Case Study

Digital Transformation for Sustainability: A Necessary Technical and Mental Revolution

Michael von Kutzschenbach and Claus-Heinrich Daub

Abstract Digital technology and innovations are transforming our economy and society as never before. However, business leaders and managers are at a point where they need to rethink the way business can leverage digital transformation in order to support engagement with sustainability challenges. As organizations operate in the context of society, many factors such as social structures, political decision- making, general economic trends, and technological development, influence their operations. To be successful, an organization must be aware of these changes and at the same time be able to engage with them. Based on this viewpoint, we outline an integrated framework linking different levels of “digitalness” with necessary changes in managerial practice to support organizational inquiry. More research is necessary to better understand how the practice of management needs to transform in order to leverage digital technologies for an on-going, learning-based engagement strategy. This requires awareness of one’s own thinking, suspension of one’s prior beliefs, and engagement in organizational learning and experimentation with stakeholders.

Keywords Digital transformation · Engagement strategy · Sustainability · Organizational learning · Inquiring system

1 Introduction

We live in exciting times, to paraphrase an old Chinese saying. The original idea behind the statement had both positive and negative implications and the current state of the world confirms the wisdom of this insight. From the business perspective, two

M. von Kutzschenbach (B) Institute of Management, School of Business, FHNW University of Applied Sciences and Arts Northwestern Switzerland, Peter Merian-Strasse 86, 4002 Basel, Switzerland e-mail: [email protected]

C.-H. Daub Institute of Management, School of Business, FHNW University of Applied Sciences and Arts Northwestern Switzerland, Bahnhofstrasse 6, 5210 Windisch, Switzerland e-mail: [email protected]

© Springer Nature Switzerland AG 2021 R. Dornberger (ed.), New Trends in Business Information Systems and Technology, Studies in Systems, Decision and Control 294, https://doi.org/10.1007/978-3-030-48332-6_12

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issues have become dominant in the strategic thinking of organizations—stakeholder demands for greater business responsiveness to environmental and social issues and advances in digital technology [1].

The first is concern for the environment. This is more generally interpreted as including not only the climate aspects but also the effects of “business as usual” on the planetary ecosystem [2]. Added to this are concerns about the effects of business operations on society [3]. Providing wages for services in a capitalistic society clearly improves overall welfare but there are systemic distortions that shift the benefits to a few, often at the expense of others cf. [4]. This issue has a strong ethical component and vocal stakeholders argue that businesses must take responsibility for past abuses and strive to eliminate them in their future work. Without credible efforts to address these issues organizations can lose their “license to operate” in society.

Important and significant improvements in environmental performance have been achieved in the decades following the publication of Rachel Carson’s Silent Spring in 1962 [5]. However, these have generally not come from industry-initiated actions. Regulations and laws were needed to assure compliance through mostly financial penalties. Although greater efforts have made environmental protection possible, these improvements most often represent “harvesting low hanging fruit.” These are actions taken by companies because it is good for business and for their profile but without radically changing the way they do their business. Significantly more effort and creativity will be needed to attain higher levels of environmental performance [6].

The societal narrative has evolved from demanding non-polluting business oper- ations to achieving a state of “sustainability”. In reality, this is an impossible goal because it ultimately represents a violation of the Second Law of Thermodynamics [7, 8]. Beyond this, the original environmental challenge has evolved to include the social and ecosystem ethical aspects, each backed by active and vocal stakeholders from all parts of society [9].

In short, the external and internal challenges of being successful in this new “envi- ronment” is a classic “wicked problem,” as originally described by Rittel and Webber [10]. Engagement with this class of problems requires quite different managerial mindsets and approaches in order to be effective. To date, there is little evidence that the magnitude of the “sustainability” challenges facing businesses is fully grasped by the business community.

While environmental and social issues are generally viewed in a negative light as a threat, digital technologies have been widely adopted by business as a means for improving operations and directly contributing to economic performance. Never- theless, digital technologies also offer the potential to support the organization’s efforts to address the first issue. Since their beginnings in military technology [11], digital technologies have grown at an exponential pace and have gone through several evolutionary stages.

