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Sustainability

Why talent management is crucial in transforming business models

Published 2 June 2021 in Sustainability

Renewables trailblazer Orsted and tobacco giant Philip Morris have transformed their business models  fueled partly by HR best practice   

Companies seeking to reap the benefits of building a sustainable business by responding to social and environmental problems should look to the way they manage their workforces to transform their business models, according to human resources experts speaking at the Corporate Research Forum (CFR).   

Mark Greeven, Professor of Innovation and Strategy at IMD, pointed out that COVID-19 has brought sustainability concerns into sharper focus, with some chief executives and political leaders calling for the creation of a more sustainable world after the crisis. He relayed calls for a “green reset” and said there was “a real opportunity” to “build back better” from the economic emergency. 

He also reflected on a shift from shareholder to stakeholder capitalism, with companies now serving the interests of society and the planet as well as their investors: “Very recently this has come into focus and has become a fairly strong signal” that business leaders are taking their role in society much more seriously, he said.  

Experts at the CRF suggested three approaches to talent management that could help companies accelerate their progress on sustainability:  

 

  • Set a clear vision and invest in the talent needed to deliver on ambitious goals 
  • Embrace resilience and humility at the leadership level to enable change 
  • Import and carefully onboard diverse talent to transform organizations 

 

“Put your money where your mouth is” 

One company that has put sustainability at the core of its business model is Orsted, the world’s biggest offshore wind developer, which has its origins as a fossil fuel giant. Nicholas Creswell, Global Head of Talent, stressed the importance of being bold enough to set stretching but measurable targets, noting that Orsted’s ambition to produce 85 percent renewable energy by 2040 “seemed almost absurdly ambitious at the time it was set”, in 2012. It reached that target last year, and the company is on course to produce fully sustainable energy by 2023.  

The Danish company dates back to the 1970s and, in 2006, it became Danish Oil & Natural Gas, or Dong Energy. It later rebranded to Orsted as the company sought to pivot away from its traditional business producing fossil fuels and instead bet big on renewable energy. It aims to become the world’s first “green energy supermajor”.  

“We didn’t know how we were going to achieve that, but we put the aspiration out there,” Creswell said, adding that a clear vision is also vitally important for aligning employees. Orsted aims to help “create a world that runs entirely on green energy”, a target that Creswell admitted seemed unrealistic to him when he first heard about the organization before joining in 2019. He thought this was “just marketing hype, [but] when I got to know the company during the recruiting process I very quickly learned we’re deadly serious about this”. 

You also need to “put your money where your mouth is” and mobilize human resources behind a vision. He points to a realization, too, that profit and purpose can go hand-in-hand as a critical factor in Orsted’s successful pivot. The company’s shares have soared 256 percent in the past five years to value the company at $59bn, although some investors are skeptical that green energy will ever be as lucrative as oil and gas.  

Certainly, the company has persevered in the face of detractors. When it sold a stake to Goldman Sachs in 2014, the state-owned utility provoked a public backlash that almost led to the collapse of the Danish government. Despite this, the company prospered. “Expecting those knock-backs, being ready for them and persevering through those is incredibly important,” said Creswell of the leadership qualities required.  

“Humbleness is a key leadership trait. We see that humble leaders are more effective than [narcissistic] ones.”
- Katharina Lange


Be humble as a leader 

But he underscored the need to balance ambition with humility — a point echoed by Katharina Lange, Professor of Leadership at IMD. “Humility is one of the key leadership traits. We know that humble leaders are more effective than [narcissistic] ones,” she said, adding that they are also typically more open to learning.  

Meanwhile, the pandemic has intensified the need for human connection. There are big implications for working practices. Referencing a recent HBR article on hybrid working, Lange said time in the office should be reserved for structured collaboration, collegial learning and “the human moment”. “We can’t really build connectedness and culture virtually, so the workplace becomes the place for relationship-building,” she said, adding this was important for generating the creative spark needed for innovation.  

This will be important as companies look to embrace sustainability and transform their business models. One such institution is Philip Morris International (PMI), the international tobacco company that owns the Marlboro cigarette brand. Its vision is to create a smoke-free future and to stop selling cigarettes, reflecting the company’s commitment to its social responsibility.  

In 2015, PMI created a completely new tobacco product category called Heat Not Burn, and launched IQOS, a less harmful alternative to continued smoking, which heats tobacco instead of burning it, and reduces exposure to harmful chemicals in users who completely switch.  

“Today, we estimate there are over 19 million IQOS users in the world, of which over 70% have stopped cigarette smoking. Smoke-free products represent almost one quarter of our net revenues in 2020,” said Ilaria Gregotti, Global Head of People and Culture, Product Function. “We decided to self-disrupt and transform the company, and cannibalize our own combustible products.”   

 

Hiring diversity to drive change 

Gregotti said a critical factor in the transformation success was the re-balancing of long-held hiring practices. The company has traditionally promoted internal candidates to leadership roles — now internal talent is complemented by outside perspectives. 

“We’ve gone on a massive recruitment spree — we’re talking several thousand people that we’ve brought in over the past six years, to really drive that deep level of capability, from electronics, to consumer insights to organizational effectiveness and global communications, to name just a few,” said Gregotti.  

In doing this, the company had to devise strategies to ensure assimilation of newcomers. The measures included codifying and communicating the unique organizational culture at PMI, which is relationship-based and favors action over talk on business model transformation.  

“[Also,] we buddy-up new joiners with people who’ve been in the organization for some time, who can guide them not just on understanding the organization, but also meeting people and helping them build those important internal networks,” Gregotti said.  

The employees also had to shift to more project-based work across the organization. “The line managers need to change their behaviors and let go of resources to work on cross-functional activities,” she said, adding that, even though the company is still on its transformation journey and there is still a lot to do, the new strategy’s success makes the transformation well worth the effort.   

Authors

Mark Greeven

Professor of Innovation and Strategy at IMD

Mark Greeven is Professor of Innovation and Strategy at IMD. Drawing on a decade of experience in research, teaching and consulting in China, Mark explores how to organize innovation in a turbulent world. He is the co-director of Asian Innovation strategies program.

Katharina Lange

Affiliate Professor of Leadership

Katharina joined IMD as Affiliate Professor of Leadership in September 2019. She has taught executives globally, specializing in self-leadership and cross-cultural team leadership in times of Change. Before joining IMD, Katharina led the Office of Executive Development at Singapore Management University (SMU). Being at SMU since 2013, she directed Open Programs such as ALPINE (Asia Leaders Program in Infrastructure) or the J&J Hospital Management Program. She is Co-Program Director of the Leading Customer – Centric Strategies program.

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