From Expense to Revenue - Is your Sustainable Supply Chain v1.0 or v2.0?

Image taken from The High Profit Supply Chain - Deloitte (referenced below)

In my last blog I referred to the impact of scarce resources on the supply chain.  Given the number of organisations quoted by E&Y, which believe their core business objectives will be affected by natural resource shortages over the next 3-5 years, it would seem obvious to focus strategic attention on the supply chain.

Peter Senge, speaking to Harvard Business Review said it’s only when issues like water, energy and waste in the supply chain are seen as strategic that organisations will get serious.

Senge says Sustainability issues are often actually supply chain issues.  As mentioned in my blog on Leadership and Sustainability, Senge points to the need to understand the larger systems we operate in and to work with people we haven’t worked with before.  The article mentions Coca-Cola’s work with the WWF and Unilever’s statement that, “you can’t source everything sustainably unless you engage thousands of people around the world”.  Another HBR article mentions the work of Esquel, Posco, Nike, Starbucks and the joint venture between HP, Electrolux, Sony and Braun around recycling, which was later extended to include Apple, Dell, Microsoft, Nike and Nokia.  This article ends by saying ‘Sustainability has become a competitive concern and should be handled accordingly.’

Deloittes highlighted the significant savings opportunities (upstream and downstream) that are to be made within supply chains. For example, projects can reduce the usage and production of energy, carbon, water, materials and waste, remove cost and offer rapid return, at some of the lowest risk.  Typically these types of projects are heralded as Sustainable practices.  However, Mark McElroy writing for Sustainable Business challenges this view.

Mark draws the distinction between what he calls ‘eco-efficiency’ (where focus on efficient resource use can be described as Sustainability 1.0) and sustainability performance (where resource use compared to resource availability is labelled Sustainability 2.0).  An issue here is what has come to be known as the Jevons Paradox, where decreases in product costs result in greater affordability, and therefore higher demand, energy and material use and potentially waste – this is the unintended impact which can cause setbacks in the supply chain.   Mark’s view is that Context-based sustainability (CBS) could have a game-changing effect on the sustainability of industry. And his question is who will be the first to embrace it!

Asda announced in February its plans to improve its water, energy and waste efficiency by initiating a peer-to-peer learning and problem solving scheme, where suppliers can share best practice techniques and explore opportunities to work with the grocer.  The new platform is part of Asda’s Sustainability 2.0 strategy, which involves the retailer shifting focus to targets for its products and supply chain.  This represents a shift from a more traditional model of transactional activity with suppliers to a more collaborative way of working.

An HBR article “Don’t Let Your Supply Chain Control Your Business” supports Asda’s approach from the point of innovation, identifying shifts in the economy, as well as ensuring that suppliers are operating sustainably.  It asks a searching question about whether organisations need to replace people who only have commercial expertise with those who have analytical skills and deep knowledge of commodity markets!

I’m expecting to be challenged on and learn more about each of the areas in this and my past blogs as I start the Cambridge University Postgraduate Certificate in Sustainable Business next month.  I look forward to sharing my learning with you – and getting your feedback

How Just In Time became Just Not There

 Image from morgueFile

In my last blog I mentioned the demand for new business models, as a result of scarce resources. So what are these scarce resources?

Energy, (reviewed in a previous blog), minerals and metals, water and land are the naturally occurring resources that, given their finite nature, (or as a result of climate change), will show a supply shortfall within the next 30 years. 

According to PwC research on resource scarcity, execs of leading global manufacturing companies rate scarcity of minerals and metals as more important than energy or water.

What are the minerals and metals in question?.  Rare Earth Elements (REE) are a group of 17 elements that are critical to two of the fastest growing sectors – Energy and High Technology.  Tantalum for example is used in digital technology (mobile phones, computers, LCD/Plasma screens, digital audio/video players and cameras).  Tantalum has been found difficult to substitute and it has not been possible to recover it from end-of-life products.  Other Rare Earths are used for the strong magnets in wind turbines.  Ian Roderick of the Schumacher Institute reviewed 10 industries in Bristol (UK), each were dependant on finite materials, the majority of which are falling into the “extremely scarce” or “very scarce” category. 

Whilst Ian Roderick refers to shortfalls in supply in the next 30 year, 76% of respondents in an Ernst &Young survey, anticipate that their company’s core business objectives will be affected by natural resource shortages in the next three to five years.

PwC’s report suggests that renewable energy, automotive and energy and utilities industries are already experiencing instability of supply.  Aerospace, high tech and infrastructure are expecting to see a high rise in instability of supply from now until 2016.  The impact will be experienced throughout the supply chain.  The comment is made that we will move from “JIT – Just in Time to JNT – Just Not There.  This report also highlights that the economic and political drivers of scarcity are seen as more important than the physical drivers.

