European corporate sustainability framework for managing complexity and corporate transformation

Transcription

1 Int. J. Business Performance Management, Vol. 5, Nos. 2/3, European corporate sustainability framework for managing complexity and corporate transformation Marcel van Marrewijk Virtu et Fortuna BV, Van Linden van den Heuvellsingel 7, 3135 KH Vlaardingen, The Netherlands Abstract: The EU-financed European Corporate Sustainability Framework (ECSF) project is developing a multi-layer business framework with an analytical, contextual, situational and dynamic dimension to facilitate managing complexity and corporate change. It provides coherent sets of corporate institutional arrangements, including or based upon value systems, business philosophies, approaches, concepts and measurement tools. Keywords: Corporate sustainability; corporate social responsibility; new generation management framework; values. Reference to this paper should be made as follows: van Marrewijk, M. (2003) European corporate sustainability framework for managing complexity and corporate transformation, Int. J. Business Performance Management, Vol. 5, Nos. 2/3, pp Biographical notes: Marcel van Marrewijk is the initiator and Project Manager of the international EU-financed European Corporate Sustainability Framework (ECSF) research project. The project is led by the Erasmus University Rotterdam. He is also Director of the Great Place to Work Institute Nederland BV. 1 Introduction Complexity within the business environment has increased dramatically. The various developments that caused complexity to increase can be structured along the definition of life conditions. Life conditions and, thus, corporate conditions, depend on historical times, geographical places, existential problems and societal circumstances [1]. Complexity grows over time simply because evolution proceeds irreversibly in the direction of increasing differentiation/integration, increasing organisation and increasing complexity [2]. A practical example can be found in the various contemporary quality management systems which are oriented at: products or processes the organisation as a whole the industry or the chain in which the organisation functions the society at large. Copyright 2003 Inderscience Enterprises Ltd.

2 214 M. van Marrewijk Shifting from one level to the next is like transforming into a new paradigm. The value and belief system, the internal organisation, the decision-making and working procedures, that is, in short, the institutional arrangements of each further level clearly show increased complexity. As, over time, history has demonstrated the emergence of more profound quality management systems, with special attention to Corporate Social Responsibility (CSR) and Corporate Sustainability (CS), the new role of the organisation within society has indicated a much higher level of complexity. The concept of globalisation comes directly to mind, made possible by innovations in transport, telecommunications and computer technologies and, hence, many companies have opened consumer markets and/or production units in all corners of the world. Also, small companies one location and one market encounter the impact of international competition. With globalisation, increased complexity is often associated with the consequences of managing people operating in many countries from different cultures, backgrounds, habits and regulations, raising ethical challenges. What ethical norms can be taken as reference points exampled by cheap production costs appearing to be related to child labour or business to operate without the payment of excessive bribes? In the past, management could just ignore such issues as its responsibility related to owners who were only interested in maximising yields on their financial investments. Today, companies are challenged to balance as well as include a variety of sometimes conflicting interests from various stakeholders. Such a scenario is magnified through the fact of the advent of globalisation, technology and expectations of consumers, which are boosted by the speed of progress. The question remains: are management executives able to keep up with this growing complexity? Are their competences and underlying values fit to match these new challenges? Are there adequate concepts and tools available taking into account that existing management tools, by definition, have a limited tenability and relevant domain? It must be remembered that existing models were designed to be used in specific circumstances and, as long as no change occurs, these models and tools will keep their status and practical use. However, unfortunately, management tools do not carry tags with specific prescription for usage or state unintended side effects. The enormous flood of novel management tools and concepts that have been introduced in the market recently do compete for attention, making it difficult for executives to select those most adequate to manage complexity and achieve desired results. As progress continues, new rather than different challenges emerge and corporate executives often need to adapt. In the light of what has been articulated, Erasmus University Rotterdam s Faculty of Business Administration is leading the EU-financed, international research project, entitled European Corporate Sustainability Framework (ECSF). The members of the ECSF-Consortium are committed to developing a new generation multi-layered business framework with contextual, situational, analytical and dynamic dimensions. It provides coherent sets of corporate institutional arrangements, including or based upon value systems, management philosophies, methodologies, business concepts and related sets of measurement tools and practices. The objectives of the project are to aid organisations to improve performance, encourage inclusion of various stakeholders interests into corporate decision making as well as support them to become more sustainable operating entities. With the project being presented to the European Commission in December 2003, this paper describes the progress so far.

