Section IV: Lessons from the Harvesters

This is part 5 of 8 from “Sustainability Nears a Tipping Point,” a report on the findings of the 2011 Sustainability & Innovation Global Executive Study and Research Project.

Implementing successful sustainability agendas often demands significant organizational change. Many Harvesters have significantly altered their organizational structures, business models and operations.

Organizational Structure

We find that most Harvesters are not embedding sustainability-oriented resources into pre-existing organizational structures. They are instead adopting new structures, instituting new lines of communication and establishing new performance metrics. In short, many Harvesters are unified in their focus on sustainable business practices.

For instance, more Harvesters have established the position of chief sustainability officer than other companies. But among Harvesters, a typical sustainability officer is not a lone wolf espousing some marginal position that others within the organization can choose (or not choose) to listen to. These positions have the backing of CEOs and are often supported by separate cross-functional senior management committees that can affirm and support corporate sustainability objectives. Some 85% of Harvesters say their organizations have strong CEO commitments. Only 56% of other companies say this is the case.

At HP, each of the company’s three main business divisions — the personal computers division, the printers group and the enterprise business division — has had well-developed sustainability initiatives in place for a long time, says HP’s Librie. “The role of my corporate group is not only to help coordinate what’s going on at the business unit level, but also to provide a framework and structure around the story that explains HP’s overall corporate goals in sustainability,” he says.

This combination of central control and devolved execution is the approach taken at Shell. “We have a small team at the global business level with clear accountability for driving this change, but the execution takes place in the businesses at large,” explains Graeme Sweeney, Shell’s executive vice president of CO2.

At Campbell Soup, four teams promote sustainability in areas such as community and the environment. “These formal chartered teams are where you can drive accountability,” says Dave Stangis, the company’s vice president of CSR, sustainability and community affairs. “You get content expertise, you get decision-making ability and you drive accountability. It’s really the only way I know to make it work.”

Progress is measured against sustainability goals at Kimberly-Clark, with quarterly updates on areas such as energy and water use, waste generation and net sales of environmentally innovative products. This data and other sustainability updates are delivered to a range of internal stakeholders, including the CEO, says Ward. “We meet annually with our board to talk to them about how we’re doing, and we meet twice a year face-to-face with our external advisory board,” she says. “So we have a lot of check-in points for our goals.”

Business Model

Compared to other companies, Harvesters are demonstrably more successful at making the business case for sustainability. Some 57% say they have such a business case, compared to just 18% among the rest of our respondents. Nearly twice as many Harvesters say sustainability-related factors have forced them to change their business models compared to other companies.

Of course, Harvesters face the same difficulties as other companies when it comes to building a business case, including challenges with capturing comprehensive metrics; measuring intangible effects such as brand reputation, employee engagement and productivity; and factoring in cost in the face of pricing uncertainties for carbon emissions or water use.

Harvesters struggle with these obstacles to a lesser extent than other companies, however, and they do not give up. Mark Vachon, vice president of GE ecomagination, suggests that failure to find the business case reflects a lack of innovation, not a lack of opportunity. “The idea is not to put your pencil down and quit,” he says. “It’s to go back and figure out what new level of innovation is required to get to the right answer.”

Harvesters struggle less because they are more proactive in changing themselves to address changes they anticipate in their external environment. Companies that cautiously adopt sustainability practices in response to regulations are less likely to embed sustainability into their business processes in a way that generates profits. Only 9% of survey respondents who said they adopted sustainability strategies as a result of legislation reported that their sustainability practices added to their profitability. The longer companies wait, the higher the risk that they will be forced into adopting sustainable practices by changes in their regulatory environment.

Consider BMW’s actions in response to shifting preferences, regulatory uncertainty and fuel costs in the automobile industry. BMW has led Dow Jones’ sustainability rankings in the automobile industry for the past seven years. In 2007, BMW created Project i to explore new mobility technologies. While Project i operated independently of BMW headquarters, senior management support enabled the group to handpick engineers from throughout the company. Project i eventually developed the technology platform for BMW’s electric vehicle program. Before its first products were commercialized, Project i had created an innovation environment where some of the company’s top engineers wanted to work. While it may be years before BMW profits from Project i innovations, it is laying the groundwork for a leadership role in a new competitive environment within the automobile industry.

Operations

Harvesters not only change themselves in response to sustainability considerations, but they also become more collaborative with stakeholders inside and outside of the company. (See “Sustainable Practices Improve Collaboration.”)

Sustainable Practices Improve Collaboration

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Greater collaboration among geographic business units is a hallmark of Harvesters’ sustainable business practices. “So if we’re talking about something that’s working really well in Europe, we look at whether there is a way to bring it to the U.S.,” says Campbell Soup’s Stangis.

Harvesters also collaborate more with customers and suppliers than other companies do. Edgar Blanco, a research director at the MIT Center for Transportation and Logistics, says that although companies may find this process challenging, it is essential: “If you’re going to focus your strategy on carbon reduction or environmental impact or social impact, you need to engage your suppliers. Without them, you cannot succeed.”

Some multinationals with complex global supply chains have already started this process. Walmart, for example, asks suppliers to complete a Sustainability Supplier Assessment evaluation. Starbucks has hosted a coffee cup summit at MIT for several years, bringing together representatives from its value chain in addition to competitors in order to improve the life cycle value of disposable coffee cups. In 2010, Procter & Gamble launched a sustainability scorecard and rating process to assess suppliers’ performance on water use, waste management and greenhouse gas emissions, among other things. P&G’s supplier scorecard also allows it to promote innovation. “We want to stimulate innovation over the whole life cycle of our products,” says Peter White, who is responsible for Global Sustainability at P&G. “And clearly, if our suppliers can bring innovation into the supply chain, that will help us on a life cycle basis improve the performance of our products.”

Some suppliers are proactively working toward the same end. According to Scott Wicker, chief sustainability officer at UPS:

Years ago, we put a lot of time and effort into developing a fairly sophisticated carbon calculator that can track our carbon footprint down to the level of individual packages. So, if you want to know the carbon emitted from your shipment, we can tell you. We know the vehicle it traveled on. We know the route it took, whether it was plane, truck, train or ship. We know the level of service it took, and whether it was next day. We calculate the carbon associated with all of that, and provide a very detailed carbon rendering of your shipments. Our competitors cannot tell you that with nearly the degree of accuracy that we can, and our inventory and process is reviewed by third parties for credibility.

That ability allows us to offer customers the opportunity to credibly offset the carbon associated with their packages. Customers who want to reduce their carbon footprint can, for as little as a nickel on a ground package, mitigate the carbon associated with their shipment. We use the nickels to buy certified carbon offsets, so the packages travel carbon neutral. While we have had modest demand, we have had some high- profile customers use it, including Live Nation bands, like Dave Matthews and O.A.R., who do a lot of traveling and want to reduce their carbon footprint. We also have helped to redesign their tours to be more sustainable.

In sum, many Harvesters have significantly altered their organizational structures, changed their business models and become more collaborative and unified in their focus on sustainability.

Of course, large-scale organizational change is not necessary to see profits from sustainability activities. A significant portion of Harvesters have identified sustainable business practices that contribute to their profits through what Cornell University professor Stuart Hart describes as “eco-efficiency gains,” such as reductions in energy consumption. Harvesters that are the de facto leaders of the sustainability movement are looking beyond these measures and are developing innovations and competitive advantage from their approaches to sustainability.