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Embedding sustainability into a utility’s business culture D av i d R . M a r lo w , 1 M a gnus M o g li a, 1 Dav i d J. Beale, 1 AN D An n a Sten str omer 1 1CSIRO
Land and Water, Highett, Victoria, Australia
Engagement with sustainability can be conceptualized as a journey in which initiatives involving management, employees, stakeholders, and the community gradually facilitate changes in direction and attitude that are in line with sustainability principles. This view holds that an organization’s culture is a key point of leverage in any attempt to move to a business model more closely aligned with sustainability concepts. Building on this view, an
approach was developed in which business decisions were analyzed in order to assess the sustainability culture of a water utility. This article presents an overview of this research, including background on how an organization’s culture can influence decisions. A method for analyzing decision-making from the perspective of sustainability policy is demonstrated using a case study undertaken with an Australian public water utility.
Keywords: action research, business culture, infrastructure asset management, sustainability transitions Urban infrastructure can be conceptualized both as a key part of the economy and a way of linking society with broader economic activity and therefore is a key element of sustainability (Figure 1). Buried water infrastructure in particular delivers services that are critical to the health and wellbeing of communities. However, because such infrastructure is hidden from view, communities can undervalue the role such assets play in providing service. This in turn can lead to long-term underinvestment in infrastructure, which is undesirable from the perspective of broader sustainability principles (Marlow et al, 2010a; Allbee, 2005; USEPA, 2002). With these concepts in mind, research was undertaken into the link between sustainability and infrastructure management (Marlow et al, 2010a). One component of this research investigated whether the analysis of business decisions provides a means of facilitating the development of a sustainability culture. This article presents findings from a related pilot study. Background discussions on the research context are given, including an outline of concepts drawn from literature on organizational learning. An overview of the research is then provided, and results from a case study are outlined.
nizational change process is to incorporate sustainability principles into policy and strategy documents. The challenge is then to embed this policy into “business as usual” thinking. This challenge requires a cultural transition in which the focus is on the processes of innovation and change rather than classic goaloriented decision-making. This implies that engagement with sustainability relies on developing a learning culture that is open to organizational adaptation (Pahl-Wostl, 2002). Individual and organizational learning. An area of the literature that provides insights into the way in which organizations learn is termed action research (Smith, 2001; Anderson, 1994). A key concept in this literature is how individuals modify their actions based on the intended and unintended consequences their actions cause for themselves and others. Research suggests that there are four predominant governing variables that dictate the way the
FIGURE 1
Infrastructure as a critical dimension of sustainability
RESEARCH CONTEXT Changes within public and private organizations are often triggered by organizational failures of one kind or another, changes in the business environment or internal triggers such as a change in the ownership model (Senior, 2002). Sustainability as a specific driver for change can involve such drivers, but also implies a broader engagement with social and environmental issues. Willard (2005) highlighted the necessary organizational transition in terms of initiatives involving management, employees, the community, and stakeholders that gradually facilitate a change in direction and attitude in line with sustainability principles (Figure 2; Marlow et al, 2010b). A key step in this orga2012 © American Water Works Association
Biosphere Society Infrastructure
Economy
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majority of people act in their professional lives (Argyris, 1995)— to remain in unilateral control, to maximize winning and minimize losing, to suppress negative feelings, and to behave according to what the individual considers rational (i.e., to define clear objectives and evaluate behavior in terms of whether these objectives are achieved). According to this model of human behavior, individuals seek to minimize their exposure to embarrassment and threat, which leads to the development of defensive organizational cultures in which underlying problems are covered up rather than addressed (Anderson, 1994; Argyris, 1991). Individuals generally espouse different governing variables from those shown by their actions, and it is these espoused values that are more desirable from the perspective of organizational learning. They include sharing of valid information, making informed choices, and vigilant monitoring of the implementation of those choices in order to detect and correct error. In other words, when people’s actions are observed and judged independently, the defensive governing variables shown by these actions are not the same as the arguably more desirable ones that people generally claim are behind their actions. Argyris (1995) concluded that individual learning style and organizational learning culture are necessarily interlinked, and that real change in the latter requires change in the former and vice versa.
