Tag Archives: measurement

“Continual Improvement” Using Sustainability Metrics Takes Planning, Accountability & Resources

23 Jun

"Jump Start" by Jenny P (CC License)

Note:  This post marks the 75th since I started writing in early 2009.  When I launched ValueStreaming, I did so with the intent of providing timely, relevant, quality content over quantity.  The feedback that I’ve consistently received  is that this blog gives readers detailed, value-added content and thought leadership in the sustainability, supply chain and environmental policy space.   I humbly thank you all for your readership and support…you are the sustaining “wind in my sails”.  Paz, Dave

“On your mark, get set”…BANG.  As a competitive swimmer in my youth, I learned the rhythm of a good start off the blocks, kept my head down and paced myself through to the finish line.  I never won the “big” race, but always went for my personal best.  It’s that way with sustainability initiatives. Having a good baseline and pushing the limits to improve to the next level

Back in the late 1990’s I was working with one of my many semi-conductor clients on their ISO 14001 Environmental Management System.  A hallmark of ISO 14001 is “continual improvement”, focused primarily on going beyond compliance to reducing the overall environmental impacts and footprints of operations.  This particular company had identified hazardous waste generation as a “significant aspect” of its operations and developed some programs and targets intended to reduce generation.

One of the facility engineers was very excited one day when I showed up at the facility, proudly telling me that the company had managed to reduce waste generation by 25% over the past several months since he’d started tracking metrics.  “That’s great!” I said. “How’d you do it?”  He responded, “Well I ‘m not sure exactly”.  So I prodded.  “How has production at the plant been the last quarter?” “Well, it’s down…um, about 25%”, he answered in a muted tone.  See a problem here?  The company didn’t “normalize” the data (pounds of waste generated per number of units produced, for instance).  So in effect, there was no “continual improvement.  Oh well, back to the drawing boards!

Setting the Sustainability Mark…and Missing It

So it was interesting to read a summary of Green Research’s latest report, “Setting and Managing Sustainability Goals: Trends and Best Practices for Sustainability Executives.  I had the pleasure of meeting Green Research’s founder, David Schatsky, at the recent Sustainable Brands ’11 Conference in Monterey,  California.  In this latest report, David seems to have touched on some issues which get to the core of a value-added sustainability initiative…that being, demonstrating “continual improvement”.

As  this week’s by Mr. Schatsky article in Environmental Leader notes, while a flood of public and private companies (across many sectors) are “increasingly using public goals to signal their commitment to sustainability and their superiority to rivals…many are unprepared to meet those targets”.  The report suggests that sustainability planning, implementation, and performance measurement are still in an early maturation phase compared to financial and other operational goals.  Some of the key findings were:

  • A quarter of the 32 sustainability executives surveyed in Europe and North America for the study say their companies have set “aspirational” sustainability goals and lack a clear plan to achieve them.
  • Over 40 percent said progress on sustainability goals is reported to senior management only semi-annually or annually.
  • 57 percent of respondents characterized at least some of their sustainability goals as “stretch goals” – that is, challenging but probably achievable – and 54 percent said at least some of their goals are “realistic”.

 “Despite the best of intentions, even some excellent companies are challenged to execute on the sustainability goals they announce,” said David Schatsky, principal at Green Research

As I noted back in August 2010 in a post on Environmental Leader, there are two old axioms:

1)      “You are what you measure”, and

2)      “What gets measured gets managed.”

As Green Research’s study revealed, without an effective strategy to establish an internal benchmark for continual improvement, it becomes harder to innovate, advance and proactively respond to stakeholder expectations. Finally, good metrics if applied properly will foster innovation and growth.  Therefore, it’s vital that there be a systematic process in place that maintains focus on continual improvement.  Continual improvement is the primary driver for monitoring and measuring performance. If metrics don’t add value, they will not support continual improvement and eventually will not be used.  It’s a vicious cycle that can be avoided if the proper system is firmly implanted in organizational strategy and operations.

