Leadership and business model change key for net zero transition

26 March 2023 Consultancy.com.au 7 min. read
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Climate change is a global crisis that requires global solutions. However, it is simultaneously a local problem – one that transcends political and business boundaries in Australia.

Australia is already grappling with water stress, rising sea levels, less predictable rainfall patterns, and more frequent and intense heatwaves and wildfires as a result of climate change. These ground-level effects – along with government initiatives and investor pressure – will continue to push Australian companies toward greater levels of sustainability.

Already, the squeeze from all sides is having a strong effect. At least half of the largest companies in Australia have net zero commitments, according to the Climateworks Centre. That number is even larger (78%) for high-emissions sectors, such as utilities, oil, gas, mining, and metals.

The five leadership and culture levers of better innovation

As companies enter uncertain economic times, stakeholders are expected to increase pressure on businesses to balance both present and future needs. Firms must meet today’s financial obligations, while still maintaining their focus on innovation, sustainability, and digital experiences.

Technology doesn’t guarantee success

Enterprises will need evolving business models and leadership to balance their competing demands. They must maintain short-term financial performance while also positioning their companies for sudden market shifts and opportunities a few years down the road.

Global IT consultancy Infosys surveyed about 2,700 business leaders (from organizations with over $1 billion in revenue) to better understand how they are addressing these demands through both changing technologies and organizational practices.

The global survey generally found that companies are most successful when they create a culture that takes responsible risks, follows the trail of value rather than processes, and uses “live data” (which is transparent, readily accessible, and shared widely). Advanced technology is critical, but alone, it’s not enough to allow companies to outperform the competition.

Respondents believe in technology and operating model, and not culture, to achieve goals

Flexible, risk-taking, and agile leadership needed

The Infosys research, titled ‘Digital Radar 2023’,  found that leadership in the ESG realm is most effective when it comes from the top. The same is true for net zero – a critical part of the ESG equation.

Leadership and culture are among the most important practices that help Australian companies improve their net zero outcomes. One-third or more of the business leaders surveyed say that their companies have better outcomes when they:

  • Encourage risk taking.
  • Display a flexible leadership style.
  • Develop a rapid test-and-learn culture.

Leadership and employee diversity lagged slightly behind these other factors but was still cited by 30% of respondents at Australian companies. The percentages were similar for companies globally.

Transparent data reporting is a top practice to improve net-zero outcomes

In addition to these agile and aggressive leadership traits, companies generally found that their data practices were often effective in the pursuit of net zero goals. The need for comprehensive, secure, and “fresh” data was the most commonly cited (43%) top five practice by Australians. About one-third of respondents consider transparent data reporting – often through ESG dashboards – as a top success factor.

However, the survey results point to a data and leadership gap. Despite the efficacy of their data practices, executives were significantly less likely to say that data-driven decision-making helps them achieve their net zero objectives.

These conflicting results point to struggles executives face in this fast-moving business environment. Sixty-one percent of respondents from Australia say that when faced with ambiguity, “I make decisions quickly despite incomplete information.”

In these cases, leaders either do not have time to gather all the needed data, or that data simply is not available. One possible factor is a lack of transparent reporting, which slows the speed of decision-making.

Getting the data right is critical – particularly for the bottom line. Analysis of Digital Radar data found that improved data practices lead to better innovation outcomes. And better innovation outcomes are correlated to increased profitability.

Business model change for net zero

To reach a net zero future – especially by the Paris Agreement’s 2050 deadline – people, businesses, and nations cannot continue doing what worked in the past. For companies, that will often apply to their business models.

Analysis of data from Digital Radar found that companies are more effective when they operate with a product-centric mindset, rather than one focus on traditional processes. Nearly one-third of leaders surveyed say that outcome-based business models are a top organizational practice that helps them achieve their net zero objectives. These types of pay-per-use and as-a-service models give companies a greater understanding of and control over their carbon footprint.

Subscription-based business models improve customer engagement and loyalty

The report found a range of benefits for companies that adopt a subscription-based business model. Those companies were 30% to 40% more likely to report “excellent” product creation speed. The likelihood of companies having improved customer engagement and loyalty increased by 80% with this model. Although subscription-based models are still an emerging approach, 28% of respondents said it helps them with their net zero journey.

The Australian Fashion Council is now working with its industry to attempt to reach a circular fashion economy by 2030 and net zero by 2050. The organization found that 1.5 billion clothing items enter the Australian market annually, and about 200,000 tonnes end up in landfills. The organization, through its National Clothing Product Stewardship Scheme, is funding pilot programs to help its members discover and explore new, more sustainable business models.

Although companies are eager to burnish their reputations for sustainability, they can’t afford to allow those ambitions to undermine the rest of the enterprise. Businesses are now reaching the moment when they must determine how to be both environmentally responsible and profitable.

The Infosys report suggests both can coexist and even support each other. Many of the practices studied – from live data to a risk-taking culture – support companies’ innovation, digital experience, and net zero goals simultaneously.

Andrew Groth, Head of Australia and New Zealand at Infosys, said: “With the right understanding of what practices work and the technology that supports them businesses can create a new foundation that will withstand the future.”