Designing Organizations for Sustainability

By Jodie Goulden

Today’s corporate organizations are powerful entities, a collective of individuals with a shared purpose capable of remarkable achievements, from developing advanced AI technologies to launching next-generation space explorations or pioneering renewable energy solutions. But with great power comes great responsibility. The corporate world plays a pivotal role in tackling some of the world's most pressing challenges, as outlined by the United Nations Sustainable Development Goals (SDGs). The path to sustainability is not just an option but a necessity for businesses aiming to make a significant, positive impact on our planet and society.

Most corporations will acknowledge that sustainability has transitioned from a nice-to-have to a strategic imperative. Yet, many leaders are grappling with how to integrate this imperative deeply and effectively into their organization's fabric.

The challenge isn't merely about adopting a sustainability strategy but embedding it in such a way that it becomes a natural part of the business's operating rhythm ‘business as usual’.

This article delves into the complexities of aligning organizational design with sustainability goals, offering leaders insights and suggestions for navigating this transformative journey.

The Challenge: Integrating Sustainability into Corporate DNA

A large global organization in the food sector is striving to develop products that improve access to nutrition, regenerate the environment, and have zero carbon emissions. This company is at the forefront of embracing new technology and science, racing to deliver market-winning solutions. While it is leading the industry, this company still has some daunting challenges. Even with a majority seeking change, including top leadership, employees often encounter internal politics, bureaucratic hurdles, inter-departmental competition, and processes that impede progress. People find themselves trapped in old habits, with a top-down culture that stifles innovation and creativity.

This scenario illustrates the systemic problems caused by traditional organizational mechanisms, which can, and must, be transformed.

Embedding Sustainability in the Business Strategy

Many organizations boast a sustainability strategy, yet it remains a peripheral concern, not fully integrated into the core business strategy. This disconnect manifests in various ways:

A lack of a shared understanding of what sustainability means across the organization.
Reluctance to appear vulnerable to the external market, which could mean for example, overemphasizing success stories without acknowledging there is still a long way to go.
Internally emphasizing progress already made rather than also highlighting the transformation still needed.
Chasing individual pet projects without a cohesive plan.
Measuring progress becomes a significant hurdle, with employees lacking direction and a clear set of actions.
Crucially, sustainability often doesn't feature in long-term planning and budgeting, signifying a misalignment between strategic priorities and sustainability initiatives.

The Root of the Challenge: Structural and Aspirational Gaps

The difficulty in overcoming these challenges lies in both structural and aspirational gaps within organizations:

Uncertainty around the need for a distinct sustainability function and the skills it requires reflects the lack of a carefully thought through structure.
The sustainability function's youth and evolving nature make it hard to define its place within the organizational hierarchy and to tackle diverse regional challenges effectively.
On the aspirational front, a gap between public commitments to sustainability and internal prioritization of legacy business profitability undermines efforts.
Talent attraction and retention suffer when the lived experience of the organization's sustainability strategy doesn't match the external narrative.

Addressing the Challenge: Strategic Clarity and Engagement

To navigate these challenges, organizations must approach sustainability as a core component of their strategy and operations, not as an afterthought. Here are general suggestions on how to achieve this:

Ensure strategic clarity: A clear, well-communicated sustainability strategy that aligns with the business strategy is crucial. It must be understood across the organization, with measurable goals and a roadmap for integration into daily operations.

Invest in a sustainability function: Determine the right structure for your sustainability function, whether centralized or embedded across regions and business units. This requires understanding the unique capabilities needed for sustainability and ensuring they are developed and supported.

Bridge aspiration and action: Leadership must consistently demonstrate a commitment to sustainability, aligning internal priorities and external communications. This alignment helps in attracting and retaining talent who are motivated by sustainability goals.

Engage widely and deeply: Involving a broad range of stakeholders in the design and implementation of sustainability initiatives fosters ownership and commitment. This includes leveraging insights from across the organization to inform the sustainability strategy and its execution.

Adopt a test-and-learn approach: Pilot sustainability initiatives to allow for testing, learning, and iteration. This approach encourages innovation and reduces the risk of failure by enabling adjustments based on real-world feedback.

Balancing Short-Term and Long-Term Goals

In our food sector example, the struggle between short-term financial targets and long-term innovation goals is evident. Employees are incentivized for short-term profit gains, promoting products that are currently profitable but environmentally harmful. Simultaneously, more sustainable options represent the future but don't contribute to immediate profit, creating a conflict for those whose income depends on these short-term sales, and indeed the financial survival of the company. Leaders may be hesitant to test and iterate sustainability initiatives in the field due to fear of failure. This risk aversion can hinder innovation and slow down progress. This scenario will be familiar to people in many sectors, such as energy, packaging, distribution, and manufacturing.

The organizational structure exacerbates this challenge, with independent roles and functions creating trade-offs and competition. Research and Development (R&D) focuses on future innovations, while Sales concentrates on current customer demands. This dichotomy leads to internal conflicts: R&D accuses Sales of not promoting new products enough, while Sales views R&D’s innovations as impractical. Such a divided structure hinders the collaborative effort needed for transformative innovation.

Embedding sustainability into the organizational design is not merely about having a dedicated strategy; it's about ensuring that the entire business model and operations are conducive to sustainable practices. This means monetizing new, sustainable products and services to a level that they can replace existing, less sustainable offers. It involves creating a structure that supports sustainability, developing the necessary capabilities, and aligning incentives. Furthermore, leveraging external pressures and expectations can catalyze action within the organization, turning sustainability from a challenge into a competitive advantage.

Solutions: Embedding Long-Term Thinking and Structural Reforms

To overcome these challenges, corporations must embed mechanisms that foster long-term thinking. Solutions will depend on each organization’s specific situation – there is no one size fits all answer, but steps might include:

Set Multi-Year Targets: Implement longer-term targets (e.g., 3- or 5-years) in addition to annual ones to encourage forward-thinking and sustainable practices.
Incentivize Sustainable Products: Offer bonuses for selling innovative, sustainable products.
Separate Research Budgets: Allocate distinct budgets for high-risk, high-reward innovation, allowing for bolder research efforts.
Incorporate Sustainability in Decision-Making: Include sustainability measures as criteria for innovation efforts, emphasizing acceptable risks over traditional, safer choices.
Utilize Long-Term Financial Forecasting: Prioritize future business sustainability over existing business models in decision-making processes.

Additionally, rethinking organizational structure is crucial:

Form Cross-Functional Teams: Develop new products and business models through collaborative efforts across different functions.
Establish Shared Targets for New Products: Encourage unity and shared responsibility for the success of innovative products.

Conclusion: The Corporate World Is Ready for Transformation

By selecting and executing a set of actions that are aligned to a specific and clear sustainability strategy, corporations can not only realize profitability, but contribute to a sustainable and prosperous future for all. With a deliberately and comprehensively designed organization, the potential of companies to make a significant impact is tremendous.

We believe that corporations are ready to design the change needed to achieve the social and environmental impact envisioned by the SDGs. Conversations with employees and executives reveal an eagerness for this transformation. This transformation requires courage, commitment, and a willingness to implement changes to the fundamental aspects of how businesses operate.

If you are seeking support to design your organization for sustainability, we'd love to hear from you - contact us at info@orgdesignworks.com

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