Digital technologies present a company with a set of issues that are both promising and challenging [12]. Improved information gathering, processing and dissemination is an obvious benefit. Organizational disruption is one of the more challenging conse- quences. Both the sustainability challenge and developments in digital technology are largely driven by forces external to the organization. However, the adoption and

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managementofdigitaltechnologiesareunderdirectmanagerialcontrol,whichallows greater freedom in determining their application. However, a company’s responses to the sustainability issue are not as direct and focused.

The purpose of this chapter is to present a framework that links sustainability demands with the promise of digital technologies. As with almost all technologies, there are both positive and negative consequences. An all too human tendency is, unfortunately, to concentrate on the advantages and not fully recognize the potential disadvantages. Digital technologies are no different. Additionally, the immediate benefits of, for example, automating routine procedures have tendencies to reinforce the belief that digital technologies are a panacea for all problems. The ubiquity and success of digital technologies in business suggest that these technologies can significantly support an organization’s efforts to engage with the wicked problem of sustainability. However, this path is not an easy one; it implies significant changes ranging from managerial thinking and organizational culture to the larger society in which they are embedded.

This chapter highlights the importance of fostering organizational learning and management innovation within and beyond the organization to harness the power of digital technologies. It addresses how digital transformation to higher levels of organizational integration supports the engagement and learning processes required in order to cope with the wicked problem of sustainability at both the business and societal levels.

The remainder of this chapter is organized in three sections. The following includes a discussion of the complexity of sustainability challenges and provides a framework for understanding digital transformation as a process. In the subsequent section, an integrative framework for a sustainability-oriented inquiring process with the support of digital technologies will be developed. Finally, the integration of new digital technologies with organizational support for double-loop learning and innovative experimentation to foster digital transformation for the better will be discussed.

2 A Necessary Revolution—from Technical Fixes to Fundamental Solutions

Building on the introduction of the sustainability challenge and providing a frame- work for understanding different levels of “digitalness,” this section argues for a more holistic approach to digital transformation. When applying digital transforma- tion to the development of sustainability approaches, it is useful to have a shared understanding of how the different terms are used in this chapter.

The first step highlights the complexity of sustainability challenges for human decision-making capability. The second step frames the digital evolution as character- ized by three levels, digitization, digitalization, and digital transformation. Because digital transformation is not an end in itself but rather an ongoing evolutionary

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process of innovation, the necessary organizational learning processes for a more holistic approach to digital transformation for sustainability are discussed.

2.1 The Sustainability Challenge

The effects of human activities on the planet have been observed for centuries, so awareness of the consequences of these activities is not new (cf. [13]). However, industrialization and economic pressures for more and faster growth have outstripped nature’s ability to absorb the by-products of this growth. Carbon dioxide emissions to the atmosphere is the most common example but the list of hazardous chemicals and wastes is long [14]. Information and communication technologies, including websites and social media, have contributed significantly to raising public awareness of these issues and providing a means for stakeholder voices to be heard in settings that were previously inaccessible.

The word “sustainability” is used in discussions about a healthier world that enables more positive ways of living. The report Our Common Future, published by the UN World Commission on Environment and Development in 1987, defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” ([15], n.p.) For the business world, the UN report has established sustainability as a keyword for a variety of standards and expectations that society uses to judge the performance of companies.

Over time, the concept of sustainability has been socially constructed and re- constructed through social, political, and economic processes [16, 17]. While the UN definition and the subsequent “Sustainable Development Goals” (SDGs) are inspirational objectives, the task of translating them into a business strategy is not obvious. Since sustainability is a wicked problem, there are no “final end-states” or “fixed targets” that we can strive for. According to Bagheri and Hjorth, the concept of sustainability is a “moving target, which is continuously evolving as we understand more about our socio-environmental system” ([18], p. 84). Thus, the sustainability challenge represents a classic “wicked problem” (cf. [10, 19]). That is, it has no definitive formulation. Multiple stakeholders have different values and objectives on the topic that lead to different views/definitions of the state of the world. Wicked problems have no “stopping rule.” Consequently, sustainability is dynamic and the time horizon is indeterminate. Furthermore, every wicked problem is a symptom of another problem; this refers to the fact that it can usually be traced back to a deeper, more fundamental problem. Transferred to the sustainability challenge, all issues relating to sustainability are consequences of the nested and dynamic nature of the multiple systems involved [20].

