Integration of Sustainability into the Corporate Strategy

The path of sustainable corporate development needs to be outlined for any business with specific deliberation on its internal and external environment. To achieve sustained success, the organisation must pinpoint its concrete objectives and values. These should be, furthermore, clearly understood, accepted and supported by the employees of the organisation (ISO 2009). It is therefore necessary to explicate the business model and the enterprise’s potential innovation as an integral or complementary part of strategy development.

To do adequate justice to the topic of sustainability as a whole, the following perspectives have to be considered within the process of business model definition/innovation:

1. Economic Perspective—While the traditional economic challenges are to increase the company’s value and to increase the profitability of products and services, the challenge with regards to economic sustainability lies in making environmental and social management as economical as possible.

2. Environmental Perspective—All actions of an enterprise affect its ecosystem. Thus, companies are encouraged to reduce the absolute level of their negative environmental impact resulting from production processes, products, services, investments etc. to a considerable extent, where the largest possible decrease is desirable. The largest possible decrease is however desirable.

3. Social Perspective—In order to achieve sustainable value creation within the social dimension, the social issues of focus have to provide a real competitive advantage. Such advantages could be obtained by increasing revenues, or reducing risks or operational costs. In this pursuit, the tension between social and economic pressure is relieved as both society and businesses enjoy tangible benefits at the same time.

Combining fragments or modules of a company is a fundamental aspect in several business model definitions (Osterwalder and Pigneur 2011; Johnson et al. 2008; Wirtz 2010; Mitchell and Coles 2003), serving the purpose of creating products and services and thereby creating, providing and maintaining value (Wirtz 2010; Johnson et al. 2008; Osterwalder and Pigneur 2011). In this context, value creation is used for strengthening the customer relationship and competitive advantage (Wirtz 2010). These components of business model innovation can be summarised as illustrated in Fig. 3.

Nowadays innovation is a major key for sustainability due to the fact that the future society demands innovative products, processes and services, without losing out on efficiency (Clausen 2011). Product or incremental process innovations are neither a guarantee for success nor sufficient for coping with the emerging information, knowledge and time-competition (Stern and Jaberg 2010). Against this background, the innovation of business models has arisen as a new discipline, providing organisations with supplementary guidelines for differentiation models in the market place in pursuit of securing long-term competitive advantage. Relating the business model concept to sustainability (Lüdeke-Freund 2010) defines a sustainable business model as “a business model that creates competitive advantage through superior customer value and contributes to a sustainable development of the company and society.”

A business model basically defines the way in which a company operates. Sustainable Business model innovation can be an important leverage for change in a company to be considered sustainable and for coping with the emerging challenges in this context. This furthermore entails an expansion of the business model scope beyond green (FORA 2010), product-service-systems (Tukker 2004) or social issues (Yunus et al. 2010; Bocken et al. 2014). Brocken et al. developed a set of sustainable business model archetypes clustered by technological, social and organisational perspective for innovations as shown in Fig. 4 (Bocken et al. 2014).

These archetypes can be interpreted as an approach for business model innovation towards sustainability. They can initially assist in the process of embedding sustainability into existing business models or for the purpose of radical re-engineering of the business models and for delivering a sound starting point from which to broaden economic, environmental and social aspects in tackling the complementary process of strategy development.

Today, enterprises are forced to align their own objectives with the needs of all their stakeholders. Particularly at a time characterised by shorter product life cycles, decreasing prices, new technologies, global markets and increasing sustainability demands, enterprises require an efficient process for their strategy development activities.

The term strategy was first recorded in the late 1950s in the economic doctrine of the Harvard Business School. As instruments of corporate management first evolved from the concept of strategy, the terms strategic planning, and consequently strategic management have been established. In English-speaking countries (Chandler 1962; Ansoff 1965; Schendel and Hofer 1979; Porter 1980), prominent pioneers provided crucial foundations. From this 50-year history of the strategy concept in the context of corporate governance, the following features of a strategy can be derived: the consideration of actions of other actors, proactivity and long-term orientation (Staehle and Conrad 1994).

Strategy in its initial context is generally used to establish conditions that will guarantee long-term economic success and thus the continuity of the company. For this purpose, a strategic success ensues, which ultimately leads to advantages over competitors (Rüegg-Stürm 2005; Grant 2005).

