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Strategic Direction in a Competitive Environment

                    
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Ask the Experts Content 2000

December 2000

Is it common for companies to link safety performance with employee bonus plans?

Yes, it is not only common, but the norm. In a recent survey of safety programs Richard MacLean found that most companies employ some form of bonus or reward system based on safety performance. We were surprised that no single program approach dominates; each company surveyed applied their own approach. Programs extended from top managers to every employee in the company. Bonus impact varied from a few percent to as much as 35 percent.

Most companies report a positive impact from such programs, although a number of companies related concerns about underreporting. Another concern is union acceptance of the program. Needless to say, careful design and advance buy-in is necessary for a truly effective program. For example, "zoned programs" in which the positive performance of a business or a site is not wiped out by a poor performing, totally unrelated group are considered to be more fair. Graduated programs are also popular in that a single accident on the first of January does not become the de-motivator for the remainder of the year.

I've heard of the expression "Green Wall" to describe the difficulty in advancing environmental progress beyond basic compliance and pollution prevention. How can you break through the wall?

"Green Wall" is an expression coined by Robert Shelton in 1994 to describe the problem of stalled progress on strategic environmental programs. Robert claimed a "credibility gap" exists between environmental management and business management. I agree. If progress is at a standstill, more often than not it's our own fault; we are our own worst enemies.

The vast majority of the time environmental practitioners spend with executive management is spent conveying the same old-same old message of compliance status, waste and emission metrics, and project and program status. Sure, we get the job done as management envisions our work, but rarely spend much "quality time" with executives explaining emerging strategic issues. How can they possibly support new programs if they are unfamiliar with the dynamics in play today?

This point was driven home to me when the top environmental managers of a Fortune 500 company were asked how much time they had spent educating their top business executives during the course of a recent half day review. To my surprise, not a single minute was scheduled on this open agenda meeting. The first step is to get these crucial informative matters on the agenda!

The second step is to translate the fuzzy, emerging concerns into clear business terminology. Using techno-speak just annoys and confuses business managers. Describing the specific issues may not obtain results, because management may not be able to "connect the dots" to translate this information into financial impacts to the business. The trick is to ask the question, "So what does this all mean to the business?" after each message is delivered, and to answer in business language that conveys and clarifies the message for managers.

Finally, repeat steps one and two at every possible opportunity and in very small doses. Business managers will not change their views or positions, nor will they approve significant resources, if hit with a complex new concept all at once. A senior business executive at General Electric's headquarters, described it to me this way, "Dick, some things you just need to let percolate." It's a process, so be relentless and persistent, and you will be rewarded.

What's the best model for environmental, health and safety strategic planning?

We have yet to see the definitive reference published exclusively on EHS planning. As a matter of fact, there are not very many good business references published recently. My favorite is The Rise and Fall of Strategic Planning - Reconceiving Roles for Planning, Plans and Planners, by Henry Mitzberg published in 1994 by The Free Press (obtainable through http://www.amazon.com). My guess is that strategic planning got a bad rap back in the 1980s and only now is re-emerging as a business process.

I can vividly remember when entire departments were eliminated if they had the work "planning" in their name. Strategic planning developed the image of overhead staff members assembling books that sat on the shelf, never to be read. It was a ritual performed because "all the big companies do it, so shouldn't we?" When the big companies cut back, it heralded a mass exodus from strategic planning.

Strategic planning is on the rise because the business world is getting a lot more complex, interrelated and fast paced. My prediction is that you will see more corporate EHS departments either closely associated to each other, or as an adjunct to these emerging strategic planning functions. Future scenarios of how the business world will fare often have a heavy environmental influence, since the environment is closely linked to world population growth and resource consumption.

The strategic planning model that Richard MacLean uses is shown in the accompanying figure. The six major steps have sixteen sub-steps, including the basic but overlooked step of vision, value and mission definition. In strategic planning, it is tempting to get right into the "strategic stuff" and ignore the fundamentals.

Probably the best model is the one most closely aligned with the one that your business uses. Where most EHS departments go wrong is in the very first step - defining the future state. It is very easy to get caught up in current realities and either not identify emerging issues or fail to define the business opportunities or threats in this future state. Incrementalism prevails: how can you get from here to there, without an understanding of where "there" is. My favorite technique for examining the future and getting out of today's confines (a.k.a., the box) is scenario planning. Another problem is that EHS managers instantly erect limits by pre-judging what business management will or will not allow. A strong facilitator helps avoid this trap.