Thus, the complexity of sustainability challenges human decision-making capa- bility. This often leads to managerial prescriptions and recommendations based on simplifying disciplinary assumptions to reduce the complexity of the challenges that organizations face. Artificially constraining the problem definition and developing

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strategies for the reduced problem statement has two outcomes. In the short term, a technological solution may allow temporary mitigation of the problem. For example, technicaladvanceshavesignificantlyimprovedthefuelefficiencyofinternalcombus- tion engines through reducing automotive emissions. However, there is rarely a single outcome of a technological development. In the automotive case, increased fuel effi- ciency has actually led to increased car usage due to lower fuel expenses, which is a negative outcome in the larger environmental picture.

Digital technologies offer the prospect of contributing positively to the efforts of organizations and society to become more “sustainable.” However, the application must be moderated by the awareness of possible unintended negative consequences. Essentially, the success of initial digital transformations in standard business and organizational applications has led to the belief that this approach might also be useful in dealing with sustainability. That is, an exclusive reliance on technology to solve a problem that is comprised of both technological and non-technological compo- nents. This limits the effectiveness of both organizational initiatives for learning and management innovation as well as digital technologies for fostering a more sustainable society.

2.2 Classifying the Different Levels of Digitalness

Before examining the impact that digital technology might have on enabling a transi- tion towards a digitized sustainable society, it is important to understand exactly what “digital” means in digital transformation. Unruh and Kiron [21] proposed a frame- work (see Fig. 1) to describe the digital evolution. They argue, “two principal forces are driving digitalization. One is digital technology itself and its associated services and gadgets. Another is the invisible hand of the market responding to the evolving wants of consumers” ([21], n.p.) In their framework, they characterize the digital evolution as consisting of three phases starting with simple digitization followed by digitalization and leading to a digital transformation. Note that digital transformation is not an end state, but an ongoing evolutionary innovation process.

Figure 1 illustrates the different levels of “digitalness” (cf. [21]). Given the impact of digital technologies, new ways of thinking about businesses and relationships will be needed in order to achieve greater performance.

Fig. 1 Framework for understanding different levels of “digitalness” (own illustration, modified from [21])

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2.3 The Need for a More Holistic Approach to Digital Transformation

While business interests are currently the primary driver of digital transformation, the trendswillexpandbeyondtheorganizationalboundaries.Examplesofthisincludethe “Internet of Things” and cloud computing [22]. Consequently, innovation activities initiated by business interests will spill over into the larger social world. Business organizations therefore have a special responsibility to promote the best way for this disruptive transformation to support sustainability.

Previous research has shown that organizational learning is a critical capability for an organization’s innovation outcome (cf. [23, 24]). Senge [4] popularized the term “Learning Organization” with the publication of his book The Fifth Discipline: The Art and Practice of the Learning Organization. In talking about “Learning Orga- nizations” he described organizations in which “people continually expand their capability to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning how to learn together” ([4], p. 3).

The literature contrast two fundamental organizational learning processes: (1) “single-loop learning” (SLL) and (2) “double-loop learning” (DLL). Organizational SSL is characterized by problem solving within the organization’s “theory in use” [25] or “dominant logic” [26]. DLL expands the process of detecting and solving problems by critically reflecting on the existing organizational mindset. This involves questioning the values and norms and the underlying belief systems and assumptions. This can lead to a change in the existing “theory in use” [25, 27] and results in a new business logic for a company’s theory of success.

