by Dr. Stuart Hart, S. C. Johnson Professor Emeritus, Johnson School of Management, Cornell University
Redesigning the Corporate Architecture
"The system was strained when [the former CEO] lost support of the people in the organization. Although everyone believed in the ultimate sustainability vision, it was how it was being executed and the timing of it that were not ideal... The new CEO focused on rebuilding the culture and communication especially around accountability and ownership."
JESSICA SANDERSON,
FORMER DIRECTOR OF SUSTAINABILITY, NOVELIS
Establishing a higher societal purpose animated by tangible Business Aspirations and a compelling Corporate Quest is becoming increasingly important as we move deeper into the third capitalist reformation and a new era of sustainable capitalism. Yet even with this directional infrastructure in place to guide strategy and resource allocation, there is still the danger that companies end up off course: since most corporate efforts to re-embed purpose involve only a relatively small number of more senior people in the company—C-suite, functional, and business leaders—the potential of fully engaging and aligning the entire organization, including middle management and front-line employees, remains unfulfilled. In fact, without focus on organizationwide transformation, there is a risk that the "head" of the organization (that is, senior management) becomes disconnected from the "body" (organizational members), rendering the entire effort ineffective and potentially counterproductive.
To understand the potential for such a disconnect in greater depth—and how best to address it—my colleagues Priya Dasgupta, Kate Napolitan, and I took a close look at some truly innovative corporate "outliers"—the selection of fifteen companies noted in the previous chapter as pushing the envelope when it came to societal purpose, sustainability, and corporate transformation. We found that a clear Purpose was necessary but not sufficient to the task of focusing company attention on the actual, on-the-ground challenges that the company seeks to address. Even tangible Business Aspirations and a compelling Quest were not enough: embedding societal purpose into the DNA of the company
requires a truly systematic approach that includes everyone, everywhere in the company.
Our examination revealed that effectively embedding a transformational societal purpose requires a complete rewiring of the company. Actually, it entails more than just an upgrade to the electrical system: achieving transformational societal purpose means nothing less than a renovation of the entire corporate architecture—a new, and upgraded, "House." There is an integrated set of building blocks and elements that appear to be essential if companies are to successfully chart the course for transformational purpose. Taken together, these constitute a new architecture for corporate transformation with Purpose serving as the "North Star."
Before delving more deeply into this integrated approach to transformational sustainability, let’s take a look at the historical roots of this challenge—the question of how best to organize for strategic change and transformation.
Historical Roots of Strategic Transformation
There is a long and venerable history of models and tools focused on strategic change and transformation, dating back to Alfred Chandler’s classic work in the 1960s professing that organizational structure must follow strategy to be effective. In the early 1970s, Kenneth Andrews’s pathbreaking work The Concept of Strategy added the important dimensions of corporate purpose, personal values, and social responsibility to strategy-making, while still emphasizing that the accomplishment of purpose and strategy be achieved through the design of organizational structure, processes, and behavior. Jay Galbraith’s work on strategy "implementation" has also been highly influential. His "Star Model" of organizing for success has been particularly useful for those aiming to implement innovative new programs and initiatives within companies. Dave Stangis and Katherine Valvoda Smith in 21st Century Corporate Citizenship devoted a section to Galbraith’s Star Model as an important tool for sustainability leaders in achieving alignment among the many organizational elements necessary to ensure success—structure, formal systems, processes, people, rewards, and incentives.
However, as important as these frameworks and tools have been, most of them are based on the presumption that a "strategy" already exists and is waiting to be implemented. They make the implicit assumption that there is a separation between strategy formulation and strategy implementation—that the former is an analytical task and the latter is an organizational one. Similar assumptions are often made about societal purpose—that it descends from "above" (that is, from senior management) in fully articulated form, similar to the logic of strategy formulation.
It turns out that these "bifurcation" assumptions are contestable at best since there are numerous ways that purpose and strategy can be formed in organizations. Henry Mintzberg, for example, famously documented what he called "emergent" strategy-making—strategies that emanate from unintended patterns of smaller decisions and initiatives, which emerge from below and are simply recognized and affirmed by senior management—quite the opposite of analytically derived or deliberate strategy-making. Indeed, the McKinsey 7-S Framework described a constellation of interrelated factors—strategy, structure, systems, shared values, style, skills, and staff—that influence an organization’s ability to effectively change direction. The framework emphasized the lack of hierarchy among these factors, which meant all of them need to be aligned as an integrated system.
I began teaching strategy in business schools in the mid-1980s and was troubled by the formulation-implementation split, which reigned supreme at the time. It seemed that the process used to craft strategy appeared to have real and significant implications for company performance, yet it was not given the attention it deserved. Was it better to determine strategy through a formal and analytical planning process and then implement it, or was it more effective to guide the process with a broad vision and let the actual strategies emerge from within the organization? I was motivated to delve more deeply into this question. The result was a couple of scholarly journal articles that, I believe, resolved the seeming dilemma.
After an extensive review of the literature, both academic and practitioner, it became clear to me that there were actually multiple modes of purpose-setting and strategy-making, that could be combined in various ways, with significant implications for performance. I developed an Integrative Framework consisting of five modes: "Command," "Rational," "Transactive," "Symbolic," and "Generative" (Exhibit 6.1). The framework was based on the varying roles top managers and organizational members can play in the strategic process and how they interrelate. I observed that the role played by senior executives can range all the way from that of a commander, consciously formulating strategy at the top and issuing it to the rest of the organization, to what might be called a sponsor, when strategy emerges from below and is merely recognized and supported by the top—Mintzberg’s "emergent" strategy. Correspondingly, the role played by organizational members can range all the way from good soldier, members who execute the plans formulated by top managers, to entrepreneur (or intrapreneur), members who are expected to behave autonomously in the pursuit of new strategic initiatives.