One - strategic- point often overlooked is the value of the strategic planning process itself for EHS. For large companies it is an excellent tool to bring together the EHS managers from the various business groups to work as a team with the "big picture" perspective of the entire corporation. Individual businesses can get caught up in their own world and become disconnected with the overall direction of the corporation and the relationship of their HSE successes or failures to the corporation's overall needs.

An even more significant benefit is that the outcome of this planning effort can be used to convey all manner of messages to executive business management. In effect, it is the perfect venue to place on the table for discussion issues that normally would be not easy to raise. Reviewing the results from strategic planning allows some maneuvering room to raise some unusual or challenging issues.

November 2000

How do you calculate the impact of environmental, health and safety performance on shareholder value?

Researchers such as Linda Descano, Peter Soyka, Sanly Feldmen, Matthew Kirman, Glen Dowell, and others have tried to tackle this tough problem. Some of the best material that I have seen recently has come out of the Center of Economics and Business Administration at the University of Basel and the Bank Sarasin & Co., Basel. This is an emerging area and as yet no one has come up with the magic formula that not only works but receives widespread acceptance.

For now it is "fuzzy math", and anecdotal case studies may have as much impact on your management as any seemingly precise calculation. Probably the most powerful example of good environmental performance serving to protect shareholder value occurred recently with Minnesota Mining and Manufacturing Co. This case study wins hands-down as an incredible story because it is a non-story.

3M, as the company is widely known, gained a reputation early on as a promoter of pollution prevention with its 3P program - Pollution Prevention Pays. Their environmental efforts in general, and the 3P program in particular, have been so successful that 3M is widely regarded as one of the most environmentally responsible companies in the world today.

3M is the only manufacturer of perfluorooctane sulfonate (PFOS), which has been in use since 1950. It is found in water repellent coatings and fire suppressing foams, and is one of the ingredients of Scotchgard stain repellent. Several years ago, the company approached EPA with findings that the material has been found in minute quantities in the bloodstream of people worldwide. Although studies have not demonstrated any hazard to humans, it is known to be toxic to laboratory animals at high doses. Even more significant, it appears to be persistent and pervasive in nature.

For most companies, these findings would be in the news daily until the focus shifted to the conga line of lawyers filing class actions suits for damage to their clients' health. What happened to 3M? A senior scientist at the National Resources Defense Council (NRDC) praised the company for "removing the product before there is absolute scientific proof of harm." Would this have been the reaction if the company was one of the leading "bad guys"? Not likely.

In the intervening months since this news became public in the back pages of newspapers, I have asked several large groups of environmental professionals if they were familiar with this story. Very few were. If environmental professionals do not know about it, you can imagine where this stands on the radar scope of investment analysts. I figure that the value to 3M of the good will that it has brought to the table over the years has saved the company at least a billion dollars in shareholder value.

Your article in the October 2000 issue of Environmental Protection on environmental consulting used the term "commodity services." Just what do you mean by this term, and doesn't it reflect badly on our profession to use terms such as these to describe the work we do?

Commodity environmental, health and safety services include sample collection and analysis, industrial hygiene monitoring, routine phase one investigations, routine permit applications, and compliance audits for standard facilities. It is the stuff that comes in relatively small, discrete units, generally without much variation from client to client in terms of cost and scope per unit of delivered results. The service may require an experienced individual to initially set up and check for unusual requirements, but relatively inexperienced individuals can complete the work following standard checklist protocols.

I agree with your point about the inference this gives our profession, but the real issue is that BUSINESS management views practically the entire profession as a simple service commodity. In part, it is our own fault because we have been unable to make a good business case to management about the value we add to the business (as opposed to just being a cost drain). Management views filling out permits as being in the same category as filling out payroll checks. That is why there has been such a movement towards outsourcing and shared services - forced by business management. Right now there is a tremendous chasm between our view of our profession and its contribution to the bottom line, and the view held by management.

I think that we need to be honest with ourselves and recognize that there are some aspects of environmental program management that are truly in the commodity category. All too often I've seen environmental managers try to hold onto their staffs (a.k.a. empires) by claiming everything is critical and strategic. In fact, it covers a broad spectrum, and we endanger support for the most critical work by claiming that everything is essential. A small staff that outsources the commodity service work may be more credible and effective with management than a large organization that tries to do everything.

