Sustainability – the Missing Ingredient in Strategy
Dr Ingrid Bonn
School of Business, Bond University, Gold Coast, 4229, QLD, Australia
Email: [email protected]
Dr Josie Fisher*
School of Business, Economics and Public Policy. University of New England, Armidale,
2351, NSW, Australia
Email: [email protected]
Sustainability – the Missing Ingredient in Strategy
ABSTRACT
While strategy has been addressed in the literature since the 1960s and sustainability has received a
lot of attention recently, there has been little attention paid to the question of how sustainability
considerations might be integrated into an organisation’s strategy. In this paper a framework that
outlines how sustainability can be addressed strategically in organisations is introduced and
analysed. It is argued that all three dimensions of sustainability – economic, environmental and social
– must be integrated into all aspects of an organisation’s strategy and need to be addressed on an
ongoing basis.
Stream: Sustainability and Social Issues in Management
Keywords: Sustainability, strategic decision-making, strategy
Strategy has come a long way since its inception in the 1960s. Scholars and consultants have provided
executives with a large number of concepts, frameworks and tools to analyse strategic situations, to
help in the formation of strategies and to translate strategies into actions (for an overview see
Johnson, Scholes & Whittington 2006; Hanson, Dowling, Hitt, Ireland & Hoskisson 2008). However,
despite the multitude of these concepts, frameworks and tools, the question of what strategy is
remains unclear (Porter 1996).
According to Hambrick and Fredrickson (2001: 49) strategy has become a ‘catchall term used to
mean whatever one wants it to mean’. They argue that the term has been used in a piecemeal fashion,
describing strategic threads such as ‘our strategy is to provide unrivalled customer service’ rather than
a comprehensive and coherent course of action. Hambrick and Fredrickson (2001) attempt to remedy
the lack of comprehensiveness by identifying five major elements that constitute a strategy, namely
(1) arenas – where will we be active, (2) vehicles – how will we get there, (3) differentiators – how
will we win in the market-place, (4) staging – what will be our speed and sequence of moves, and (5)
economic logic – how will we obtain our returns. These five elements must be integrated with each
other and, according to the authors, should be the basis for designing a comprehensive activity
system. Although Hambrick and Fredrickson (2001) provide an integration of previous fragmented
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approaches, their approach does not address the critical question of whether the resulting strategy is
sustainable.
Other authors have focused on sustainability and its importance for business (e.g. Hart & Milstein
2003; Lo & Sheu 2007; Marshall & Brown 2003) however, none of these authors have addressed the
question of how to integrate sustainability into an organisation’s strategy. The aim of this paper is to
fill this gap. We argue that sustainability needs to be an integral part of an organisation’s overall
strategy. Our discussion focuses on the broader holistic sense of strategy, as opposed to an
instrumental sense that only addresses the operational level with the aim to enhance the reputation of
the organisation (see Brooks 2005). The purpose of this discussion is twofold, namely (1) to provide
organisations with a guide that they can use to assess the degree to which they have achieved
sustainability and to identify the gaps they need to address and (2) to provide researchers with a
framework that can serve as a basis for further research into organisational sustainability.
The outline of this paper is as follows: We first discuss the term sustainability and how it has been
used in business. We then look at strategy and sustainability and develop a framework that outlines
how sustainability can be addressed strategically in an organisation. We then analyse the each part of
the framework in detail.
WHAT IS SUSTAINABILITY?
The Brundtland Report (1987: 24) defined sustainable development as ‘development that meets the
needs of the present without compromising the ability of future generations to meet their own needs’.
In applying this concept to business, Dyllick and Hockerts (2002: 131) modify this definition to
define corporate sustainability as ‘meeting the needs of a firm’s direct and indirect stakeholders…,
without compromising its ability to meet the needs of future stakeholders as well’.
Sustainability is generally defined as a business approach that creates long-term value by embracing
opportunities and managing risks in three domains: economic, environmental and social. Crane and
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Matten (2007: 23) for example define sustainability as referring ‘to the long-term maintenance of
systems according to environmental, economic and social considerations’. In the environmental
perspective the basic principles of sustainability focus on the effective management of physical
resources to ensure they are conserved for the future. This requires addressing such critical problems
as the depletion of non-renewable resources, the effect of industrialisation on biodiversity and the
production of pollution. The concept of economic sustainability incorporates both the economic
performance of the corporation (the strategies which, for example, lead to a long-term increase in the
share price, profits and market share as opposed to a focus on short-term profit maximisation) and the
corporation’s approach towards, and impacts on, the economic framework in which it operates (for
example, tax evasion, paying bribes or collusive practices could be considered economically
unsustainable because they undermine the functioning of markets in the long-term). The social
sustainability perspective is newer and has received less attention than the environmental and
economic perspectives. Central to this perspective is the notion of social justice. While social issues
have been addressed in the past, the inclusion of social considerations in conceptualisations of
sustainability marked a significant shift. The UN's 8 Millennium Development Goals1 provide some
clarification of the goals of social sustainability, but how business should respond to these challenges
is yet to be resolved (Crane & Matten 2007).