3 European corporate sustainability framework for managing complexity Four windows on corporate reality the SqEME approach For centuries, a reductionist approach to complex phenomena, especially in science and business, has been applied. By breaking down complex entities into parts, much can be achieved; yet, coherence between related phenomena can be lost and responsibility is not taken for the overall entity. Today, science is scattered in sub-sub-sub branches whilst the business world is being held responsible for the negative effects of globalisation. With this in mind, in the Netherlands, the SqEME approach, employed in process management, has come to the fore. It is a holistic approach, focusing on four windows for the analysis of the same complex reality: Constitution, Chemistry, Conduct and Control Table 1 provides a matrix. These integral and complementary images form a transparent design of a complexity; the views through these windows partly overlap but, by using one image as a point of reference in analysing the next, a more detailed impression of the complexity can be revealed. Table 1 SqEME approach Basic phrases Alternative phrasing Matrix SqEME approach Window I Window II Window III Window IV Constitution Chemistry Conduct Control Drivers Communication, Chemistry, Content Action Monitoring and Learning Elements Mission, ambition Strategic orientation Quality orientation Values, identity Vision Understanding Cause & effect Structures and processes Actions and Interventions Procedures Contracts and tasks Corporate behaviour Control system (Self)- Assessments MIS & KPIs Reporting Benchmarking Results Direction Norms Achievement Evaluation Focus Where to go How to get there What to do Where are we Constitution this relates to all elements of an entity or phenomenon that make up the basic and founding characteristics. From these structures, the sense of direction can be developed. In the context of an organisation, the factual items, especially of ambition, passion, drivers and basic principles are considered, followed by the mission statement and corporate objectives, the strategic orientation, the corporate culture and identity, the awareness and common values as well as its history. These aspects result in a sense of direction.

4 216 M. van Marrewijk Chemistry once the direction is established, understanding the situation and its influencing factors is important before implementation can start as management needs norms to carry out specific actions. Chemistry relates to: 1 content and understanding, that is to create a vision on reality, understand the cause and effect relationships and grasp the workings of relevant processes and mechanisms 2 communication, especially in dealing with complexity, where the knowledge of a variety of people with relevant experiences and competences is greater than a single planner at the top (e.g. strategic conversation) After all, norms are based on the understanding of all relevant aspects that (potentially) impact on the process of achieving the desired results. When these aspects are understood, when and what to do next become apparent. Conduct this focus point is action-oriented, looking at the actual happenings within an organisation, that is its corporate behaviour. This lively image shows the specific interventions, responses to major challenges, as well as the procedures, tasks, assignments and contracts in short, the full institutional framework of an organisation. Control the question comes to mind as to whether the organisation should proceed in this way, focusing on the monitoring and learning systems. There is a need to evaluate achievements, apply self-assessments and find out the current position using, for instance, a Management Information System with qualified indicators (KPIs) for actual decision making. Furthermore, procedures are to be reported and benchmarking techniques applied. The results from the monitoring instruments are to be evaluated as they determine the sense of direction. The four windows stimulate discussion and, subsequently, action. Some individuals demonstrate their understanding whilst others advise on how to proceed. In dispute, some provide clarity by revealing ambitions and sense of direction whilst others will ask what is in it for me? These are four natural positions which, at the same time, are complementary. Balanced and consistently worked out in detail, the combined views from these focus points provide a complex design of the institutional fabric. 3 World views, value systems and corporate sustainability 3.1 World views and value systems The four windows generate basic questions such as those in relation to constitution: How does your world look? How do you perceive reality? What do you think are the prevailing challenges? Along with changing circumstances, individuals and organisations tend to adapt their perception of reality. Related to these realities, they develop value systems as coping mechanisms to match the challenges that emanate from current life conditions. As reported, Dr. Clare Graves states that mankind has developed eight core value systems as responses to prevailing circumstances [1]. A value system can be defined as a way of conceptualising reality and encompassing a consistent set of values, beliefs and corresponding behaviour; it is present in individuals, companies and societies. Value systems evolve in a fixed order: Survival, Security, Energy and Power, Order,

