A few weeks ago, I wrote a blog about how many companies in Denmark and all across Europe are in the process of re-thinking and re-designing their target operating model. Some of these high-profiled companies do it with stakeholder and media attention; others have started a silent revolution as they are slowly and steadily disrupting their organization from within.
In my view, an operating model represents how value is created by an organisation – and by whom within the organisation. Those are of course some very fundamental questions and as a consequence, many strategic issues will arise during these discussions. For many companies, the answer is digital transformation. For example, 80 percent of CEOs in one study claim to have transformations in place to make their businesses more digital; 87 percent expect to see a change in their operating models within three years . And those numbers were even collected just before the world was hit by the pandemic.
But there is another topic, which is now finding its way into strategic discussions in the board room and that topic is of course sustainability.
As you all know and see, sustainability is becoming an increasingly important priority for boards and executives across Denmark and the Nordics. Historically, corporations have engaged with environmental and social themes in response to regulatory pressures, or as part of branding and marketing exercises. Over the past decade, however, we have seen organisations increasingly pursuing the co-creation of commercial and societal value by embedding sustainability in their business strategy and core operations.
Why is it so difficult?
In spite of good intentions, however, there is inherent challenge and complexity to embedding sustainability at the heart of business strategy: from translating sustainability considerations into relevant business objectives and performance measures, to solving tensions between sustainability imperatives and current business models, practices and sources of differentiation, to the challenge of sourcing appropriate and effective data to evaluate whether the strategies employed are having the desired impact for monitoring and reporting purposes. But all of these can be overcome and should not be an excuse for not taking action.
Business strategy and sustainability choices have historically been pursued independently (if at all), with sustainability considerations largely being viewed as an add-on externality falling under the mandate of the sustainability or risk and compliance division alone.
To realise the intended potential of sustainability in business strategy and the operational performance of the organisation, the first step is to elevate and incorporate sustainability objectives with overall business objectives, including in the setting and delivery of financial metrics.
However, we should not confuse compliance-related activities with how sustainability can create new sources of competitive advantage – these two activities should be treated separately. That said, to elevate sustainability objectives means they need to be incorporated into the strategic dialogue at both the executive and board level. Evaluating sustainability objectives inherent in strategic options and incorporating the cascading implications of those choices into business plans and operations is the most tangible action that leaders can take. Leaders should seize this as an opportunity for new value creation within their own span of control and for the business as the whole.
What can be done?
To me, embedding sustainability in business strategy starts with having a clear intent and a compelling aspiration that highlights the integrated goals of the organisation, including how the corporate outcomes will be strengthened by incorporating sustainability. Developing and evaluating the strategic options available to an organisation need to be done so iteratively, incorporating divergent thinking and providing strategic flexibility as the choices made are put into action.
To guide this action, a pragmatic approach should include at least six interconnected steps:
The strategic choices leaders take today to address environmental and socio-economic sustainability imperatives remain as critical now as they were pre-pandemic and will remain over the next decade. I truly believe that organisations that embed this focus in their future strategies and operating models will be more resilient and able to create an enduring impact.
As a part of the Strategy & Operations practice Tore has worked with analysis, development and implementation of operational strategies. Tore has deep experience with aligning business models to changing market demands through optimisation of business processes and aligning systems, organisation and governance accordingly. He has industry experience from manufacturing, transportation, consumer products and energy. His main focus is on on the operational core processes but he also covers administrative support processes. As a program manager Tore has been leading transformation projects for international clients heading multiple parallel projects and reporting directly to executive committee members. His responsibilities cover everything from initiating assessments, identifying opportunities for improvement to building business cases and following up by designing solutions and driving teams through implementation.