The Command mode of strategy-making, in which a strong leader or top team formulates the strategy and organizational members execute it, is often found in startups. Founders frequently play the role of "commander" as they passionately pursue their founding vision. As organizations grow, however, the Command mode usually ceases to be an effective means of strategic management and other modes take shape that involve more formal analysis or enable more engagement by organizational members.
With the Rational mode, for example, formal planning systems and hierarchical relationships come to predominate. Strategy is seen as the execution of plans produced through comprehensive analysis and systematic procedure. Top managers and staff determine strategic direction through a formal planning process and organizational members are held accountable for results.
The Transactive mode, however, entails a higher level of engagement by organizational members in the strategic process. In this case, top managers’ role is to facilitate an interactive, cross-functional process of strategy formulation; the resulting strategy flows from organized interactions among organizational members, suppliers, customers, and key stakeholders.
In contrast, with the Symbolic mode, senior leaders focus primarily on developing and articulating a compelling purpose, mission, or vision to help guide the actions of organizational members toward a set of common goals. Top managers serve more as "coaches" to inspire and focus organizational members in the strategic process. Finally, with the Generative mode, central direction gives way completely to internal entrepreneurship, and top management adjusts the strategy to fit the pattern of innovations emerging from below.
I reasoned that companies need not adhere to a single mode of strategy-making. Instead, I hypothesized, the more companies develop a higher level of "process capability"—skills in multiple modes of strategy-making—the higher their performance. In a survey-based research study of 285 firms, this hypothesis was borne out: firms with the highest process capability indeed outperformed single-mode or less process-capable organizations across multiple dimensions, including growth, future positioning, and social responsibility. The highest-performing firms combined inspired purpose with rational analysis, structured engagement, and significant autonomy for organizational members. There was no separation of strategy formulation and implementation.
The House of Transformational Sustainability
The results of the Transformational Sustainability Benchmarking study introduced earlier reinforced this earlier work on strategy-making process: we found that embedding sustainability and a societal purpose into the core DNA of a company requires the systematic realignment of the entire corporate architecture, including purpose, goals, metrics, and strategies, as well as the key organizational elements—structure, systems, processes, rewards, and incentives. We borrowed a metaphor from Griffith Foods—the "House"—to represent how these various building blocks fit together as a system (see Exhibit 6.2).
This was an authorized excerpt from Chapter 6 of Beyond Shareholder Primacy: Remaking Capitalism for a Sustainable Future , "a call to consciousness—and action—for individuals, organizations, communities, and nations" from Dr. Stuart Hart, a thought leader in Sustainable Development and Base of Pyramid Innovation. You may also find the book at Amazon and Prairie Light Books.
About the Author
Dr. Stuart Hart is one of the world's top authorities on the implications of environment and poverty for business strategy. He is Professor in Residence at the University of Michigan’s Erb Institute for Global Sustainable Enterprise. He was the founder of the Erb Institute’s dual master’s program in the early 1990s and then went on to hold faculty positions and launch centers for sustainable business at the University of North Carolina’s Kenan-Flagler Business School and Cornell University’s Johnson School of Management, where he is S.C. Johnson Professor Emeritus. Most recently, Hart was Professor and Steven Grossman Endowed Chair in Sustainable Business at the University of Vermont’s Grossman School of Business where he was co-founder and director of the school’s new Sustainable Innovation MBA Program and still serves as Distinguished Fellow.
Professor Hart has published over 100 papers and authored or edited nine books, with over 50,000 Google Scholar citations. His work has appeared in leading scholarly journals, including Academy of Management Review, Academy of Management Journal, Strategic Management Journal, Journal of International Business Studies, and Management Science, as well as leading practitioner journals, such as Harvard Business Review, Sloan Management Review, Stanford Social Innovation Review, Academy of Management Executive, Strategy+Business, and Foreign Affairs. His 1995 article "A Natural Resource-Based View of the Firm" is among the most highly cited academic works in the field of sustainable business. In addition, he wrote the seminal article "Beyond Greening: Strategies for a Sustainable World," which won the McKinsey Award for Best Article in Harvard Business Review in 1997, and helped launch the movement for corporate sustainability. With C.K. Prahalad, Hart also wrote the path-breaking 2002 article "The Fortune at the Bottom of the Pyramid," which provided the first articulation of how business could profitably serve the needs of the four billion poor in the developing world. With Ted London, Hart is the author of Next Generation Business Strategies for the Base of the Pyramid. His best-selling book, Capitalism at the Crossroads, published in 2005, was selected by Cambridge University as one of the 50 top books on sustainability of all-time; the third edition of the book was published in 2010. His new book, Beyond Shareholder Primacy: Remaking Capitalism for a Sustainable Future was published by Stanford Business Books in 2024.
Stuart Hart earned his Bachelor's degree from the University of Rochester (General Science), Master's degree from Yale University's School of Forestry and Environmental Studies (Environmental Management), and Ph.D. from the University of Michigan (Planning and Strategy).