Funk (2003) claims that a sustainable organisation is one whose characteristics and behaviour are
designed to lead to a sustainable future state. More specifically, a sustainable organisation is an
organisation that in addition to focusing on economic performance, actively supports the ecological
viability of the planet and its species and contributes to equitable and democratic practices and social
justice (Benn & Dunphy 2004).
STRATEGY AND SUSTAINABILITY
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(1) Eradicate extreme poverty and hunger, (2) Achieve universal primary education, (3) Promote gender
quality and empower women, (4) Reduce child mortality, (5) Improve maternal health, (6) Combat HIV/AIDS,
malaria and other diseases, (7) Ensure environmental sustainability, and (8) Develop a global partnership for
development.
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The way an organisation engages with its stakeholders including society and the natural environment
can be conceptualised as a continuum of theoretically possible responses. At one end of the
continuum a business could simply ignore the impact it has on society and the environment (and the
potential for society and the environment to impact on it). In the middle, organisations can be
responsive or reactive to the expectations of society with respect to its operations. At the other end of
the continuum, organisations can take a strategic approach which, according to Porter and Kramer
(2006), involves doing things differently in order to create shared value through symbiotic
relationships with the community.
There are (at least) three reasons why companies adopt corporate sustainability practices: because
they feel they have an obligation to, because they are compelled to, based on legislation, regulation or
the need for compliance, or because they recognise it is the right thing to do (van Marrewijk 2003).
Clearly, the motivation for pursuing sustainability will influence the way sustainability is integrated
into strategy. This paper is aimed at organisations that are motivated to adopt a strategic approach to
sustainability because they want to do the right thing.
Research by Ernst & Young revealed that of 114 companies from the Global 1000, 73% identified
corporate sustainability as being on the board’s agenda, 94% believed that a corporate sustainability
strategy could result in financial benefits, but only 11% actually implemented a corporate
sustainability strategy (van Marrewijk 2003). One possible reason for this low percentage of
implementation may be a lack of understanding about what constitutes practices and initiatives that
promote sustainability.
Sustainability initiatives are complex and multifaceted. They involve taking into account economic,
environmental and social aspects. We argue that they need to be included in the vision which reflects
the organisation’s commitment to sustainability issues, the strategic decision-making process as well
as the strategy content. In addition, sustainability initiatives need to be supported by the organisational
system in a proactive way. Hence, for sustainability issues to be taken seriously they have to be part
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of the strategy process from the very beginning and they need to be addressed on an ongoing basis.
This argument is in line with Porter and Kramer’s (2006) strategic approach to corporate social
responsibility as well as with Brook’s (2005) notion of holistic strategy. We also recognise that
sustainability issues are influenced by the national and global context in which the organisation
operates. A basic depiction of the framework we use to analyse how sustainability can be incorporated
into strategy is shown in Figure 1.
Insert Figure 1 about here
VISION
Senior managers are faced with a high level on uncertainty, incomplete information and equivocality.
They need to make sense of complex and multifaceted projects which often require taking differing
economic, environmental and social aspects into consideration. Managers who face such a situation
need some sort of guidance – or as Weick (1995: 27) has argued ‘values, priorities and clarity about
preferences’ – to help them develop viable strategies and design appropriate courses of action. A
commonly shared vision can provide this guidance and give a sense of direction in the decisionmaking process, in particular when tradeoffs among goals are necessary (Marshall & Brown 2003).
A genuine vision – as opposed to the popular ‘vision statements’ – conveys a sense of direction and
provides focus for all activities within the organisation (Bonn 2001). For Senge (1990: 142, italics in
original), a genuine vision is ‘a calling rather than simply a good idea’. It reflects fundamental
intrinsic values and a deep sense of purpose and provides the ‘glue’ that holds together the other parts
of the organisation (Shrivastava 1995a). A vision that is oriented towards long-term sustainability will
include all elements of sustainability – economic, environmental and social, signalling strong
corporate norms and values and providing principles that guide the day to day decisions of line
managers and employees (Shrivastava & Hart 1995).