FIGURE 2
Conceptual pathway to sustainability
Level of Sustainability Engagement
Purpose and passion
5
Integrated strategy 4 Beyond compliance Compliance
Single- and double-loop learning. The tendency toward defensive interactions leads to what is known as single-loop learning (Argyris, 1990). As shown in Figure 3, when single-loop learning is applied, if outputs and outcomes are not as desired, individuals seek an alternative action strategy, but only within the context of meeting their governing variables. The validity of the governing variables themselves is not challenged. The alternative is called double-loop learning, in which individuals consider whether the governing variables are appropriate. Double-loop learning relies on having open communication, minimal defensive relationships, and sharing of valid information to allow honest and open assessment of decisions and outcomes. Double-loop learning is necessary if organizations are to make informed decisions in rapidly changing and uncertain contexts. In practice, this requires organizations to develop a high level of internal commitment to learning (Argyris, 1998). For the purpose of this research, the conceptual model shown in Figure 3 was interpreted as being applicable at multiple scales, from the level of the individual up to the level of the water utility. This latter perspective can be justified because utilities have relationships with stakeholders that influence the action strategies that are adopted. Furthermore, factors such as maintaining customer confidence, avoiding negative media coverage, promoting corporate image, and minimizing negative stakeholder interactions can be undertaken in a defensive manner, reflecting predominant governing variables at the level of the individual. Organizational learning is today becoming more important because of emerging issues such as climate change, water scarcity, constrained budgets, and aging infrastructure. These issues mean that business drivers are changing dynamically, which creates new requirements and influences both governing variables and necessary action strategies, as shown in Figure 3. Because the ability of an organization to learn and adapt is facilitated by nurturing doubleloop learning, it can be inferred that double-loop learning is desirable from the perspective of the cultural transition shown in Figure 2. However, insights drawn from the literature imply single-loop learning is likely to prevail in most organizations, which must therefore be considered a barrier to any such transition. In particular, it should be recognized that procedural structures, hierarchies,
3
Precompliance
FIGURE 3
2
Single- and double-loop learning
1
Time New requirements
Source: Marlow et al, 2010b. Step 1—precompliance: driven by financial profits. Step 2—compliance: manages liabilities; environmental and social actions to some extent treated as public relation exercises. Step 3—beyond compliance: active engagement with community and environmental issues; sustainability is included in policy. Step 4—integrated strategy: sustainability integrated into business strategy; viewed as an investment and opportunity, not a cost or risk. Step 5—purpose and passion: fully committed to sustainability; driven by passion and a corporate commitment to improve the overall well-being of the company, community, and environment.
Governing variables
Action strategy
Double-loop learning
Modified from Anderson, 1994
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Outputs and outcomes
Single-loop learning
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and the decision-making culture of a water utility have been optimized over time to meet a given need, and this need has to some extent now changed or is in the process of changing. If defensive governing variables predominate, individuals and groups will continue to meet targets associated with traditional approaches, even when the targets themselves are no longer optimal.
RESEARCH APPROACH After reviewing the literature, it was proposed that insights into relevant aspects of a water utility’s culture could be gained through analysis of specific management decisions using semistructured interviews in conjunction with qualitative techniques (Myers & Newman, 2006; Broom, 2005). To test this, a pilot study was undertaken in conjunction with an Australian utility; the utility supplies water and wastewater services to more than 1 million people and has made a strong commitment to sustainability over the past few years. The decision selected for study related to the replacement of approximately 2.5 km of a 250- to 300-mm-diameter cast-iron water main that runs along a busy street and passes through an iconic shopping area. The decision to replace the pipe was reached after assessing the asset’s risk of failure. The failure risk was deemed unacceptable because of the poor condition of the pipe (considered to indicate high likelihood of failure) and the potential for significant consequences in the event of any serious pipe failures. Initial information in the form of reports and policy documents was used to gain an understanding of the decision-making process. Interviews were then arranged with 12 individuals involved in some aspect of the decision; the interviews took place two years after the business case to replace the pipe was approved and around the time the capital works program was beginning. The roles and level of involvement of those interviewed are shown in Table 1. After completion of all the interviews, the responses were summarized, noting key words and phrasing used by the interviewees. A thematic analysis was then undertaken; i.e., responses were categorized according to common concepts (Wang & Roulston, 2007).