When applying digital transformations to developing approaches to sustainability, SLL consists of introducing incremental changes within a dominant design. The objective is therefore to improve efficiency through the new digital technology (“Dig- itization”) and to ensure competitiveness in the existing business ecosystem (“Dig- italization”). In contrast, DLL involves deeper inquiry and changes in the existing managerial mindset and consequently the organization system. The goal of DLL is to promote a mindset towards a learning-orientation with the objective of achieving a continuous systemic change for sustainability (“Digital Transformation”).

The next section presents an integrated framework describing the linkages between different levels of “digitalness” and necessary changes in managerial prac- tice for organizational inquiry. The desired outcome of this is to identify high leverage system intervention points (cf. [28]) to be able to more effectively guide the orga- nization and society towards a more “sustainable” world. Currently, most research is concerned with how digital technologies foster more sustainability or support the achievement of the SDGs (cf. [29–31]). However, most studies take a technical perspective on the issue. This tends to neglect the “wicked problem” characteristics of the sustainability challenge and ignores the fact that digital transformation takes place in a socio-technical system context.

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3 A Framework Using Digital Transformation for the Better

This section presents a framework for understanding how digital transformation for the better requires changes in managerial and organizational mindsets. The objec- tive is a systemic change at the organizational and ultimately societal level. These are complex and interconnected nested systems. The key to effecting meaningful systemic change is to find effective high leverage intervention points in the system under investigation [28]. Leverage point analysis is the third component of our proposed methodology to support the transition to a higher level of sustainability.

The first step in this process is the use of digital technologies, which are evolving in power and sophistication. The second step is the recognition that engaging the wicked problem of sustainability requires significant changes in mindsets, with the objective of bringing about meaningful systemic change. The third step, leverage point analysis, links the power of digital technologies to the need to develop new paradigms to effectively engage sustainability challenges.

3.1 The Framework for Understanding the Importance of Fostering Organizational Inquiry

The optimistic hope that digital technologies will be a panacea for the sustainability challenge is based on society’s belief in and reliance on the efficacy of techno- logical solutions to problems. Historically, technology has succeeded brilliantly in many difficult contexts. Nevertheless, the nature of the current situation is far more complex than anything humans have faced before. Indeed, much of the problem stems from the fact that the problem context is as much social as it is technical. Strictly speaking, digital technologies are technical systems—cause and effect are understood, or at least understandable in principle through experimentation and the application of scientific methods. A strong and essentially unified theoretical base supports technology.

The social world is not as “simple”. Chief among the complexities is the pres- ence of the human agent and all the social and psychological attributes that they contribute to a society. Characteristics that complicate the work towards a more sustainable world include multiple stakeholders with differing ideologies, different goals and capabilities to achieve them, and well-documented cognitive biases in problem solving (see for example, the work of Tversky and Kahneman, summa- rized in [32]) and decision-making. However, one of the most striking barriers is the managerial mindset with respect to engaging with problems. In particular, Western civilization settles for solving problems [33]. The common approaches to dealing with sustainability is an example of this mindset to rely primarily on technology to “fix it”. Digital technologies are just another advanced tool to finally solve the problem by achieving sustainability.

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Because of the nature of wicked problems, this is not possible. The fundamental challenge for managers (and society) is to adopt a different mindset, or problem engagement paradigm, that emphasizes a process-based learning approach. This recognizes that this problem cannot be solved in the traditional sense. Rather it requires continuous interaction to improve the situation. It needs to be inspired by a collective vision of a better world, recognizing that there can be significant differ- ences as to what that better world might look like. Despite these very difficult issues, there can be broad agreement on many points of improvement. Business organi- zations have a slightly simpler task because they are designed to meet a specified objective in their market. Still, their challenge is also wicked [34] and managers need to adapt their practices to meet the needs of their place in society as well as their “license to operate”.