Setting Goals That Matter

Many times over the past several months, I’ve been asked by colleagues and clients”what can I measure that means something”.  And I answer them usually by asking “what matters to your organization and its stakeholders”?  “I see what your saying”, they say “but I can’t always see the payback”.  Well, sometimes the “payback” is hidden and can’t always be realized in tangible, hard dollar terms. Sometimes, especially if companies are not water, energy or resource intensive, or don’t produce a lot of waste byproducts, you need to peel off some layers.  What this often means is looking at other production, operational or worker activities that can’t be measured in hard dollars but in terms of “efficiency”.  Sometimes metrics can be measured in terms of avoided costs rather than actual expenditures.  As an example,  a client of mine “avoided” $2.4 million in accrued fines and violations (over a three year period) due to enhanced sewer infrastructure maintenance and reduced response times to effluent spills when they occurred.

"Bullseye" by TimSnell (CC License)

As the Green Research found, many companies initially establish said that “targets for realistic or stretch goals…through a bottom-up process, beginning with a baseline of current performance.”  I view this finding as similar to what I coach my clients to do in environmental management system or sustainability engagements- perform a risk-based evaluation of what poses the greatest environmental, social or governance risk and establish measurable (and achievable) objectives and targets.   Some of my clients like the Natural Step “back casting” process too , which attempts to envision a company’s “desired state”, measure a baseline “current state”, and fills in the gaps with programs and activities intended to reach the desired state.

Remember, when companies establish sustainability objectives (whether they are social, environmental, operational or financial) and define their targets, here are a few simple things to remember about metrics.  They must be:

  • Representative
  • Understandable
  • Relevant
  • Comparative
  • Quantifiable
  • Time-based and Normalized
  • Unbiased and Validated
  • Transferable

Staying on Track Within the Four Walls and in the Supply Chain

As I mentioned in last year’s post, once organizations decide what’s important to measure to meet sustainability related objectives, they needed to assure that they actually track metrics, report, calibrate and keep on measuring.  It’s called keeping your eye on the ball.  And this applies to supply chain management as well.  As I have reported in this space many times before, supply chain sustainability and responsible sourcing are two key ingredients for an organization to consider itself to be “truly” sustainable.  Many of an organizations greatest product and operations related impacts (like carbon emissions, resource or toxic chemical inputs, etc.) actually come from within its upstream supply chain.

Photo by HeraldMM (CCLicense)

A few tips to get your continual improvement process started:

  1. Measure things that add value to organizational decisions. Measuring for the sake of measuring is a waste of time.
  2. Make goal-setting a 360-degree exercise- Look inward through the organization rank and file for innovative ideas.  Seek advice and input from external stakeholders too (your suppliers and customers matter too!).
  3. Commit to what you can control or influence.  Don’t make broad declarations that you cannot achieve because you’ve no influence. Don’t over commit ( although a few heretically goals here and there aren’t too dangerous)
  4. Get some quick wins under your belt.  This will enhance the momentum behind the effort.  Remember to scale performance incrementally in line with the financial and labor resources that you’ve budgeted
  5. Own the goal and be accountable.  It’s not likely that organizations will succeed in meeting their goals without someone keeping track.  Make sustainability performance part of personal or group performance evaluations.
  6. Measure, Report, Repeat.  Don’t stop at the first sign of success or trouble.  Look for ways to press on, raise the bar and continually improve.  Report progress regularly (sometimes monthly, sometimes quarterly.  It all depends on what is being measured. 
  7. Go Short, Go Long.  Set some targets as short term goals, but think long term too (three to five years out), and in alignment with corporate strategies.  Most large companies like my client (Johnson & Johnson), Unilever, Sony and many others usually set five to eight year planning horizons.
  8. Measure things that compare well but slightly differentiate yourselves from your competitors. Novel and unique metrics are just as important to differentiating you as your products.
  9. Seek out globally-recognized metrics (like the Global Reporting Initiative) to assure that multi-national companies who also measure sustainability metrics can apply the data to their own goals.
  10. If you are a large company with multiple department, divisions or sites, the metrics of the subordinate organizations must be able to be “rolled up” in a way that addresses the entire organization but still meets site or department specific needs. 
  11. Report the Bad with the Good:  No one’s perfect and a little self deprecation, even in business can pay handsomely from a reputational point of view.  In this WikiLeaks era, information moves swiftly.  Stay ahead of “the story”, own up to the shortfalls, you’ll be forgiven and given more credit for your successes.
  12. Build off of prior continual improvement initiatives to track perform over longer periods of time.  It’s not like you flicked on a switch one day and became the sustainable organization that you aspire to be.  It takes time.

