Archive for the ‘Sustainability Strategy’ Tag

The critical role of IT in driving sustainability

In previous columns, I have written about how companies such as Nike, Walmart and SAP are using sustainability strategies like Product Life Cycle Analysis, green product development and the reframing of environmental standards to deliver on their sustainability goals. Now, we turn our attention to the important but often overlooked role of Information Technologies (IT) in supporting green business strategies.  In the past, many companies have been reluctant to consider IT for a host of reasons including the presence of significant legacy assets; the mission-critical nature of many IT systems and; the lack of a strong consumer impetus. 

IT systems and their accompanying data centers are a major source of carbon emissions, toxic waste as well as being a major consumer of energy. According to a study by A.T. Kearney, a consultancy, corporate IT departments creates as much as 1 million tons of obsolete electronic equipment each year and produces 600 million tons of carbon dioxide (CO2) emissions worldwide per year. For perspective, these emissions are equivalent to the annual CO2 output from almost 320 million small cars. As well, some data centers are so big that they consume as much energy and water as a small city.

With Internet-based services growing at healthy double-digits per year, IT’s environmental impact will continue to increase rapidly unless management does something to rein it in.  If most organizations are going to meet their aggressive sustainability goals, they will have to take a hard look at their IT operations. 

Where should they start looking?

Powering down

Energy usage is a key area to tackle first. According to the Interactive Data Group, a typical IT department in 1996 spent 17 cents of every dollar to power and cool a new server. A decade later, the rate jumped to 48 cents per dollar.  The firm predicts that number will grow to over 70 cents by 2012.

When considering ways to reduce power consumption, an obvious place to look is the data center.  A number of steps can be taken here including monitoring and improving HVAC efficiency; switching to more efficient blade server and virtualization architectures and; choosing cooler climates to build new data centers.

The front office is another fertile source of energy savings.  Every firm can benefit from quick wins such as installing power measurement and management software and introducing policies that require PC users to shift to low-power or shut-off state when not using their machines.  When Bendigo Bank in Australia mandated employees turn off unused desktop computers, monitors and printers that used to run constantly, they saved more than $300,000 a year in electricity.

Buy greener

Better purchasing governance is an important tool to reduce a firm’s environmental impact.  For example, managers could stipulate that new equipment purchases must bring the highest energy efficiency ratings as well come from companies that feature prominently in sustainability indexes and standards. Moreover, buyers might also look for products manufactured from recyclable materials and that generate minimum amounts of hazardous waste and carbon emissions.  Finally, in order to reduce the purchase of unnecessary assets, policies should be enacted that prevent buyers from over-buying equipment just because someone wants the latest technology.  One way to ensure this happens is by extending the life cycle of IT equipment.

Improve reporting

Some companies are using IT to improve sustainability reporting across the entire value chain.  Dow Chemical’s IT group, for example, acts as a green watchdog, tracking emissions, performance and vendor activity.   Dow is using this data to calculate a net environmental balance across a product’s entire life cycle to help them better understand how materials are consumed in manufacturing. These insights can identify environmental and cost savings throughout their operations as well as their vendor inputs.  Finally, improved tracking and reporting will enable companies to better meet customer sustainability programs like Wal Mart’s Sustainability Index as well as provide key environmental data to consumers.

Greening IT will be crucial to helping many organizations achieve their aggressive sustainability targets. Managers can ill afford to ignore this under-developed area.  

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Making sustainability live in your organization

Most executives I speak with acknowledge sustainability’s strategic imperative. A few of them have understood the transformational impact of sustainability and have moved boldly to realign their operations and cultures in order to reap significant business value. This value creation includes tangible outcomes such as improved brand image and supply chain efficiencies as well as intangible benefits like enhanced employee morale and greater appeal to new recruits.   While the majority of organizations have similar ambitious goals, many are unclear how to turn intent into results.

