Business Cases with Sustainability for Consulting Engineers (Part II)

In Part I we focused on the rationale for, and presented examples of business cases with sustainability (BCwS). We explained how this approach can inform decision-making for companies that intend to move towards corporate sustainability. Part II of the article explores more closely the underlying drivers of change, for dynamics that are internal and external to a company as represented in the Causal Loop Diagram (CLD), that make BCwS successful. We also present lessons learned from the applied research performed, expanding on Part I with more practical recommendations.

Causal Loop Diagram (CLD)

To tackle the complexity embedded in the CLD, different entry points (scenarios) were chosen that correspond with strategies in sustainability management: (1) defensive, (2) accommodative, and (3) proactive. With this approach, selected key components of the CLD can be highlighted, representing the dynamics triggered by the implementation of each scenario (i.e. the CLD presents a broad spectrum of company and market dynamics, and only a few a triggered by each strategy). For each scenario (defined by the strategic approach and corresponding activities), the main feedback loops are identified and assessed based on three indicators (i. e. business cases) that apply to all scenarios. The indicators are chosen to summarise the impacts that BCwS can have on business performance of consulting engineering companies: (i) attractiveness as an employer to recruit, retain and motivate a skilled employees, (ii) reputation and brand value as a marker for fruitful relationships to current and potential customers, as well as (iii) innovation and innovation capabilities through high influence of digitalisation in the engineering sector. These tree indicators directly affect economic performance, i.e. revenues, costs and profitability.

The performance of the scenarios considered are presented in the table below, and described in more detail in the text.

Challenges of the sector and trends with no sustainability-oriented activities

Business leaders can choose to neglect BCwS, the signals that the market is sending, and choose to undertake no action. Looking at reinforcing feedback loops R1-R4 in the CLD, the first key outcome for companies is that projects awarded is under pressure due to macroeconomic trends (i. e. decline in public spending and decreasing market volume esp. in Italy). Further pressure on profit margin is expected to come with the cancelled fee system in Germany, and from digitalisation of engineering services in general. The decline in projects awarded and profit margin prevents companies affected to afford investing in high quality projects to gain reputation, or to invest in innovative projects that carry lower profit margins. Consequently, the reputation of companies affected might suffer, because of the reduced quality and innovative features of the projects completed. The portfolio of clients will not grow or, even worse, might shrink in a context of evolving demand. In this scenario new projects can be realised, such as from existing clients, new markets (e. g. geographically) but might still be affected by shrinking fees in the traditional engineering business. In this case, companies affected are bound to repeat the same business (model) with eroding performance and legitimacy under external pressure.

One of these external pressures is the war for talents that is decreasing the relative attractiveness as an employer in comparison to competitors, and salaries (being in a balancing loop B1 with profit margin as well as costs) cannot be raised to effectively counter the downwards trend. The trend is further exacerbated by the interconnection of attractiveness as an employer, innovation, and reputation (R5 and R6). Talents with skill etc. might leave the company, searching for more challenging and innovative projects, which makes it harder to increase productivity (R7) or to acquire new projects (R8). The increasing fluctuation of employees increases operational risks, possibly turning project profits into loss (R10). Negative impacts occur on productivity and, consequently, costs and profit margin (R11).

This scenario is not sustainable, but it is also a well-known one, not only related to BCwS. A need emerges to go beyond business as usual, embrace and leverage innovation. In the current market, sustainability management offers a variety of interventions that can counter the trend of eroding business performance. Depending on the understanding of challenges and opportunities, the ability to understand, analyse and internalise new business models, skill to execute sustainability-oriented activities, and underlying ethical motivation of decision makers, companies might want to embrace defensive, accommodating or proactive strategies.

Defensive strategies by reactionary or reputational pursuits of sustainability

Defensive strategies are more inward looking and with minor spillover effects towards the market, protecting the current business model with minor adjustments to the current internal and external strategy. Interventions target costs and efficiency gains that can easily be reached (“low hanging fruits”), as well as improved reputation and brand value.

In this scenario, resource conservation in operations (e. g. printing management) and the selective use of sustainable office supplies might be introduced. Furthermore, staff might be encouraged to increase the use of multimodal mobility or tele meetings. Perhaps, some financial donations are made to environmental or social causes. These first steps in sustainability are communicated to internal and external stakeholders which might improve reputation through recognition of the environmental and social conscious that is displayed.

The impacts of operations on water, biodiversity, effluent, and waste, however, are only low or minimal in comparison to the impacts of infrastructure projects. Cost savings are only marginal relative to the main driver of costs for consulting engineers: salaries. Thus, these interventions are a good first step; but they miss greater potentials to decrease costs and improve reputation (or other core drivers) through R1-R6. The direction of change of these dominant feedback loops cannot be altered; neither improving recruitment, motivation, and retention of employees, nor increasing and diversifying the portfolio of clients or projects. Projects awarded and profit margin further decline and thus the ability to innovate.

Accommodative strategies by responsible pursuits for sustainability

Accommodative strategies exert some influence on core drivers aiming at some changes and improvements of the current business model and generate more tangible outcomes on external dynamics as well. Costs and efficiency targets are linked with sustainability challenges. Client relationships and business processes are altered with the aim to enhance reputation and attractiveness as an employer.