• The view of the decision culture • Specific changes to the decision-making process that the individual would like to see. In the case of assets and capital (Table 1), the interviewee responses shown in Table 2 are listed in order of approximate seniority—for example, the first row of assets reflects the opinions expressed by the most senior manager interviewed. None of those with a direct or auxiliary involvement in the decision expressed any concerns regarding information flows. Of those who had supporting roles (i.e., an involvement of none or indirect), two indicated that information needed was “eventually” provided, two indicated there had been some gaps, and one indicated that there had been “no flow of information.” Another individual noted that there was “not enough proactive information available.” All but one of the individuals with some involvement in the replacement decision itself noted reservations with respect to the analysis but not in the decision. The most senior manager directly involved in the decision did not express any reservations with respect to the analysis, but two of the other asset managers questioned the underlying assessment of risk, one using the phrase “overly bleak picture” and the other using “overplayed” when referring to how risks had been communicated. In contrast, all but one of the individuals with no direct involvement stated they had no reservations with respect the analysis, and all noted that their opinions were strongly influenced by risk information provided by the asset managers. In particular, several respondents used words such as “disastrous” and “catastrophic” when referring to the effects of potential pipe failure. The remaining individual, who had a background in asset management, said that “balancing economics and disruption is in its infancy” and that the value placed on disruption reflects “perception rather than facts.” One of the asset managers referred to other high-profile failures (including a pressure sewer failure) that had “set the context of risk appetite”; i.e., implying the utility had become sensitive to public relations issues because of then-recent asset failures. The only individual who actively disagreed with the replacement of the pipe was not directly involved in the development of
RESULTS This analysis focuses on the decision-making culture of the company, although insights were also gained into attitudes toward sustainability. The analysis of opinions is summarized in Table 2, with the role of interviewees characterized according to the schema shown in Table 1. Opinions were categorized thematically as follows. • Involvement in the decision: “direct” indicates that the individual was involved in the replacement decision; “auxiliary” indicates that the individual was involved in follow-up decisions; “indirect” indicates the individual was in a decision support role; and “none” indicates no direct involvement in the decisionmaking itself but either involvement in the implementation phase (capital delivery and community engagement) or provision of procedures used to support the decision • The view of information flows • Whether there were any reservations with respect the analysis of the replacement decision
Table 1
Summary of interviews by role, number, and involvement Number of Respondents
Involvement
3
Developed business case
1
Pipeline sizing
1
Operational knowledge
Capital
2
Delivery of solution
Community
2
Engagement over capital works
Finance
1
Financial modeling
Corporate risk
1
Corporate risk processes
1
Corporate sustainability processes
Role
Category
Asset managers Assets
Design engineer Operations Capital delivery Engagement
Sustainability
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the business case but had detailed operational knowledge of the asset and asserted that the lack of recent burst history meant the pipeline was being targeted because of its age. This reservation was shared by one of the asset managers, but he considered the utility had been the “victim of good fortune” and that the risks associated with the pipe necessitated the replacement. Three individuals expressed some reservations with respect to the decision-making process (rather than just the analysis), with two noting that it took a long time to make the decision and the other questioning the level of community engagement before the decision was made. Nine interviewees indicated that the decision-making culture was “generally open” or “open.” Of the rest, one stated knowledge of “issues with designers and contractors” and that although he felt able to challenge decisions if he were “climbing the greasy pole [i.e., if seeking to gain promotion], this would be a different story.” Another noted “people don’t like negative comments; I expressed concerns over the decision, but the decision was still made . . . I would like to have seen the business case.” One manager noted that people were “free to express their opinion,” but “whether these would be considered is another matter.” Another said he “hopes people feel free to challenge” and that the overall aim was to reach consensus and then get buy-in to the decision that had been made, indicating that once a decision has been made, individuals should then focus on making that decision work. Some comments were made relating to trust issues—as well as differing goals and focus—between the water company and its capital delivery partners. Even given the generally positive comments on the decisionmaking culture, when discussing items they would change, six of the interviewees expressed opinions that were subsequently characterized as wanting better communication. One individual noted that “experts made the decision and it would have been preferable to have broader input into the decision-making process, rather
Table 2
SYNTHESIS OF INSIGHTS Analysis was undertaken to determine whether opinions were reflective of single- or double-loop learning. This focus was premised on the assertion that an effective learning culture facilitates organizational adaptation, which is considered necessary for moving to a business model that is more closely aligned with sustainability concepts. However, as discussed previously, individuals are likely to espouse values different from those that underpin their actions. As such, it was necessary to consider whether there were any conflicting stories gleaned from the interviews and what the implication of these might be. There was certainly evidence that information flows were not considered satisfactory, especially by those who had a stake in the decision but were not involved directly in the business case development. This was underscored by the majority of such individuals expressing the wish for improved communication. There was also mention of trust issues between the company and its contractors. It was interesting to contrast these views with the generally positive comments in the interviews, which lent some support to the fact that there was some suppression of negativity evident. As noted previously, suppression of negativity is a governing variable that underpins single-loop learning. The communication of risk exposure relating to the existing pipe was also of note. That individuals not involved directly in developing the business case had a strong view of this risk indi-
Summary of perspectives relating to decision-making culture
Category
Assets
Capital Community
Procedures
than just having the decision communicated.” In contrast, individuals involved directly in the replacement decision wanted more robust analysis, better tools, or a sustainability framework within which to consider individual asset-replacement decisions. With respect to the latter issue, one asset manager noted a necessary improvement was “to be able to see how individual projects aggregate into sustainable decisions . . . making decisions for individual projects in the context of a bigger picture.”