Recently, MIT’s Sloan Management Review looked at how companies were responding to the emergence of sustainability as a mainstream business driver. The study found that most organizations fall into one of two groups: a select group of embracers and the masses of cautious adopters.  Embracers such as GE, Unilever, Walmart, P&G and SAP recognized early that they can leverage sustainability strategically to outflank competition, drive brand differentiation and revitalize supply chains. To bring this vision into action, the embracers quickly integrated sustainability strategies and practices into the core of their business and organizational models. The results have been impressive:  enhanced corporate reputations, significant supply chain savings, higher product margins and a lower environmental footprint .  

On the other hand, the cautious adopters have been more reactive and timid.  They see sustainability as important but within the context of efficiency gains and risk management.  In their planning, sustainability is pursued as a series of tactical initiatives executed within their current organizational model.  In most cases, results have been modest with little appreciable change in competitive position.  Not surprisingly, cautious adopters will be challenged to overtake the embracers as long as they continue to treat sustainability in such an incremental fashion.

Interestingly, capital spending was not a barrier to action.  Despite recent economic and political uncertainty, 60% of surveyed firms reported increasing their 2010 sustainability investments.  What then is holding back most companies?

To drive sustainability, executives need to change the way they do business.  The implementation strategies of embracers offer a number of lessons, including: 

Move early even if there is incomplete information

Brian Walker, CEO of sustainability-leader Herman Miller furniture believes that many sustainability decisions “can’t be reduced simply to a formula or financial return…it requires a bit of instinct, a gut feeling of where you want to go.” In most industries, there are sufficient best practices and case studies to help firms move forward with plans that improve sustainability competitiveness.

Balance a long term vision with concrete short term wins

While long term success favours the ambitious, the reality in most organizations is that short term project wins are needed to generate operational experience and catalyze change.  One IT CEO I worked with refused to implement a large scale sustainability initiative until the firm had garnered sufficient learnings from a couple of pilot programs. 

Integrate sustainability into the organizational structure and operations

Sustainability must be woven into the fabric of the organization and not siloed within a specific department.  For example, GE and Nike translated their bold sustainability mandate directly into their operating units, practices and cultures.  Santiago Gowland, Unilever’s VP of Brand and Corporate Responsibility, says that his company views sustainability as a key business growth lever, treated at the same level as HR, Marketing and Supply Chain Management. For Unilever, sustainability is a new way of doing business.

Leverage top down and bottom up commitment

While getting a strong mandate from the Executive Team and Board is crucial, much of the early effort and ideas must come from the lower ranks.  One firm I worked with gained environmental leadership in their industry mainly through the efforts of a highly motivated, cross functional volunteer committee of low and middle level employees.

Make sustainability integral to key product, service and supply chain decisions

Inputting sustainability criteria into decision making and operational analysis is essential for developing a business case and gaining external compliance.  Companies like SAP and Walmart have driven sustainability savings and compliance using tools like Product Life Cycle Analysis, which look for opportunities to reduce environmental impact while generating significant cost savings.

Successfully deploying sustainability strategies requires more than lip service.  As well as putting their money where their mouths are, practical executives will seek to embed sustainability practices and beliefs within their companies.

For more information on services and work, please visit the Quanta Consulting Inc. web site.

Catching Up in Sustainability

These days, virtually every company is being impacted by consumer, stakeholder and regulatory demands for green strategies and programs.  For a variety of reasons, most firms have adopted a “follower” sustainability strategy as opposed to that of a pacesetter.  A poignant article from the Harvard Business Review highlights the challenges of being a sustainability follower and suggests some strategies to catch up.

Enterprises face considerable financial, marketing and operational dangers when competition or external advocacy groups have defined what sustainability means for their products, company and industry.  Although green product definitions and standards will vary across industry, companies not engaged in shaping the rules risk being assessed against standards that they can’t easily satisfy. Worse, the firm may be out-flanked by a shrewd competitor that has strategically positioned itself as the sustainability gold standard.

