Leading in a World of Resource Constraints and Extreme Weather
16 Jun 2015
Source: Harvard Business Review
By: Andrew Winston
My father worked at IBM for 35 years. He told me about the days, decades ago, when he first ran into a new breed of executive and thought, “What the heck is a CIO?” These information-focused leaders emerged as the world changed and the capabilities that companies needed shifted over time. And as an HBS white paper points out, even some of today’s most mainstream executives — from the CTO to even the CFO — were once just new positions created to deal with “significant opportunities and risks emerging from technological or social disruptions.”
Today we face a set of unprecedented disruptions under the “sustainability” banner that are driving deep change in organizations (indeed, the HBS paper is mainly about the rise of the Chief Sustainability Officer). Consider three critical mega-trends: resource constraints and rising commodity prices; climate change and extreme weather; and radical, technology-driven transparency.
The issues in each of these buckets require new leadership, or at least a rethinking of it in the highest ranks of companies, and deep operational changes.
Resource constraints mean organizations have to use less stuff. When it comes to our natural resources, we are facing a combination of some shortages — like the growing water emergency in California — and extremely volatile and generally rising prices for nearly every commodity.
We’re starting to recognize that this relatively new situation has important ramifications for how businesses operate, and we’re making some progress. McKinsey, for example, recently outlined the “new organizational capabilities” that chemical companies should develop to deal with frequent oil price shocks. The advice boils down to building better strategic foresight and creating more agile management and operations.
And while that’s all true, it does suggest that having a facile organization will be enough. The reality is that, in a world of rising and volatile input prices, companies need to be more than just flexible in how they react to changes – they also need to proactively develop new products and services that are far less resource-intensive throughout the value chain.
In other words, they need to use less stuff.
The drive for dematerialization will change job descriptions in R&D, product development, and procurement at the very least. But companies will need new positions as well. Think of appointing a Chief Circular Economy Officer, a VP of Dematerialization, or Director of Water.
Climate change and extreme weather demand resilient, flexible organizations. In 2011, floods in Thailand stranded hard drive and automakers for months without key parts. Of course nobody can predict exactly when another Thailand — or floods in Texas or deadly heat waves in India — will happen again. But we know that because of climate change, these extremes will happen more frequently. At the very basic level, protecting assets will also mean that operational leaders will move more equipment to the second floor of buildings (which one of my consumer products manufacturing clients has done in numerous locations).
But a high-performing organization should do much more than that: Supply chain and operational execs should be ready to shift production and logistics very quickly from one region to another. And more proactively, they should spreading risk by spreading production around to different regions with different outlooks for weather and water availability.
Climate change is so far reaching, companies will want some dedicated resources to manage the operational and regulatory terrain. There’s already an Association of Climate Change Officers that provides some foresight into what that emerging role looks like. Facebook employs a Green Energy Czar, so I can easily imagine a Zero Carbon leader or Extreme Weather VP. Real estate or hospitality companies with major coastal assets may want a Sea Level Rise Officer. And everyone will need a Chief Resilience Officer, although that should really be the CEO.
A connected world is a transparent world. The rapid increase in data about real-time conditions in supply chains will enable more agility. But new levels of connectivity also have another important ramification: transparency. Business customers and consumers are demanding and expecting more information on the products they buy, so most large companies will want more people and resources deeply embedded in the supply chain.
A Supply Chain Transparency VP could focus energies on reducing downside risk and ensure that they have no environmental or social skeletons in the closet. A Value Chain Perfomance czar could provide knowledge, assistance, or capital to help suppliers improve their operations. They could work with their supply chain partners to innovate and improve the resilience of the whole chain.
One of the biggest changes that ties all three of these issues together involves the speed at which organizations will need to react to them. Companies will need to “listen” to their full value chains – collecting signals of extreme weather, shortages, major price swings, or shifts in customer demands — in as close to real-time as possible. They’ll also need increasing data collection and data analytics about their products and services, about all their ingredients and inputs, and about all suppliers multiple steps upstream.
Any new roles will also require the ability to consider systems and interconnections, like the energy-water-food “nexus” that Shell worries about. Coalition-building will be crucial as well as people across the organization will want to develop unusual collaborations within the company and with NGOs, governments, industry organizations, and even competitors.
The glue holding the new skillsets and titles together will be, for now, the Chief Sustainabilty Officer, or CSO (although this acronym is also sometimes used for Chief Strategy Officer). It may sound like it’s still a new role to many, but a report from recruiting giant Heidrick & Struggles was heralding the rise of the title eight years ago. Since then, the CSO’s role has most definitely grown and gained influence, as this Atlantic article explores by featuring CSOs from MGM, EMC, Owens-Corning, and elsewhere. These sustainability execs and many more are acting as hubs of information, connections, and strategy, as well as major conduits of communication and partnership with all stakeholders. And they can sit in nearly any part of the organization and hold other titles simultaneously (like R&D at Owens Corning or Corporate Communications and Marketing at Unilever).
Of course, new roles and skills don’t appear magically — they take planning, investment, ongoing commitment, and buy-in across the organization. Given the scale of the challenges we face, the typical staffing and resources provided to the sustainability executives in particular are woefully inadequate. And the development of new skills, like systems thinking mindsets, is lagging far behind where we need to be. But I predict that outside pressures will accelerate these developments, so much so that few people will have to ask, “What the heck is a Chief Sustainability officer anyway?”