Last month my blogging partner Katrin Muff commented on the fuzzy definitions of business sustainability. She presented a three-level typology of business sustainability that she developed with her colleague, Thomas Dyllick. Type 1.0 companies are businesses which focus on creating opportunities and managing risks resulting from economic, environmental and social developments, thereby minimizing any negative impact. The goal is to maximize shareholder value. Type 2.0 companies are focused on the triple bottom line, including economic, social and environmental variables. These companies strive to maintain a balance between the bottom line (the profit) and a positive impact on the environment and on society. They are continually looking for opportunities to make such an impact.
My focus in this blog is to define the type of culture change that is imperative for companies aspiring to become Type 3.0 organizations. I will address the steps leaders can take to enable the emergence of a culture supporting Type 3.0 strategy. While the definitions of “culture” are almost as fuzzy as the definitions of sustainability, I define culture as the collective identity shared by those employed by an organization. Culture includes a shared view of the world as well as common beliefs and values that inform behaviours. With this definition in mind, consider the relationship between organizational culture and the way companies define and implement a sustainability strategy.
First, the worldview of the collective has an impact on what gets considered, as well as what gets done within an organization. Moreover, the beliefs and values that comprise a culture influence the way the company and people in it interact with each other and with outside stakeholders. When a company starts down the sustainability path, they almost always face the need for some level of culture change; and the leader, usually the CEO, sets the direction. The leaders’ role is especially important for companies moving toward becoming Type 3.0 organizations.
While Types 1.0 and 2.0 require first order change — limited change aimed at either improving something that already exists or replacing some aspect of what is with something different — those that aspire to become a Type 3.0 company need a different type of change. Leaders who want to usher their companies into Type 3.0 organizations will need to guide their organizations through second order change — change involving a fundamental shift in the corporate identity. Second order change is frequently referred to as transformational or discontinuous change. Second-order change usually requires an alteration in viewpoint — how employees throughout the company see the world and their place in it. It impacts the way in which they approach customers as well as how they think about the purpose of their work. Unlike first-order change, the desired end-goals of second order change are likely to be unknown at the beginning of the change process. Rather, the targets unfold and evolve as the company identity shifts.
In general, it is the CEO who initiates second order change. It usually begins with a CEO who experiences a shift in mind-set involving an alteration in personal beliefs about reality. The mind-set shift can result from events outside of the organization such as a crisis or social activism, or by internal pressures such as varying and irreconcilable institutional demands. (For more detail see Miller and Serafeim, 2014.) Regardless of the source, once a CEO experiences a shift in mind-set, his or her personal convictions will be the impetus for change in the organization. While CEOs alone cannot transform companies, their vision is a significant factor in sparking the second-order change. Our research indicates the most important first step leaders can take to truly transform their organizations into Type 3.0 companies is to create and communicate a clear and inspirational vision. The clarity of the vision predicts how their employees view them across almost all of the key leadership attributes affecting business sustainability outcomes. The factors include:
- Level of knowledge about sustainability
- Personal commitment to sustainability
- Degree to which they have a clear business case for pursuing sustainability-related goals
- Willingness to take measured risks in order to support their sustainability strategies
- Degree to which they inspire others about sustainability-focused issues
- Extent to which they integrate matters pertaining to sustainability into their decision-making.
If we know how employees within the organizational culture view their leaders’ vision for sustainability, we can predict how they will rate the leaders on other relevant characteristics and behaviours. Thus clarity of vision becomes a proxy for strong leadership for sustainability.
So what does this mean for you, the leader of an organization? If you want an organizational culture that will enable your company to become a Type 3.0 organization, in all likelihood you will be faced with the need for second-order change. Your first step should be to develop and communicate a clear and inspiring vision for sustainability. Of course no leader is in a position to dictate culture! However, you can (you must!) set the direction for the transformational change. You can stir others throughout the organization by telling stories that are inspiring and relevant to the changes you desire. You can engage people in conversations that expose them to new ideas and fresh ways of thinking. You can provide your employees with opportunities to interact with people who view the world differently. You can alter the collective conversations among your employees by challenging them to question hidden assumptions. And you can intentionally choose the behaviours to reinforce. Over a period of time second-order changes leading to transformed cultures will emerge both at the individual and collective levels. Your organization will be on its way toward becoming a Type 3 sustainable company!
Dr. Kathy Miller Perkins is a social psychologist and is the CEO and owner of Miller Consultants , a firm specializing in organizational development, executive coaching and change management. Her work involves helping companies create and sustain organizational cultures that are conducive to executing sustainable strategies. She has worked with companies such as Toyota, IBM, Kindred Health, Brown-Forman, Lexmark, Anthem, Ashland Chemical, the U.S. Military and BC Hydro.