Shaping the sustainability landscape is no mean feat.  There are a plethora of advocacy groups, regulations & standards (current and under debate) and consumer needs that need to be understood and evaluated.  For example, the coffee industry features more than a dozen standards and hundreds of individual criteria, affecting everything from pesticide use to workers’ housing to bird friendliness.  Each of the various standards has a constituency working to define the benchmarks for “sustainable coffee.”  Some are backed by nonprofits such as the Audubon Society and TransFair, others by companies such as Starbucks and Nestlé.

Fortunately, firms that lag in sustainability progress can still leapfrog competition by repositioning themselves as influential or even leading players in the green-standards battle.  There are 4 possible strategies to do this:

1.Adopt existing standards

Companies should pursue this strategy if their industry or major customers have well-established standards and their sustainability capabilities are modest.  Importantly, a determined catch-up effort can still enable firms to best competition and become a credible participant in future sustainability debates. As an example,  The Fishin’ Company became the largest sustainable seafood supplier to Wal Mart by outperforming its competition in meeting Wal Mart’s strict product sustainability standards.

2.Influence existing standards

Green advocacy groups often compete to see their own standards widely adopted.  To do this, they need to find corporate partners to champion and commercialize their standards.  This fact gives companies an important but limited window in which to influence the standards to their commercial benefit without compromising sustainability considerations. For example, Chiquita Banana was successful in helping define new standards that not only satisfied the Rainforest Alliance’s goals but also led to a 27% increase in farm productivity and a 12% reduction in costs.

3. Define new standards

Some industries do not yet have established standards or a green consensus.  Ambitious firms may be able to impose their sustainability standards – which happen to be a strong fit with their business model – on the sector in conjunction with external stakeholders.  To pull this off, these companies should possess significant industry clout, a credible brand image and strong internal capabilities.  Starbucks and Nestlé have successfully pursued this strategy in the coffee business. 

4. Break away from existing standards 

A few firms may consider going alone to create new sustainability standards when the existing standards do not play to its strengths, are inconsistent with its strategy, or actively undermine its competitiveness.  Apple is a case in point.  With its revolutionary iPad, Apple out-greened the greens by emphasizing a new and relevant sustainability dimension — power conservation — on which it can excel. The market-beating iPad is considered so energy-efficient that one T. Rowe Price analyst compared its battery life to “black magic.” A strategy like Apple’s will work only if the proposed new standards are measurable, relevant to customers, and demonstrably superior to the existing criteria.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Green companies outperform in times of volatility

It is conventional wisdom that sustainability and corporate social responsibility (S&CSR) programs can improve an organization’s image, morale and recruitment efforts, not to mention make a positive environmental impact.  Yet, many executives remain skeptical that these initiatives can deliver tangible business benefits and are the best use of scare capital and management attention.  Not surprisingly, many firms view the current recession as a time to batten down the hatches and not pursue unnecessary investments.   

This view can now be challenged by hard data. New research from AT Kearney, a consultancy, suggests that executives should think twice about cancelling or deferring sustainability initiatives during recessionary times.  The study showed that companies that are committed to launching and maintaining S&CSR initiatives will outperform their peers in financial returns.

In the second half of 2008, AT Kearney looked at 99 US public companies spanning 18 industries to understand how S&CSR-focused companies fared against sustainability-specific market indices.  Sustainability-based practices were defined as tangible programs that were geared toward protecting the environment, promoting social well-being and driving business results. 

The study’s results were instructive:

Sustainability-focused firms out performed in almost every sector.  Sixteen out of 18 industries awarded better returns to S&CSR-focused companies.  The 2 industries that underperformed were Construction & Materials and Personal & Household goods.

