Leading Sustainable Organizations
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Senior Lecturer in Behavioral and Policy Sciences at MIT Sloan School of Management, Peter Senge has lectured extensively throughout the world, translating the abstract ideas of systems theory into tools for better understanding of economic and organizational change. He is the founding chair of the Society for Organizational Learning (SoL), a global community of corporations, researchers, and consultants dedicated to the “interdependent development of people and their institutions.”
Senge is the author of the widely acclaimed The Fifth Discipline: The Art and Practice of The Learning Organization (1990). His latest book is The Necessary Revolution: How Individuals and Organizations are Working Together to Create a Sustainable World (Doubleday Currency, 2008), which details the way companies around the world are leading the change from “business as usual” tactics to transformative strategies essential for creating a flourishing, sustainable world.
Senge was interviewed by Michael S. Hopkins, Editor-in-Chief of MIT Sloan Management Review.
Your most recent book, The Necessary Revolution: How Individuals and Organizations are Working Together to Create a Sustainable World, details the way companies are embracing the challenges and opportunities around sustainability. What clicked for them?
A lot of industries are really quite close to their resource base—food and beverages, for instance. Coca-Cola and Nestle, two corporations that rarely collaborate much on anything, jointly created the CEO Water Mandate, because they’ve come to realize that water is the most acute issue in the world today and a lot of countries where they hope to grow have areas of acute water shortage. They’ve had a wakeup that if there isn’t a more integrative management of watershed in the world, their license to operate and grow as a business is ultimately going to be at great risk. That’s a strategic issue, obviously.
What’s becoming clearer to companies is what happens to stuff after you make it. In Europe today, you make a car, you have to take it back at the end of its lifetime. That’s the law. Same is true for a lot of consumer electronics. That’s a fundamental shift in a business model. A few companies in Europe led the charge to design those regulations and they became world leaders of design for remanufacture and design for recycling. If you design the car right, you can have a lot of value in it even when it’s no longer efficient to operate.
You found companies that went from thinking about how to be “less bad” to actually being “more good.” How does that shift happen?
If you look at the progression of companies, they almost always start off with some combination of waste reduction—in other words, there are a lot of aspects about our ways of doing things that we’re wasting money on. Energy is the obvious one at the top of everybody’s mind. It used to be it was a trivial cost. Now it’s not so trivial.
SENGE’S SUSTAINABILITY TAKEAWAYS
How do you define sustainability?
- “Sustainability” is a poor word, too often seen as “environmental”; it’s also a “negative vision”
- Better definition: “What does it mean to live together well?”
Which sustainability issues will have the biggest implications for managers?
- Energy, food, and water; waste and toxicity; gap between rich and poor
- Climate change moving from a marginal issue to one that people understand will affect their business
Threats and Opportunities
What threats and opportunities will sustainability-related concerns present?
- Threat: Getting stuck in short-term actions instead of long-term solutions that require deeper investment
- Opportunities: Waste reduction and energy efficiencies and resulting cost savings; recruitment and retention skyrocket as people become passionate about new direction; potential to live in a state of beauty
What obstacles keep organizations from acting on sustainability problems/opportunities?
- Non-systems mental model—people don’t know where sources come from or where products go to
- People fiercely protective of standard of living as individuals and business leaders
- Not enough inspirational visions toward better way of living
- Need to collaborate across functions internally and across value chains and sectors externally
Last two years changed everything—10 years ago, only a handful of executives were even aware of these issues … look for sea change in focus around post-Kyoto discussions in next 6-9 months … Portland, Oregon, is model city that has reduced carbon footprint with strong standard of living … new book The Necessary Revolution: How Individuals and Organizations are Working Together to Create a Sustainable World offers specific company examples
So companies start with waste reduction, energy and material reduction, and the risk management associated with reducing waste streams. A great example is Alcoa, the major aluminum producer. Aluminum production is very, very water intensive. Thirteen or 14 years ago, they had a license to build an aluminum smelter plant in California, but it was rejected because people were really worried about both the water consumption and the waste water. They went to a serious strategy session and said, if we look at the big issues in the world for the next 20 years, water is getting bigger, and we better significantly reduce our water footprint. And they have, reducing it 50 percent per unit of aluminum produced since then.