On second thought, I did win a “big” race.  My freshman year in high school I placed first in a 100 yard Individual Medley event against an arch rival high school in the Chicago suburbs.  That was my greatest moment in the pool…for a race many said I wouldn’t even finish.

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Using Sustainability Metrics to Drive Business Performance, Innovation and Stakeholder Satisfaction

12 Jul

Environmental metrics were not much of an issue when I started as a young environmental coordinator at a Utah coal mine 30 years ago. The few environmental metrics I used were mainly driven by regulatory-agency permits, inspections and audits.  How many spill occurred this month?  How many fines did we get this quarter?  Did we exceed waste water discharge requirements? Our entire environmental compliance philosophy was driven by permit limits, rules and regulations.  My company was actually more concerned about environmental pollution and managing impacts of operations on the environment than most companies in a large western state at that time.   But at that time, there was a major disconnect between environmental performance and business performance. Environmental protection was seen by management as a cost “sink”, and not as an integral part of conducting business. Metrics weren’t designed to optimize our environmental performance or to understand the long-term impacts of our decisions on either our business or the environment. All decisions were made within a limited point of view.

Like the mining company I worked for, and like most businesses today, it’s clear that the ship has turned.  Companies are looking strategically at how environmental performance can have a direct impact on the bottom line of an organization.  Some are even taking a top-line approach to business success by accounting for social, natural and financial capital (http://bit.ly/93VBWG). Drivers such as globalization of markets, customer and shareholder preferences, regulatory pressures and business process re-engineering can claim a role in this sea change of decision-making.  This approach has fundamentally changed the way companies operate, design, manufacture, and distribute products.

Why Measure Anyway?

Well, the two old axioms state that “you are what you measure” and “what gets measured gets managed”.  Without a way to establish an internal benchmark for continual improvement, it becomes harder to innovate, advance and proactively respond to stakeholder expectations.  Key advantages to monitor and measure environmental and organizational performance include:

  • Setting Effective and Value-Added Priorities
  • Benchmarking to Continuously Improve
  • Encouragement of Bottom Up, Organization-wide Innovation
  • Reinforcing Personal and Organizational Accountability
  • Strengthening Strategic Planning and Goal-Setting Processes
  • Improved Internal and External Communication

Metrics can do one of two things: They can tell you what you should do, or they can tell you what you should have done. If you use them to tell you what to do, you’ll be using them to measure your successes. But if you use them to tell you what you should have done, you’ll be using them to measure your failures. So clearly it’s the first approach, not the latter, that forward-thinking companies should focus on.

The Advent of Verification and Triple Bottom Line Focused Metrics

In the not too distant past, as I noted above, environmental performance was primarily based upon a company’s compliance with local, state or federal permits and environmental regulations. With the advent of the ISO 14001-2004 Standard and Specification and its companion guidelines over the past 15 years, companies are taking a broader look at the ways they measure environmental performance (http://www.iso.org/iso/iso_14000_essentials). In addition, the ISO 14031 Guidelines on Environmental Performance Evaluation provide for establishment of measurable and verifiable environmental performance indicators (EPIs) appropriate to any public or private enterprise.

Many of the potential benefits from linking environmental and economic performance depend on the ability to integrate environmental management practices into the normal course of a company’s operations.  The ability to quantify environmental performance in a meaningful way is critical to the effectiveness of this integration.

Adding to the mix of the benchmarks for environmental indicators are the Global Reporting Initiative (GRI)  (http://www.globalreporting.org), Global Environmental Management Initiative (GEMI) http://www.gemi.org) and the World Business Council for Sustainable Development (WBSCD) guidelines (www.wbscd.org).  Each of these measurements and reporting frameworks provide for reporting on the sustainability-economic, environmental, and social – dimensions of an organizations activities, products, and services.  More recently, Joel Makower (@makower) and the staff at GreenBiz.com (@GreenBiz) have been engaged with UL Environment to develop and commercialize a company-level standard for sustainability. This latest effort is being initiated in an attempt to harmonize all three of the above approaches and dozens of others into one global, measurable and verifiable third-party standard for sustainability (http://bit.ly/ajHxKy).