The development of a comprehensive strategy which not only concentrates on competitive benefits and thus on the economic value, presents itself however to be a much more complicated undertaking. With regards to the aspect of sustainability, the environmental and social dimensions have to be taken into account, and, moreover, the cause-impact relations likewise have to be adequately assessed.

Several companies appear to be active in the field of sustainability management. They may publish, for example, extensive sustainability reports. Yet their efforts nevertheless often remain unclear from a strategic perspective. Rather, the impression that sustainability issues are being tracked often tends to be the case, more than they are actually proceeding on the basis of a clear strategy (Baumgartner and Ebner 2010).

The development of a comprehensive enterprise strategy which meets all given requirements from internal and external stakeholders and specifically contains sustainability perspectives, is a process which requires a structured approach in the interest of keeping the complexity and uncertainty at a minimum level. The process of strategy development can be divided into four major phases as presented in Fig. 5 (Will 2012).

In the first step, information is preliminarily collected which describes the current situation of the company for establishing a general consensus on the initial situation (e.g. information about business environment, general corporate objectives or the corporate profile incl. development of earnings).

In the second step, the products and markets are categorised so as to quantify their respective contribution toward the overall business result. For visualisation, the findings can be represented e.g. in a product-market-chart. Based on this analysis, the current market situation of the company is evaluated. The aim of this step is to obtain a first rough estimation of the yield model to derive interesting advancements from the existing business model in the next step.

The major decisions regarding the incorporation of sustainability into the strategic decision-making process are derived in the step of assessing the strategic options for corporate sustainability. The starting point for the determining of suitable strategic options is captured in step 1, featuring the general corporate objectives and the current trends in the business environment. In addition, the current situation of the company examined in step 2 leads to the necessity of a fundamental decision on how exactly the company would like to deal with the challenge of sustainability without losing any growth potential. Baumgartner and Ebner (2010) recommend a set of profiles for sustainability strategy (Table 1) as a first means of orientation in the strategic decision-making process.

Each of these positions the company wants to occupy has to be evaluated by taking into account risks, chances and possible development scenarios regarding market penetration, product differentiation, market expansion or diversification. For the analysis of the relationship between sustainability and competitive strategy, (Baumgartner and Ebner 2010) propose two criteria: costs caused by the strategy, and the recipient of the resulting benefits.

Finally, a selection of a strategic option based on the assessment from the previous step has to take place in order to arrive at the detailed strategic objective as a conclusion.

Since an enterprise consists of several different units and elements which are interconnected on several levels (active vs. passive or strong vs. weak relationship), it is necessary to consider all influences and possible side-effects within the process of strategy implementation. In this context, many companies use enterprise processes as a common backbone for the different management disciplines with the objective of fast and consistent realisation of strategic issues at all levels of the enterprise (Jochem and Balzert 2010).

The use of process management approaches for transferring complex strategies down to the operational business will be examined in the following section.

Process definition and modelling is of great importance in the pursuit of achievement of the company’s strategic and operational objectives. The aim is to improve the efficiency on the one hand, and the effectiveness of the company on the other hand, so that its total value can be increased. Processes and process management are connected to two essential signifiers for ensuring effectiveness and efficiency in the company. First, the corporate strategy determines the processes which are required and which strategic objectives are to be implemented alongside them. It forms the basis for process identification and target orientation. This involves changes in corporate strategy, entailing changes in the processes itself. Secondly, the customer or stakeholder orientation determines what expectations and requirements have to be met through the processes. Therefore, the process definition extends from the requirements of the customer to the delivery of the process results to the client. It is important that the terms of the processes of corporate strategy and customer reference in the context of process management are coordinated (Jochem and Balzert 2010). Figure 6 illustrates the connection of corporate strategy and its operationalisation via an integrated management.

The comprehensive development and implementation of a corporate sustainability strategy which meets the requirements of the economic, environmental and social perspective, require a sound information basis from which to proceed. The various management disciplines involved have to be addressed in such a way that the attendant complexity is reduced to a minimum. A promising approach for visualizing and therein explaining the interrelation of varied enterprise objects lies in enterprise modelling.

In Vernadat’s view (1996), an enterprise model is the basis for the understanding of a company, whereby the relevant structural and dynamic components and their interactions are described.

