When organisations start assessing their actions and impacts across the six capitals, AMAZING things happen. When we understand this amazingness, we can leverage it even more, to make more of a difference faster.
This blog says more about the surprising reason firms must account for the six capitals in their company reports, described in more detail in a two-part article for Pure Advantage (see links at end).
In Part 1 of that article, I looked at how environmental management is a brilliant proxy indicator for the overall quality of a company’s management, and explained how the association can become causal: when a firm truly decides to improve its environmental management, that process also improves other aspects of its management of the company.
Here I expand upon my description in Part 2 of the article of the seven shades of learning along the way to true business sustainability – the graph at the head of this blog.
The acknowledged pinnacle of business development is the learning organisation, and for true sustainability, every organisation needs to be a learning organisation.
But what is a learning organisation? What’s so good about being one? How does better environment and sustainability management turn a firm into one? What does this mean for company reports? Let’s see.
What is a learning organisation?
As defined by Peter Senge in his 1990 book The Fifth Discipline, learning organisation are those where “people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole together.”
What’s so good about being a learning organisation?
Along with seminal business thinker Michael Porter, Senge says that only those organizations that are able to adapt quickly and effectively will be able to excel. This means change. Senge believes that resistance to change can be converted to engagement via the learning process, because developing reflection and inquiry skills means that “the real issues can be opened for discussion”.
How does better environment and sustainability management turn a firm into a learning organisation?
Here are three ways:
- developing a real understanding of environmental and sustainability aspects and impacts is a tool par excellence for enabling people throughout an organisation to see the bigger picture – as Senge puts it, “to see the whole together”
- integrated reporting captures this knowledge in a way that enables it to be applied to creating genuine value across the six capitals
- maximum value is delivered when the organisation consciously connects the results of both the learning and the reporting processes to the its strategic objectives.
What does this mean for company reports?
It means that integrated reporting – preparing company reports the focus on value creation across all six capitals, not just financial, is a great way to create, leverage and sustain the collective learning process that delivers genuine sustainability. But if your firm isn’t already doing it, where do you start – and why would you?
Back to the learning organisation.
How do you know if you are a learning organisation?
Before we go any further, I highly recommend using Peter Senge’s excellent books referenced below.
Here, however, I focus specifically on organizational maturity in terms of how well an organisation manages its environment and sustainability aspects and impacts. Of course, as I’ve discussed, if you get that right, you it’s likely that you’ll also be managing everything else well, too.
The Diagram in the header to this blog shows the seven shades of learning along the way to true business sustainability as measured by the six capitals.
Together the Table at the end and the Text below identify some of the key indicators of each of the seven shades.
Organisations can locate themselves along, above or below the line of the trajectory of the learning organisation, with the two axes defining what I see as two key characteristics of the process of becoming a learning organisation:
- the shift from reacting to external drivers towards making conscious decisions about the organisation’s own vision for creating value for itself and others across the six capitals
- the shift in the nature of change from one-off transactional changes as issues and external requirements arise to a journey of transformation that delivers its own joy and excitement as well to the value creation process.
A company trapped in reactivity to external environment and sustainability drivers is “focused on business survival and bare environmental compliance,” says Fonda Smyth, who is part of the international business program with NSCC (Nova Scotia Community College). As the necessary changes in practice become more internalized and culturally embedded, the company’s attitude changes to one of cooperation with environment and sustainability agencies, albeit as a market follower rather than a leader, she notes. Building on skills and knowledge gained in that process, it becomes more preventative. As it starts to look more widely beyond itself, it becomes more competitive in its market sector until it proactively embeds the approach into the organisation. With increased organisational maturity, the value creation approach is fully integrated into “how we do business”.
What happens as companies work with the six capitals is a process of learning and change. As firms move up the arrow towards being a creative organisation:
- organisational learning increases
- the capability for constructive reflection to capture and apply learnings increases
- executive capability increases from strictly operational to include tactical and strategic
- awareness of external drivers remains on the radar as a component of managing risk and opportunity, but the motivation for change is increasingly internalised
- value creation becomes more attractive and imperative than damage limitation
- organisational awareness grows in terms of both internal self-awareness to a wider awareness of the organisation in its dynamic local, regional and global contexts
- adding value across all six capitals becomes ever more fully integrated into everything the company does, and this integrated thinking increasingly informs overall strategy
- thinking shifts from an output to an outcome focus, moving beyond “what we did”, which we can measure fairly easily in quantitative terms, to also address “what happened as a result?”