I'm thinking of hiring two student interns from a local university. Any suggestions on how to get the most from this relationship?

I graduated from Northeastern University, internationally known for its cooperative education program. I'm a major supporter of these programs and actually set up several internships later in my career with Yale University and Northeastern University. That said, I'd like to offer some strong words of caution. There are some very specific do's and don'ts.

The number one problem is when the manager sees these student interns as "free help" to the department. This can occur when the budget comes out of the human resource or community relations department in conjunction with an overall partnership program with the local university. Since the interns are free, they can be viewed as having little potential or value to the department and unfortunately, that is how they are sometimes treated.

Successful program managers hand pick the students they want. They define very specific tasks and job objectives to match the student's ability and background. They assign a mentor who is held accountable for developing the intern and getting results. What is absolutely critical is that the intern is given real world work that is of value to the company, not busy work. Interns can spot a fabricated assignment a mile away and nothing is more demoralizing.

It takes time for any employee to get up to speed and become productive. More so with interns. For this reason, I have always established programs that are either a minimum six month assignment or that run in a returning cycle such as the co-op program offered at Northeastern University. The bottom line is that these programs are of mutual benefit-to your company, to the institution and to the intern, so it is in the best interests of all concerned to treat the student like a regular professional., In other words, demand performance and expect results. What goes around, comes around-time invested in proper training will provide you not only with productive help in the short term, but perhaps even down the road as a valuable employee hired in a synchronistic turn of events.

October 2000

Where can I find more information about the impact of good environmental performance on shareholder value?

The view of "shareholder value" has shifted, and fortunately so, in a very positive direction. In the mid 1990s, environmental, health and safety (EHS) departments were under siege. Business managers were responding to competitive pressures and EHS managers were facing severe cutbacks. Many responded by attempting to prove to business executives that their staffs and programs were worth keeping, as opposed to outsourcing or eliminating entirely.

Consultants responded to the increased anxiety (and market opportunity) by providing tools and techniques to provide cost/benefit assessments. Unfortunately however, everyone got bogged down in the minutia and lost sight of the big picture. Overly focused on cost cutting and budget related issues, responses centered on demonstrating value for the money spent on EHS services and capital investments. For example, in 1998 GEMI developed a pamphlet, Environment: Value to Business (EVTB), which acts as a guide to measuring and communicating the business value of environmental activities. Around the same time, the Return On Health and Safety Investments (ROHSI) was developed and marketed by Arthur Anderson. Activity Based Costing (ABC) became in vogue.

The really "big ticket" EHS issues and opportunities are associated with major risk, branding, market strategy, competitive product strategies, and long term liability issues. Long term liability issues or product concerns can erupt overnight if your particular issues become the focus of environmentalists' ire. While the consultants and published literature addressed these issues and opportunities to some degree, the tools to carry them forward were never fully developed. Additionally, environmental professionals, historically focused on compliance/regulatory issues, have been woefully inadequate in communicating these issues to business executives.

Recently on the scene has been a new breed of business-savvy attempts to put a more executive-oriented focus on what all this may mean. The first articles appeared in 1995 and attempted to draw a correlation between share price and environmental performance. Some of the more recent and thoughtful research has come out of Europe by such organizations as the University of Basel and Bank Sarasin & Company, Basel, Switzerland. This area is emerging, and I highly recommend that you keep abreast of developments.

What resources are there to better understand the global environmental issues that environmentalists are concerned about?

Think globally, but act locally. Most corporate environmental folks have paid attention to the local/regional/national scene, but still remain largely unaware of global implications to their business. For example, you may ask yourself, "What does decreasing water resources in India have to do with MY business?" In actuality, the potential impact could be sizeable, even disastrous, if your marketing department is anticipating tremendous sales growth in these countries. Revolution brought on by starvation may increase arms sales dramatically, but may very well have a negative impact on YOUR business which focuses on widget sales.

Nine Indian states are now running major water defects. In aggregate, they total just under 100 billion cubic meters a year. Similar issues are present in China, North Africa, and Saudi Arabia. If you start to research the global implication of decreasing water supply due to natural habitat degradation, it is truly significant. And, significant as it may be, it is rarely reported in the news media, other than occasional news sound-bites that executive business managers promptly forget in all the other noise. In today's global market place, this information does matter, just as the advance knowledge of riots underway in Newark, New Jersey would have alerted companies in the 1960's to an imminent decrease in sales. Forewarned is forearmed.

