Sustainability: Tradeoffs, Not Standoffs
Posted on October 9, 2009 |
Guest-blogging today are Eric Riddleberger, global leader for IBM’s business strategy consulting practice and Jeff Hittner, corporate social responsibility leader for IBM Global Business Services. They work with a range of industries and clients to address the emerging role of corporate social responsibility and sustainability in core business strategies. The survey referenced in this post can be found here:
From a sustainability standpoint, it was like declaring a moonshot.
When Walmart recently announced that it will create an index detailing the full social and environmental impact of every product it sells, it highlighted one of the most vexing issues companies face today -- managing the many tradeoffs of creating "green" or sustainable products and services.
The challenge is to optimize each product or service for its total environmental and societal impact -- taking into account an intricate set of possible considerations and alternatives. Put simply, it's not good enough if water usage is reduced but waste disposal increases. And to be truly sustainable, a company must optimize offerings in a way that also maximizes business performance.
The implications of this are staggering. Imagine tracing the energy and water use, waste, labor standards, and carbon dioxide and other greenhouse gas emissions associated with every phase of every product a company makes or sells. That covers sourcing and delivering raw materials, development and manufacturing, packaging and delivery, consumer use, and reclamation and recycling at the end of life.
Fully understanding all the implications associated with sustainability requires a 360-degree perspective. And it entails massive collection of information not only inside a single company, but across hundreds or thousands of suppliers around the world. And it requires understanding the consequences of any decision to optimize a given process or component.
Three major factors are driving this level of introspection:
-- Key stakeholders such as customers, investors, business partners, and current and prospective employees are monitoring sustainability performance and factoring it into who they'll do business with, work for and buy from;
-- The costs associated with energy, water and waste are volatile and rising, so cutting consumption and improving efficiency are essential to the bottom line;
-- Government regulations on sustainability issues are becoming increasing stringent. Companies that fail to comply face growing financial penalties, restrictions on their business operations, and negative publicity.
While this trend has been emerging for quite awhile, a recent survey our company conducted with business leaders from around the world showed a couple things. First, most of them are unprepared to measure and improve their own sustainability. Second, they are unprepared to monitor suppliers for it as well.
For example, while many companies have ambitious goals to reduce CO2 emissions, in our survey only 19 percent were measuring them often enough to make changes to lower them. In fact, only 30 percent are collecting data frequently enough to make strategic decisions that address inefficiencies, environmental impact and risk across eight major categories – CO2, water, waste, energy, sustainable procurement, labor standards, product composition and product lifecycle.
Twenty-nine percent aren’t collecting any sustainability data at all from their supply chain partners. Eight in 10 aren’t collecting supplier data for CO2 and water, and six in 10 aren’t checking supplier data for labor standards.
How will companies achieve the levels of transparency, efficiency and social responsibility as prescribed by Walmart's sustainability index? As Pulitzer Prize winner Thomas Friedman said in his latest book “Hot, Flat and Crowded,” you can’t make anything greener unless you make it smarter – smarter materials, smarter designs, smarter software.
For example, in order for a company to reduce its carbon footprint, it needs to know where and how energy is consumed and CO2 is emitted throughout all phases of its operations – everything from datacenters, to office space, to manufacturing, to delivery -- as well as through every phase of its supply chain. Then it needs to determine where it can make reductions balanced against other environmental considerations and areas vital to overall performance, like cost, quality and service.
Taking such a comprehensive view can lead to some interesting – sometimes counterintuitive -- conclusions. For example, excess packaging has been a major focus when examining a product's environmental impact. Yet analysis of a shelf-stable, single-serving beef chili and beans product from food processor Truitt Brothers demonstrated that a little extra packaging actually helps reduce environmental impact. It keeps food losses below 4 percent, compared to typical food losses in the home of more than 15 percent. And it eliminates refrigeration in transportation, retail merchandising and home storage, reducing energy use and greenhouse gas emissions.
Leading companies today are setting standards and measurements for themselves and their suppliers -- and even collaborating with competitors to set uniform industry specifications. They're deploying sensors and meters to collect and measure this data everywhere, and their suppliers are doing the same. They're implementing networks, analytics and dashboards that present that data in a way that lets them make better decisions to improve efficiency and lower emissions, and change business processes to put it all into action.
For many companies, this means rethinking every aspect of how they operate and who they do business with. But the long-term implications are clear -- businesses that do this effectively and proactively will meet the Walmart standard and thrive. Those that don't, will not.
