By Junta Nakai, Global Industry Leader, Financial Services and Sustainability at Databricks
Many restrictions in the UK have been lifted and everything has now almost completely opened up. While companies are still waiting for a full return to the office and are currently battling with implementing hybrid working contingency plans, this new phase also offers an opportunity to reflect on general business practices and other lessons learned in the pandemic.
After more than a decade of businesses grappling (and in many cases failing) with digitalisation projects, it is Covid-19 that has accelerated the call for digital transformation. But at the time when digital transformation seems to have finally become a reality for more organisations, it is in fact also becoming outdated. As companies look to rebuild and grow in the wake of the pandemic, they need to be looking at the next wave of transformation – sustainable transformation.
Building on the digital foundations
Firstly, before outlining what sustainable transformation is and how to make this shift, it’s important to highlight that this does not mean digital transformation is wholly obsolete – in fact, digital transformation is the necessary precursor to sustainable transformation. The same elements that are essential for digital transformation, such as the cloud, big data and artificial intelligence (AI), are also the foundations for building up sustainable transformation. The key differences boil down to a re-alignment and adjustment in thinking, approach and priorities. The other most critical difference is that sustainable transformation needs to happen much faster. Companies don’t have the luxury of a decade to turn this around. Investors, consumers and regulators demand it today.
Digital transformation boiled down to the need for efficiency, agility and ultimately, retiring those legacy IT systems. This is essentially about profit maximisation – in the short term. Sustainable transformation builds on top of this need for efficiency and agility but also expands out to changing operational requirements, restructuring the organisation and strategic planning. Sustainable transformation leverages the digital and tech infrastructure from digital transformation but then requires layering on those different priorities and mindsets.
Thinking about the wider picture
With digital transformation focusing on profit maximisation, shareholders are satisfied. Sustainable transformation on the other hand looks at maximising benefits for all stakeholders – from shareholders to customers, employees and importantly, the environment. This notion is otherwise known as ‘stakeholder capitalism’. The goal is not quick wins but sustainable profits and in fact, formulating business models and making informed business decisions to avoid actions that may in fact later damage the business.
A mining company is a good example to illustrate this. To maximise profits, a mining company could solely dig in the most efficient manner but this would mean that all minerals would quickly be extracted. When the last of the materials is extracted there would be no more source of profits and shareholders would lose out. This is before you even begin to consider the impact on the environment, the land for local inhabitants and indeed, the wealthfare of employees working on the mines. For the case of a mining company, a more sustainable approach would consider other factors such as local health outcomes, environmental impact and the potential of sites being archaeologically significant. Sustainable transformation is not only about maximising profits for shareholders, but also maximising the interests of employees, consumers and communities as well.
Companies can no longer be thinking months ahead but need to be planning years, if not decades ahead. Rather than just the immediate effects, businesses also need to be modelling the possible secondary, even tertiary, fallout and consequences of their actions – considering just how far reaching the impact could be.
This is of course quite a step away from previous practices, but there are means for businesses to make this shift – and they are similar to those needed for digital transformation.
Firstly, utilise the tech that was enabled through digital transformation. In the same way new data tools helped implement greater efficiency and agility, these same tools can now be used for a new purpose to analyse ESG data and the potential multi-faceted impact of any business decision. This requires pulling on even more data to simulate different scenarios and taking into account those elements that would not normally have been considered. Over the duration of a 30-year fixed-bank loan, for example, the risk for a mortgage lender might no longer be the ability for the borrower to pay, but rather how climate change might impact the value of the home. A bank that can analyse and mediate this risk will be more likely to succeed and thrive in the future.
Luckily, digital transformation has set down the foundations for sustainable transformation. With a little investment and leadership, many companies can also possess the ability to build sustainable businesses to serve multiple stakeholders. But now it is up to business leaders to start building them up – and fast. The luxury of many years trying to push through digital transformation projects is one businesses can no longer afford with sustainable transformation. It is time to take action and now is the perfect opportunity.