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Michael S. Hopkins

Sustainability, but for Managers

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Sustainability, but for Managers There’s a big — and getting bigger — public discussion about sustainability, but it’s not the one managers need. Here are some early findings from a different kind of inquiry. BY MICHAEL S. HOPKINS

ABOUT HALFWAY THROUGH the Wall Street Journal’s recent ECO:nomics conference — a confab of several hundred A-list corporate executives and several dozen green-strategy headliners — there was A Moment. On stage was Al Gore — Nobel laureate, Oscar winner, global warming frontman and, before all that, a high elected official. He was being interviewed, and he’s good at it. Equal parts zeal and data, he touted his plan to get utilities off carbon fuels within a decade. He described the end of polar ice. He talked about how the systems engineers in NASA’s Houston control room when Neil Armstrong stepped onto the moon were an average age of 26 — “which means,” he said, “that when they heard [John F. Kennedy’s go-to-the-moon] challenge, their average age was 18.” Which means, he was implying, that if you think his climate goals are too high, it’s only because your notion of what’s possible is underdeveloped. There’s help coming, Gore was telling us, and the people bringing it will be more capable — or at least less daunted — than we are. Gore on this day was resplendent, and most of the crowd loved him. But now it was Former Vice President Al Gore continues to wield the bully pulpit in the climate change discussion. But is his kind of discussion the one business chiefs should be having?

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THE LEADING QUESTION

What’s the publicly pursued sustainability ‘discussion’ all about? And if it’s not the kind of discussion that managers need to have, then what is? FINDINGS Issues central to most sustainability debates: carbon emissions, alternative energy, regulatory policy, global politics. In the press, the focus is on policy making, not on management or wider sustainability concerns. Executives define sustainability much more broadly, and have begun acting on opportunities.

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question time, and first there was a (self-identified) scientist who questioned all Gore’s science; Gore effortlessly backhanded him by citing “3,000 scientists” of his own. And then came Bjorn Lomborg, the selfstyled “skeptical environmentalist” and head of the Copenhagen Consensus Center, a think tank that analyzes how governments and philanthropists can get the most bang for their world betterment buck. Lomborg, standing genially at his seat, began, “Hi, Mr. Vice President. I’m Bjorn Lomborg. It seems to me you’re probably the most well-known person arguing that we should be spending a large sum of our money, and we should be spending most of our concern, on cutting carbon emissions, and cutting very very soon.”

To several of us looking on, this analogy seemed a little hard on Lomborg, but maybe Gore wouldn’t agree — and in any case Lomborg wouldn’t be getting any chance for rebuttal. (Gore’s answer to Lomborg’s request was plenty clear enough. Lomborg: Wanna debate this? Gore: Um, no.) “We have long since passed the time when we as a civilization,” Gore said, “let alone we as the United States of America, should pretend that this is an onthe-one-hand, on-the-other-hand kind of situation….” (Now building momentum for his close…) “It’s really kind of silly, for those of us in this generation, to look at those coming after us, and figure out what we’re going to say to them if the North

No one could agree on anything. No facts ever held still. It sometimes felt like screenwriter William Goldman’s Hollywood, where “nobody knows anything.” Uncertainty, indeed. He continued, “I would argue that the Copenhagen Consensus, and a lot of well-esteemed Nobel laureates, tell us that scientifically and economically it’s not a very good way to spend our money. So my point is to say, should we have that debate? I know you’ve sort of dodged that bullet before, and I don’t mean to corner you. Well, maybe I do mean to corner you. Do you want to have a debate on that? Would you be willing to have a debate with me on that point?” Eyes swung from Lomborg to Gore — for whom this could hardly qualify as being cornered. Still, the room went silent for a few more beats than were comfortable. Then Gore, in a tone somewhere between hesitant and exasperated, said, “Look, I think I want to be polite to you. “But, you know, the scientific community has dealt with this. The approach [comparing the worldwide economic and social return-on-investment for various public initiatives] is extremely misleading…. It’s not an either/or proposition.” Gore then proceeded to liken questioners of Lomborg’s ilk to the tobacco industry rejecting the surgeon general’s report and claiming that cigarettes weren’t all that bad for you, after all — “and millions and millions of people died as a result.” 12 MIT SLOAN MANAGEMENT REVIEW SPRING 2009

Pole ice cap goes away…. I mean, it’s not a matter of theory or conjecture, for goodness’ sake, it’s going on right now.” Then the setup: “For every one meter of sea level rise there are 100 million climate refugees. It’s already started. The Maldives had a new line item in their budget this year….” And the punchline: “It was listed as ‘fund to buy a new country.’ ” Exit to applause.