Companies will start with some combination of waste reduction and then just get engaged. They’ll start participating in the World Business Council of Sustainable Development, and the US Business Council of Sustainable Development forums that help them start to understand more. What are other businesses doing? How are people thinking about these issues? They get in touch with non-business folks, like Business for Social Responsibility, an NGO start-up looking at it from an investment standpoint—how to develop a different approach to investment that deals with sustainability issues.
From there, they move into longer-term stuff, which is really where the action is. That’s creating new products, thinking about this in terms of your product portfolio, your product pipeline, and even your technology underpinnings. DuPont has shifted something like 25 percent to bio-based feedstock, moving out of petrochemical feedstocks, because they just don’t want to be downstream of the oil business forever. It’s a very long-term investment, but they’re doing it systematically and their goal is to be about 50 percent in about 10 years. Or GE, with its Ecoimagination products, trying to develop a whole product line around more energy efficient motors.
These are examples of companies really embracing the idea of sustainability.
Sustainability is a word that I’m not very fond of, but most of us in the field have accepted it as the lingua franca right now.
For me, sustainability means paying attention to very fundamental needs—food, water, energy, and the waste and toxicity they produce, and the fact that the world really is becoming more and more of a village and villages don’t live with 5 percent of the people with 70 percent of the wealth or 15 percent with 80 percent of the wealth, whatever numbers you want to look at. It’s recognizing that we have a system of organizing commerce that has systematically, consistently, ignored these side effects of operation.
On another level, it’s just a bad word. It’s technically what we would call a “negative vision.” We don’t want the unsustainable, we don’t want civilization to collapse, we don’t want the human species to fail. Well, of course we don’t want that, but those images don’t move people. “Survival” is not the most inspiring vision. It motivates out of fear, but it only motivates for as long as people feel the issues are pressing on them. Soon as the fear recedes, so does the motivation.
What we’re talking about is arguably the greatest challenge to innovation that humankind has ever faced: reinventing our whole way of living. And every single example I know of where something meaningful has happened, where people have worked at something that’s taken five years, 10 years, 15 years, it’s because of people’s excitement toward something that really draws them. It’s aspirational.
Do you have better labels or better terms to talk about this?
At some fundamental level it’s really about living together well. We have this unique challenge that human beings have never faced before: We have to actually live together on this planet. What does it mean to live together well? What would it mean to really tap the wisdom traditions of all the world’s different cultures?
Here is one substitute for “sustainability”: “All about the future.” You just ask, what’s the world of your children or grandchildren going to be like? What would you like to see it be like? Do you have a sense of giving them a world that’s in better shape than your parents and grandparents gave you?
I’ll never forget a dialogue that included the president of the American Superintendents Association, several other veterans of public education, and some kids. A 12-year-old girl turned to the president of the Association of American Superintendents and said, “You know, we kind of figure like you drank your water and then you drank ours.” You have to think about it that way. It has to get personal. Until it’s personal, it’s not real.
So let me ask you to try to generalize for just a moment. You say, essentially, that business practitioners are going to respond based on the way one of those main issues—energy, food and water, waste and toxicity, gap between rich and poor—matters to them. Would you say that any one of these is particularly under-attended to by business?
They’re pretty much all under-attended to. If you step back and ask, “What is the common picture here?”, what’s common is that businesses don’t know how to see the systems they operate in. Obviously, I have a bias in this, coming out of a systems dynamics group at MIT, but to me a good way to talk about sustainability is to talk about the system.
You ask people, “Where did what you make come from? Where did that component come from?” You trace it all the way back to the source in terms of something that’s being harvested or extracted from nature.
Then you ask them, “Where does it go?” They’ll say, Well, we sell it, that’s it, it’s our customers. And you push them: No, what happens after that? You start to look at the whole life cycle of whatever you make. And all of a sudden, you start to get a different picture. You realize you’re sitting in this big value chain and that in fact almost never is anybody looking at the whole of the value chain, from the standpoint of the economic, social, and environmental benefit—and cost—this value chain is generating.
