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
Six success factors for driving integration
Regardless of where on this journey a company is, in our experience there are a number of activities that will help to support and steward the wider business as it undergoes this transition:
1. Lead strongly from the top: Visible and consistent leadership is essential to demonstrate to employees how and why sustainability will drive competitive advantage, and to foster a common understanding of what “good” means with respect to strategy, execution, and performance.
For example at the healthcare company Novo Nordisk the leadership team strongly reinforce the company’s Triple Bottom Line principle, which acts as a lens for decision-making across the business.
2. Support, engage and partner from the centre: The corporate sustainability function should continue to play a key role in orchestrating execution of strategy across business and functional units, through a combination of advice, challenge and collaboration.
3. Excel on performance management: An integrated sustainability performance management framework which aligns incentives closely to corporate strategy and values can act as a key spur in driving enterprise-wide commitment.
As previously reported by GreenBiz, Alcoa has made changes to its compensation plans to link them to energy intensity reduction and sustainable innovation.
4. Make key people accountable: Ensuring that business and functional unit heads have formal responsibilities will help drive action down into different parts of the company.
5. Coordinate and communicate at various levels and through various channels: A range of mechanisms — both new and existing — can be employed to help drive cross-functional collaboration and knowledge sharing, and send and receive information consistently to and from the corporate centre.
Volkswagen for example has developed both cross-functional CSR teams who work on specific cross-cutting issues, as well as international information exchanges that allow sharing of best practice across brands and regions.
6. Influence behaviour as widely as possible: To support execution and drive cultural change more broadly from the bottom-up, a range of levers can be used to embed sustainable behaviours in all employees.
Timberland — a company renowned for its engagement with employees on the CSR agenda — uses a range of techniques to empower individuals from across the business and enrich its CSR culture, including a well established volunteering scheme and a Global Stewards program.
Next page: The perils of shortcuts
Mind the gap
As with any organisational transition the process must be managed carefully. As any change theorist or practitioner will tell you – whether of revolutionary or evolutionary bent – shortcuts in any phase can have a devastating impact on change programs, slowing or even reversing momentum and negating hard-won gains. This risk it seems, is particularly emphasized in the context of sustainability, and two unique challenges spring to mind.
First of all, most experts agree that very deep cultural and organizational changes are required, and these take time — anywhere from 5 to 10 years. When groups of people need to develop new routines, competencies, processes, and even ways of understanding the world, time is needed to experiment, reflect, discuss and internalise.
In addition, credibility — a critical aspect of corporate reputation and a key value driver in the context of sustainable business — requires consistency. As such, the desire to accelerate local decision-making and accountability must be balanced with the need for company-wide consistency.
Despite these challenges corporate executives must accelerate the rate at which they are embedding sustainability, in order to address the current gap between corporate targets and actual performance. Ambitious commitments, as laudable as they are, are worth little if they are not followed through, and a failure to deliver will only result in much more permanent erosion of credibility in the long run.