Demystifying sustainability transformations

The third key: Strengthen your strategic foresight, ecosystem cocreation and strategy execution

From a managerial perspective many aspects of sustainable business transformation are the same as for prior transformations. But some distinctive differences are required to be successful in this new era of unparalleled complexity and uncertainty.

Central to the sustainability transformation challenge is coping with the exponential increase in external influences, including supply chain complexity, energy cost, employee and societal expectations, and shareholder ambitions. These challenges do not evolve in a linear, unrelated way. Network effects between them drive the need for unprecedented agility and speed.

Sustainable business transformation is not only special due to its complexity, but also because time is running out for humanity to tackle the climate crisis. “We are on a highway to climate hell with our foot on the accelerator,” Antonio Guterres, United Nations general secretary, said at COP27.⁸ Companies need to act now to have a chance of attaining their climate goals by 2050. However, acting now will require significant investments in unproven technologies today and these investments will have very long payback periods.

Leaders have a higher maturity than laggards in 11 out of 12 transformation capabilities. That laggards are on par with leaders in “Performance management and incentives” is not surprising as the implementation of sustainability reporting is the starting point for many organizations but by itself not enough to push the needle. Strategic foresight, ecosystem cocreation, and strategy execution are the top three capabilities that set leaders apart from the laggards.

1. Strategic foresight (sensing)—key differentiator to create a resilient organization

First, sustainability leaders systematically gauge their policy and economic environment to anticipate and drive future risks and opportunities. We call this “strategic foresight”.

Organizations which lead in sustainability transformation anticipate the future, are aware of the regulatory, market, and technology shifts taking place and have understood that society’s rising sustainability expectations will shape their business and operating models. The sustainability transformation is largely driven by the external environment and to be on top of it requires a keen awareness of what is happening, sensing any new trends as soon as possible.

As our report results indicate, the sooner an organization builds up its strategic foresight capabilities and the stronger they are, the more likely is it to turn future, disruptive shifts into success factors in their sustainability transformation. It will do this by prioritizing early a range of new business opportunities which are in line with political and societal needs.

To further explore this, please check out the recent publication from Deloitte’s Center for The Long View.⁹

2. Ecosystem cocreation—Breaking the barriers of the traditional strategic option space

Second, sustainability leaders create strategies and actions with their external business network to achieve the desired pace and scale in their sustainability transformation. We call it “ecosystem cocreation”.

Sustainability leaders transcend their organization’s traditional boundaries to involve their wider business ecosystem, recognizing and analyzing their externalities with external stakeholders along their value chain, such as suppliers and startups. In these times of exponential change, organizations cannot build all the relevant knowledge, skills, technology and influence needed to transform on their own.

Sustainability leaders engage and mobilize their network in two ways: “Outside-in” by leveraging others’ knowledge, skills or technology to efficiently accelerate and de-risk their sustainability transformation; and “inside-out” by leveraging the influence of other, focal organizations in their network to effectively shape the strategies and actions of those around them. In this way organizations can foster a favorable policy and economic environment that enables their own sustainability transformation to succeed.

To address the most pressing sustainability issues in their respective industries and sectors, companies in some cases need to reframe how they think and cooperate with their direct competitors. Forming new alliances with their competitor will be required. Benefits from this cooperation include the sharing of risk and investments related to new and unproven technologies. Organizations in the same industry can complement each other in creating new markets but then compete on dividing up the newly created market. Therefore, if a focal organization benefits from sharing knowledge, skill or technology that creates new business opportunities, it will accept co-opetition if the return from its eventual share of market growth is attractive enough. To support this cooperation, the European Commission has added a new chapter on sustainability agreements to its draft revised Horizontal Guidelines of the European Commission.¹⁰

3. Strategy execution—mobilizing not only your own organization but the broader ecosystem

While the challenge to close the strategy-to-execution gap is nothing new,¹¹ sustainability leaders attribute greater importance and display greater maturity in their ability to formulate a powerful narrative that mobilizes internal and external stakeholders and breaks down their strategy into actionable sustainability initiatives.

The special challenge in the context of sustainable business transformation is, as outlined above, that companies must not only mobilize their own organization but also their broader ecosystem. Therefore, the ability to execute in a coordinated way across multiple organizations is a key capability that sustainability leaders apply well.

The fourth key: choose your transformation mode based on your starting position

While 75% of organizations have nominated a CSO or equivalent head of sustainability,¹² their respective mandate and execution varies greatly. In our survey we distinguished between four different execution archetypes:

Forty-five percent of respondents choose the “All efforts unite” execution mode in which a central sustainability team coordinates and integrates the sustainability efforts across the organization while the initiatives are executed in a decentralized way. This approach is very much in line with the deployment of a chief transformation officer and central Transformation Nerve Centre that we have seen is a key to success in previous large-scale business transformation programs.¹³

It has become a consensus that a wide embedding of strategy and transformation into the organization is required to make transformation a success.

Looking deeper into our survey data, a valuable insight emerges: one size does not fit all. The majority of leaders coming from an intermediate maturity level apply a different execution mode. They have chosen to drive their sustainable business transformation by nominating and empowering a strong central lead and team to drive sustainability across the organization: “the sustainability heroes”.

Therefore, as an executive reflecting on how your organization is currently pursuing its sustainable business transformation, you should start by honestly assessing your current strategic and transformation maturity. Then, carefully choose the execution mode that is the best fit and invest in a focused way in those transformation capabilities that move the needle.