It is difficult to sort out all the rhetoric from reality when it comes to global environmental issues. My favorite source is the Worldwatch Institute. There are several starter books to give you an overview of emerging global environmental issues . I recommend State of the World 2000 by Lester Brown, et. al. or Vital Signs 2000 - The Environmental Trends That Are Shaping Our Future, by Janet Abramovitz, et. al., both of which are published by the Worldwatch Institute. For a global analysis by major region, read the United Nations Environment Programme's Global Environment Outlook: Overview GEO 2000, Editor: Robin Clarke, 1999. These publications may have a decidedly eco-slant, but examine the hard data and the sources quoted.

In recent years the trend has been to outsource and consolidate environmental staffs into shared service groups. Is this trend continuing?

Outsourcing and shared services were all the rage starting in the mid 1990s. Even today, business management often considers environmental functions as service-type activities. This is not surprising since many aspects involve regulatory issues (legal), reporting (information systems), health (employee relations), and risk management (engineering). It is no wonder that environmental departments have been caught up in the same frenzy to cut staff overhead costs.

Recent surveys by Competitive Environment have found that the trend has leveled off to some degree, in part because so many companies have already gone in this direction. Much of the "fat" in environmental staffs, which was built up to respond to new regulatory pressures in the late 1980s, has been trimmed. What we see today is a gradual maturing in the way that companies go about outsourcing or consolidating resources.

Some companies report that they are bringing back in-house activities that they only recently outsourced because of quality issues leading to compliance issues. One major West Coast-based oil company felt it really was just not worth the risk to outsource certain activities. Another major East Coast-based chemical company reported that sites which eagerly sought to "get rid of overpriced internal shared service staff resources" found out later that the external consultants grossly underestimated what was required. Thus, they underbid the internal shared service staff, were awarded the work, but were subsequently faced with unhappy clients who expected much more.

The first example illustrates Rule #1: environmental services is not the same as routine services, such as issuing employee paychecks. There needs to be a careful evaluation of the risks associated with outsourcing. The second illustrates Rule #2: no amount of contractual language will define exactly what the client expects. In the second example, the client expected X and always got X from internal staff because they thoroughly understood what the needs were, including subtleties such as company cultural necessities. The consulting firm was unaware of these nuances and unknowingly underbid.

Another trend that we see is a gradual relaxing of the rigid service level agreements between internal shared service staffs and their customers. In effect, both parties - customer and internal service provider - are more comfortable in delivering and receiving value added services. How is this manifested? By moving from hourly cost tracking to six month or annual allocation. A handshake is replacing the rigorous service level agreements.

September 2000

We are considering preparing our first integrated social and environmental report. What are the key social responsibility metrics that other companies focus on?

Bristol-Myers Squibb recently conducted a survey of corporate social reporting and published the results in the July-August 2000 issue of Tomorrow magazine. They listed 14 prominent reporting metrics of which six seemed to be the most common. These are: Total philanthropic contributions (88); Workforce gender diversity (59); Wages, salaries, benefits (41); Workforce race diversity (41); and Community-specific contributions (35). The numbers in parentheses refer to the percent of companies survey using these metrics.

Recognize, of course, that the object of reporting is to provide what stakeholders are asking for, not what other companies happen to report. Reporting what other companies disclose may provide good benchmarking information, but may or may not satisfy your stakeholders. To examine this issue, the Competitive Environment has conducted surveys similar to the Bristol-Myers Squibb survey only focused on stakeholder-reported preferences. We found that environmental reporting appears staid, limited and routine in comparison to the social responsibility landscape. Analysis of resources such as the 1999 United Nations Environmental Program's (UNEP) The Social Reporting Report indicate that there is an incredible array of potential candidates for reporting, everything from number of policies related to business ethics to the number of legal actions due to human rights violations.

The June 2000, Sustainability Reporting Guidelines by the Global Reporting Initiative offers a basic framework for reporting. In the absence of any other clear direction, it is probably the best publicly available guidance to help sort through this confusing and emerging field. Social reporting, probably more so that environmental reporting can be sensitive to local cultural issues. What a company chooses to track and report should be predominately based on what is important to stakeholders in the regions where their operations are located and their products sold.