What to Measure and How to Frame the Message

Do your performance metrics have you tied up in knots?  Once organizations decide they have to do more measuring then the key question becomes: What do we measure and how do we measure it?  A few tips:

  1. Measure things that add value to organizational decisions. Measuring for the sake of measuring is a waste of time.
  2. Think about ways to measure things differently that your competitors.  Novel and unique metrics are just as important to differentiating you as your products.
  3. Measure at a minimum the same way others around the world were measuring, as this assures that globally focused metrics are harmonized.
  4. If you are a large company with multiple department, divisions or sites, the metrics of the individual parts must be able to be “rolled up” in a way that addresses the entire organization but still meets site or department specific needs.

When establishing appropriate measures (whether they are social, environmental, operational or financial), consider that metrics must be:

  • Representative
  • Understandable
  • Relevant
  • Comparative
  • Quantifiable
  • Time-based and Normalized
  • Unbiased and Validated
  • Transferable

Also, make sure that the metrics address the needs of all internal and external stakeholders in other words, your employees, customers, local community, government and shareholders.

Finally, good metrics if applied properly will foster innovation and growth.  Focus on continuous improvement as the primary driver for monitoring and measuring performance. If metrics don’t add value, they will not support continuous improvement and eventually will not be used.

Summary

Many of today’s environmental metrics evolved from the end-of-pipe command-and-control regulatory approach that has been implemented in a piecemeal fashion over the past 30 years since I joined the environmental profession. Why let regulatory agencies drive the key performance metrics that in turn drive business performance?  While compliance is a key benchmark for environmental performance, don’t stop there!

In this highly competitive, quickly changing and unstable business climate, organizational success requires agility.  Success also depends on having the correct set of metrics in place to gauge progress in meeting short and long-term business objectives.  Measuring performance with a sustainability lens is just one of the new responsibilities that companies can quickly embrace to nimbly drive organizational value.

Five Ways to Achieve “Top Line” Business Value Through Sustainability

29 Jun

Note: This article also appears on GreenBiz.com at http://bit.ly/9kjYTV

In a comprehensive study released last week by the United Nations Global Compact and Accenture, a survey of 766 CEOs from around the globe indicate that despite the economic downturn, sustainability will be critical to the future success of their companies.  An amazing 93% of CEOs indicated that “a tipping point” could be reached that integrates sustainability with core business processes and systems, and its supply chains. http://bit.ly/cS93dR

So this suggests that ‘triple bottom line’ (TBL) practices and measurements will become commonplace in business…or will it.  Perhaps there is another way of looking at this trend  given the top-down commitments that CEO’s believe are necessary to create this massive shift in corporate behavior.  This point of view is called “triple top line”, but has generally been trumped by its “bottom line” twin.

Setting the Context

Top-Line Definition (Sustainability Dictionary http://bit.ly/aRPZh8)

The total revenues an organization reports on their income statement. While many activities within an organization are focused on reducing costs, initiatives such as innovative product and service development focus on creating more valuable and desirable offerings that increase revenues. Attention to human and natural capital (as well as financial capital) can often increase revenue by differentiating a company and its offerings in a beneficial way to the market. When this is done poorly however, it can be seen as green-washing and results in the opposite effect.

In contrast, bottom-line refers to Net Income (top line revenues – expense).  Bottom-line activities typically focus on cutting expenses in order to improve income.  William McDonough also coined this term from a design perspective in his landmark book Cradle to Cradle: Remaking the Way We Make Things (2002, North Point Press)

Triple Top Line Definition (Sustainability Dictionary http://bit.ly/9emKPX)

The effect that attention to sustainable management of natural, financial, and human capital has to an organization by increasing revenues (by offering more desirable products and services) and reducing costs and expenses throughout operations (through more streamlined operations. While many of these benefits are measured in terms of triple bottom line accounting, even more valuable are their effects to a company’s top-line financial performance because they require less capital investment and reduce the cost of capital.

