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    Sustainability

    Strategy is not enough: leading sustainable transformation 

    IbyIMD+by James E. Henderson, Julia Binder, Knut Haanaes Published 18 September 2023 in Sustainability • 6 min read

    Organizations need to take actions on both strategic and leadership dimensions of sustainability transformations to achieve impact.

    Why do most business transformation initiatives fail? Often, organizations focus only on the strategic reasons for change and ignore the leadership and change elements of how the transformation is to be delivered. While business leaders are usually clear on the logic of sustainable transformation, they often fail to create the engagement needed to drive the change they want to achieve. 

    All these elements are essential for any kind of transformation to succeed. You need a combination of the head, or the logic of transformation, and the heart and hands, or the leadership of transformation, to get your organization to mobilize around the change. And this is particularly true when it comes to sustainability, which requires fundamental transformation for most companies. 

    Strategists in many organizations tend to focus on the factual rationale for innovation and change, but this approach ignores the vital importance of the need to bring people along with you, both inside the organization and in the external ecosystem. And yet it is this leadership part of the equation that really drives change. Both elements need to be combined if businesses are going to play a full part in shaping the future and creating a more sustainable world. 

    Transformation requires strategic imperative and leadership 

    When organizations concentrate only on the strategic side of the picture, the transformation initiative tends to happen in a vacuum, with an expectation that change will happen automatically once the initiative is announced, but research shows that this rarely happens in reality. Such an approach misses out a whole range of actions needed to ensure that people are inspired to get behind the initiative.  

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    Yet, focusing only on the leadership aspects of transformation will not work if the strategic imperative for change is not present. Take the example of the aviation sector, where some organizations are making a push to adopt sustainable aviation fuels, even though these are still up to five times the price of regular aviation fuels. Even if you deploy all of the leadership tools at your disposal, any change is going to be limited and very slow until the underlying production technologies improve so that sustainable aviation fuels become more cost competitive. 

    Recent academic research showed the importance of the two – clarity in direction (the head) and corporate purpose (the heart and hands) – for financial performance. Using data from the Great Place to Work Institute’s surveys, the authors found that those companies that were rated “high” by their middle management and salaried employees on both corporate purpose and clarity in direction achieve a significant improvement in financial performance over time. However, the authors were unclear about the causal mechanisms behind this process. We decided to shed some light on the forces at play and explain how they operate in the area of sustainability.  

    Our ‘infinity loop’ model 

    Our model for leading sustainable business transformation takes the form of an infinity loop showing how the strategic and leadership aspects of driving change intertwine and interact. Sustainability is a constantly changing area and so there is a continuous cycle in which developments on one side of the model flow through to adjustments on the other.  

    We developed this infinity loop model specifically for our Leading Sustainable Business Transformation program. It is constantly evolving, but we think that it provides a useful frame of reference for starting to think about the key components of successful sustainable business transformation, in which companies build advantages and shape the future through new business models. 

    Let us explain a bit more about each of the elements of the model. On the strategic side, the important components are as follows: 

    Crafting sustainability strategy 

    • Linking to the organization’s purpose. 
    • Integrating sustainability within the core strategy. 
    • Prioritizing through materiality matrices. 
    • Widening the scope for business model innovation. 
    • Building the business case for transformation. 

    Responding to ESG pressures 

    • Developing the reporting and disclosure capabilities to meet and exceed the expectations of regulators and investors. 
    • Meeting and exceeding increasingly standard regulatory requirements. 

    Roadmapping the transformation 

    • Taking an outside-in, looking forward, and reasoning back approach versus an inside-out, incremental, year-on-year approach. 
    • Combining long-term marathons with short-term sprints and targets. 

    Ensuring organizational readiness 

    • Accompanying the case for transformation with changes in KPIs, metrics, and incentives. 
    • Broadening out sustainability responsibilities so that they become a core part of a company’s structure and processes. 
    • Building sustainability capabilities throughout the organization. 

    Shaping the environment 

    • Integrating the non-market environment (regulators, government officials, NGOs) into the strategy development process. 
    • Framing the non-market discussion to build your transformation case. 
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    And on the leadership side, the key dimensions are: 

    Engaging stakeholders 

    • Including internal and external stakeholders early on in the transformation journey. 
    • Engaging stakeholders through dialogue rather than managing them through orders. 
    • Instilling a clear understanding of a company’s purpose at all levels. 
    • Leading with passion and purpose to create connections with middle management and salaried employees. 

    Mobilizing the internal ecosystem 

    • Targeting the right stakeholders to enable change. 
    • Timing change management tactics in the right order. 

    Enabling courageous actions 

    • Encouraging others to lead through courageous dialogue. 
    • Facing and managing dilemmas with confidence. 
    • Listening to and acting on radical viewpoints from the outside. 

    Building alliances 

    • Scouting partners both big and small. 
    • Structuring partnerships for maximum trust building. 

     

    We hope that this model can serve as a useful framework for the actions needed to deliver sustainable business transformation, and help organizations move from the “what” to the “how”. Executives understand the logic of sustainability and why it is necessary, but they often struggle to understand how to go about the transformation. 

    The nature of the challenge and the scale of change needed will differ between companies, but all organizations have to undertake some form of transformation, and they can use this frame of reference to help them identify what they need to do. 

    Authors

    James Henderson

    James E. Henderson

    Professor of Strategic Management at IMD

    James E. Henderson is Professor of Strategic Management at IMD, Program Co-Director of the Leading Sustainable Business Transformation program, and Program Director of the Strategic Partnership course. He helps companies achieve and sustain their competitive advantage either at a business unit, corporate, or global level through directing custom specific executive programs, facilitating strategy workshops, or teaching MBAs and executives.

    Julia Binder

    Julia Binder

    Professor of Sustainable innovation and Business Transformation at IMD

    Julia Binder, Professor of Sustainable Innovation and Business Transformation, is a renowned thought leader recognized on the 2022 Thinkers50 Radar list for her work at the intersection of sustainability and innovation. As Director of IMD’s Center for Sustainable and Inclusive Business, Binder is dedicated to leveraging IMD’s diverse expertise on sustainability topics to guide business leaders in discovering innovative solutions to contemporary challenges. At IMD, Binder serves as Program Director for Creating Value in the Circular Economy and teaches in key open programs including the Advanced Management Program (AMP), Transition to Business Leadership (TBL), TransformTech (TT), and Leading Sustainable Business Transformation (LSBT). She is involved in the school’s EMBA and MBA programs, and contributes to IMD’s custom programs, crafting transformative learning journeys for clients globally.

    Knut Haanaes

    Knut Haanaes

    Lundin Chair Professor of Sustainability at IMD

    Knut Haanaes is a former Dean of the Global Leadership Institute at the World Economic Forum. He was previously a Senior Partner at the Boston Consulting Group and founded their first sustainability practice. At IMD he teaches in many of the key programs, including the MBA, and is Co-Director of the Leading Sustainable Business Transformation program (LSBT) and the Driving Sustainability from the Boardroom (DSB) program. His research interests are related to strategy, digital transformation, and sustainability.

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