We plan to conduct some benchmarking exercises in the Fall, as part of out 2001 strategic planning program. What are the best companies to benchmark with?

I have my favorites, but without their permission I could not provide names. Besides, it also depends on the specific areas of interest; no company is world class in every area. What I can do is discuss where the latest, cutting edge ideas are emerging. To re-state your question, where to go shopping for information that leads to competitive advantage?

In the mid 80s to early 90s, the answer would have been very easy: the chemical industry in the United States. Not any longer. As Leslie Carothers, Vice President, United Technologies Corporation, stated in a recent Environmental Forum column, "Today the most aggressive - even provocative - proposals are sprouting from Brussels and member states of the European Union."

The humor may be subtle - Brussels sprouts - but the implications are bold: the United States is not where the actions is for much of today's creative new approaches. This loss extends to international leadership on key global issues. Paul Hagen, a Principle at Beverage & Diamond in Washington DC, calls this failure "the green diplomacy gap."

The chemical industry may continue to hold onto their leadership in pollution control technology, but for emerging issues such as social responsibility, they may to be lagging behind. This comes in spite of the American Chemical Council's (formerly CMA) Responsible Careâ . The chemical industry has done an excellent job in addressing the public's concerns after Bhopal, however there is a new crop of issues centered on sustainable development. Ironically, the mining industry, once considered one of the most recalcitrant industries, finds itself at the forefront in addressing resource issues, as the chemical industry found itself addressing toxics.

Through the World Business Council for Sustainable Development (WBCSD), the mining industry has funded a major initiative by the UK-based International Institute for Environment and Development (IIED). What gives this initiative credibility is the impeccable, independent reputation of IIED. Called the Mining Minerals and Sustainable Development (MMSD) project, the overall objective is to identify how mining can best contribute to the global transition to sustainable development.

The bottom line message in this answer is that the best companies with which to benchmark with today may be headquartered outside the United States, most probably in Europe or Canada, and in industry sectors that in the past may even have been considered laggards. In addition, NGOs are playing a more pivotal role in finding solutions, so do not overlook these new resources for fresh ideas. Organizations that are thrust on the edge or are uncomfortable with the status quo are always breeding grounds for new ideas.

What is the most effective organizational structure for EHS programs?

Business organizational structures are characterized by a few simple terms like portfolio, matrixed, functional, or exotic sounding names like "divided parenting." (Sounds like joint custody to me.) Individual departments operate on themes such as shared services, site services and corporate core. Operating responsibilities are classified as decentralized, centralized or networked.

The terms are still in common use, but gradually managers are becoming more focused on how the "boxes" (a.k.a. people) interact. For example, a recent Harvard Business Review article calls the science of mapping how organizations work in real life "Organigraphs." The basic premise is the quality of the information exchanged around the water cooler will tell you a lot more about how a company operates than how the blocks on the organizational chart are arranged. I agree.

In a recent survey of organizational structure I asked the EHS director for a major corporation what he felt are the most important factors that contribute to a successful EHS organization. He offered two insights without hesitation. First, the internal networks are key. "Networks transcend the organizational structure. They are the 'glue' that holds things together." Second, institutionalizing EHS into line management dramatically shifts required staffing levels. He reported, "Ten years ago an EHS person spent 90% of their time at a site doing hands on type activity. Now it is closer to 40% with the remainder in consulting/advising the operations people who are doing the work."

The very best EHS organizations that I have studied today employ a sophisticated blend of ALL of the descriptors I first mentioned. Some activities are highly centralized, others completely decentralized. Shared or centralized service departments are used, as well as outsourced services. Networks are a primary source of communication across the company. In fact, the worst, most dysfunctional organizations are those that tend to employ only a few concepts and then carry these to the extreme e.g., outsourcing to the point that strategic leadership and vendor control is lost. The secret to success is tot find the correct blend that best matches the company's culture and gets the job done efficiently.

August 2000

What are the advantages and disadvantages to outsourcing our in-house environmental management staff?

One argument for outsourcing is that the quality of some outsourced assignments may be superior to those done with internal staff. Outsourced resources are paid for quality, can be fired at any time, and can be less influenced by company politics. In a sense, companies place trust in consultants because the terms can be spelled out in detail in contracts. Risk and liability can be shared in a way that makes it advantageous for both parties to proceed.

