Given the times we live in, the choice between weak versus strong sustainable transformation is no longer a choice, really. But sustainable transformation is a complex change process, and to date, few organizations manage to achieve true sustainable transformation. So what are the underlying organization and strategy theories that may boost organizations toward successful sustainable transformation?
Just imagine the year 2050 with a scenario of weak sustainable transformation. The economy is doing poorly. Food is expensive because of the massive floods and droughts that have affected the world’s main food-growing areas. Despite some international action on climate change, no further efforts were made to control emissions. The planet has reached several tipping points. Governmental authorities invested in protecting infrastructure and helping people adapt to the higher temperatures and ever more frequent storms. At the same time, organizations fail to adapt to their new environment, because they ignore their unsustainable practices.
Now imagine the year 2050 with a scenario of strong sustainable transformation. We understand and accept the science of climate change and other ecological and social changes. We use our human capacity and technological knowledge to turn around our unsustainable practices. After several crises, such as the COVID-19 crisis, companies and governments turned to an economic recovery tied to sustainability. Further international action on climate change, social inclusion and investments in sustainable technologies are paying off. At the same time, organizations succeed in adapting to their new environment. They turn around their unsustainable practices and embrace new ways of doing business.
In this white paper, we use insights of organizational and strategy literature to explore (1) how organizations fail to achieve sustainable transformation (first scenario), and (2) how organizations succeed in achieving sustainable transformation (second scenario).
Limitations on the ability of organizations to adapt or transformInternal restraints such as political limitations and organization history, or external restraints such as collective rationality and strategy, are playing a crucial role in the failure of some organizations to transform. Let us use the example of the energy industry. In this sector, the macroeconomic forces underlying the emergence and dissolution of niches can overwhelm strategic managerial action. Oil companies for example barely see any alternative or are unable to adapt their business.
A first explanation is that there is still a high demand for oil. Second, their shareholders expect profit distribution. And third, there are competitors vying for market share. Even a CEO with high ambitions cannot easily change course, because the process of change itself would be so disruptive that it might result in job losses and lower energy security. Shell’s CEO, Ben van Beurden, said in 2016 in an interview: “Leaving fossil fuels in the ground is not the mission for which I was put in place by our shareholders.” In uncertain situations like these, individuals often apply commonsense rules based on previous experiences.
New opportunities for organizations to adapt or transformDrawing on the idea that organizations face inertia, finding a balance between the exploration of new possibilities and the exploitation of old certainties is necessary for organizations’ survival.
Via exploitation processes, companies such as Equinor foresee technological upgrading and innovation in upstream petroleum. This kind of innovation is focused mainly on enhancement and efficiency. Most managers feel comfortable with these types of innovation processes as they deal with questions familiar to them, such as improving existing products.
Via exploration processes, more and more companies in the petroleum industry leave their comfort zone and examine new markets, products, and business models. They experiment with diversification into renewable energy, away from petroleum, and see potential for new growth paths beyond oil. Anders Eldrup, CEO of Ørsted, started a transformation process to completely reinvent the company as a top-to-bottom renewable energy company, leading Ørsted toward scenario 2: strong sustainable transformation.
Bird’s-eye view on sustainable transformationThe aim of our white paper is to reflect on various theories in the organization and strategy research field. By using a bird’s-eye view on sustainable transformation using organization and strategy theories, we discovered different perspectives and various assumptions. Sustainable transformation processes are complex change processes, which need multiple complementary perspectives to understand various directions or decisions. This paper tries to open up new perspectives in this field of study, acknowledging that one organizational theory is just one part of the puzzle. Only by combining various theoretical perspectives can we solve the puzzle.
Prepare your organization for 2050 with ‘Mastering Sustainable Transformation’