Uncertainty, Bewilderment and the Question of What to Do At least two things are interesting about the GoreLomborg exchange — not to mention the ECO:nomics exploration as a whole, which was at every turn both smart and serious, if often puzzling. One is that while the audience seemed squarely behind Gore and his anti-carbon-emissions message during his appearance (and during most other sessions, too), only hours earlier it had voted squarely against him. Which was not the only time at the conference when all the ambiguous forecasts, authoritative but contradictory policy plans and certain predictions of uncertainty bred bewilderment. WWW.SLOANREVIEW.MIT.EDU

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No one could agree on anything. No facts ever held still. It sometimes felt like screenwriter William Goldman’s Hollywood, where “nobody knows anything” but everybody would have to go back home and run a business anyway. Uncertainty, indeed. The second thing is how Gore-Lomborg epitomized another characteristic of not just ECO:nomics but most of the public discussion about sustainability and business: It’s nearly always a policy maker’s debate, with managers left to fend for themselves. If you’re a government official, this is good news. If you’re a business executive, it’s probably not. The contradictory carbon-emissions vote came in the morning before Gore’s talk, during a session when Lomborg himself took the stage and conducted a “priority setting exercise” that asked the audience to weigh the cost vs. benefit facts about six programs designed to do good in the world, at least the facts as Lomborg sees them. Then they were asked to vote — ranking the six as public policy priorities. The initiatives variously addressed problems in health care, education and global warming, and for each one Lomborg and his Copenhagen Consensus had assessed a likely return per dollar invested. According to Lomborg, the highest return of the six would come from a program to eradicate tuberculosis ($30 of “good” done for each dollar spent). The lowest return: efforts to immediately cut carbon emissions ($0.90 of “good” for $1 spent). Given those specs, it’s no surprise that the 300 or so executives in the banquet room found it tough to get behind CO2 reduction. Only 11% prioritized it first. The top-voted priority of the six was, instead, “lowering the cost of schooling” worldwide — which the Copenhagen Consensus has determined would yield $20 of benefit for every dollar invested. It was chosen by 32% of voters. A global warming strategy was ranked second, garnering a nearly identical 30% of votes, but it wasn’t the emissions-reduction approach that Gore and so many others advocate. Rather, it was what Lomborg called “energy R&D,” or investment in all sorts of potential technological solutions for cutting carbon or remediating its effects. The projected return on each dollar spent: $11. Maybe Lomborg’s little exercise in democratic instant policy making should be dismissed on account of bad methodology (the audience had been led by the sleeve; no researcher would have respected WWW.SLOANREVIEW.MIT.EDU

FROM THE EDITOR Concerning history’s instructive value, there are two edges to the blade. We’ve all been told since high school that we should learn from the past or we’ll be doomed to repeat it. Of course, we’ve also been told that if we draw the wrong lessons from the past, we’ll end up fighting the last war instead of the one we actually face. Upshot: Learn, but get it right. Cast an eye rearward, but with fingers constantly feeling for the new contours of the present. (Better still, turn an ear to listening at the same time for soundings from the future, if you can manage to put yet another sense to simultaneous work.) That’s what we’ve tried to do in this issue’s downturn series. As every journal in the land inevitably takes up the subject of the economic crisis, we decided to contribute by re-examining classic management wisdom about how to survive — or even thrive — in a downturn, and then asking, what wisdom still applies? (As well as asking: What wisdom doesn’t? What wisdom still does apply but only in freshly modified form?) What do the lessons extracted from past downturns have to offer us today? We talked with scholars, thinkers and authors, from all domains of management expertise, who’ve done some of the world’s best work on learning from downturns past — and this issue’s lineup is the first result. (You can find more right now in our Downturn Manifesto special report online at sloanreview.mit.edu. And there’ll be additional insights in future issues of the Review.) You’ll discover advice about: ■ how to rethink resource investment (pg. 31); ■ planning through a downturn (pg. 45); ■ unique opportunities for organizational reinvention (pg. 25); ■ how to nurture morale amidst downsizing (pg. 39); and ■ strategies that the natural world has developed for handling adversity, and that businesses can learn from. There’s even an exploration of the downturn’s causes and potential unseen consequences (pg. 53) — including some possibly groundshifting changes to the business landscape that dangle opportunity. (Will “risk accounting” finally be realized? Will effective organizational transparency become the next great source of competitive advantage?) “Disruption” always feels too bloodlessly technical a term for what many businesses and individuals are grappling with in these bracingly novel days; nevertheless, disruption is what’s here. And along with it comes the opportunity for leaders — in organizations, in communities — to make a difference that’s profound. We at the MIT Sloan Management Review hope that our work here helps you seize that chance. Please let us know what you think. — Michael S. Hopkins, Editor-in-Chief mhopkins@mit.edu