Proactive businesses are undertaking activities such as recycling, exploring substitution, dematerialisation and demand-side management (consumer), that lead to permanent market changes.  Organisations that respond rapidly to resource scarcity; because they have a strategy in place; will gain competitive advantage.

Some examples of companies already taking action are:

• Electrolux:  created a portable vacuum that uses Cadmium-free rechargeable batteries and Aluminium from Bauxite in product casings.
• Interface started leasing carpets.  Only worn sections need to be replaced and with the use of Solenium, carpets last 4 times longer – materials intensity has reduced by more than 85%.
• Utility Trailer Manufacturing Company launched a trailer side skirt that delivers 7.45% fuel savings
• Kingfisher sources sustainable timber
• PepsiCo and Siemens collaborate with their supply chains on sustainability
• BMW will be offering its electric i-cars in a similar scheme to Boris’s Bikes
• B&Q could mainstream sharing/renting, rather than selling, suitable products
• Dupont Building Innovations has become completely landfill-free, recycling 81 million pounds of landfill waste to zero.
• IBM processes 36,600 metric tons of product and waste, sending only 0.6% to landfill

Recommendations from the Bristol review mentioned above suggest organisations should follow some key steps

• the development of a knowledge sharing network
• progressive exploration (causal loop modelling) and
• the development of a virtual centre for excellence (bringing industrial partners together around the technological advances.

Next time I’ll be exploring collaboration through the supply chains and the use of data information to respond to risk.

Leadership and Sustainability

 Image from MS Clip Art - Complexity

Cross functional complexity is the most significant barrier to integrated, 

company-wide approach to sustainability…...

In my last blog I concluded by asking where the responsibility for the Energy Gap should sit within an organisation. Recent CEO studies suggest that, to be effective, responsibility should sit in the Board Room, with outcomes reflected in compensation packages.  This is understandable when comprehensive sustainability programmes optimise resource consumption and environmental efficiencies, drive brand value, reduce risk and exploit growth through product and service innovations. 

For a growing number of companies Sustainability is serving as a key differentiator in the market, driving business performance, providing access to new markets and fuelling top-line growth.  In one Report over two-thirds of the business leaders interviewed were focused on Sustainability to create new revenue streams.  For the “innovators”, Sustainability has shifted from a cost and compliance requirement to a growth play.

As highlighted in the Accenture UN Global Compact Study, this new market is also driving new business models, changing industry cost structures and permeating business from corporate strategy to all elements of operations.

The Global Compact study highlighted a 40 point gap between those CEOs who believe Sustainability needs to be embedded in strategy (96%) and those who reported their companies were actually doing it.  This is in spite of the fact that 93% reported that Sustainability was critical to their business. 

Given the benefits cited above, why aren’t companies taking action? A CPSL paper; (“Sustainability Leadership - A Force for Change”, also referring to the UN Survey); highlights complexity of implementation across functions, as the most significant barrier to implementing an integrated, company-wide approach to sustainability.

As we move forward I believe leadership effectiveness will be assessed by the sustainability of its management and business practices.  (See Goran Svensson and Greg Wood “Sustainable components of leadership effectiveness....”)

What skills does a Sustainable Leader need?

The qualities and capabilities exhibited by leadership in for-profit green organisations are articulated in a number of dissertations available on the web.  Barrett Brown in “Conscious Leadership for Sustainability” reviews four studies where the recurring qualities and capabilities for a Sustainable Leader were:

–        a deep sense of purpose

–        the ability to:

o       work with a broad range of stakeholders,

o       facilitate/lead transformational change through a systemic view and

o       tolerate ambiguity (emotional competency)

Specific individual or organisational prescriptions are not provided.

Key to the success of future leaders will be the quality of Collaborative Leadership.  The joint capacity of leaders to become catalysts for collective action will count more and more says Petra Kuenkel.  Whilst individual insight is crucial, it does not automatically translate into more fruitful collective action. 

What will drive adoption of this style of leadership?

The demand for new business models, as a result of scarce resources, will make it an economic and strategic imperative for organisations to embed Sustainability into their business strategy.  Only those companies that are able to predict, adapt and evolve will survive and that places the onus on their leaders to exhibit the necessary qualities of collaborative leadership, systemic thinking and emotional competency.

Next time I’ll be exploring how some companies are already adapting and evolving to this new sustainable landscape.

How are businesses building the risk of energy security into future business planning?

