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The EFMD business magazine

Management 2.0 for sustainability 2.0: The silent revolution in the making

management 2.0 for sustainability 2.0 - fist on red backgroung
Is sustainability hostage to an old management paradigm? If so, ask Richard Straub, how can we liberate it from this yoke?

The machine model for management that we inherited from the industrial age has run its course. We cannot address high levels of complexity and uncertainty with rather rigid top-down approaches for objective setting, command-and-control, and bureaucratic process management. What does this mean for sustainability?

A catchword in search of a definition

Over the past twenty years, ‘sustainability’ has become one of the most commonly used terms in the economic and business literature. Yet it has been such a fast-evolving term that there is no common definition for it. Those who first used it were urging industrial producers not to lay waste to the environment – sustaining, which is the simple opposite of depleting, the earth’s bounty of natural resources. Today the term has been stretched to include such diverse aims as erasing discrimination, ending hunger, and ensuring access to healthcare—in other words, addressing societal as well as environmental ills.

The rise of sustainability has been paralleled by an increasing focus on ‘ecosystems’ – not just natural ones but also evolving business and economic constellations. Note that Peter Drucker introduced the term ‘social ecology’ alongside the natural variety as early as the 1960s and 1970s. For him, social ecology was the complex system of man-made organisations and institutions that connected people and made society work. It is obviously tightly interwoven with natural ecology – indeed, Drucker believed they should be thought of as one single entity.

Recognising the dynamic nature of ecosystems moves us far beyond the simple cause-and-effect expectations that are still the basis for traditional management theory and practice. This familiar, linear thinking has given us today’s dominant machine paradigm for organisations, characterised by hierarchical control and extensive bureaucratic processes.

Management for real-world complexity

The disconnect between real-world complexity and unpredictability and the simplistic methods we use to achieve organisational and institutional results is widening every day. The time when we could expect to extrapolate the future from events in the past and execute a meticulously designed plan to achieve a single desired outcome is well and truly over. We need to go out to meet the future, and learn from each step on the way. Innovative management approaches are beginning to do this and are gradually becoming more widespread. Think about Agile, Design Thinking, Lean Startup, Rendanheyi from Haier, radical decentralisation from Vinci Group, to name a few. Yet, when we look at major sustainability-focused initiatives such as ESG and SDGs aiming to improve the world via systematic (management) approaches, we quickly realise that they are firmly mired in industrial-age management thinking.

Rethinking sustainability

It is time to rethink how we understand the management of sustainability – first, we must get the notion of sustainability right. I will not attempt an all-encompassing final definition – if terms are used too broadly in various contexts they lose their meaning, which is what has happened here. But we need to make one thing clear from the start: going far beyond preserving and nurturing the natural world, sustainability must include the idea of long-term value creation and the vitality and viability of all key ecosystems, whether natural, social or economic.

Contained in sustainability, then, is also the notion that management must ensure the long-term viability of the business – something that is too often left out of the account when additional tasks are heaped on business leaders. Peter Drucker abhorred the narrow pursuit of shareholder value because of its obsession with short-term results and the built-in incentives to ‘distribute and downsize’ rather than ‘retain and reinvest’, to use William Lazonick’s characterisation. Less well understood is Drucker’s equally forthright rejection of the so-called stakeholder model, with its lack of clarity about business priorities. To prioritise all stakeholders effectively means having no priorities and no focus.

It is time to rethink how we understand the management of sustainability – first, we must get the notion of sustainability right.

Instead, the priority for Drucker was to nurture the long-term capacity of the business to create value for society. Alongside this comes the responsibility of business leaders to keep raising the performance of their organisations, operating profitably enough to keep thriving in competitive markets. As Drucker put it: “Unless [a business] discharges its performance responsibility, it cannot discharge anything else. A bankrupt business is not a desirable employer and is unlikely to be a good neighbour in a community.” It was always crystal clear for Drucker that business viability comes from generating value for customers. ‘Creating customers’ is the ultimate purpose of businesses.

Sustainability 2.0

What we have witnessed in the last few decades is a culture of growing mistrust directed toward business, fanned by media and ideological groups, when it comes to sustainability. The temptation to micromanage the behaviour of business and others has led to the creation of a bureaucratic ‘compliance industry’ whose purpose is to police implementation. The European Commission’s Corporate Sustainability Reporting Directive is a striking example of this problematic mindset.

Yet if we want to achieve progress toward a more sustainable world, we must move beyond the obsolete models of command-and-control management, with its focus on interdiction, precaution and coercive approaches. We must finally abandon the illusion that we can achieve our noble ends—i.e., creating the material conditions for dignified lives without destroying our natural environment—with ever more detailed micro-regulation and control. It can only be achieved with a distributed, bottom-up approach, nurturing a true sustainability culture in which the entrepreneurial forces in our societies are incentivised to find novel and unexpected solutions.

The job of the state then becomes, first, to develop the conditions for entrepreneurship and innovation in economic, social and natural sustainability to thrive; and second, to draw up a legal and regulatory framework setting out positive incentives and clear responsibilities and accountability for actual negative impacts.

Management 2.0

This is a huge task, and, as ever, the devil is in the detail. But the first essential is to get our mindset straight: accepting that we cannot address the unpredictability of our complex world with the fake certainties of Management 1.0. This means a change in paradigm that includes moving from top-down to bottom-up, from bureaucratic regulation to commonly embraced goals, from the principle of precaution to a balanced risk management, from command-and-control to empowerment, from technocratic hubris to humility coupled with humanity. These, I would propose, are the essential principles of Management 2.0. Openness to continuous learning, experimentation and adaptation become natural ingredients of management action.

We still have a way to go to leave industrial age Management 1.0 behind. Yet now is the time to rethink management and, with it, to rethink sustainability. It is easy to envision that sustainability powered by Management 2.0 will achieve superior results because it will liberate at scale the entrepreneurial energy and the creativity and innovation that we need to address the environmental, and the social and economic issues that will shape our future. The need for renewal and reformation is obvious, and the calls for it should not go unheard. As Charles Handy famously challenged us in his closing address at the Drucker Forum 2017: “If not us, who? And if not now, when?”

Management 2.0 for sustainability 2.0 The silent revolution in the making

Further information:

The Global Peter Drucker Forum is the world‘s leading management and leadership conference dedicated to the management philosophy of Peter Drucker. He was a management professor, writer, and consultant, frequently referred to as the “Father of Management”. The Forum is held annually in November in Drucker‘s home town of Vienna, Austria. In 2023, the conference will focus on its big theme, “Creative Resilience: Leading in an Age of Discontinuity“. It will be held at Vienna Hofburg on 30 November and 1 December 2023.

Richard Straub is Founder and President of the Peter Drucker Society Europe and of the Global Peter Drucker Forum.

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