Involvement in Decision
Information Flows
Reservations Regarding Analysis
Decision Culture
Change to Decision-making Process
Direct
No issues
None
Open
More robustness
Generally open
Broader sustainability framework needed
Direct
No issues
Some
Direct
No issues
Some
Generally open
More robustness
None
No flow
Yes
Somewhat closed
Better communication
Auxiliary
No issues
Some
Somewhat defensive
Better communication
Auxiliary
No issues
Some
Open
Processes are changing Better communication
None
Some gaps
None
Somewhat defensive
None
Eventually
None
Generally open
Better communication
None
Some gaps
None
Open
Better communication
Indirect
NA
None
Open
Better communication
Indirect
Eventually
None
Open
New tools
Indirect
No issues
None
Open
Nothing
NA—no answer
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cates that those who were involved had “marketed” this view, even though they themselves had some concerns that the risk assessment had not been robust. Decision-making with respect to buried infrastructure is inherently uncertain, and this uncertainty is difficult to communicate. Perhaps in response to this, the asset managers appeared to have broadcast a simplified version of a complex analysis. Such simplifications facilitate communication to nonexperts, but can also be considered a barrier to public vetting and ultimately to corporate learning. Furthermore, the simplified version was also communicated to those with sufficient knowledge to question it. There was negativity expressed by one individual who was sufficiently informed to disagree with the basis of the decision; this was still evident at the time of the interviews and was also known to other interviewees. Double-loop learning implies that this issue should be addressed, with a focus on the “action strategy” and underlying “governing variables”; however, it appears that the culture was driven by norms associated with single-loop learning. As a connected insight, the interviews demonstrated that there was a significant level of trust in those who made the decision. Such trust is a double-edged sword in that it reflects positively on those making the decision but implies that there is less scope for effective scrutiny by others. For example, only preferred solutions (in this case, replace the whole pipe now or replace the pipe in phases) were subject to more detailed and independent financial analysis. The efficacy of the overall process thus rested with those selecting the preferred solutions.
CONCLUSION This article has considered the role of a utility’s decisionmaking culture in facilitating sustainability transitions. Although formalizing sustainability principles into policy is a starting point, such transitions require utilities to develop a culture that embraces both change and openness to challenge. As discussed in this article, this means that utilities need to develop a doubleloop learning capacity. One method of investigating the culture of a water utility is to analyze decisions from the perspective of the sustainability policy of the organization. A methodology for achieving this has been piloted in this research. The approach provided a range of nonobvious insights that helped the utility identify potential shortfalls in both decisionmaking processes and culture—including addressing communication issues and ensuring that information flows are adequate to prevent silo attitudes from developing. For example, significant efforts to engage the community and stakeholders were made, but revolved to some degree around education about the company’s decision and managing the effects of capital works. This approach was reasonable from the perspective of the business, but a more participatory engagement model was considered desirable by some. As might be expected in a complex decision spanning a number of years, there was some evidence of defensive relationships, negative feelings being suppressed, and that valid information was not always being shared. This implies that single-loop learning styles are still present within the business. It must therefore be concluded that the business culture of the case study utility needs to be devel-
oped further if it is to facilitate the type of sustainability transitions necessary to allow sustainability policy to be fully operationalized. In particular, the utility needs to develop strategies for communicating complexity and to allow for public vetting of ideas without making the decision-making process overly onerous. Overall, the analysis provided insights into the learning and decision-making culture of the utility. The approach could therefore be used by companies that wish to investigate their own sustainability culture. Use of independent interviewers would seem desirable, given the need for honest and open discussion of issues.
ACKNOWLEDGMENT The authors gratefully acknowledge the financial support of the National Flagship Water for a Healthy Country (CSIRO). In addition, the authors acknowledge the assistance of the water sector professionals who gave their time to arrange for and participate in the interviews. Finally, the authors acknowledge the role of reviewers for helpful comments on the initial draft of this article.
ABOUT THE AUTHORS David R. Marlow (to whom correspondence should be addressed) is a project leader in strategic asset management for CSIRO Land and Water, 37 Graham Rd., Highett, Victoria 3190, Australia;
[email protected], where he has worked for five years. He previously worked as a consultant in the United Kingdom undertaking research and development–based work relating to risk and asset management as well as consultancy services relating to water main rehabilitation. Magnus Moglia and David J. Beale are research scientists and Anna Stenstromer is a research student, all at CSIRO.
Peer review Date of submission: 03/15/2011 Date of acceptance: 10/24/2011
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