Enterprise modelling describes relevant processes and structures of a company or organisation and their mutual relationships. The applications are designed extend to the illustration of the enterprise architecture, the root cause analysis of operational problems, strategy development, process optimisation or the management of business collaborations, among other topics (Sandkuhl et al. 2013).

Thus, the process management commences with the alignment of the processes and the sustainability strategy, which means defining the value-adding processes and objectives to be achieved. In the following phase of process design, the defined processes will be designed in detail, modelled and optionally documented. In the course of the implementation of the processes in the organisation of the company, the evaluation of the processes is carried out in terms of target-achievement, and where applicable, harmonisation or standardisation can be required. Finally, the actual controlling of processes follows, related to the entire corporate controlling process, resulting in impacts on the strategic development.

Both the challenges and the opportunities which integrated mapping of process management and sustainability offers, lie mainly in the mastery of increasingly complex planning processes. Based on enterprise models that unite the perspectives of different strategic planning disciplines and also support them with integrated model-based planning and evaluation instruments, the objective of corporate sustainability is pursued holistically (Dyllick and Hockerts 2002).

An important and critical success factor remains however unconsidered within enterprise models. The implementation of a sustainable development strategy requires not only an excellent knowledge of the internal processes and structures, but also, for example, of relationships with customers and partners, i.e. intangible assets. The role of such assets in terms of sustainability is briefly introduced in the next section, along with an approach for the integration of these values into the development of corporate sustainability.

In order to provide products or services, an organisation will combine different types of resources like human skills and knowledge, natural materials and social structures, by using machinery, infrastructures and financial assets. A sustainable organisation will maintain and, wherever possible, enhance these capital assets, rather than exhaust them (“capital stewardship”) (Knight 2006; ARE and DEZA 2004). In turn, the design of the business processes constitutes the interrelation of the business operation, its resources and performance as well as the impact on the economic, social and environmental dimensions (Fig. 7). If, for instance, economic sustainability is interpreted as an expansion of the private welfare maximisation, enterprises have to ensure the long-term functionality and effective performance of their operation. Consequently, the design of the business processes needs to be directed towards the effective, efficient and beneficial use as well as towards the development of the capital assets involved. In this context, the capital-based approach refers to the relevance of different types of resources and makes a basic distinction between tangible and intangible resources. These are then employed in business processes to improve the organisational performance.

Tangible resources, meaning those resources that are material or substantial, are composed of financial, manufactured and natural capital (IIRC 2013).

Financial capital is the sum of available financial resources that are utilised to fund the organisation’s operation. Thus, the product and service provisions are financially sustained through capital obtained via revenues, investments, debt, equity or grants.

Manufactured capital meanwhile comprises all physical objects that are employed by the organisation in order to produce and deliver its products and services. This physical part of the production system includes infrastructure and buildings, operating equipment as well as measuring, storage and transport utilities (Westkämper and Decker 2006). These objects can be obtained from third parties or in-house production.

On the basis of the classical understanding of “land” as a major factor of production, natural capital comprises all natural resources, processes and systems available (Harris and Roach 2013; IIRC 2013).

The classification of intellectual capital as an intangible resource follows the principle of the harmonisation of intellectual capital factors into standard repositories. Human, structural and relational capital are herein subdivided into standard success factors (Mertins and Will 2008) which map the most common types of intellectual capital. In order to comply with the system attached to modelling processes, the repository of intellectual capital factors needs to be adapted on a case-by-case basis. At the same time, considerations for directing this approach towards sustainable corporate development are taken in the following adaptation delineation.

The competence model forms the basis for the human capital factors. It was developed through empirical studies and quantifies specifics of enterprises analysed. Here a more generic approach is taken, which in turn is detailed through the consideration of role- and activity-based competencies. Human capital is thus defined as the sum of professional, social, personal and methodological competence. The peculiarity of these competences is dependent on the specific role occupied or on the activity itself, and in a wider sense, likewise on the strategic consideration of paradigms such as sustainable development.

The structural capital requires a distinct consideration of those capital factors that are activity-based (cooperation and knowledge transfer, product and process innovation), and the objectified factors (management instruments, explicit knowledge and corporate culture). While all factors are indeed structural factors of intangible resources, the implications on the activities of the model as condition transformation of objects such as “knowledge,” need to be observed and incorporated into the process model creation.