STRATEGIC DECISION MAKING PROCESS
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Strategic decisions are those that are ‘important in terms of the action taken, the resources committed,
or the precedents set’ (Mintzberg, Raisinghani & Theoret 1976: 246). They are typically made by
upper-level management and affect the long-term health of the organisation (Eisenhardt & Zbaracki
1992). Strategic decisions are often difficult to define with managers being required to make sense of
a variety of limited and often conflicting information (Brockmann & Simmonds 1997). They are often
associated with different trade-offs and risks (Elbanna 2006), have rarely one best solution and, once
a decision is made, are often difficult to reverse (Wilson 2003).
The strategic decision-making process is concerned with the way decisions are reached in an
organisational setting (Fahey & Christensen 1986) and includes the activities that lead up to and
support the choice of strategy (Huff & Reger 1987). Important players in the strategic decisionmaking process are the strategists and the way they think and take action. In line with Bonn (2005:
337), we view strategic thinking as ‘… a way of solving strategic problems that combines a rational
and convergent approach with creative and divergent thought processes’. Hence, we argue that
strategists go through a strategic reasoning process that has logical and rational as well as creative and
intuitive elements.
As part of the strategic reasoning process, strategists need to identify the strategic problem and
analyse its nature as well as its underlying causes. This involves scanning the environment to gather
data and making sense of it by building mental representations that guide their thinking and the
direction of their decisions (Rumelhart & Norman 1985). These representational systems structure the
unknown, but they also define what strategists regard as relevant and act as a filter that influences
their perception of organisational events and what should be done about them (Bonn 2005).
Strategists who receive the same stimuli may use different frameworks to interpret them and,
therefore, disagree about meanings, causes or effects (Starbuck & Milliken 1988). Hence an important
issue in the strategic decision-making process is an understanding of an individual’s tacit beliefs and
deeply ingrained assumptions or mental models (Senge 1990) that may unconsciously influence how
strategic problems are framed and how solutions are developed.
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Understanding the deep-seated beliefs and mental models of strategic decision-makers is important if
an organisation aims to become more sustainable. Top level managers need to be open-minded and
prepared to challenge their fundamental values and assumptions, in particular if they are not oriented
towards sustainability. Addressing sustainability considerations in strategic decision-making is a
process – as opposed to a single event – which requires ongoing management attention, meaning that
there is a continuous need for identifying, analysing, forming and creating new strategies and acting
sustainably over a long period of time. Such an ongoing process requires top managers to be sensitive
to sustainability issues and to understand the practices that are required at the different organisational
levels to act in a sustainable manner.
There is a need for top managers to incorporate sustainability concerns into every decision-making
process as well as into all plans, policies and practices. Such commitment is particularly important
when there are significant conflicts between economic, environmental and social considerations.
Dealing with these conflicts by focusing on long-term sustainability outcomes rather than short-term
financial gains will provide clear messages to organisational members that sustainability is an
important part of the organisation’s strategy.
STRATEGY CONTENT
The outcome of the strategic decision-making process is the strategy content. It focuses on the
specifics of what was decided and is concerned with the goals, scope and competitive strategies of
organisations or their business units (Fahey & Christensen 1986). It is important to recognise that
strategic decision-making process and strategy content are interconnected and that strategy content
can significantly influence the direction of the strategic decision-making process and vice versa
(Mintzberg & Waters 1985).
The competitive strategy of an organisation is reflected in the specific actions it takes within its
chosen domain. Ketchen, Thomas and McDaniel (1996) argue that perhaps the most critical of these
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decisions is the choice of which products or services to offer to the market. The impact of products is
strongly influenced by the technologies that are used in their production. Production technologies
influence the type of raw materials that can be used, production efficiencies, the type and amount of
pollution that is emitted during the production processes, the health and safety of employees and the
public, as well as the management of wastes (Shrivastava 1995b).
Organisations that aim to become more sustainable face the question of whether they want to modify
their existing products (and services), processes and technologies to make them more sustainable or
whether they want to divest non-sustainable businesses and develop or acquire new ones that are
sustainable. Aras and Crowther (2008) point out that the approach most often adopted by
organisations is to focus on improving the efficiency of resource use through initiatives such as
adopting an energy efficiency program.
A commitment to sustainability requires organisations to conduct a life cycle analysis of products
(and services) to assess each product’s impact from each of its life-cycle stages. This includes product
development, raw material access and extraction, production and distribution, product use as well as
the disposal of packaging and used products (Hart & Milstein 2003). Such analysis takes the whole
‘product system’ into account (Shrivastava & Hart 1995) and prevents the transfer of negative impacts
and risks between the different stages in a product’s life (Shrivastava 1995a). The life cycle analysis
may lead to redesigning products and packaging and improving the efficiency of production facilities
to maximise material and energy conservation and to minimise the release of by-products that have
harmful impacts, such as solid waste, liquid and gaseous pollutants as well as heat and noise pollution
(Starik & Rands 1995). A life-cycle assessment therefore requires extensive interaction and dialogue
between an organisation and its suppliers and distributors to ensure that sustainable business practices
are used in both the upstream and downstream value chains.
