AIHP: We hear a lot today about the need for companies to be more agile in response to today’s volatile and uncertain environment. From your perspective, how are businesses doing this?
DR. IOANNOU: I think a good way to think about agility is the ability of a company to strike a balance between their “explorative endeavours” (innovation, R&D, entering new markets) and their day-to-day focus on execution and meeting their margins—what we could call their “exploitative side”. These so-called “ambidextrous organisations” are able to exploit their current position while keeping their eyes focused on their external environment, reacting and seizing opportunities as they unfold. They usually do this by designing exploratory entities that act as filters between the outside world and the organisation. For example, venture capital vehicles, employee incentive schemes or open innovation programmes. UK supermarket chain Sainsbury’s recently crowd-sourced the development of elements of its sustainability strategy through an event organized by Green Monday, and opened it up for criticism and feedback by a panel of top business and thought leaders. Or take the example of Oticon, a Dutch hearing-aid company that during the 1980s lost a significant proportion of its market share to a competitor who introduced the in-ear hearing aid device. To resuscitate the company’s innovative ability, a newly appointed CEO, Lars Kolind, turned it into a “spaghetti organisation”. This meant no hierarchy, no fixed processes and slimmed-down bureaucracy. In a sense, you could see them as actively replicating external market pressures in their internal organisational environment: employees were granted freedom of choice over which projects they wanted to work on, a mechanism that allowed the best ideas at any point of the organisation to be recognised and rapidly implemented while others were disregarded. This internal revolution resulted in a boost in the creation of innovative products, securing Oticon’s market leadership for the years that followed.
AIHP: To what extent do you think that the concept of “social agility”—sources of agility that exist outside the boundaries of the firm—is currently appreciated by businesses?
DR. IOANNOU: I would say that it differs from company to company, but generally speaking this idea is only slowly beginning to be institutionalised. Let me draw a parallel with sustainability here: In the 1990s, you would not see “sustainability” as a specific function within companies’ structures. Nor was it a core strategic concept shaping organisations’ goals and values. It was a niche concept, mainly related to reputation management or other issues such as corporate philanthropy or charitable giving, but as its importance grew it started to become integral determinant of organisations’ identity and a key aspect of their strategies. Today, leaders in sustainability begin to show a complete integration between their business strategies and their sustainability goals. In the same way, I think your concept of social agility is only just beginning to be appreciated by businesses, but, in time, could become part and parcel of how they do business.
AIHP: This is definitely a trend we have witnessed closely, not least since Accenture recently merged its strategy and sustainability practices.
DR. IOANNOU: Exactly! These are the signs that we can no longer distinguish sustainability as a separate or fractional component of strategy, but we should see it as a principle that underpins the whole business. In a recent piece of research with Bob Eccles and George Serafeim at Harvard Business School, we looked at companies that are leaders in sustainability. They all showed a consistency across the whole of the organisation: their investors were interested in long-term value creation; they had dedicated sustainability policies shaping their relationships with suppliers, clients and employees; they often had a specific sustainability role on their board of directors. This shows that to become sustainable, you need to really diffuse the principle across the whole of your organisation and make it a fundamental rationale for decision-making at any level. The same applies to social agility.
AIHP: So, do you think that companies could start thinking about their relationship with external stakeholders in the same way?
DR. IOANNOU: Definitely, companies will need to embrace the “ecosystem” vision and effectively integrate external players into their strategy. We are at a stage where most organisations do not have a specific stakeholder relationship function and if they do, it is certainly not perceived as a strategic hotspot. Also, stakeholder relationship management is often undertaken in silos: businesses tend to see their external partners as individual entities, overlooking the broader network of interrelations that exist among them. However, this type of mentality is no longer sustainable. It really comes down to the difference between those companies who do what is necessary in order to realise operational efficiencies from sustainability issues, such as energy efficiency or waste reduction—and those who reconceptualise sustainability issues into new opportunities for value creation. It is only by taking this wider, ecosystem view that companies can realise fully competitive advantage for the long run.
AIHP: Why do you think that ecosystem interaction is often seen only from the point of view of managing reputational threats, rather than an endeavour that can create value?
DR. IOANNOU: Interesting point. Actually what would be very powerful is developing a taxonomy of the different ways in which organisations are currently interacting with their external environment to have a better gauge of their distribution across these two approaches. I think that we can already detect a shift away from the purely risk minimisation view of stakeholders engagement more into a value creation perspective, which is really what organisations should think of. But there are some fundamental challenges around this. For example, companies are struggling to establish meaningful metrics that are able to capture the value that is created thanks to relationships with stakeholders. Social media can be a useful tool to bridge this value-capturing gap: for example, the supermarket chain Asda monitors a twitter board as part of its customer feedback function.
AIHP: What are some other barriers that prevent companies from exploring and engaging with their ecosystems?
DR. IOANNOU: Well, a major challenge is the lack of frameworks that organisations can use to effectively map ecosystems’ actors. Actually, even in the academic world not much work has been done on exploring types of metrics that could help companies to identify and “rank” their stakeholders based on the role the play in a particular context, like at the country or industry level.
AIHP: It seems very often that in thinking about stakeholders, businesses usually focus on the “usual suspects” such as regulators, partners and suppliers, while far less attention is paid to less obvious “fringe” stakeholders—communities, civil society organisations, marginal groups etc. Is this fair?
DR. IOANNOU: Absolutely, too often businesses are aware of the usual suspects, but are blind to those who, almost by definition, are potentially of more strategic significance. There is a saying that goes “If you lose your keys, you can’t search for them only where there’s light," and it’s a bit like that. Again, I think that a map of stakeholders could help companies to make sense of the environment they operate in and the levers of influence available to them so that they can forge valuable relationships with all relevant actors. Without a clear understanding of who these players are, which role they have for the organisations and what kind of relationships exist among each other, it is hard to move one’s thinking beyond the usual suspects.
AIHP: Do you see challenges around the justification of ecosystem interaction as good use of shareholder money, particularly as the potential for value creation may not be immediately clear?
DR. IOANNOU: You could say that usually businesses are not able to talk about engagement in the right terms and this is particularly true for translating performance on environmental, social and governance issues into corporate value. For example, the fact that businesses and educational institutions can come together and co-create curricula and knowledge sharing systems can translate into productivity gains of graduates upon entering the workforce, something that certainly has an impact on company value but that is not being captured by analysts.
I think that a good approach is the one advocated by Paul Polman, CEO of Unilever, who is taking the long term view on value. This way, your company can break free from the pressure of quarterly reports and can focus more on long-term value creating activities more broadly. However, this needs to be carefully managed, a healthy, non-excessive short-term pressure by the market could be a key driver of efficiency and discipline and getting rid of them may harm the “execution” side of the organisation.
AIHP: Thank you, Ioannis, this has been a very thought-provoking interview. We will keep you posted on our research as it evolves.
DR. IOANNOU: Thank you for contacting me, this is a very interesting and topical area of research. Keep me posted and we can perhaps talk again at later stages of your project.
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