In relational capital, a new configuration considers relations on micro-, meso- and macro-level in order to integrate social aspects in a distinguished manner. At the micro level, the external relationships of the enterprise with individual actors are considered, while cooperation partners, supplier-, customer- and investor-relationships constitute the meso-level as individual “dyadic” relationships (Provan et al. 2007). Relationships to public bodies (legislative, funding) and society moreover are considered within the macro-level of relational capital. This allows for a focused definition of all relevant stakeholders and the enterprise’s relationships to those stakeholders.

At this point, an assessment of the cause-effect relationships can be implemented following a cross-factor impact assessment of all resource factors (Alwert et al. 2005). Identifying closed-loop interrelations is an attempt to address the system’s theoretical discussion of the introduction, where weakening or strengthening dependencies are identified and expressed in relation to a specific analysis object (Galeitzke et al. 2015).

The definition of resources (tangible and intangible) builds the basis for analysing the interrelations within the different resource categories and helps to identify fields of action for improving on the sustainability performance of their deployment. The following section introduces an approach for action planning and monitoring by using extended enterprise models.

The most brilliant sustainability strategies can turn into disasters if they are not entirely or only insufficiently implemented. A key factor for a successful implementation of the sustainability strategy lies in the planning of operational actions and the availability of evaluations for monitoring and tracking qualitative and quantitative aspects. The measurement, control and communication of information on sustainability require the interaction between various actors, evaluation methods and operational data (Maas et al. 2016).

Figure 8 presents a framework concept for the description, analysis and monitoring of sustainability, specifically their interrelation with enterprise models.

Applying this framework, one can ensure that a systematic embedding of the individual sustainability strategies, objectives, their monitoring and its implementation takes place in the planning phase.

The enterprise model characterises the core area of the framework presented. It represents an enterprise within all its aspects of strategic objectives, products, organisation, processes, tangible and intangible resources and their interrelation to each other. Once the variables that contribute to the characterisation of sustainability are modelled, a detailed action plan for the achievement of the strategic objectives is required. In order to coordinate this multi-dimensional sustainability system, mechanisms for prioritising them, clustering mechanisms for mapping them to the different dimensions of sustainability, as well as mechanisms for describing the relation aspects between them, are all necessary. To make best use of the scarce resources of an enterprise, an initial selection is necessary. To that end, a two-dimensional prioritisation-matrix can be used. The matrix differentiates between the dimensions “need for action (urgency)” and “feasibility”—each of them assuming the characteristic values low, medium and high. The matrix (Fig. 9) can help identify which measures are urgent and how easy or difficult they are to implement (Kohl et al. 2014).

It reveals the urgency level of the actions, along with their feasibility. The optimisation of the energy use might, for example, be highly urgent, but need not be easily feasible due to contractual ties. Furthermore, the enhancement of the material efficiency could be highly urgent, but not very feasible, due to the complex processes along the value chain that can only be altered with the application of enormous effort.

As soon as the prioritisation is complete, a suitable set of indicators has to be derived. Due to that fact, numerous methods, guidelines and norms have been developed (Kohl et al. 2013; Neugebauer et al. 2015; ISO 2013; VDI 2016), which offer evaluation mechanisms, and finally, indicators for expressing the degree of target achievement. A further consideration is then omitted at this point. Once the suitable indicators are aligned with the planned actions and thus with the strategic objectives, the monitoring via the usage of operational data has to be realised. Business intelligence and reporting tools that are only capable of visualising performance indicators are no longer sufficient for capturing the complex requirements of a comprehensive sustainability approach (Schneider and Meins 2012). Moreover, a solution for network sustainability management and its evaluation is required for balancing economic, ecological and social dimensions (Wilding et al. 2012). In the context of sustainable development, economic, environmental and social aspects have to be presented in a context-sensitive manner. To provide task or role-oriented information, the framework supports a so-called “view concept.” The views contain the relevant information for typical application and modelling purposes. They offer a focused cut without changing the models themselves. An evaluation component offers role-specific model evaluation views, summarizing relevant indicators and enterprise information in a central system, and allows their evaluation according to model elements.

The framework also allows a derivation of integrated reporting which complies with national and international standards. All elements described in the section above and integrated into the integrated model-based framework, are represented also in reporting guidelines for the communication of sustainability. The following section briefly introduces the major approaches.

