Despite the growing number of corporate leaders that recognize the importance of sustainability as a long-term business imperative, major challenges persist in closing the “execution gap” between strategy and actual performance. Closing this gap will require leaders to focus on embedding sustainability both broadly and deeply into the very fabric of the business. This will involve both aggressively de-siloing sustainability and institutionalising it into the operational and capital investment decisions that occur on a daily basis.
Where decisions are made
One reason embedding sustainability is critical is because business performance is predominantly delivered “out there” in the line of the business, not in the CEO’s office. Managers — who are faced with inevitable trade-offs day-in day-out -- are frequently exposed to perceived short-term tensions between social, environmental and financial performance, regardless of how clearly a company’s corporate strategy aligns the three. Moreover, in large, complex, multinational corporations, the specific skills and knowledge of employees from across the organization must be leveraged to develop sustainable solutions — they are the ones that have the detailed understanding of the market forces and value drivers of business units or regions.
Over the last decade, sustainability has become more integrated and decentralised across many companies with new structures, processes, responsibilities, compensation incentives, and management systems being developed to help drive implementation and accountability. There is even evidence of new sustainability orientated business units emerging that blend functional expertise from across the business (for example Nike’s Sustainable Business and Innovation Department). Despite this positive progress, key questions remain over the breadth and depth of integration achieved, and it seems that much remains to be done to develop both the hard and soft systems required to further embed sustainability.
Centralize or decentralize?
Recent SustainAbility research focused on sustainability governance, for our Engaging Stakeholders network, suggests that many companies are proactively pushing sustainability into different parts of the business. However, while the overall trend is in this direction, the situation is somewhat more nuanced. As firms look to permanently embed sustainability a careful balance needs to be struck between what level of accountability and decision making to centralize versus decentralize.
There are, of course, a variety of activities at various levels to be considered, including business-level strategies, budgets and tactical implementation plans, standalone projects and initiatives, and individual processes. Unsurprisingly, at the process level, much standardization is observed, with centrally defined standards for specific processes such as emissions measurement or analysis being harmonized widely across many firms.
At the level of specific projects or initiatives, certain activities may also be best developed within the corporate centre, at least initially. For example, where emerging issues need to be defined robustly before their management is rolled out, or when the wider business needs to be challenged.
At the same, in large diversified firms, different parts of the corporation may be presented with specific sustainability challenges at both the strategic and tactical levels. In these instances business strategies that are unique to individual units, and which speak to a very particular value-added equation, may be best developed in a more decentralized manner.
Finally, business unit and site-specific execution plans and targets are often highly localized to reflect specific priorities, allowing for flexibility to be built in while still adhering to centralized processes and standards.
Of course, the exact level of local development and ownership will depend on a host of factors, including the overriding corporate culture and business model, and the diversity of goods and services offered across the company. At the same it is likely that a general move towards more decentralized decision making over time will provide a more effective context for motivating performance improvement and hopefully cultural change.
Next page: Six success factors for driving integration