5 European corporate sustainability framework for managing complexity 217 Success, Community, Synergy, and Holistic life system. Each new value system includes and transcends the previous ones, thus forming a natural hierarchy or holarchy [2]. They develop in reaction to specific environmental challenges and threats, brightening or dimming as life conditions change. If, for instance, societal circumstances alter, inviting corporations to respond and consequently reconsider their role within society, this implies that organisations have to realign their value systems. New corporate ambition levels can make contemporary institutions obsolete and their practices inadequate. This could be an explanation for the outcomes of the recent Ernst & Young surveys indicating that 93% of large companies consider CSR as potentially a profitable activity with 73% discussing it within their boards but with only 11% actually implementing it. When value systems are no longer sufficient to manage existing circumstances, there is the possibility of moving on to the next value system. If a current pattern of behaviour or institutional framework is no longer adequate to tackle a problem, this can be an incentive to change perception on reality and open new opportunities. Along with adopting innovative value systems, enabled by increased awareness, individuals may start new patterns of behaviour and organisations may create new institutions in line with the gradually emerging value system. 3.2 Multiple levels of corporate sustainability Individuals and groups develop and apply values as well as support institutional structures in order to cope with the prevailing challenges. Inappropriate responses give rise to fresh strategies, ultimately resulting in a sequence of development stages. Therefore a one solution fits all definition for Corporate Social Responsibility (CSR) or Corporate Sustainability (CS) should be abandoned, urging more specific definitions to match the development, awareness and ambition levels of each organisation. Although four corporate dimensions (Principles, People, Planet and Profit) and six different contexts have been worked out, only the latter are shown as a sequence of CS ambitions levels: 1 Pre-CS: basically, at this level, there is no ambition for CS. However, some steps labelled as CS might be initiated through external pressures such as legislation or buyers strikes. Close monitoring and constant reinforcement would be required. 2 Compliance-driven CS: at this level, CS consists of providing welfare to society within the limits of regulation from the rightful authorities. In addition, organisations may respond to charity and stewardship considerations. The motivation for CS is that it is perceived as a duty and obligation or the just way to act. 3 Profit-driven CS: at this level, CS consists of the integration of social, ethical and ecological aspects into business operations and decision making, provided it contributes to the financial bottom line. The motivation for CS is the business case as it is promoted when it is profitable, such as an improved reputation in the market place. 4 Caring CS: here, CS consists of balancing the economic, social and ecological concerns. CS initiatives go beyond legal compliance and profit considerations. The

6 218 M. van Marrewijk motivation for CS is that human potential, social responsibility and care for the planet are all important. 5 Synergistic CS: at this level, CS consists of a search for well-balanced, functional solutions to create value in the economic, social and ecological realms of corporate performance in a synergistic win-win approach with all relevant stakeholders. The motivation for CS is that sustainability is important in itself, especially as it is perceived as being the inevitable direction to progress. 6 Holistic CS: here, CS is fully integrated and embedded in every aspect of the organisation, aimed at contributing to the quality and continuation of life of every being and every entity, now and in the future. The motivation for CS is that sustainability is the only alternative since all beings and phenomena are mutually interdependent. Therefore, each person or organisation has a universal responsibility for all others. As can be seen, each level includes and transcends the previous ones. Every organisation has the option to choose an ambition level to be based on its awareness of its circumstances and its existing value systems. Each ambition level will result in corresponding business practices and institutional development, demonstrating different levels of corporate sustainability performance. A differentiated set of definitions and approaches to CS can assist an organisation in finding an appropriate path, given its context and dominant values within the organisation. 4 Generating management situations As stated, it is important that a management framework distinguishes the predominant contexts in which an organisation functions. By raising additional questions, generated by the ECSF, the issues can be refined into more detailed situations. Second order constitutional questions, such as: What is your market situation? What are your objectives? and What kind of quality orientations do you need?, generate input for determining strategic considerations and quality orientations. These choices set the boundaries and, therefore, additional management models are required to structure the different business situations. Four Phase Model: this management concept provides four basic strategic orientations, primarily oriented either internally or externally and focused on control or change: market effectiveness, efficiency, flexibility and creativity. EFQM Model: the management attention areas, especially the enablers, can be used as substructures: leadership, strategy and policy, people management, resource management and process management. INK Management Model: a variant of the EFQM Model, it distinguishes five quality orientations, each transcending and including the previous ones, thus resulting in increased complexity; the orientations relate to product, process, organisations, chain/industry and society. The latter corresponds to the advanced/sophisticated definition of CS.

