Performance improvement can drive sustainability excellence

Performance improvement can drive sustainability excellenceAs our d revealed, companies are more likely to measure the performance of their sustainability efforts than ever before. And when the right metrics are used, embedding the sustainability program into existing performance improvement processes can boost its success and, ultimately, the ROI. Let’s take a look at how this integration can play out.

Common performance standards As a relatively new management concept, environmental sustainability is likely not integrated into the overall management of your organization. To help bridge this gap, the Consortium for Advanced Management — International (CAM-I) has developed a set of cost, performance, and process management tools and techniques that apply specifically to environmental sustainability. A key tenet from the CAM-I cost and performance management body of knowledge is that, in order to maximize cost and performance efficiencies, all programs within a company need to be managed uniformly across the enterprise. To that end, all programs should be analyzed and managed using the same decision criteria.

“In order to ensure common evaluation, it is crucial to have buy-in from the highest levels of the organization, who can communicate and enforce the use of the common criteria,” says Mark Lemon, manager in Grant Thornton LLP’s Global Public Sector practice. This is key in every piece of the sustainability strategy puzzle — without C-suite buy-in, the program just won’t work. “With buy-in from upper management, sustainability goals, practices and metrics flow down to IT, finance and supply chain in the same manner as other criteria (e.g., cost). This way, the same metrics are used with visibility throughout the organization.”

Total overhaul or incremental change? When weighing in on performance management programs, is it better to start fresh or adapt the current model? Rob Tague, director of Grant Thornton’s Corporate Advisory & Restructuring Services group, thinks that in order for any transformational effort to be considered successful, a few things must happen:
•  Processes must achieve planned results.
•  Technology must work effectively and efficiently.
•  Client expectations must be met or exceeded.
•  People must understand and adopt the ideas that are being implemented.

Therefore, in order to evaluate what needs to change in existing performance management systems or what needs to be created in new ones, you need to figure out your unique situation.

Start by asking yourself what your opportunities are, and how you are currently performing in these areas:
•  Financial and operational performance metrics
•  Existing processes
•  Current organizational structure
•  IT architecture diagrams and performance metrics

Then ask: How do we achieve the results we want to achieve? Do we have the basic pieces in place, or do we need to start again? To discover this, examine a detailed design of all the necessary implementation components, including:
•  Processes
•  Enabling technologies
•  Organization
•  Metrics
•  Dashboards

Once you’ve got this all figured out, says Tague, you can develop an implementation strategy, revise your ROI analysis, and summarize and present solutions and final analysis to stakeholders for review and approval. And then, he says, you’re ready to implement. Can you proceed with your current tool, or do you need to start again? Every situation is different, but by completing the process above, you’ll be sure to know which answer is right for you.
Profitability improvement There are two primary ways that sustainability initiatives drive improved profitability:

Enhanced efficiencies: Analyze activities that you’re performing in your business, and identify the relative cost and environmental intensity of each. The goal is to move away from those that are high cost and/or have a high environmental impact, and toward those that are low cost and/or with a low environmental impact. This is an enhancement of traditional management tools, such as activity-based costing/management (ABC/M) systems, which analyze the cost of a company’s activities by adding a data layer for environmental footprint. An environmental sustainability ABC/M model evaluates the cost and environmental footprint as separate criteria. The model also allows for a cross-analysis of the cost per environmental emission for particular activities. It’s important to understand what these costs may be and how to layer them into your company’s decision-making process. Then you can get to work.

“ABC/M is a good tool to identify processes and activities that have high cost and environmental impact, once you apply it to environmental sustainability initiatives,” says Lemon. “It can help you wring inefficiencies out of the business processes. For example, consuming less of a resource or producing less waste to produce a product drives down cost by having to either purchase less of that resource or dispose of less waste.”

Compliance: The sustainability world is growing and changing year by year, and with growth comes regulation. Regulation can take the form of fines for noncompliance or increased cost associated with new technology, such as upgrades needed to reduce emissions. Says Lemon, “Companies that understand their environmental footprint — and analyze and evaluate the processes, activities and products that contribute to it — are better equipped to respond to regulations, placing them ahead of competitors who don’t or can’t evaluate their environmental impact.”

Supply chain visibility Until very recently, says Robert Schwartz, national Performance Improvement leader and Business Advisory Services principal at Grant Thornton, the relationships between manufacturers and their suppliers were not important to most end user buyers. “Most customers simply wanted to receive a quality product within a required time frame,” he says. But now, customers want to be informed as to how their products are made and delivered. Sustainability across the supply chain is becoming more and more important to end user buyers, and some are willing to pay more for a product that they know is sustainable because they believe in responsible and ethical business practices.

Supply chain collaboration needs to be a priority in order to accurately and effectively assess sustainability efforts and impact. Companies are paying attention to vendor assessments and spend management, and monitoring overall supply chain effectiveness through business analytics. But what does that look like in real life? Here are a few examples that illustrate supply chain performance management collaboration.

A bank requests that its business partners report their greenhouse gas footprint to the Carbon Disclosure Project, since these partners are in the bank’s supply chain. Or a retailer can require companies in its supply chain to report their environmental footprint and maintain certain environmental standards. The retailer intends to evaluate the relative environmental footprint as a criteria for choosing vendors.

Essentially, says Schwartz, there have historically been three important metrics that determined success or failure of any vendor/supplier relationship: cost, schedule and quality. Sustainability has entered the picture in recent years as the fourth critical factor. And it’s important to create a performance baseline for your suppliers right away, as soon as you form a relationship or initiate sustainability efforts. It’s surprising, he says, how few businesses take this first vital step. “If companies have good information — and most companies don’t — they can quickly learn how vendors and suppliers are performing versus expectations and requirements, and attack the issues.” Leading companies continually assess their suppliers’ ability to meet and exceed performance expectations, including sustainability. By staying focused, companies can maximize the quality, timeliness and sustainability of products procured from suppliers, while continually ensuring that costs are contained and optimized.

IT management Once you’ve invested in advanced management tools to help your company’s performance improve and your profitability increase, it is vital that you have an IT infrastructure that can keep up with the demands placed upon it — to collect, manage and protect your valuable data. ABC/M, for example, is a data-intensive management tool. There’s no doubt that it could chew through your existing resources in no time, which could leave you in the lurch. But it’s necessary to use what you’ve got and to increase the size of your infrastructure, says Lemon, because “granular data related to resources, activities, products and services is critical to identifying the relative intensity of those resources, activities and products. Good data is obviously necessary for such an endeavor.” But, he says, even with good data, it’s not always easy to measure sustainability and environmental footprint.

And it’s not just about data evaluation, notes Bailey Jordan, partner in Grant Thornton’s Governance, Risk and Compliance practice. If your IT infrastructure is inadequate, it could be easy to walk into communication black holes, which are a real reputation risk for your business. Within the whirlwind of social media, where reputations can be made or broken within the space of a few news cycles, he notes, “ignoring or being slow to respond to questions about social responsibility could impact company or brand reputation ― with the result being lost sales and shareholder value.”

Putting in good performance improvement processes just makes good sense in any business endeavor. Given the importance of sustainability, you must figure out how to best apply and monetize the components of your strategy. By using common-sense logic — Is it good business practice? Can I achieve it in my current state? — you can begin to reap the rewards of your efforts very quickly.