- change processes become more and more transformative of everyone and everything within and beyond the organisation
- the true learning organisation is also a teaching organisation that inspires and helps others to do what it is doing, creating wider value for itself and others by actively contributing to a more sustainable world.
At last, with a more holistic view of how it can create value across all six capitals, the company fledges into a creative learning organisation; reflexively aware, future-focused, responsible, innovative, nimble, sustainable, and adding real value across all six capitals and leading the way for others.
Too big and scary? Don’t worry: you can start anywhere so long as you know where it is!
Organisations can come into the trajectory at any point, says KiwiRail’s Jane James, with their journey likely to go backwards and forwards in an iterative process rather than along a smooth or direct path. She sees the organisational maturity framework as providing a helpful analytical and planning tool to guide their ongoing strategy and performance improvement activities.
The organisational maturity factor means identifying where you are along the trajectory of a learning organisation and starting on the journey to true business sustainability from there. Jane James emphasises that having integrity around your commitment to pursuing the more integrated strategic/reporting approach is key, adding that it really helps to be clear about where you need to focus from year to year along the way.
What will you do now?
Where is your organisation on the spectrum of the learning organisation? Compare yourself with the indicators in the table and ask yourself:
- where are you right now?
- where would you like to get to in the short-medium term – say 2-5 years?
- If you keep moving up the trajectory, what would your company would look like in 10 years time?
The six capitals: defined by the International Integrated Reporting Council, the six capitals are financial; manufactured; intellectual; social and relationship (I add cultural to this capital for New Zealand and other first nation countries); human and natural.
- Simon Millar of Pure Advantage gave me the opportunity to publish my thoughts and ideas. Thank you, Simon!
- Many thanks to my brother, management consultant extraordinaire James Feeney, for interrogating my first quadrant-based attempt at the 7 shades of learning trajectory. I learned such a lot from our discussion!
- Fonda Smythe, who is part of the international business program with NSCC (Nova Scotia Community College), gave me some invaluable feedback on an early draft of the two-part article and the trajectory of the learning organisation – thank you Fonda!
- Jane James of KiwiRail, Lisa Martin of Sanford, Ray Skinner of Sustainability Matters, Sue Reidy of Sue Reidy Communications and others who wanted to remain unnamed, who gave me some amazing in-depth feedback on the Pure Advantage articles. Your support is deeply appreciated.
- It was around 1990 that I first saw a table of four company attitudes to environmental compliance, ranging from defensive through cooperative and proactive to preventative, in an issue of a long-defunct Tomorrow magazine. I have not been able to find the original clipping to cite a date or proper reference for this, but it has been very helpful to me for many years.
For more about why businesses should report against the six capitals go to my two-part article on the Pure Advantage website at:
- Part 1: Company reports – the surprising reason why firms must account for the six capitals
- Part 2: Company reports – reactive to creative: the surprising reason why firms must account for the six capitals
- For more about the six capitals and environmental restoration, read my article, Capital Gains – the real returns on investment in restoring our waters.
- Peter Senge (1990) The art and practice of the learning organization. The new paradigm in business: Emerging strategies for leadership and organizational change
- __________ (1990) The Fifth Discipline. London: Century Business
- Senge, Peter M., Kleiner, Art., Roberts, Charlotte., Ross Richard B., Smith, Bryan J. (1994). The Fifth Discipline Fieldbook. New York: Currency Doubleday
- Finger, M. and Brand, S. B. (1999) ‘The concept of the “learning organization” applied to the transformation of the public sector’ in M. Easterby-Smith, L. Araujo and J. Burgoyne (eds.) Organizational Learning and the Learning Organization, London: Sage. These authors noted the need to properly connect individual and collective learning processes at all levels of the organization to the organization’s strategic objectives.
- Hopkins, Michael S. 2009. 8 reasons sustainability will change management (that you never thought of). MITSloan Management Review, Fall 2009. Vol 51 No 1 p27-30. Downloadable as Reprint Number SMR328 from the Harvard Business Review website http://web.hbr.org/store/index.php.
- Lubin, David A and Esty, Daniel C. 2010. The sustainability imperative. Harvard Business Review, May 2010. The article can be downloaded as Reprint R1005A from www.hbr.org
- Frederic Laloux (2015) The Future of Management Is Teal: Organizations are moving forward along an evolutionary spectrum, toward self-management, wholeness, and a deeper sense of purpose. Strategy + Business Issue 80 Autumn 2015. Accessed November 2015. This is a brilliant analysis of business personalities – short, funny, accurate and potentially transformative!