We don’t see the system because we’re habituated not to see the system. We’re organized not to see the system and we’re intellectually organized not to see the system. So it starts there.
That’s not something that comes to business naturally.
I guarantee you it took Coke years to figure out that as a company, its business is really about water. It doesn’t have a business if there isn’t more effective, long-term, integrative management of watersheds in the world. And Coke is still on that journey, early in that journey. Why didn’t they see it earlier? It’s not that they’re stupid, it’s not because no one understands that water is ultimately a limited resource and there are a lot of problems with the management of water virtually everyplace around the world. It’s because it’s not in their mental model of their business.
So you’ve got to challenge your taken-for-granted assumptions. Once you start addressing these issues, you start working across all kinds of boundaries inside your company and outside your organization, which means collaborating across functions and collaborating across value chains and collaborating between sectors. If you’re going to look at your whole value chain—waste, toxicity, resources and the social functioning of your value chain—you’re going to be dealing with NGOs, which know a lot more about the social and environmental reality than you do.
And then finally, it all comes together and shifts from being less bad to being more good.
That’s a journey. What are the things, in your experience, that you anticipate getting in the way of leaders and businesses changing in a meaningful way?
You got a lot of people in the world who are just focused on their careers. They got their tracks set out in their minds, they’re climbing the ladders. And this looks like the world’s biggest interruption to their life plans.
If we translate that into a label for a hurdle that’s going to get in the way, it’s what? I hate to call it “selfishness.”
Fear of losing the status quo. We like our flat panel TVs. We like the idea that we live the way we live and we don’t want to lose it. That’s probably the single biggest political force in this country and in all the developed countries, tapping into the fear that people have of losing their present standard of living. It’s that line by George W. Bush, “The American way of life is not negotiable.”
Like a lot of fears, it’s not crazy. But it blocks all thinking. It just freezes people. And you can say, “we need to be more reflective, we need to collaborate,” and people won’t do a darn thing, because the emotional dimension of this is so strong.
We’re just—we’re a culture of waste. The simplest example I could give you is the amount of food in America. People travel here from around the world, they go to a restaurant, and they say, why is there so much food? Because we have a culture where excess is a sign of being well-off. If you think of immigrants who don’t have enough, the good life is having more than you need. It’s deep in the American psyche.
Fortunately, there are extraordinary possibilities in all this. Portland, Oregon, for instance, has reduced its carbon footprint—it’s the only city of any size that has, as far as I know. And you don’t get the feeling that this has been a big step back in their standard of living. They have their bike paths, they have their light rail, they have probably more green buildings than any city in America. People love living there.
We need that kind of clear vision of a better way of living. But I think that’s a pretty significant challenge.
If you’re talking to a business executive right now and he or she wants to respond, what do you tell them to do?
I tell them to start short-term. In a relatively short period, with a combination of internal process improvements, there’s a lot that can happen to get their acts together. Figure out where your energy goes. Very few manufacturing organizations are technically sophisticated in their use of energy, but plenty of good consultants can get you there pretty quickly.
What’s exciting is that we don’t have to leave this to the people at the top. Our book emphasizes a lot of stories where leadership started much more at operational levels, in the middle or lower ranks of organizations. Nike, for instance, has a whole new product development rating system that was started with two women, one a staff person, the other the head of a research group that did a complete toxicological analysis of the product line in 1997 or 1998. They had enough support from the top to keep going, but their work was the first step.
You’ve been working this field for a long time. How you think attitudes toward sustainability have changed within organizations?
In the last year or two, everything has changed. People are starting to suspect that these are really strategic issues that they will shape the future of our businesses. The specifics are all different depending on industry and context, but we’re in the beginning of an historic wakeup.
Undoubtedly, climate change has been the straw breaking the camel’s back. A lot of people think of climate change as a technical problem, something that’s going to be fixed by technical solutions. But more and more people are starting to realize that it’s not going to be fixed except as a byproduct of a real shift in how the whole industrial system operates.
I’m guessing that in the next six months people will have an even better handle on that. We’re right in a moment when the issue is moving from something marginal, something that we think somebody else needs to worry about, to something more personal.