The performance differential was significant.  The difference in shareholder value between companies after 6 months was 15% or an average of $650 million. The industries with the highest 6 month stock price differential were Media, Automobiles & Parts (each 133 vs index), Financial Services (125 vs index) and Industrial Goods & Services (123 vs index)

Why did some companies do better than others?  For one thing, the market could be rewarding a longer term, more comprehensive and genuine commitment to S&CSR and risk management versus more ad hoc efforts.  In particular, sustainability driven innovation, supply chain optimization and green product development will yield higher returns in a firm that treats S&CSR as a strategic priority with proper funding and focus.  In addition, better financial results could be attributed to stringent governance, risk management and compliance efforts needed to fully deploy and manage S&CSR programs.

There are important implications for the poorly performing companies. Half measures with sustainability programs may be a waste of money and effort.  Laggard companies should consider one of three strategic options: 

  1. redouble their S&CSR investment and focus to catch up to leading competitors;
  2. look for market or supply chain ‘white space’ where they can leapfrog competition;
  3. abandon all sustainability efforts (except what is government-mandated) and direct their capital elsewhere.

For existing high performers, staying the course can be very rewarding.  Firms should consider increasing their sustainability focus if they deem it to be a major driver of competitiveness and market differentiation.

Despite some clear findings, managers should treat these results cautiously. The second half of 2008 was an atypical period in the public markets.  Likely many of the findings would be different during a more stable economic period.

For more information on our work and services, please visit the Quanta Consulting Inc. web site.

Making a business case for sustainability: SAP best practice

Many executives struggle with launching sustainability programs.  Their challenges are many, one of the biggest being how do you craft a business case for making sustainability a key business priority?  This is an important question as a weak business case will not support the resources and focus needed to deliver the maximum business and environmental impact.  Overall, I recommend evaluating and implementing sustainability programs the same way you evaluate any other business initiative – by strategic congruence, customer need and ROI.  My approach to developing a business case balances elements of strategic fit and financial analysis with stakeholder alignment and organizational transformation.  This recipe has been proven successful in many green companies, including SAP.  This global leader in business management software has garnered impressive results to date with their sustainability program.

In a recent interview with MIT’s Sloan Management Review, Peter Graf the Chief Sustainability Officer for SAP, discussed how he crafted his sustainability business case. Some of his and my recommendations include:

  1. Review the financial risk of not meeting current customer environmental requirements.  Simply put, if you don’t comply with customer needs they will find another vendor that will. Although financial risk may be the biggest catalyst for action, you do not need a compliance requirement to make the business case work.
  2. Drill deep for cost savings in the areas of resource productivity and organizational efficiency.  Potential savings can be identified using proven analytical techniques such as Product Lifecycle Analysis. For perspective, SAP’s sustainability strategy delivered 90 million euros of direct savings to the company during the first year of its program. That traced to a 7% reduction in energy consumption, 25% reduction in paper and printing, and a 30% reduction in airline travel.
  3. Consider how sustainability can drive new revenues through new sales as well as higher price premiums.  With a public and sincere commitment to leading in green business, it is possible for companies to differentiate their offering and brand. To achieve this, firms need to conduct extensive customer research to understand their customer’s sustainability needs.  Additionally, executives need to internalize and communicate a strong vision that sustainability will be a fundamental part of their business 3-5 years out. Finally, achieving environmental leadership can provide your firm with a platform to shape governmental policy and standards for your industry, to your competitive advantage.
  4. Use sustainability as a means of re-energizing your employees and improving your talent acquisition.  Sustainability can be a passionate issue for many people, with the ability to improve morale and catalyze productivity improvements.  As well, possessing an exemplary sustainability pedigree could improve a firm’s ability to attract and retain highly-skilled and motivated talent.
  5. Make sustainability a part of your company’s fabric.  For sustainability strategies to be truly successful, piecemeal implementation will not work. Based on SAP’s example, sustainability must become a corporate priority as well as embedded within your value system and tactical decision-making criteria. Measurement tools such as the Balanced Scorecard or the One Report should be used to ensure internal compliance and stakeholder alignment.