In the UN/Accenture report, CEOs cited several barriers to achieving their sustainability goals, including ‘organizational silos’, competing priorities and lack of ‘value recognition’ by investors.  To counteract these barriers, several steps were needed, including CEO leadership to create real, value-added and long term change.  Specifically, five key areas were mentioned:

  • Shaping consumer preferences for sustainable products.
  • Training, training, training on sustainability issues- not only for the rank and file but managers too.
  • Improved investor communications with investors to create a better value proposition about sustainability.
  • Improved TBL metrics and communication of the value of business in society.
  • Partnering with governments to shape policy and regulation and create a level playing field.

A "Triple Top-Line" Strategy Yields Enhanced Business Growth

In sustainable terms, both a top-line and bottom-line focus is important. However, many recent efforts to slash expenses in the short-term can actually hurt long-term sustainable value.  Like the UN/Accenture study suggests, a focus on increasing top-line value through innovation, lean thinking, and smarter brand enhancement can lead to more sustainable and profitable growth.  I offer a simple framework to start down the path of sustainability from a top line perspective that recognizes human and natural capital as well as financial aspects of business.

1. Understand the current situation.

Gain awareness of the context in which environmental top line value can be realized.

  • Take stock of the organization’s core business strengths / strategies.
  • Identify the environmental aspects of the organization’s processes and services in each link of the organization’s value chain.
  • Identify customer environmental challenges and how the processes and services relate to customer needs.
  • Develop a business case for moving forward.

2. Develop a strategy.

Decide upon a strategy for creating environmental top line value that supports the organizations business strategy and takes advantage of the organization’s strengths.

  • Develop a top line strategy that will be a best fit for the organization.
  • Consider how the strategy will address sustainable business practices.
  • Determine whether any changes are needed to the existing business model or strategic plan to realize the strategy.
  • Develop an action plan to implement the strategy.

3. Choose initiatives and measure progress.

Develop and implement initiatives that will bring the strategy to life.

  • Consider how the organization’s existing processes and services can be positioned to address the chosen strategy, using the case studies for inspiration.
  • Examine each link of the product value chain to identify potential initiatives, such as reuse of recycled materials, resource optimization, reduced energy or water consumption, all of which can create top line value.
  • Measure your efforts by establishing meaningful and measurable key environmental, social and financial performance indicators
  • Be realistic about how process changes that can have direct environmental benefits fit into the overall set of differentiating features and benefits of the process. Do not assume that consumers will be willing to pay a price premium or accept performance or quality trade-offs.
  • Examine customers’ value chains to identify top line opportunities to meet customer expectations and support their sustainability initiatives.
  • Identify potential partnerships with stakeholders that will lead to top line value by promoting collaborative supply chain management.

4. Gain internal alignment.

The process of aligning an organization around the importance of taking action begins at the time an organization first develops an awareness of the context in which environmental top line value can be realized, and carries all the way through implementation of the top line strategy.

  • Gain buy-in from top management.
  • Communicate the business case for moving forward.
  • Identify internal champions within the organization who will move the top line initiative forward.
  • Start with pilot efforts to test the waters and generate early successes.
  • Communicate early successes.

5. Maintain the momentum.

Develop processes for maintaining the momentum of the top line initiatives.

  • Create a “change management” process to build environmental factors into new or modified processes or activities.
  • Develop business-based metrics of environmental and management and top line success.
  • Develop an award and recognition program for ideas or projects that result in environmental and/or management top line value.
  • Integrate environmental stewardship and associated activities with all operations.
  • Raise the capabilities of the customer service function to probe for and address customer-specific environmental or social responsibility issues/ concerns.

By following this simple ‘plan-do-check-act’ process, companies (large and small) can create upstream supplier alignment, downstream value for their customers and maintain a more secure competitive financial position in the global marketplace.

I believe the distinction between a good company and a great one is this: A good company delivers excellent products and services; a great one delivers excellent products and services and strives to make the world a better place. —William Clay Ford Jr.