What tramp shipping can teach strategic management
Shipping is a unique industry, and tramp shipping is a niche sector within it. Yet, in an age of growing market disruption and uncertainty, it has some key lessons for strategic management...
Sustainability
Eliminating roadblocks to sustainable business transformationÂ
Companies need clear guidance to achieve sustainable business transformation. A practical roadmap identifying drivers for effective change can make success more likely.Â
In the face of unprecedented environmental challenges and societal pressures, organizations cannot ignore the imperative to embrace sustainability. If they are to succeed, however, they must identify and understand the roadblocks in their way and find the critical enablers that will facilitate their sustainability initiatives.
Working in partnership with Capgemini Invent, IMDâs Center for Sustainable and Inclusive Business has undertaken a major research project to help businesses address this gap between expectation and successful implementation. Drawing from extensive research, insights from our teaching and consultancy, and a mixed methods approach, we examined the intricate dynamics that enable organizations to embark on and succeed in their sustainability journeys.
With a focus on identifying and understanding the critical enablers that facilitate impactful sustainability initiatives across industries, we pinpointed both the barriers hindering progress and the pathways to sustainable success.
By combining Capgemini Invent’s deep knowledge of climate technologies, digital innovation, and scalable solutions with IMD’s leadership in sustainable innovation and strategic transformations, we identified five significant roadblocks to sustainable business transformation. These roadblocks not only impede transformation but also underscore the urgency for strategic, holistic approaches to sustainability.
Sustainability transformation occurs as a culmination of many underlying changes made holistically.
Roadblocks to sustainable business transformation
1: Fragmented vision
For most companies, a sustainability transformation requires some degree of adjustment within their core business and the transformation is slow and incremental. Companiesâ top management often fail to develop a shared understanding of what sustainability entails.
2: Risk and compliance myopia
If organizations are to avoid a shift in strategic focus to managing risks, tradeoffs, or regulatory compliance, sustainability needs to be deeply embedded into the organizational purpose rather than simply a core pillar of it.
3: Execution disconnect
A lack of clear top-down guidance and limited organizational follow-through hampers the translation of sustainability strategy into action plans. A common issue is the gap between top-level sustainability vision and on-the-ground execution, where conflicting priorities and a lack of clear guidance often undermine progress.
4: Small-scale thinking
Sustainability transformation occurs as a culmination of many underlying changes made holistically. Many companies make only incremental changes to the current operating mode, failing to recognize that restructuring is required to operationalize sustainability ambitions.
5: Resource misalignment
Poor resource allocation can stifle sustainability initiatives and is a key bottleneck experienced by companies seeking to implement transformation plans. Senior decision-makers driving sustainability planning need to make appropriate resources available for their schemes.
Â
âMany sustainability transformations depend on leveraging digital technologies to optimize processes or drive innovation and engaging with external stakeholders to foster ecosystem collaboration and amplify sustainability impacts.â
The essential conditions for success
While definitions of sustainability vary across markets, industries, and organizational contexts, companies achieving significant sustainability pivots tend to fulfill eight essential conditions for successful sustainable transformation. These conditions provide a comprehensive framework for navigating the complexities of sustainability in today’s interconnected world.
They include fostering top-down leadership to integrate sustainability into corporate strategy and culture, adopting a balanced approach that views sustainability as both a risk and an opportunity, and strategic engagement of CFOs to align financial strategies with sustainability goals.
Other predictors of positive transformation outcomes include revisiting success metrics to include environmental, social, and governance (ESG) criteria, empowering mid-level management to drive and integrate sustainability initiatives, and promoting cross-functional innovation to foster collaboration across departments.
Many sustainability transformations depend on leveraging digital technologies to optimize processes or drive innovation and engaging with external stakeholders to foster ecosystem collaboration and amplify sustainability impacts.
A two-pronged approach
We have identified eight factors which predict the success of sustainable business transformation. These can be further categorized as foundational drivers or transformation accelerators.
Â
Foundational drivers
1: Visionary leadership
Sustainable business transformation demands commitment and a clear sense of purpose from corporate leadership, encompassing the board, C-suite, and executive management teams. Leaders must prioritize developing a shared leadership agenda, extending sustainability beyond Chief Sustainability Officer (CSO) accountability, and creating a shift in the organizational culture.
2: Opportunity-oriented strategy
Regulations and compliance can be strong motivators for companies at the start of their transformation journey. However, if businesses view sustainability initiatives mainly from a risk-management perspective, this limits the potential for sustainable transformation. A more holistic view that balances risks and opportunities is a strong predictor of success.
3: Strategic CFO engagement
The role of the CSO varies in terms of the amount of authority and proximity to strategic decision-making they have. Where companies enable the CSO to work in partnership with the CFO, this can enable better access to funding for initiatives and lead to a more unified approach that builds business value over time.
4: Revisited success metrics
If sustainability is to be deeply embedded in corporate purpose and strategy, this integration should also be reflected in how organizational performance is measured. Companies that integrate sustainability into their overall business KPIs are more likely to be able to translate their sustainability ambitions into actionable strategies.
