6.1 Corporate Culture, Values and Effect on Managerial Mindsets

Are the right corporate culture and value systems in place in order to deliver your strategy?

You will have found that the most prevalent external barrier to embedding sustainability strategies of any sort relates to the tension between short-term pressure for profit from shareholders and customers, and the inevitably longer-term objectives of your sustainable sourcing strategy. This has a substantial effect on the value systems within firms. You will therefore also find that the greatest internal barriers relate to managerial mind-sets (both short-term oriented, as well as fixed: e.g., “Sustainability doesn’t sell”), lack of adequate value systems to embrace the strategy, and sometimes important related knowledge gaps – even misconceptions – that are influencing the views of executives about the sustainable sourcing strategy.

Mindsets and managerial value systems are overall highly influenced by the following factors which you should take into account as you implement your sustainable sourcing strategy:

  • Lack of alignment of the overall business strategy: This is not merely a side issue. Many firms make the assumption that the requisite culture and value systems are in place to ensure strategic roll-out when, in fact, they are not. Companies who are true to a “raison d’être” which includes but also goes beyond short-term financial considerations, and where stakeholders understand not only what the company does but also the core principles guiding its work, have a competitive advantage in today’s world. Walking the talk is a key strategic consideration for companies today, especially in a highly networked, social media savy society. Your strategic embedding process in sourcing will certainly be compromised unless overall strategic and structural issues are properly addressed.
  • Pervading national and company cultures: Obtaining the “right corporate culture, - one that is open and receptive to the complex concepts of sustainability – is one of the greatest challenges for the alignment of an organization behind sustainability objectives. Some companies have a long history of innovative leadership inspired with goals and a vision expressing concern and respect, not only for consumers but also for employees and communities. Unilever, Danone and Cadbury are examples of such companies. Furthermore, although companies intending to embed sustainable sourcing strategies may express a fairly uniform desire to implement social and environmental standards, national culture may be a facilitating factor. For example, the consensus building non “top down” management approaches common in Scandinavian countries have proved conducive to embedding sustainability strategies, including those around sourcing.
  • Degree to which the company has already developed and rolled out sustainability strategies: Clearly if the company has already acquired experience in implementing sustainability somewhere else in the business, the learning can be invaluable for the sourcing strategy. Make it your business to investigate the promoting factors and barriers involved in that other activity. Sustainability strategies gain enormously from the knowledge brokering and sharing of learning within organizations;
  • Relative closeness of the company to customers: It is not rocket science that there is no greater motivating factor for fast track embedding in business than a customer indicating strategic preferences directly to a supplier. For this reason, the most proactive companies on sustainable sourcing in today’s world, are customer-facing companies. Stakeholder pressure goes up the supply chain, not down. Listen to your customers and use the messages they are communicating to your best advantage.
  • Managerial level: Changing behaviours of middle managers, in particular, is a challenge. There is often scepticism amongst managers about the added value of sustainability strategies, with fear of high costs and little or no return. It can translate into a “What’s in it for me?” mind-set. Interestingly middle managers can be sceptical of perceived “trends” picked up by senior managers. Unless sustainability is an integral part of the corporate DNA across levels and functions, there is resistance and behaviour does not change. For this reason, consistent values and business principles are important. They introduce a simple basis for how people do business. If they exist, then you can constantly remind managers of the basic values and principles underlying your corporate culture and behaviours.
  • Difference in degrees of awareness between departments: It will be to your advantage that procurement departments tend to understand the issues and urgency of having a sustainable sourcing strategy much sooner than, for example, finance or marketing/sales departments. The reason for this is that the direct impacts of sustainability issues (overall increasing resource scarcity, commodity price variability owing to environmental or social factors) are actually first felt in procurement departments. However, important other parts of the organization will need to be brought on board;
  • The connectivity between departments: Interestingly, you may think that you are one and the same organization, working on the same overall objectives, but when you really think about it, you may find that important departments are perhaps not linked in the way in which they should be. Do you have, for example, in-firm silos? By this we mean departments that are operating on some level independently and perhaps even counter to your sustainable sourcing strategy. Think about the departments and individuals you need to engage with to bring them over to your side. But remember, you have a selling job to do: convincing people in a cottom up way. If you choose the wrong level of abstraction to sell the concept, progress will be immeasurably slow. You will need to speak in a language that others understand;
  • The degree of empowerment of the human resources department: There are a few issues here. Firstly, approaches to recruitment need to be looked at . If a company has already recruited executives with the requisite mindset and passion for sustainability, then its half the battle won. Once on board, reward and recognition systems related to achievement of the strategic goals – including the sourcing strategy – greatly facilitate the way to success. Thirdly, training and executive development is essential to ensure that key functional managers understand and “live” the defined culture and values, as enabling factors for the company’s vision, mission, and strategic objectives.

Many companies trying to embed sustainability strategy make the mistake of not assessing the above-mentioned issues and do not make a conscious effort to change corporate culture and organisational mind-set before implementing sustainability strategies. This means that you may find yourself in the position of pushing water uphill, especially if your human resources department is not empowered and engaged to work alongside you in changing or modifying the internal value systems.