“Plugging the Energy Gap” the December 2011 policy document from the London Assembly Environment Committee, indicates that delays or cancellations to energy development projects could result in energy demand outstripping supply by as early as 2015.  Without new projects coming on-line, demand will exceed supply by 2020.

Many old nuclear power stations are due to be decommissioned by 2020 (7.1 GW) and most coal-fuelled (carbon intensive) power stations (12 GW) are due to be shut down between 2012 and 2016.  A new nuclear power station takes 10 years to build, (excluding planning), so even if a project were started now, they wouldn’t make the 2020 deadline.

The anticipated investment required in infrastructure, to deliver low carbon electricity by energy companies is around £200bn – more than twice the investment made over the last decade.  If energy generators choose not to make investments, taxes such as the Carbon Price Floor (as a result of generating companies continuing to use carbon-intensive fuel) will still impact their bottom line. 

The implications for the consumer are clear, with increasing energy prices as investment costs are passed on, (one Guardian article suggests rises in domestic energy bills of between 23% and 52%), power outages or mains voltage reductions, particularly at peak times.

So what is it that organisations are doing to manage the future risk of energy security? 

Andrew Winston @GreenAdvantage highlights Walmart’s commitment to 100% renewable energy and how they use a longer term view on payback (i.e. helping the solar market get to scale, thereby lowering future costs).  Immediate benefits include the experience and knowledge gained by their managers of optimising new power sources alongside the immediate cost benefits.

However the Siemens’ Green League Report suggests that 70% of the 600 companies in their study view cost reduction as the primary reason to tackle energy management.  This would suggest that the implications of the impending energy gap are not on the radar of a large majority of organisations.  Does this represent a lack of knowledge or awareness and/or a lack of the long-term view taken by the likes of Walmart?

A recent UN-backed study by GlobeScan and SustainAbility supports the view that the critical barrier to businesses’ transition to Sustainabilty is Financial short-termism.  51% of corporate respondents cited a low awareness of the business imperative.

So whilst many B-to-C companies are driving initiatives to reduce their CO2 emissions; (and those within their supply chain); management of the business risk of future energy security does not appear to have an owner.   Where should this responsibility sit?  Pepsico and other leading organisations believe ownership for driving a sustainable business should sit in the Boardroom.  More on the role of leadership next time…

Whose Sustainability is it Anyway?

This is the blog of Gill Yourston, Exec Coach, Sales Eminence Training Programme Manager at IBM and relative newbie to the subject of Sustainability. 

Whilst my initial interest in Sustainability was generated by the business opportunities for data analytics and metering; my research, (and gentle prodding from colleagues), has shown me how relevant, simple and complex this subject is.  Simple, as our current use of resources is unsustainable and complex, because solutions will require fundamental changes in our individual behaviour and the ways we do business.

Why has it taken me so long to get interested?  I believe our behaviours are driven by our values and beliefs and without a supporting value or belief we are unlikely to exhibit the behaviour. 

I started recycling following a story in the Local Authority magazine about the implications of landfill and non-biodegradable waste.  I considered solar panels because of the financial incentives, (although my husband thought his logical pragmatist had lost it!)  The issues became relevant to me in the here and now. 

Through my blog I’ll be sharing some of the things I’ve learned from my reading around Sustainability and the questions that have come up for me.  I’d welcome your feedback and introduction to new information and resources. 

My intent will be to find practical responses, (where available), to some challenging questions, both for individuals and organisations alike.  I will include links to any papers, other blogs or sites I have visited in the course of my reading.  I also plan to share stories of where and how businesses and individuals are being, or will be impacted.  As part of these stories I hope to share the motivators for change.  

Some of the subject areas for future blogs include:

• Energy - what strategies are in place to address the UK energy gap? 
• Transport – what are the challenges/benefits of running a fleet on bio fuel? 
• Waste – what are the opportunities and challenges and how attractive are the incentives?
• Resources – Water, raw materials, what’s the issue?
• Business – how will businesses need to change/adapt and what does that mean for employees?

In the course of my reading on Sustainability, even my understanding of the term “bottom line” has broadened.  Reference is made to the Triple Bottom Line; or the 3Ps; of People, Profit and Planet, or alternatively Social, Environmental and Economic.

What I see is that what’s good for the Planet, can also present a real opportunity for business.  If businesses are to survive and adapt, in a complex world of finite resources and increasing legislation, incorporating Sustainability into business strategy is an imperative that is supported by a number of recent CEO studies.  There’s an opportunity for organisations to engage and influence their customers and employees ……and vice versa……

Thanks to all those who’ve helped me on the way.  You know who you are. I look forward to sharing with you in the weeks ahead…..

(The postings in this blog are my own and don't necessarily represent IBM's positions, strategies or opinions).