5: Empowered middle management
Where sustainability is embedded in a business, the top leadership team can foster a shared understanding and commitment to sustainability. Successful companies exhibit strategic clarity on sustainability at the top leadership level, which translates into specific actionable plans developed collaboratively with mid-management.
Â
Transformation accelerators
6: Digital leverage
Perceived effectiveness should line up with the actual implementation of digital technologies in driving sustainability initiatives. Companies that prioritize both sustainability and digital transformations by leveraging digital platforms, data streams, and connectivity experience enhanced agility, resilience, and the ability to effectively navigate external challenges.
7: Innovation for sustainable business models
Sustainability is most effectively actioned when there are cross-functional management teams or a committee in place to implement sustainability transformation and monitor progress. These teams can break down the silos seen in a traditional organizational setup, providing better access to information, especially if digital solutions are involved.
8: Ecosystem play
Sustainable business models rely on a complex interplay of factors both within and outside the organization. Success in the corporate transformation journey is more likely when companies adopt an ecosystem approach to business models, especially those that cultivate and utilize robust, mutually beneficial relationships within their ecosystems.
Leaders must be willing to address not only structural aspects but also mindsets, values, and beliefs.
The next steps
The conditions for successful sustainable business transformation identified above are highly interconnected. They can enable business leaders to move beyond traditional business paradigms and drive meaningful change across all facets of their organizations.
Companies can get a head start on their sustainable business transformation by leveraging the foundational drivers â a visionary approach with top-down leadership, alignment of risk and opportunity, strategic CFO engagement, updated success metrics, and empowered middle management.
Once these are in place, it is the transformation acceleratorsâdigital leverage, innovation in business models, and ecosystem collaborationâ that will separate the leaders from the also-rans in this challenging process. Digital technologies provide the tools to scale and optimize sustainability efforts, while innovation enables circular and regenerative business models.
It is important to note that these tools can be adapted to fit the unique contexts of different industries and organizational landscapes. But whatever configuration of success factors a company adopts, a courageous approach is needed. True transformative change requires a shift from incremental adjustments to bold, systemic innovations that redefine business models and practices.
Leaders must be willing to address not only structural aspects but also mindsets, values, and beliefs. Their role in shaping the right messaging, establishing appropriate incentives, and consistently embodying their principles is crucial for successful business transformation.
But while leaders must communicate a clear, unified message on the sustainability direction for the organization, there should be a substantial shift in ways of working across the board. This often requires adjustments within the core performance measures, redefinition of what success looked like, updated incentive models, and in some cases, organizational restructuring.
As the sustainability mindset trickles through the organization, top-down strategic direction needs to be translated into action plans by the people who are closer to the everyday operational realities to ensure that sustainability is not viewed as an add-on to âbusiness as usualâ.
A successful transformation is driven by a combination of transformational drivers. Innovation, digital technologies, and an ecosystem approach are all factors that drive business model change and reinforce new ways of working, rooted in a culture of collaboration and agility.
Crucially, it is important to make space for employees to develop a sense of ownership regarding sustainability initiatives. Fostering a sense of individual responsibility within the organization makes sustainability a purpose-driven value-add, while a strong, purpose-based culture will attract talent that can consistently translate intangible values into tangible action plans.
By leveraging these interconnected insights and tools, companies can equip themselves to not only survive but thrive, harnessing sustainable business practices to generate enduring value for all their stakeholders.
Key statistics
The research conducted by IMD and Capgemini Invent reveals that among the respondents surveyed:
- 97% strongly agree that sustainability must be incorporated into broader corporate strategy.
- 82% have set net-zero goals, yet less than half are confident they will achieve these targets within the specified period.
- Over 70% are on a sustainable business transformation journey requiring some degree of adjustment within their core business.
- 52% have sustainability embedded in their corporate purpose, with 88% viewing it as a core driver of strategic direction.
- 61% regard difficulties in measuring and quantifying the impact of sustainability efforts as the largest bottleneck to implementing the sustainability transformation.
- 30% say there is no collective understanding of their sustainability strategy internally.
- 25% include sustainability objectives in employee performance metrics.
- 13% say all organizational KPIs have been reviewed and updated to include sustainability.
Authors
Related
Why new year prognoses disappoint â and how to do better
Most annual predictions fail to provide actionable insights for executives. Here are two approaches to better discern the implications for your business. ...
Alexis Nasard on transforming Swarovski into a modern âpopâ luxury brandÂ
At Swarovski, CEO Alexis Nasard's leadership is a master class in how to establish brand attractiveness and provide clarity. He has maintained Swarovski's relevance, freshness, and solid position as a contemporary luxury...
Predictions for 2024....How did we do?
At the end of last year, IMD professors outlined their expert predictions for 2024. Read on to find out who was proved wonderfully right by events, and whose crystal ball was occluded...