A good example on how a company adapts its culture to reach a sustainable sourcing objective is provided by Example 20 below.

Example 20. Unilever: Creating the optimum company culture for achievement of an ambitious sustainability strategy

As sustainability challenges escalate around the world, the outcome will depend in large measure on the behaviour of individual people, including managers within corporations. Managerial behaviour reflects corporate culture but also personal value systems. Paul Polman, CEO of Unilever was highly aware of this when the company developed The Unilever Sustainable Living Plan (USLP), a blueprint strategically targeted to double the size of Unilever’s business, whilst reducing environmental footprint and increasing positive social impact.

Within the USLP, Unilever’s ambition is for sustainable agricultural production to become the mainstream, as an optimum way to help to end hunger, achieve food security and improve nutrition (also as one of the global Sustainable Development Goals). The world needs to double agricultural productivity and increase the incomes of smallholder farmers. Since Unilever is among the largest purchasers of crops such as tea, palm oil and vegetables, it considers that it has a significant role to play in achieving that.

But internally, Unilever is asking itself many questions. What are the value systems and characteristics of corporate culture that need to be put in place and/or reinforced at Unilever to induce leaders and managers to change and facilitate delivery of its USLP strategy? How can Unilever promote and enhance the optimum corporate culture and value systems for USLP strategy alignment? And what is the role of the Human Resources Division, in recruitment/selection, policy-making, training and in developing reward/recognition systems that reinforce culture and value systems that best promote success with the USLP?

Of the top key opportunities for change identified, Unilever felt that five were areas that required more attention within the organization: two were related to the “hardware” of the organization; two to the “software” and one right at the heart of both.

Hardware:

1) Senior leadership alignment to the strategy

2) The implementation of appropriate performance metrics and related management management sysstems

Software:

3) Attracting and developing top talent

4) Embedding the strategy in core decision-making and business processes

Common to both “hardware” and “software” dimensions is the need for what Unilever terms ”winning hearts and minds”. This relates to all layers within the company, and to all functional areas.

In order to leverage these opportunities for change, Unilever realized that empowerment of the human resources division of the company is of fundamental importance, since recruitment, training, executive development and the putting into place of appropriate reward and recognition systems (and stringently monitoring them) is a core responsibility of human resources units. In Unilever’s view, the corporation of the future will increase its competitiveness and readiness to deal with threats around raw materials supply (amongst many other things) by having appropriate systems in pjlace.

Key ingredients for success are the setting up of guiding principles for corporate values. Training related to these principles should be incorporated in all executive development and training programmes.

You may consider sending employees in key company positions to already existing executive training on sustainable sourcing. A good example is the IMD-SAI Platform Master Class, where professionals can learn how to build and roll out business cases for sustainable sourcing but also, crucially, how to win over internal stakeholders and work on changing mindsets within the firm. You may also consider adapting already existing material, and/or developing new material for new programs, and having human resources (HR) providing in-company courses. For more information on changing mindsets, see example 21 below.

Example 21. IMD and SAI Platform insights on changing mindsets

Any business project will face the same challenges; winning people over to your point of view is never an easy proposition. Sustainable sourcing is no exception. Industry research carried out by the Center for Corporate Sustainability Management at IMD, one of the world’s top business schools, has indicated that the biggest internal barriers to aligning organisations behind sustainability strategies are related to short-term or fixed mindsets, organisational culture and sometimes gaps in knowledge within organisations and amongst managers. The Sustainable Agriculture Initiative (SAI) Platform has also investigated hurdles to implementing sustainable sourcing strategies in firms and observed the same problem.

To build effective internal networks to help implement the strategy, it is essential to convince key stakeholders within the company to take action. To reach those key stakeholders, think first about the different types of network that are operational within your firm. They may be work networks, expert advice networks, strategy or innovation networks, decision-making networks or most powerful of all, trust or social networks (more informal). Remember that the networks that you may think are most influential are often not those that have the real power. In fact, research has proven that informal networks are the most powerful overall.

Once you have identified the key stakeholders and networks, you must decide what you want from them – as with all change initiatives – through a process of awareness, building interest, evaluation and trial, and finally adoption of your sustainable sourcing strategy. Next, identify the key stakeholders within those networks that are currently for or against your strategy, and how you can target them. Remember that up to 70% of people in organisations are actually “bystanders” that can be swayed if you or your allies are convincing enough with your strategy. In other words, use your networks to find the right people to help you to leverage supporters.

But how do you make sure that managers really understand and live the sustainability values of your firm? One way of anchoring interest and getting everyone on the same page is “learning by doing”. Many companies launch pilot projects that are not only a testing ground for initiatives in sustainable sourcing, but also serve as a way to engage managers. Pilot projects with multi-functional involvement effectively get managers involved speaking the same language and they begin to gradually understand the complexity and uncertainties that the company is dealing with. They also begin to comprehend better the risks and opportunities involved and can become your allies in pushing for further investment in sustainable sourcing. Just make sure that you do the analysis in advance and identify the critical internal stakeholders.

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