Figure 2 links the different “levels of digitalness” with the need for “a more holistic approach to digital transformation” in organizations. A key element in this transformation process is the addition of innovation as the driver that can shape the technology to support the engagement with sustainability. Innovation is very much an individual characteristic but it can be supported in an organizational context. Innovators are seen as problematic disruptors of the organization’s status quo [35]. If they are identified as threatening then the likelihood that these individuals will leave the organization increases. A more productive approach to fostering innovators is that the organization offers a culture of openness, support and encouragement for all employees to express their visions and ideas to others in the company.

Fig. 2 The framework for understanding the importance of fostering organizational inquiry to better address the transformation towards a digitalized sustainability society

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Table 1 Leverage points in order of their increasing power to change systems behavior. (Adapted from [28])

Places to intervene in a system

12. Constants, parameters, numbers (such as subsidies, taxes, standards)

11. The size of buffers and other stabilizing stocks, relative to their flows

10. The structure of material stocks and flows (such as transport networks, population age structure)

9. The lengths of delays, relative to the rate of system change

8. The strength of negative feedback loops, relative to the impacts they are trying to correct against

7. The gain around driving positive feedback loops

6. The structure of information flows (who does and does not have access to what kinds of information)

5. The rules of the system (such as incentives, punishments, constraints)

4. The power to add, change, evolve, or self-organize system structure

3. The goals of the system

2. The mindset or paradigm out of which the system—its goals, structure, rules, delays, parameters—arises

1. The power to transcend paradigm

3.2 Linking Leverage Points with Different Levels of Digitalness

The mechanical system of a lever and a fulcrum is a metaphor for a systemic leverage point. In the mechanical system, a properly placed fulcrum enables the human user to move masses that would usually go beyond the ability of the individual. The fulcrum can be located in several possible positions with respect to the lever and the mass. Nevertheless, there is usually one “best” position that the user finds through trial and error experimentation.

This idea transfers easily to organizational and societal systems. The system is a mass and the user (manager) wants to find the best position for the fulcrum in order to obtain a desired change. Meadows [28], in the context of systemic change, identified a hierarchy of potential leverage points. These identified places that allow managers to most effectively intervene in a system to make the desired changes. Table 1 presents Meadows’ leverage points. They are listed in order of their increasing power to change systems behavior. The organization’s level of “digitalness” affects the kind of leverage that can be supported by the available technologies.

It is important to recognize that low leverage initiatives are relatively easy to implement but do not generate lasting change. They have the advantage of returning

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Fig. 3 Linkages between different levels of “digitalness” and leverage points

quick results. Higher leverage initiatives are more difficult to identify and imple- ment but lead to more lasting changes. The problem for managers, both organiza- tional and societal, is how to harness the power of digital technologies to find higher leverage points in the system to implement meaningful policies that generate less unsustainable behavior.

Figure 3 combines the different levels of “digitalness” with Meadows’ leverage points. The boundaries are relative because the transition from one level to another is usually gradual. However, higher levels of “digitalness” are correlated with greater leverage.

In the context of managerial innovation for sustainability, “digitization” and “dig- italization” are examples of applying single-loop learning to incorporate digital tech- nology. However, the challenge of digital transformation lies in the tension between an organization’s current dominant logic and emerging new logic. Addressing the challenges of digital innovation for sustainability, digitization and digitalization initiatives are useful but limited and if extended too far, can become counterproduc- tive. Following Ehrenfeld’s claim that “[r]educing unsustainability is not the same as creating sustainability” ([8], p. 4), it can be argued that optimizing an unsustainable system will not improve the health of the overall system, no matter how digital the existing business system is.

In addition, a new managerial mindset needs to be established that focuses more on learning and experimentation and not just on problem solving. Tackling wicked sustainability challenges with isolated efforts is inadequate. Conventional managerial models for improvement (pay for performance, rewards and punishments, benefit– cost relationships, fear as the primary motivator) are insufficient to deal with trans- formational or “adaptive” changes. Leveraging digital technology can help organi- zations learn better through supporting collaboration with many stakeholders. Each stakeholder needs to be involved in an iterative learning and enquiring process.