7 European corporate sustainability framework for managing complexity 219 The Business Balanced Scorecard: this model distinguishes four perspectives: financial, customer, internal business, and innovation and learning [3]. These coincide with the four basic assets of the Four Phase Model. An organisation is supposed to increase its total assets in a continuous process of exchanging one asset for another. This exchange takes place within a company but also between the various stakeholders. The four elements are material, commercial, socialisation and intellectual assets. One of the basic assumptions of the ECSF project is that management principles, models and even hypes have their value but only in a certain context, which depends on historic times, geographical places, existential problems and societal circumstances. In business terms, this translates into the market circumstances, the strategy of the organisation, the history of the organisation and the organisational culture. This may change over time and would have its own dynamics and rhythm. The large number of management tools and concepts that are currently available is overwhelming for most corporate executives. They are designed, whether purposely or not, to apply in specific situations and contexts. With changing contexts and strategic orientations, many once successful tools can lose their applicability. However, by carefully selecting the strategic orientation and optimal complexity level, organisations can define their business situation in terms of these four models. Depending on the situation, the most adequate interventions can be selected and used as references for management practice. The ECSF consortium has recently launched the Strategic Sustainability Scan distinguishing four situations (strategic orientations) and four contexts (development phases). It is an online version ( based on a questionnaire generating a three page document suggesting a concise tailor-made approach to implementing CS and CR. A combined framework can also be employed to rank all existing management tools according to their applicable domain and tenability, that is to fit for purpose. The ECSF Consortium is preparing an inventory classifying the management tools, with respect to the stated basic structures, to be developed. 5 The dynamic dimension of the ECSF 5.1 Change So far, two major results have emerged from consistently applying the SqEME approach to complex situations. The first outcome is affiliated to contexts and ambition levels being ascertained ideal type with related value systems and supporting institutional structures. The sequence of CS definitions, manifesting a developmental approach to sustainable development, is one of the consequences. The second result appertains to the blending of four contemporary management concepts into one management framework, distinguishing various business situations as well as generating specific interventions and listing the tools that can be adequately applied. The third effect is directly associated to the SqEME approach itself. Figure 1 shows that there is an interrelationship between the windows, and each of these provides information that can be employed for ensuring a consistency check of the framework as a whole.

