This article presents the business case and a simple four-step process to develop performance measures that report meaningful progress against company social responsibility values. It is based on a recent environmental performance measures and reporting project for a large consumer brand multinational.
Measuring environmental performance: Business case for a consumer brand company
The main reasons for measuring environmental performance for this company were to pursue opportunities for performance improvement and respond to internal business pressures for reporting performance. The board of directors and senior management team wanted to know how the company was performing globally on environmental issues in particular. We observed that a culture of performance measurement and business efficiency already existed in the company, which operates in 55 countries and markets consumer products in nearly 200 nations. As one environmental manager put it, 'at our company, what gets measured gets done'. The market strategy appeared to us as growing the top line through focus on the bottom line, driving down costs. Performance data was needed to help managers identify opportunities to reduce impact, risk and costs and share these successes around the world.
Top management sought environmental performance measures to aid goal setting, monitor progress, identify and draw attention to financial implications of environmental actions, create strategic dialogue between environmental and other departments, facilitate internal benchmarking, integrate environmental issues into core business operations, and identify cost saving and operation improvement opportunities. All these activities ultimately support a chief consumer product company core value - providing goods in a socially responsible manner.
While external demand for performance reporting and disclosure was increasing from institutional investors and business associations, an incremental approach was viewed as the best business option for evolving a meaningful report that reflected progress and challenges the company faced. Environmental performance measures could identify emerging challenges and facilitate external benchmarking, paving the way for more rapid adoption of marketplace approaches to reduce environmental impact and cut costs. From a public policy perspective, this voluntary action could reduce need for regulation, and on issues where regulation might become necessary due to poor industry participation, the company would already have a process to assure compliance.
Measuring What You Value
Charles E. Phillips Jr., Co-President of Oracle, said it best with his quote "Strategy without metrics are only wishes".
In this case, the corporate environmental affairs director and the authors saw an opportunity for the environmental program to contribute to the company's core value of being socially responsible. Environmental performance measures were needed to allow the company to 'measure what it valued' - in other words, track progress on meeting or exceeding environmental laws, reducing waste, minimizing overall environmental impact and enhancing value.
Many companies have increased emphasis on measuring what they value, rather than falling into the trap of 'valuing what they have come to measure'. Determining what is important to measure takes tapping into your human capital. It takes listening to your key employees who know where to find the environmental performance opportunities that are good for business and good for the community - both global and local.
The characteristics of good performance measures are goal driven, appropriate to the organizational level, capable of measuring results rather than activities, appropriate to track trends, understandable to all, and within the span of control of the organization.
STEP 1 - Getting Started: Appoint an employee team to guide the data collection process
We got started defining what to measure by appointing an employee team to guide this process. Careful thought was given to the appointment of this team; it included key influencers and process owners that would educate others about the value of the measures in order to gain early buy-in and create advocates throughout the company. Employees from different lines of business (including a mix of established and newly emerging environmental programs) were included along with corporate environmental.
The team was made aware of, and helped shape, expectations for the end use of the data. In this case, they defined the measures, the units, the data collection method, and recommended what personnel to designate as responsible for data collection. The team reviewed the business case relevant to the culture of the company, and was asked probing questions such as what environmental performance opportunities would allow the company to stay in business, what issues would cause the company to lose business, and what were the interests of internal and external customers and stakeholders in regions where they operated.
Primary environmental performance indicators were characterized as outputs and inputs of the business. Outputs may include air emissions (CO2, SOx, CFCs, etc), hazardous/regulated and non hazardous waste, quantities recovered and revenues earned through recovery for each material type, quantities of packaging and waste water. Inputs include energy by different fuel source, water use, raw materials, notices of violations received and fines paid. Additional measures for consideration included ISO 14001 certification status, number of environmental audits, environmental costs and savings, waste disposal methods data, number of customer environmental inquiries and raw materials from recycled sources.
The team established some ground rules. They acknowledged that data was not always available in the ideal form, and estimation may be necessary when actual direct measures were not available, especially in early stages of data collection. The team defined what to measure in close consultation with the company's international environmental management system (EMS) design committee. The goal was to 'keep it simple' and evolve from what their leading lines of business were already doing. The team considered what measures were of value to the business, as well as the recommendations of the Global Reporting Initiative (GRI) voluntary guidelines, given that market peers were also considering these guidelines in determining measurement and reporting protocols.
The team decided to initially collect data on five key environmental performance measures: energy use, water use and discharge, solid waste, hazardous waste and regulatory compliance. Most of these measures exceeded legal requirements, and were chosen to measure resource efficiency and ensure environmental performance that contributed to the company's value of leadership in social responsibility. For the two initial reporting cycles, it was decided that reporting cost data would be optional. Based on the significance of business opportunities that were identified from this data, for the third reporting cycle corporate decided to make reporting cost data mandatory to quantify the value to business from environmental improvement.