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The outstanding issue with digital transformation is how to leverage improved shared understanding of a desired (digital) future and the possibilities to manage its resulting unintended consequences [36]. Ongoing dialogue, transparency, account- ability, and a mutual willingness to accept risks are essential if organizations are to successfully address the sustainability challenge. This implies a dramatic change in most organizations.

4 Conclusion—Digital Transformation for the Better: An on-Going Learning-Based Engagement Strategy

The aim of this chapter was to increase awareness of the great potential digital tech- nology has to address many challenges that face our world. However, accepting the challenge of sustainability is a wicked problem that requires an approach to engage- ment that is different from that used to solve technical problems. Perhaps the most significant aspect of digital transformation for greater sustainability is how manage- ment can innovate and transform their management practice in order to conduct an effective dialogue on a better digitally supported sustainable future. A key element in this transformation process is the addition of innovation as the driver that can adapt the technology of digitalization to support the engagement with sustainability challenges.

A characteristic of complex systems is that there is never a single outcome for a single intervention. Thus, the adoption of a technological “quick fix” for a complex problem will usually relieves the problem symptom, at least in the shorter term, but can have several unintended consequences. One of these unintended consequences is the reduction of the system’s ability to diagnose and develop more fundamental solutions to the problem. These types of consequences stem from the interconnect- edness of the system components and their dynamic interactions. We have argued that organizations can leverage advanced digital technologies to support managerial learning in addressing a firm’s sustainability challenge. This can lead to innovative and potentially disruptive changes in organizational behavior and performance.

There are additional side effects from the new ways of thinking exhibited by organizational managers. These effects can potentially affect the societal system in ways that also contribute to improved sustainability. The dynamic process logic is that as the firm successfully leverages digital technologies and transforms accordingly, it will also achieve positive results. Two desirable consequences may arise. First, other companies will observe the improved performance and will likewise be inspired or challenged by their stakeholders to change their behavior similarly. This can lead to industry-wide (and beyond) improved performances. The second outcome could be that other societal actors such as governance and institutions might also be inspired and contribute to changing the societal culture in the direction of increased sustainability.

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Systems thinking emphasizes that decision makers must be patient. Major system changes take time but advanced digital tools such as simulation modeling can provide the means to identify sources of delays, potential road blocks, and enable more effective communication with stakeholders.

Current discussions on how digital technology can help achieve the Sustainable Development Goals (SDGs) are important steps in the right direction. However, they are not sufficient. A wicked problem cannot be “solved” like a predictable technical problem. Thus, there is a strong need for an on-going, learning-based engagement strategy that leverages digital technology-enabled insights from advanced simu- lation and scenario building with organizational learning and innovation through experimentation and adaptive management.

More research is clearly needed. The possibilities offered by predictive analytics and big data can be used to draw attention to the consequences of decisions, both intended and unintended, in a dynamic and complex world. This can help over- come unrealistic beliefs about digital transformation and sustainability. Additionally, understanding how to integrate emergent technologies such as virtual and augmented reality with strategic thinking and learning to improve the state of the world is essential. These technologies can support conversations for thought experiments and scenario thinking that deepen the learning and understanding of a desired sustain- able future. This technology-mediated form of learning affords the opportunity to experience the results that are separated in space and time from actions. This virtual world allows experimenting with decision-making and eliminates the risks of serious, unintended consequences.

Beyond solely technical improvements and digital innovations, building an innovation-friendly culture within business ecosystems seems to be most benefi- cial. These organizational development trends demand new strategies and abilities, as well as leadership mindsets, to engage with stakeholders to co-create innovations for sustainability.

The information technology sector faces a challenge in the effort to improve sustainability. By leveraging digital transformation for sustainability, both manage- ment and the IT sector must re-conceptualize digitization and digitalization as a means to an end, not as an end in itself. Digital technologies are tools that have tremendous potential to support individual companies and society as a whole as they continue to develop in ways that leverage human innovation and creativity for development while respecting environmental limits.

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