustainability and otherwise.
To truly integrate sustainability, it must be embedded in the organization’s “Strategic Intent”, particularly in terms of corporate values, visible support by management, and being central to corporate strategy. When an organization integrates sustainability as part of strategic intent, it naturally opens the door to exploring how sustainability is embedded within the end-to-end value stream, evaluating how sustainability will impact essential inputs, production processes, and essential outputs.
This process in turn can naturally lead to an exploration of structure options for integrating sustainability (as an integral part of the value stream). Management mechanisms can then be established, including meaningful sustainability benchmarks and key performance reports that align with the corporate sustainability strategy and external reporting requirements. And, the organization can design and implement reward systems and people processes that will enable integration.
In an organization’s journey towards sustainability, the first and foundational step is to expand strategic intent to encompass sustainability, a fact that has been noted by many. It is the second and equally critical step that has not been sufficiently delineated. That next step, the lever for change and integration, is organization design. Specifically, that next step is for members to design their organization to be “fit” for sustainability as integral to organization purpose and strategic intent.
1] The companies were Alcoa, Bank of America, BASF, The Coca-Cola Company, Eastman Kodak, Intel, Navartis AG, Royal Phillips, and Unilever. All were listed in the Global 100 Most Sustainable Corporations in the World, a project initiated by Corporate Knights, with Innovest Strategic Value Advisors.
 Source: American Management Association. (2007). Creating a sustainable future: A global study of current trends and possibilities 2007-2017.
Mark LaScola is Founder and Managing Principal of ON THE MARK, a leading organization design consultancy firm with offices in the UK and USA. In business for almost 30 years, ON THE MARK has an unparalleled experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people.