STEP 2 - Collecting Environmental Performance Data: Evolve a cost-effective, user friendly system
An environmental performance data collection system should include a user interface for data entry and submittal, an analysis and consolidation module, and a reporting module. To define the data collection system, the team considered cost, information technology (IT) and user limitations.
In this case, the company aimed to develop a collection system that was as user friendly as possible, while at the same time not postponing action until a more advanced system was available. The collection system evolved over time.
During the first reporting cycle, data was collected only from US based operations using spreadsheets that were distributed and submitted to corporate by e-mail. The data was consolidated in a master spreadsheet and then analyzed. In this phase data was collected for only US based businesses.
During the second reporting cycle, data was collected using a data input application distributed by e-mail. This application was installed in the user's computer and served as a standard interface that allowed data input in a standard format, including drop down menus for predetermined units. The application created a database file that each user submitted by email to corporate. At corporate, individual files were consolidated and analyzed within a master database. In this second reporting cycle the scope of data collection was expanded to a global level. Minor problems in this phase were generated by random software incompatibility problems. In those cases, businesses were asked to use spreadsheets to report data to report their data to corporate, were it was manually added to the master database.
The company, currently the third reporting cycle of data collection, is now using an intranet-based system. Users can input data directly into a database using a module of active server pages within the corporate intranet. The data is then analyzed using database queries and the results are displayed as online reports. The scope of data collection is also global. The use of this intranet-based system has the benefit of improved access to information, built in data definitions and checks in the system to ensure validity of data at the point of entry. The system also allow users to run their own reports from the system whenever they want for their own planning and tracking purposes. This system structure aims to institutionalize knowledge within a system that will remain even when individuals leave the corporation.
Data collection proved to be the most challenging of all the steps involved the measurement of environmental performance. All phases of this step are labor intensive for both, the user and the corporate department collecting the data. From the user perspective there are three phases: gather the required data, use the data collection system to report on it and respond to any data verification requests from corporate. From the corporate perspective there are 4 phases: assign responsibilities to report, check that all units report complete data, consolidate the data from all units and check the quality of the data.
The intranet-based system proved to be helpful for the users by facilitating the process of reporting their data. Upfront validation checks did not eliminate the need to perform data verification but they significantly reduced the amount of time spent on this task. The intranet-based system completely relieved corporate from the major task of data consolidation.
STEP 3 - Analyze Environmental Performance Data: Define and generate indicators
Raw data was analyzed and presented in the form of performance indicators to be used for monitoring improvement. Indicators were designed to be meaningful to the operational employees who are ultimately in charge of making business improvements.
The company defined indicators at the corporate, line of business, division and facility levels. These indicators were of different types: direct, relative, normalized/indexed, aggregated and weighted. This array of indicators allows benchmarking of business lines, divisions and facilities that have different products or processes. These indicators are available through the corporate intranet to authorized employees.
The system developed by the company and the authors maintains information integrity and valid comparability over time even through continual changes in the company's shape and size.
STEP 4 - Report performance: Communicate to your audience
To define the final use of its data, the company is now considering the key audiences it is trying to influence - internal (and eventually external) stakeholders, data levels and management targets. Most importantly, the final use must give back value to business.
In this case, and in many other corporate cultures, the key audience is employees. Employee innovation and talent drive results. Because of this, it is important to acknowledge success and hold businesses accountable for results. The company's has issued its first internal environmental performance measures report, which provided highlights of global environmental performance data. It was intended to increase company environmental and business managers understanding of environmental impacts and the importance of identifying opportunities for improvement. The data helped different lines of business identify risk reduction and cost cutting opportunities. For example, the corporate supplier management department is now further analyzing the global solid and hazardous waste data summarized in this report to find the most economical and eco-efficient way to strategically source services for waste management.
The company has used this initial performance data to create a corporate baseline. In subsequent years, it plans to use this baseline to stimulate setting practical, specific performance objectives and targets. Targets will be set with knowledge of differences between lines of business and facilities capabilities for achieving improvements, and each line of business will contribute to performance according to their own ability and opportunity.
In addition to the corporate report, each line of business received a data report that provides information that enables environmental and business managers to identify issues among facilities with similar processes and different resource efficiencies.
In conclusion, this process worked during the first reporting cycle, the environmental performance of the business units that generate 99.7% of the sales of the corporation was captured. This had never been done before. Corporate affairs congratulated the environmental director on content and context of the measures and report. This year a more robust report measuring progress from the baseline and profiling employee successes is in the works, supplementing quantitative measures with stories about employees who make all the difference.
About the Authors: Francisco Cordero is a project manager with Environmental Resource Services (ERS); he had conducted numerous projects in environmental management systems and performance measurement for the private and public sector. Susan Graff in Principal and founder of ERS, with twenty-two years of experience in environmental management and public policy.