While the trend appears towards outsourcing of some services, a minimum critical mass should exist to control the quality and the price to value ratio of outsourced contractors. If taken to an extreme, the company places complete trust in the outside consultant -- something companies should rarely consider if core business issues, substantial risk, or liability are involved.

The challenge is to find the right combination that works best in meeting the objectives of the company. As a rule you need to have sufficient permanent internal staff to:

Strategically manage environmental performance
Provide due diligence
Obtain maximum performance from external, contract resources
Identify and take full competitive advantage of opportunities
Cost effectively support ongoing efforts

At a minimum, a company should require a single point of contact within the consulting firm. This person should be held directly accountable for overall performance and should ensure that continuity will be maintained with the individuals assigned to the project. Remember, you may be contracting with a large "brand name" consulting firm, but ultimately the success depends on the competency of the individuals doing the work.

What's the best corporate environmental reporting model?

Environmental reports are coming under rigorous analysis by more competent readers with ever-higher expectations. I believe that eventually corporate environmental reports will be subjected to the same professional scrutiny as financial reports receive today. Reporting today is sophisticated and good environmental reports hold up to close scrutiny at three levels: (1) how well a company is reporting relative to standards and industry peers; (2) how well the company is performing and meeting its reported targets; and (3) how internally consistent and credible is the presentation.

In summary, if you report, do it well or don't do it at all. There are more than 30 standards and models for environmental reporting. The best model for environmental content (i.e., what is presented) is the 50 item United Nations Environmental Programme (UNEP) model (UNEP, Engaging Stakeholders, Volume 1, The Benchmark Survey, 1996, Appendix 2). For an overall reporting structure (i.e., the format for presentation) the Global Reporting Initiative exposure draft guidelines are gaining popularity and will be updated in June 2000. These guidelines include recommendations on both content and reporting for broader issues such as sustainability, health and safety, and social responsibility reporting.

Is it worth the cost and effort to obtain independent verification of the company's annual environmental report?

The simple answer is no. In the absence of widely recognized standards, stakeholders may question the value and credibility of the verifier anyway, especially if the verifier has direct or indirect ties to the company. Audited financial statements required by the SEC for annual corporate reports carry significant credibility because of the extensive standards surrounding financial auditing and disclosure. No comparable standards for environmental reporting even come close.

The problem can be illustrated by observing the effort used by Baxter International to provide verification in their 1998 environmental report. Baxter used four, one page statements from various internal and external sources. In contrast, General Electric's 1999 Annual Financial Report contained a half page financial auditors' report.

Global Reporting Initiative and others are currently studying verification standards, but it is unlikely anything definitive will develop soon. Verification is, however, gaining importance and presents a fertile area to establish a leadership position. A number of innovative approaches could be taken by companies that could help shape future industry standards.

We are struggling with forming an environment vision statement for our company. What's the best way to go about this?

One of the greatest problems with EHS vision statements is that they become a blend of values, specific goals, and mission statements. Good corporate vision statements are surprisingly very rare. What is often quote as the environmental vision is in reality a commitment statement (e.g., "We will conduct our business with respect and care for the environment."). The vision statements for the business objectives for some companies suffer from the same mixture of elements -- a problem pointed out in a number of books on management strategy.

So just what is a vision statement? A vision statement is a conceptual description of the desired future state. It is a compelling picture or image that helps individuals understand the future direction and achievement of the organization's purpose. It answers the questions "Where are we going?" and "What will it look like when we get there?" A strategic vision depends on an organization's ability to see and feel the desired state. It stimulates action and serves as a rallying point for the troops and a yardstick for measuring progress.

The key to developing a clear vision is to recognize that the process to form the statement is as important as the vision statement itself. Worst case, the process becomes a "feel good" activity using the latest management buzzwords, but yielding little of the needed understanding and commitment. When the process is done right, however, it can be a powerful force to galvanize employees into achieving goals not dreamed possible. Developing a vision also leads to questions by executive management such as "How are we going to get there?", "What exactly does so and so mean?", "How will we know [measure] when we get there?" and "What will this cost/save the company?"

According to Hammer and Champy (authors of the business classic Reengineering the Corporation: A Manifesto for Business Revolution), a powerful vision contains three strategic elements: (1) Focus on operations (2) Measurable objectives (3) It forms a basis for competition in the industry. Equally as important is that the environmental vision should be a direct extension of the process used to create the overall business vision for the company. Indeed, the link between the business vision and the EHS vision should be apparent and clear to every employee. What they are not are a cut and past of other company statements - they must be custom tailored to the specific issues and needs of the company.