the outcome). To be sure, for the rest of the conference, it more or less was. The discussions centered on carbon tax vs. cap-and-trade, or how high to push the price of gasoline or whether to substitute natural gas for oil and build an auto transportation system that could run on it (the widely publicized pitch by executive T. Boone Pickens). Almost always the theme was energy — how to change its source (can renewables succeed?) or how to use it more efficiently. And as policy making goes, these are seminal questions. There may be few more important to SPRING 2009 MIT SLOAN MANAGEMENT REVIEW 13

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THRIVING IN THE SUSTAINABILITY ECONOMY: CAPABILITIES REQUIRED More than 75 global organization leaders and sustainability thinkers were interviewed in phase I of a three-phase project to explore how the growing imperative for sustainable business practices will transform managerial decision making and strategy. A survey and targeted research are to come, with findings appearing in a special issue of the Review in the Fall. Below are preliminary observations from one of the interview questions: “What will organizations need to be good at in order to thrive in the emerging sustainability economy?” CAPABILITIES

HEARD IN THE INTERVIEWS…

QUESTIONS/CHALLENGES RAISED

Integrating activities, not siloing

“Making sust. part of strategy and not an add-on”

■ What organization structure and

• All parts of organization collaborate • Sust.* strategy embedded throughout

“New organizational structure needed” “Hardwiring into the corporate structure, inclusion in core strategy, setting regular guidance…” “Integrationist thinking is needed — understanding systems of operation and integrating sust. within”

Systems thinking

“A systems mental model is required”

• Understanding integrated systems

“Systems = design”

• Building them • Role of design

“Understanding systems in which we operate” “Understanding of product life cycle; short-term savings vs. long-term costs”

“Need to promote corporate partnerships — thinking through the whole value chain”

• Based on trust/interest alignment

“It’s going to require different patterns of interaction — not traditional, formal ones”

Learning; knowledge sharing • Capacity to see, absorb, share signals of all kinds • Processes to ensure it Communication; understanding information’s new currency • Managing unprecedented information flow and demand • Capitalizing on new age of transparency Valuing the long term • Scenario planning • Enlisting stakeholders in long term • Trend sensing Measurement and reporting • Metrics, methods for self-assessment

“I’ll often open an initial meeting with a supply chain partner by asking, What’s your view on sustainability?”

“Build sust. learning organization — with knowledge and skills distributed” “Decentralized, collective, open intelligence models will trump conventional hierarchal ones” “Ability to allow fresh thinking and new ideas to enter company — people at every level are internally focused to point of myopia” “Sust. requires effective communication — with policy makers, stakeholders, consumers, suppliers, investors, etc.” “Corporations will face a major change in the degree of openness and management of stakeholders required” “What consumers know about inner workings of a company is so much more transparent now”

“Sust. can be achieved by understanding long-term trends — need capabilities to anticipate” “As the CEO, if 98% of your attention is just fire fighting around today’s products and processes, you’re in big trouble” “No incentive for CEO to take a long-term view of the world” “Quantification and monitoring of sust. — review performance on new sust.-based metrics” “Can’t manage what can’t measure ... so you have to try” “We don’t yet have a grip on what we’re doing — much less how to measure it. That has to change.”

Experimenting, not planning

“Experiments create ‘optionality,’ enable company to be adaptive in future unforseen conditions”

• Enable organizational adaptation

for all units/activities?

■ What can nature teach us? What

sust. design principles and strategies follow? ■ How to map systems in full,

beyond company boundaries?

■ How to engage supply chain

partners to identify and realize sust. opportunities? ■ How to change model from legalistic/

adversarial partnering to non-zerosum, collaborative?

