Posted: 12 Apr. 2021 4 min.

Embedding sustainability into your target operating model

Topic: Operational Excellence

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:

  1. Get focused: Develop a clear expression of the current corporate and sustainability strategies. Ask questions like: To what extent are our company and sustainability strategies aligned and mutually reinforcing? To what degree are they in conflict and tension with one another? Are our actions consistent with our strategies?
  2. Get real: Analyse and stress test the existing sustainability strategy through a variety of lenses. Ask questions like: How well is our strategy performing relative to our expectations and competition? What is our current social license to operate/trust levels with key stakeholders? Is our strategy dynamic enough to respond to the evolving regulatory environment and stakeholder pressures?
  3. Get creative: Develop strategic options and translate them into actionable strategies that drive sustainability and competitive advantage. Ask questions like: Where and how can we better protect and enhance our business resilience and social licence to operate? Where and how, within our business model, ecosystems and value chains, are we uniquely positioned to create and capture competitive advantage? 
  4. Get decisive: Select strategic options by focusing on the specific set of issues that act as barriers to choice. Ask questions like: How do we balance short-term performance with long-term value creation and sustainability imperatives? How can we drive to ‘final’ choices for today, while keeping options in play to prepare for the unknown future?
  5. Get committed: Determine actions required to execute the emergent strategy and how success will be enabled. Ask questions like: What are the specific areas of transformation needed to embed sustainability in core business operations and how prepared is our organisation for this? How can we develop robust targets that provide a meaningful way to track our performance against the strategy? 
  6. Get going: Develop clear and effective action and communication plans for the new strategy, supported by a performance tracking system. Ask questions like: What changes are required to give effect to our strategic choices, in what order of priority? How will we integrate reporting and enable iteration on strategic choices where required? How can we best communicate our strategy to our business and various stakeholders?

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.

More about the author

Tore Christian Jensen

Tore Christian Jensen

Partner

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.