The life cycle analysis should inform a comprehensive plan that identifies the goals and specific
targets the organisation aims to achieve in each life cycle stage. It needs to include a timeframe as
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well as a person responsible to ensure that the goals and targets are met on time. In addition, such a
plan needs to spell out the strategies for achieving the goals.
ORGANISATIONAL SYSTEM
If a sustainable vision and strategy are to be successful, they must be supported by the organisational
system (Shrivastava 1995c). An important component of the organisational system is the reward and
compensation system, because it can either encourage or impede managerial behaviour (Hambrick &
Snow 1989). Compensation design is likely to influence behaviour and has important consequences
for managerial decision-making and firm strategy (Finkelstein & Boyd 1998). If sustainability is to be
taken seriously, the reward and compensation system needs to reflect the importance of environmental
and social as well as economic criteria to the organisation. It needs to encourage senior executives to
focus on long-term horizons and to adopt a strategic approach towards sustainability. This can be
achieved by including a high proportion of long-term and qualitative sustainability oriented
performance measures in the remuneration package. Special recognition should also be given to
individuals and teams for achieving outstanding results in economic, environmental or social
sustainability initiatives.
Of critical importance to achieving sustainability are the informal problem-solving and decisionmaking processes (Shrivastava & Hart 1995) as well as prevailing norms and values within the
organisation (Starik & Rands 1995). This requires building an organisational culture based on shared
environmental and social values in which expectations of sustainability are built into formal job
descriptions and performance appraisal systems and are considered important criteria in the
recruitment, selection and training of organisational members.
There is also a need to create a centralised point of accountability for sustainability initiatives
(Marshall & Brown 2003). This may involve a single appointment at management level who acts as a
visible ‘champion’ for sustainability issues and who coordinates and facilitates sustainability
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initiatives throughout the organisation. It may also involve appointing board members who oversee
the sustainability efforts within the organisation.
GLOBAL AND NATIONAL CONTEXTS
The global and national contexts provide a framework that constrains and influences the ability of
organisations to engage in sustainable practices. DesJardins (2007), for example, argues that
globalisation and its implications for culture, politics and economics together with specific problems
such as poverty, population growth (especially in poorer regions) and ecological threats provides a
motivation to create a more just and environmentally sound economic model. He identifies an
alternative paradigm to the current one based on economic growth and free markets and proposes
long-term sustainability as the measure of success for economic and social development. In this
paradigm sustainability is the recognition that economic development cannot be separated from issues
relating to social justice and ecological stability. At the level of individual firms, he claims that ‘a
particular practice is neither sustainable nor unsustainable in isolation of wider economic and
ecological systems’ (DesJardins, 2007: 14).
In the past most organisations operated without too much concern for the wider impact of their
activities on social and environmental systems. More recently there has been a recognition by an
increasing number of organisations that if issues at the national and global levels are to be addressed,
the impact of activities will need to be analysed not only in terms of economic growth but also in
terms of their environmental and social consequences.
SUSTAINABILITY INITIATIVES (ECONOMIC, SOCIAL, ENVIRONMENTAL)
There is a broad range of sustainability initiatives that an organisation can undertake. We argue that to
be effective these initiatives need to be supported at all levels of strategy: vision, strategic decision
making process, strategy content and organisational system. Becoming a sustainable organisation is a
long and arduous process which requires continuous capability building and management attention
(Shrivastava & Hart 1995) and the need to integrate all sustainability initiatives so that they form a
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cohesive whole. This includes a vision which incorporates economic, environmental and social
aspects, a strategic decision making process that is based on decision-makers’ fundamental
commitment to sustainability, a strategy content that makes specific reference to sustainability and an
organisational system that promotes and supports sustainability efforts.
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Figure 1: Sustainability as an Integral Part of Strategy
Global context
Vision
Vision
Strategic
decision-making
process
Strategy content
Sustainability initiatives:
• Economic
• Environmental
• Social
Organisational system
National context
For sustainability to be integral to an organisation’s strategy:
•
The vision will articulate a commitment to sustainability.
•
The strategic decision-making process will include a fundamental commitment to sustainability.
•
The strategy content, in particular the goals, scope and competitive strategies, will include
specific reference to sustainability.
•
The organisational system will promote and support all sustainability efforts.
•
The initiatives that the organisation undertakes will provide the evidence that sustainability has,
in fact, been addressed.
An organisation that adopts this approach could be described as taking a strategic approach to
sustainability.