Companies are exposed to a growing number of required reports for internal as well as external reporting purposes (e.g. Intellectual-Capital-Statements, environmental reports, corporate social responsibility reports or sustainability reports). Given this situation of information overload, a comprehensive integration of various reports seems to be worthwhile. An integrated reporting format would not only reduce the internal preparation efforts, but also contribute to the standards, as for example formulated in the EU directive “Accounts Modernization Directive” on non-financial enterprise reporting (Clausen et al. 2006). While large enterprises communicate non-financial data and information to their stakeholders, small enterprises so far lack the means to report on their effort and achievements in implementing sustainable strategies. This section highlights our research contribution on integrated reporting.

In 2011, Eccles and Saltzman (2011) defined integrated reporting as “a single document that present and explain a company’s financial and nonfinancial—environmental, social, and governance (ESG)—performance.” This definition highlights the content and origin of integrated reports. In addition to traditional financial information, contents regarding the sustainability of the company¹ are of note. Hence, in the following, the phenomena surrounding “sustainability reporting” will be discussed in detail before the connection to integrated reporting will then be drawn.

Sustainability reports document the environmental, social and economic engagements that enterprises are making in dealing with internal and external resources. They satisfy the increased need for information on the part of stakeholders. For sustainability reporting, criteria and an array of guidelines are already available. Worldwide attention has been paid to the Global Reporting Initiative (GRI). Since 2013, the meanwhile fourth version of the so-called “G4 Guidelines”—is available (Global Reporting Initiative 2013). Since the so-called “CSR directive” of the European Union was released, all reports published after the 6th of December 2016 have to be prepared “in accordance” with the G4-Guidelines (Guideline 2014/95/EU). When developing the guidelines, the GRI had several objectives in mind. One was to offer a bridge-builder for sustainability reporting on the path toward integrated reporting. The G4-Guidelines are therefore also applicable and implementable in integrated reporting (Soyka 2013).

The International Integrated Reporting Council (IIRC)—established in August 2010—consists of representatives from corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors as well as from civil society (IIRC 2011). In September 2011, the IIRC released its first discussion paper, offering an initial proposal for the development of an “International Integrated Reporting Framework.” More than 200 responses were received from a wide range of stakeholder groups. The (IIRC 2012) published the results in 2012. The current IIRC proposal considers arguments for integrated reporting, and describes guiding principles and content while offering preliminary suggestions for the development of an international “integrated reporting framework” (IIRC 2013).

Central to Integrated Reporting is the organisation’s business model, i.e. “the process by which an organisation seeks to create and sustain value” in the short-, medium- and long-term perspective. This model is embedded into a system of inputs, business activities (the core of the business model) and outputs, as well as outcomes. In this context, value creation is not done by or within the organisation alone. It is influenced by external factors, e.g. the economic conditions and societal issues which represent risks and opportunities in the external environment. Furthermore, relationships to employees, partners, networks, suppliers and customers have an impact on the organisation’s value creation process. All organisations depend on different resources and relationships for their success. In that process, the IIRC framework uses the concept of “multiple capitals” for explaining how an organisation creates and sustains value. According to the framework, an integrated report should display an organisation’s stewardship not only with regards to financial capital, but also with other forms of “capital” (e.g. manufactured, human, intellectual, natural and social), along with their interdependencies.

According to the IIRC, integrated reporting explains linkages between an organisation’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. Based on this, the IIRC formulates suggestions for integrated reporting—consisting of seven guiding principles and nine key content elements. The guiding principles underpin the preparation of an integrated report, based on the interconnected key content elements.

The approach of the IIRC gives comprehensive understanding of tangible and intangible resources and suggests interdependencies between corporate action and results. Since the IIRC approach aims for a harmonisation of reporting, a special focus is set on the enterprise’s external communication.

Originally, the approach was developed for large companies that are publicly traded. However, an approach for small- and medium-sized enterprises (SME) must be “downsized” or “downsizable” for the special purposes of SME (Bornemann et al. 2011). Because the IIRC approach principle is based on this, flexibility for an adaption is thus built-in.

In-line with the guiding principles and content of the IIRC, the authors have developed a reduced approach with a special focus on SME. This approach uses the five following principles and six content suggestions:

To enhance the range in the distribution of the report, the approach also suggests using digital media. In addition, the formulated principles likewise profit from the use of digital media. When regarding, for instance, the consistency and comparability principle, the timelines of the KPIs prove to be much more doable in the digital approach than in the case of a classical print-version of a report.