Graf’s noted that his biggest challenge in the business case process was assembling and analyzing the numbers.  A financial analysis necessitates building a comprehensive data baseline to understand the firm’s current state.  For example, organizations must execute an environmental audit around their energy consumption, carbon footprint etc.  Sustainability leaders need to understand the metrics around their current state and then make assumptions around key questions like the cost of energy, anticipated regulations etc. This multi-functional exercise is time-consuming and difficult in large companies because they often lack the expertise and resources to undertake it internally. Moreover, this analysis needs input from the supply chain and marketing partners who may not be able or willing to generate the necessary data.

Creating a business case is fundamental to any corporate initiative.  With sustainability, do your homework.

 For more information on our services and work please visit the Quanta Consulting Inc web site.

Two More Best Practices in Sustainability: Wal Mart and Rio Tinto

Earlier, we explored two companies, GE and Nike, that are considered ‘best in class’ when it comes to generating financial and environmental value from sustainability initiatives.  Below are two other leading firms in this area, according to research from MIT’s Sloan Management Review.

Wal Mart

Background

The World’s largest retailer of 7800 stores (and growing) has been at the forefront of implementing sustainability initiatives. Initially, Wal Mart focused on internal programs like greening their roofs and moving to more energy-efficient light systems.  Lately, the firm has turned its focus to greening its supply chain and encouraging it suppliers to follow its sustainability lead.

Some Key Strategies

In 2005, Wal Mart set ambitious goals of producing zero waste, using only renewable energy and selling only environmentally sustainable products.  They backed up these goals with one of the most comprehensive sustainability plans at the time.  As part of this plan, Wal Mart has pushed [sic] most of its large suppliers to switch to more green-friendly products and to track their environmental footprint.   In addition, Wal Mart is undertaking a wide-ranging product lifecycle analysis of its supply chain to identify areas with significant environmental and cost savings potential. For example, to hit its zero waste target the company is implementing a number of programs that improve inventory management, increase donations, and ramp up recycling.  Finally, Wal Mart is participating in a consortium along with academics, retailers, NGOs, suppliers, and the government in order to build a global database of product information.  This data will be used to develop an index for consumers to evaluate products based on environmental impact.  A centerpiece of this plan is the creation of a Sustainability Index which requires each supplier to rate their products based on sustainability criteria.

Results

Wal Mart’s efforts have yielded important savings.  For example, at Wal Mart’s behest Unilever switched to concentrated detergents in 2006 order to save packaging and reduce its carbon footprint. According to the firm, the packaging change has saved well over 80M pounds of plastic resin, 430M gallons of water, and 125M pounds of cardboard.   Importantly, Unilever’s packaging decision triggered a category shift to concentrated formats driving further savings.  For the future, Wal-Mart is aiming to turn its Sustainability Index into a global standard that measures and communicates the green footprint of a product, thereby becoming “a tool for sustainable consumption.”

Rio Tinto

Background

Rio Tinto is a big mining entity with a big environmental footprint.  For new projects, the company needs to win the backing of local communities, governments, and NGOs in order to reduce political, economic and brand risks and to deliver steady returns. 

Some Key Strategies

About a decade ago, Rio Tinto came up with the concept of working within countries and communities in order to operate in an environmentally respectful fashion. At the time, the company was developing a mine in Madagascar that was a source of contention.  The Madagascar government as well as NGOs were worried about threats to biodiversity and the local communit, given that the site was one of the last pristine regions on the island and a home to aboriginal people.  A plan was developed to protect the environment and create economic opportunities in the communities surrounding the project, including setting standards and goals for the company to meet. Key components of this plan include:  policies to protect biodiversity and water quality around mine locations; plans for the time mining operations would be over in order to prevent the emergence of “ghost towns” and; goals for greenhouse-gas emissions and energy use.

Results

As a result of this initiative, Rio Tinto has obtained what it calls a “social license to operate” in Madagascar thereby increasing overall corporate revenues and profits and improving their corporate reputation.  As well, the company also helped form the International Council on Mining & Metals, which encourages sustainable practices across the mining sector.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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