8 220 M. van Marrewijk Figure 1 Consistency check Chemistry Understanding Conduct Actions & procedures Constitution ambitions & values Control monitoring It is possible to start the analysis from any position provided the output from any other window is taken into consideration. Since companies, by definition, are action-oriented, they are at ease in relation to Conduct and most of them have learned to match it with Control. Without the input from the soft left-hand side, they are engaged in an iterative trial-and-error process. By clarifying the Constitution aspects and by openly discussing the concepts and understanding the need to develop norms, the actions and institutional framework can be made more effective. Pooling expertise from various backgrounds, bringing together multi-disciplinary information, engaging in strategic conversation and scenario planning are all methods of making the theoretical elements of Chemistry more practical. Clarifying the constitutional, conceptual, behavioural and evaluative dimensions of the complexity at hand offers opportunities to improve the consistency of the contemporary arrangements, that is the institutional structure and its performance. Applying the SqEME approach in this way should result in incremental improvements. 5.2 Transition Changes do materialise within specific contexts or situations and shifts occur between situations and transitions between contexts. The ECSF approach includes two effective diagnostic tools to determine the company s present context(s) and situation(s). It is important to recognise the company s market situation and to prepare a value audit describing the company s cultural profile. The outcomes of these diagnoses can be exactly pinpointed within this framework and the company s ambition levels can be precisely situated. The aim is to trace the tracks from A to B, thus generating a step-bystep sequence of actions and, hence, creating an outline of the shift and/or the transition towards the envisaged level of, say, corporate sustainability and/or societal responsibility. These A to B tracks can exist between contexts, that is transition, between situations which may be due to a shift in strategic orientation and within a context or situation; the objective is to complete a contemporary institutional arrangement.

9 European corporate sustainability framework for managing complexity 221 The actions or, indeed, interventions can be related to the organisation s level of complexity, strategic orientation and stage of corporate development as well as to the various management attention areas, including leadership, people management and operations. They can be placed within the quality learning loop, that is to plan-do-checkadapt; they also need to be supported by process indicators and effective management information systems. 6 The multi-level ECSF framework The four features of the ECSF are: A the framework distinguishes ideal type contexts with related value systems and supporting institutional structures, stressing the evolutionary dimension of business development and corporate sustainability B The framework provides the characteristics of business situations, offering: basic structure for ranking existing management tools and concepts, according to their fitness for use and tenability an overview of business contexts and management situations, where executives have to work with inadequate tools or without any tools at all an overview of features that the missing tools should offer. C having defined four characteristic points of view, the framework offers an analytical approach for evaluating and, ultimately, improving institutional structures D having distinguished contexts, situations and an analytical approach, the ESCF is able to generate, step by step, the actions management needs to take to: improve the consistency within a specific structure, resulting in a better performance transform new business realities to new levels of corporate sustainability, thus creating innovative institutional structures to match new ambitions. With these four features in mind, the framework is a multi-layered construct, a big chest of drawers and, for each situation just open the drawer there is a full set of business institutions, management tools and concepts. However, it is a complicated framework but users do not need to know all its aspects. By determining tracks from A to B, the user will obtain a Management Reference, indicating the various steps that, theoretically and experimentally, will lead to the espoused situation. The framework can be utilised as an expert system, raising the right questions as well as providing the best answers. In practice, some drawers are still empty whilst others are not fully filled and lacking coherence. Therefore, there is still much work to do.

10 222 M. van Marrewijk Acknowledgments A thank you goes to Teun Hardjono, responsible for the ECSF research project, the ECSF Consortium members and, especially, the Article 6 team of the EU European Social Fund Regulation. References 1 Beck, D. and Cowan, C. (1996) Spiral Dynamics, Mastering Values, Leadership and Change, Blackwell Publishers. 2 Wilber, K. (1995) Sex, Ecology, Spirituality: the Spirit of Evolution, Shambhala, USA, pp Kaplan, R.S. and Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press. Bibliography Hardjono, T.W. and Have, S. (1995) The European Way to Excellence, Quality Publication Ltd. Hardjono, T.W. and Hes, F.W. (1993) De Nederlandse Kwaliteitsprijs en Onderscheiding, Kluwer Bedrijfswetenschappen. Hardjono, T.W. (1995) Ritmiek en Organisatiedynamiek: Vierfasenmodel, Kluwer. Lemaire, P. and Waszink, A.C. (2001) Managementmodellen: Toepassing in Business Planning & Control, Thema. Quinn, R. and Cameron, K. (1999) Diagnosing and Changing Organisational Culture, Addison Wesley Longman, Inc. van Marrewijk, M. (2002) Concepts and definitions of corporate sustainability, Journal of Business Ethics. van Marrewijk, M. and Werre, M. (2002) Multiple levels of corporate sustainability, Journal of Business Ethics.