July 2000

I've read a number of reports on sustainable development with references to metrics, indicators and indexes. What's the difference among these terms?

The terms are very similar with no bright line separating them, thus they sometimes are used interchangeably. But, there are subtle distinctions. A metric is the most basic unit of measurement for a parameter or item tracked. An indicator is frequently used as a surrogate to monitor some other condition or state. Indicators may be less specific, not as precisely quantified or measured, and/or consist of several metrics combined. An index is generally a collection of a number of metrics or indicators mathematically reduced into a single number. Indexes are often used as indicators.

Remain confused? Several illustrations may help. Electrical energy consumption at a manufacturing site is measured in total kilowatt hours - a metric. Total units produced is another metric. Total energy per unit of production, which may consist of several metrics combined (e.g., electricity, gas, steam expressed in a common unit such as Btu's), is an indicator useful to track the success of an energy conservation program. The plants overall environmental efficiency index might consist of an energy conservation indicator, a waste reduction indicator, and a raw material usage indicator, all reduced down into a single number tracked by business management. An indicator of the plant's impact on the environment might be the fish population in the adjacent stream - a metric used as an proxy indicator of the health of the environment.

I'm having difficulty convincing my business management that sustainable development is more that just the latest "feel good" environmental movement. How have you gotten the message across to business management?

Everyone is talking about sustainable development (SD), but few actually understand its business significance, other than, "We are all for it! SD has made it to the public relations lexicon of most companies, but that's about it. SD is not another buzz word; it represents a major competitive threat or opportunity to many companies. An exaggeration? Not at all, and the key to understanding these dynamics is found in how SD is measured. In the language of SD, metrics represent the Rosetta Stone.

Environmental managers recognize that programs focused exclusively on compliance offers few competitive business advantages. A company's existing operations are allowed to stay in operation and that's about it. What is not as widely recognized today is that a traditional environmental metrics offers few insights into how to gain competitive advantage. Moreover, business managers have been lulled into thinking that (a) their current internal and external reporting efforts (i.e., rolling up the traditional metrics) will keep them informed of performance trends, and (b) voluntary reporting will continue indefinitely. I would not count on either.

When a metric is relevant, understandable and reliable, it can impact consumer/voter choice and ultimately, influence legislative and regulatory action. SD metrics theory and practice has undergone a significant evolution over the past five years and it is reaching the point where disclosure of comparable, reliable metrics will influence customer and supply chain choices.

With the US automobile giants imposing ISO 14001 onto their supply chains, we will shortly see the impact of the imposition of private sector voluntary environmental standards in the marketplace. It does not take much imagination to visualize companies in the future certified according to minimum environmental performance metrics, products labeled according to environmental intensities and supply chain requirements ties into minimum performance beyond ISO certification.

The move to establish these comparable standards has already started (e.g., WBCSD's recently organized System for Measuring Eco-Efficiency). A few have been around for years (e.g., miles per gallon fuel consumption) and now are drawing increased attention by governments, consumers and industry.

Regulations can take years to legislate and promulgate. Demand for disclosure can happen very quickly, and in the case of consumer products, self-disclosure can happen in days if consumer pressure skyrockets. The politics of disclosure can shift suddenly and unpredictably if your "EHS metric" becomes the cause célèbre. Relying on a traditional metric set and reacting to emerging issues may not be the best business strategy. My read of the politics of metrics is that Europe or Canada will shape these dynamics, not the United States, as Monsanto found out the hard way with biotech food crops.

A few companies are beginning to move beyond the rhetoric and position themselves for a new environmental era anchored in SD and social responsibility. For example, we are assisting clients examine how their products, processes, and their supply chain will stack up against set of SD metrics relative to their competitors. The companies with superior metrics may use their position to influence their customers, leverage expansion opportunities, or support government regulation that favors their competitive EHS advantage.

Keeping score on SD performance metrics may some day lead to new forms of hard ball competition. Good comparative EHS competitive intelligence is very difficult to obtain and few go through the effort to assemble it. It can take years to establish and build a reliable database. Business decisions based on this information which involve risk and liability assessments are very tricky, requiring a multidisciplinary approach. Leading companies recognize these dynamics and are not waiting for outside influences to dominate their internal management decisions.

 

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