“Developing constructive dialogue with government”

• Credible for sharing

• Manage portfolio of experiments

■ How can sust. business case be built

“Need to get people to look at world as a design problem”

High-collaboration partnering

• Collaborative innovation with every kind of stakeholder

processes promote lateral strategic and tactical collaboration across the business?

■ How to overcome existing cultural

barriers to open company to new ideas and initiatives — especially from external sources? ■ How to utilize open source networks

or other methods? ■ How has the value of information

changed, and how should it be managed to mitigate risk and capture opportunity? ■ Can credible transparency be turned

to competitive advantage?

■ How to drive cultural change that

focuses organization on long-term goals? ■ How to develop a robust trend-

spotting and scenario planning capability? ■ How to develop robust measurement

and reporting systems — e.g., sust. scorecard?

■ How to incubate and seed small-scale

innovation experiments?

“Mini innovation projects on sust. can be implemented to build credibility of concept and confidence” “Means creating some real options”

*”Sustainability” consistently abbreviated as “sust.” SOURCE: THE MIT SLOAN MANAGEMENT REVIEW, IN COLLABORATION WITH THE BOSTON CONSULTING GROUP

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address. (And the focus on them wasn’t entirely unexpected. ECO:nomics, after all, was clearly advertised as aiming “to assess the risks and opportunities in the massive new market of environmental capital.”) But it was hard to escape the notion, during coffee-break chats and in the taxi rank with our rollaways packed to leave, that from a manager’s perspective there might have been a utility problem here. Not to discount the scenario planning benefits of all that speculation about the future fuel of choice, but people were confused. They were going home. They were far better informed than they had been. But Monday they’d be back at their desks, faced with choices that sustainability-related forces would affect. And they still wouldn’t know what to do.

An Invitation Of course, that’s a gross oversimplification; no one expects to return from a conference with definitive operating instructions in hand. In many ways, we’d all better get used to being confused. Strategy thinkers everywhere will tell you (high in the conversation, even) that profound uncertainty is going to remain a defining condition of the economic landscape. What’s more, skill at managing in those conditions — coping with uncertainty — is often touted as a fundamental new leadership requirement. Neither is the point here to undervalue the kinds of essential policy discussions being held in the press and at official meetings all over (and that were conducted especially well at ECO:nomics). It’s to offer an invitation to a differently hopeful exploration of sustainability, which we’ve already pushed into deeply (see “Thriving in the Sustainability Economy: Capabilities Required”), and with which we now especially need your help. What we’re interested in at the MIT Sloan Management Review is not sustainability policy alone but its deceptively widespread management implications. Our inquiry: Define and explore how the growing imperative for sustainable business practices will transform managerial decision making and strategy, how that imperative will require new organizational structures and ways of working, how it will reshape the organizations of the future — and how it will present leaders with new kinds of choices, WWW.SLOANREVIEW.MIT.EDU

whether they want to confront them or not. Our job here is to figure out those choices. To figure out, from a manager’s perspective, what to do. The invitation: As this issue goes to press, we’re launching a global survey about sustainability and its strategic management implications, and we hope you’ll join us by taking it and sharing your views (if you haven’t done so already). Just go to sloanreview. mit.edu/links/ and you’ll find a link to the survey along with other links related to this article. The survey has been shaped by more than 75 personal interviews with global organization leaders, scholars and sustainability thinkers. Those interviews and now the survey itself aim to explore everything from how executives define sustainability to which sustainability-related issues will be drivers of competitive strategy to what sustainability-related opportunities and threats managers foresee (as well as what impediments they encounter when trying to address them). In other words, what will the new, sustainability-altered competitive landscape look like? And finally, what will businesses have to become in order to succeed in it? What new capabilities and characteristics will leaders have to cultivate in their organizations? In the emerging sustainability economy, what will businesses have to be good at in order to thrive? In “Thriving in the Sustainability Economy” on page 14, you can see some preliminary answers to that last question, along with snippets of comment from the interviewees and follow-on questions that the preliminary answers prompted. The findings from all of the interviews, along with the results of the current survey, will be explored and interpreted in depth in the months to come — in the Review, at sloanreview.mit.edu and ultimately in a special report on Sustainability & Strategy in the Fall (produced in collaboration with the Boston Consulting Group, our partners in the sustainability initiative). We hope you’ll return to learn what we’re discovering. But first, please take the survey to help us discover it. Reprint 50301. Copyright © Massachusetts Institute of Technology, 2009. All rights reserved.

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