In this instance, sustainability is deliberately integrated in strategy to increase effectiveness of implementation. Stakeholder engagement as well as sustainability accounting and reporting might additionally be introduced to define material topics and to measure and report on progress. Examples include financial topics such as profit and loss performance; social such as health and safety or diversity and inclusion; environmental, such as environmental non-compliance or climate change; governance, such as paying fair taxes or personal data protection. The needs and expectations of staff, clients and others involved in the materiality analysis are being considered more precisely in organisational development.

For example, sustainable offices and workspace might be chosen to demonstrate an awareness for the challenges of the architecture, engineering and construction (AEC) industry on the one hand and consider the social-functionality of the office enhancing wellbeing (and consequently productivity) of employees on the other. The potentially higher construction costs or lease is surpassed by gains in productivity and stronger talent acquisition through an attractive working environment as well as resource use (e. g. through energy savings for electricity, heating and cooling) for years to come. After an initial investment, resources are freed up, and productivity is gained that can be used to invest to build reputation and innovation that attract clients and new projects (R1-R4).

Also, working environment (with impacts on productivity) is improved by increasing cultural measures such as fostering gender balance and diversity, teamwork, work-life alignment, or mental and physical health. Through the indirect effects on attractiveness as an employer the upper hand can be gained in the war for talents. Talents can be recruited and retained that further advance innovation (R5) and thus reputation (R6).

Moreover, budget used for financial donations may be employed for more elaborated forms of corporate citizenship. For example, working hours are allocated for causes that relate to the core business and include activities together with employees. This way, employees get the opportunity to create an emotional relationship to the company. Teams are welted together and simultaneously create higher visibility and innovation capabilities through direct engagement with sustainability challenges.

Proactive strategies by collaborative pursuits for sustainability

Proactive strategies trigger core drivers persistently and strongly, leading to permanent changes both in internal dynamics and in the positioning of the company in the market. The business model is redesigned and BCwS regularly created. Socially and environmentally outstanding products and services improve sales, profits, and lead to new value proposition. All activities improve risk management, reputation as well as brand value of the company. Innovation attracts highly skilled employees.

In proactive strategies, pursuits for sustainability become increasingly outward-oriented. Learning and development fuels organisational development. In addition to the measures mentioned above, resource conservation in project work to mitigate risks might be complemented with sustainability-oriented services that complete conventional services in planning and design. The potential to increase the value of sustainable infrastructure projects in their social, environmental, and economical dimensions is raised. Decreasing costs through efficient implementation considering the triple bottom line over the whole lifecycle generates a return to society that is many times larger the additional costs for outstanding services of consulting engineers. Moreover, the Sustainable Development Goals (SDGs) are integrated in program and project goals, as is the delivery of services to society, in addition to direct project beneficiaries. Systems Thinking is applied to increase understanding of key drivers of change, of links and effects between them, and of most efficient entry points for interventions. Frameworks for sustainable infrastructure projects, such as Envision^® or Sustainable Asset Valuation (SAVi) are applied to operationalise broader sustainability goals on the ground; and of course, clients are persistently made aware of the intrinsic value (and corresponding business cases for sustainable infrastructure).

This way new markets are tapped into or are even being created while increasing project fees for advanced consulting services. Sustainability-oriented partnerships combined with corresponding efforts in marketing and communication support the new positioning with collaborative innovations. This integration of sustainability in the core business and corresponding alterations strengthens reputation and brand value as well as innovation capabilities (trough R1-R4). Trough the links to attractiveness as an employer (R5 and R6) self-reinforcing effects on reputation and innovation as well as cost (R7) and profit margin (R8) are set in motion. Previous vicious cycles are turned into virtuous cycles increasing business performance for decades to come.

Conclusion

There are many strategies and themes companies can use to adapt to the changing needs of the market. On the other hand, there is no universally valid blueprint for strategy development and implementation, nor for triggering BCwS. We offer a tool that allows to map the internal and external complexity consulting engineering companies are confronted with (see following figure). This approach allows to design a strategy that is based on the current position of a company and its vision for the future. Overall, we find that success towards BCwS is determined by the extent to which the key drivers of performance of consulting engineers are influenced. If only a few key dynamics are triggered, paradigm shift within the company and the advantages of improved brand value and attractiveness as an employer will not be realised.

Building on this, and analysing in more depth the outcomes of the three strategies examined, we find that defensive and accommodative pursuits might not be enough considering the full scale of the challenge. We have “10 years to transform the future of humanity — or destabilise the planet” (Rockström 2020). We, as consulting engineers, “need to be more vocal in calling out projects and practices that go counter to the planet’s and society’s needs” (Fenner & Aigner 2019).

Proactive interventions need to be pursued that enhance business performance while mitigating and adapting to the great risks that come with destabilizing eco systems and eroding global commons. Synergies can be found, as indicated in the CLD, by linking actions to improve internal sustainability with actions that trigger a stronger position in the market. Opportunities are missed if these strategies are implemented in isolation.  We can do this – together – for the benefit of the field, as well as to the benefit of society, today and in future!