Strategic change: essential management concepts

How to combine key management ideas with sustainability to change the business and achieve better strategic outcomes

Strategic change
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In today’s rapidly evolving business landscape, organisations must navigate complex challenges while striving for long-term success. This article explores how integrating selected management concepts with ESG can drive strategic change and create lasting value for all stakeholders.

Understanding strategic and sustainable change

Strategic change involves fundamental shifts in an organisation’s direction, structure or operations to achieve long-term goals (financial and non-financial) and maintain a competitive advantage.

Sustainable change involves increasing stakeholder value over a longer period and integrating environmental, social, and governance (ESG) factors into the change process.

At P27, we talk about sustainable change in a strategic context. Therefore, we consider it an extension of strategic change, whose key characteristics include:

  • Long-term value creation focused
  • Stakeholder-centric
  • Financial & impact tracking
  • Adaptable
  • Project-driven

In other words, sustainable change is short for ‘sustainable strategic change’ for us.

Integrating management concepts with sustainability

Change management and project management in business are often used interchangeably, but they are distinct yet complementary disciplines essential for organisational success. Though they share similarities, they differ in focus, objectives, and methodologies.

Change management

Change management focuses on the people side of change, ensuring employees and stakeholders embrace new ways of working. In sustainable change, it should:

  • Create awareness of ESG factors and their importance
  • Build stakeholder support for sustainability initiatives
  • Address resistance to these changes
  • Ensure the sustained adoption of new, sustainable practices

Organisations can leverage some concepts from specialist management methodologies, standards or approaches to implement sustainable change effectively.

For change management, a method which provides useful ideas is Kotter’s 8 Steps. It outlines eight sequential steps: creating urgency, forming a guiding coalition, creating and communicating a vision, empowering others to act, creating quick wins, building on the change, and institutionalising new approaches.

Project management

Project management provides the structure and discipline needed to execute strategic change initiatives effectively. For sustainable outcomes, project management should:

  • Incorporate ESG considerations into planning and execution
  • Ensure efficient use of resources, minimising waste and environmental impact
  • Manage risks associated with sustainability initiatives
  • Track progress using both traditional and ESG-related metrics

The Project Management Body of Knowledge (PMBOK) is a comprehensive guide for project management. It is the Project Management Institute’s standard that outlines terminology, practices and principles for effective project management. It is adaptable to include sustainability considerations.

Project portfolio management

Project portfolio management (PPM) is an extension of project management to ensure that projects align with organisational strategy and that resources are allocated well across projects. To support sustainable change, PPM should:

  • Prioritise projects based on strategic, financial and ESG criteria
  • Balance the portfolio to include sustainability-focused initiatives
  • Provide visibility into the overall change progress
  • Enable dynamic adjustment as challenges evolve

For PPM, we developed the P27 Portfolio Management (P27PM). This is P27’s approach to managing continuous change – download the Managing Continuous Change in Financial Services working paper, which introduces it here. (Designed for financial services businesses but easily adaptable to most organisations, it combines some of the concepts from other methods.)

Project and portfolio financials

Selecting and managing projects using concepts borrowed from finance and investment is critical to ensure projects contribute to the value of the business in a sustainable way from a financial perspective too. Key financials include:

  • Net Present Value (NPV): Each strategic project should ideally have a positive NPV. Calculate NPV by summing the present discounted values of cash flows over three or more years. A positive NPV indicates a project is expected to create value for the organisation
  • Risk-adjusted discount rates: Use risk-adjusted discount rates when calculating NPV, rather than a single company-wide rate. This approach accounts for varying levels of risk in different strategic initiatives and helps prevent over-investing in risky projects and under-investing in safer ones
  • Portfolio approach: The overall portfolio of strategic projects should produce a return above the company’s cost of capital. This allows the implementation of non-revenue-generating projects (such as compliance) alongside revenue-generating ones, enabling organisations to pursue short-term and long-term goals

A company is a portfolio of projects. Its valuation is based on expectations of future cash flows, generated by both existing operations (“old projects”) and future operations (“new projects”).

The financials above are part of the P27PM. For more on them, see Project and portfolio financials.

Implementing sustainable change

Implementing sustainable change involves several steps:

  • Assess current state: evaluate the organisation’s current strategic, financial and ESG performance and identify areas for improvement
  • Set clear goals: establish specific, measurable objectives aligned with strategic, financial and ESG goals
  • Develop an integrated strategy: create a comprehensive plan combining business and financial goals with sustainability.
  • Create a project portfolio: develop a portfolio of projects that includes both traditional business initiatives and sustainability-focused ones
  • Implement tools: adopt systems and processes for collecting, analysing, and reporting data, including ESG data
  • Engage stakeholders: develop targeted communications for each stakeholder group to build understanding and support for sustainable change
  • Foster a sustainability-oriented culture: implement initiatives to shift the organisational culture towards a more sustainability-focused mindset
  • Continuously improve: regularly review and adjust strategy and financials based on progress data and emerging challenges

The Roles of CXOs and Board

Executive leadership and the board play crucial roles in sustainable change:

  • The CEO sets the vision for sustainable change and champions initiatives across the organisation, ensuring alignment between business strategy and sustainability goals
  • The CFO develops financial plans that incorporate ESG considerations, allocates resources, and measures the financial impacts of sustainability efforts
  • The COO integrates sustainability into operational processes and systems, oversees the implementation of all projects, and monitors performance
  • The CSO (Chief Sustainability Officer) leads sustainable change across the business, ensuring compliance with ESG regulations and alignment with strategic goals
  • The Board of Directors provides oversight and guidance on sustainable change, ensuring accountability and balanced strategic, financial and ESG considerations

Case study: sustainable change in mobility

A carmaker transitioning from fossil fuel vehicles to more sustainable alternatives like Battery Electric Vehicles (BEV), Fuel Cell Electric Vehicles (FCEV), and Hydrogen Internal Combustion Engine (HICE) powered vehicles can illustrate the integration of management disciplines with sustainability.

The executive leadership would create a portfolio of projects across BEV, FCEV, and HICE technologies, prioritising projects based on market demand, technological readiness and ESG.

The Strategic Change Steering Committee, comprising the Chief Change Officer (CCO) and executive leads, would:

  • Project & portfolio management – oversee the development of green car platforms, retool manufacturing facilities for reduced environmental impact, and implement sustainable sourcing
  • Change management (people side) – develop stakeholder engagement plans, implement initiatives to shift the culture, manage the transformation of suppliers and dealers, and educate customers about cleantech

The Project Management Office (PMO) would provide the project managers who also manage the people side of strategic change, supported by a small team of external change experts shared across projects.

Conclusion

Integrating management with sustainability concepts offers a powerful approach to driving strategic change that creates long-term value for all stakeholders. By leveraging change, project, and portfolio management in conjunction with sustainability, organisations can navigate the complexities of modern business environments while contributing to a more sustainable future.

Success in implementing strategic change that is sustainable requires a holistic approach considering all aspects of the organisation, strong leadership, cross-functional collaboration, and a willingness to challenge traditional business practices.

For more on this, see Sustainable change: the new model for value creation, an article I wrote for the CISI Review.

 

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Mauro Tortone

View posts by Mauro Tortone
Mauro helps financial services, technology and mobility businesses manage change and leads the Strategy & Finance practice. His expertise is in strategic change, capital markets and more. Mauro has over 25 years of experience working with banks such as UBS and Deutsche Bank, smaller financials, fintechs and others across Europe, the US and Asia. He sat on the CISI Corporate Finance Forum Committee for ten years and is passionate about sustainability.
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