One in five companies has the ambition to become net-zero in the upcoming decades. A good ambition, but unfortunately the gap between the ambition of being sustainable and execution is too large in many organisations. This gap can partially be caused by your organisation model. By redesigning your organisation around your product*, you can close the gap and create space for teams to execute.
*Note: when using the word ‘product’ it can both be a physical or digital product or a service. A ‘product’ is the thing you deliver to create value in a certain context.
Two extremes of organisation models:
1. Functional organisation: ‘sustain’
The first model is the functional organisation. These organisations are designed around function (e.g., marketing, sales, procurement, operation). Sustainability is improved within each function. Buildings and facilities are switched to green electricity, the parking lots get charging points and some processes will be improved on efficiency.
For sustainability, this type of organisation gets most of their results in making the status quo as green as possible. Thereby also trying to sustain the current business model. This type gives the opportunity for fast first steps, but serious sustainability also requires new business models.
2. Product organisation: ‘business model sustainability’
In contrast, the second ‘extreme’ model is the product organisation. In these organisations every product has an end-to-end team that develops, sells, ships and services their products. This form you will often see at startups; due to the small scale the whole organisation is one team around a product.
In this model teams will be able to quickly adjust their product & business model based on new insights. A good example of this is Willicroft, a vegan cheese manufacturer. After learning about the high water use and poor working conditions on cashew farms they have decided to switch to beans and lentils before the end of the year.
The agility (speed x space) arises when teams are full owners of their product. Haier has applied this model in their 50.000 employee business (unfortunately not to reach sustainability). Every team functions like a micro-enterprise shipping a product to either internal or external customers. With this organisational model you give teams freedom to radically improve the sustainability of their products and business model, e.g., by switching to totally different raw materials or opting for a different revenue model like subscription.
3. Matrix organisations: ‘incremental steps’
Mixing these models by applying them at the same time creates a matrix. Roles are linked to both a function and a product. Both the functional and the product lines have their own strategies for improvements. This creates a lot of complexity that hinders improvements.
Especially in larger organisations this type of model makes change difficult to understand. Teams therefore resort to finding the ‘right’ people to support change, like sustainability. The focus unintentionally changes from external impact to internal politics. Big changes rarely see the daylight as people chase ‘safe’ solutions.
4. Product-centered: ‘sustainable basics & sustainable business models’
The other option to combine the two extreme models is the product-centered organisation. In this type of organisation there is also a team for each product/service that leads design, product, marketing and service. But these teams are supported by a few functional departments that have a full supporting role.
A good example of this is Patagonia. They have teams for the different product categories. Those teams are fully focused on making the best products for their customers (best is also sustainable). They are supported by, for example, the logistics team. Logistics are not distinctive for the different product teams and are therefore combined into one team.
This mix puts the product teams in the lead. And thereby creates space for real sustainability on a business model level. The supporting functional teams will contribute to making the current processes as sustainable as possible. The key decision to take is deciding which product teams and non-distinctive supporting functions your organisation needs.
The product-centered organisation will be the best fit for most organisations. By putting the product teams in the lead the business model can become sustainable by design. With the efforts of supporting functions the current model can quickly become a lot more sustainable. This means this model is a strategic combination for both short and long term.
Two things will be crucial:
- Firstly, product teams and impact need to be leading, teams need to really get a mandate to make radical changes.
- Secondly, Functional teams need to be selected with care (not too many), and really need to follow the product teams whilst they are sustainalizing their current processes.