Who’s the Real Audience For Sustainability Efforts?

Dan Hesse, CEO of Sprint

For any company interested in sustainability efforts, motivation is going to come from many directions. There are cost savings from cutting down on energy usage. PR advantages from getting ranked highly in various sustainability indexes. Competitive edges from helping customers themselves be green.

Dan Hesse, CEO of voice, data and Internet services provider Sprint, is also part of the team that leads the company’s social responsibility efforts. Hesse says that the company has made great strides in all those areas and more, although he does say that the last piece, getting the “consuming public to care that a device is green versus it not being green,” has been surprisingly slow.

“Devices sell well because they’re good devices, but they don’t sell because they’re green,” Hesse says. Still, invoking the famous line from the movie “Field of Dreams,” he says Sprint’s strategy still is “build it and they will come.”

In a conversation with MIT Sloan Management Review’s Nina Kruschwitz, Hesse explains how Sprint is measuring both the tangibles and intangibles of its efforts, how it’s working with suppliers on eco-innovation and how his hatred of PowerPoint decks is reducing paper usage.

How do you think about sustainability? What do you include in that kind of definition?

Well, let me say it this way. As a brand, we view ourselves as the good guys. It’s in the conversations we have with our employees, in all our meetings. We always try to do the right thing, and we call it “the good guys doing the right thing.” And we use that in everything from philanthropy to innovation to being very open in terms of what applications we let customers download.

We’re focused on customer service. If you look at the American Customer Satisfaction Index, we are the most improved U.S. company, period, in customer satisfaction over the last four years. We’re number one in the wireless industry, and we were last four years ago.

ACSI studied 47 industries. Not only were we the most improved company in customer satisfaction across all 47 industries, we’re the only company that went from last place to first place in their industry in any of those 47 during that period of time. We see that as part of corporate social responsibility, because as you provide a great customer service, that’s a public service as well. For example, we were leaders in terms of having very clear guidelines about protecting consumers’ information, their privacy, and letting consumers opt-in to things that they may have any concerns about.

Our focus is on competition and keeping this a competitive industry. We think that’s good for everyone. That’s why, for example, we opposed the AT&T acquisition of T-Mobile USA. We think all of this, including sustainability, is related to just being responsible, and to being good corporate citizens.

Apart from doing the right thing, how do you think about the benefits of pursuing sustainability? Is it primarily to reduce costs, or to build on premium prices, or other things?

We have very quantifiable goals, and for most of them the benefits are very clearly cost. Reducing energy use or greenhouse gas emissions, which is fundamentally energy use, reducing paper use, reducing water use, those kinds of things. They’re purely cost. The things that save money are pretty easy to quantify and we have those nailed down to the dollar. The others are more intangible.

And what do you consider the intangibles? What other elements are you trying to measure?

The harder things to quantify are the intangibles around the brand. I believe that sustainability considerations will become more important to consumers over time, especially as today’s younger consumers mature. The users who were teenagers in 2007 may be well-paid managers by 2017. They may have a lot more disposable income, they may have families. So it is a belief that by doing things now, you’re building long-term value in your brand.

The Reputation Institute measures corporate reputation, and they measure it in areas like sustainability. They evaluate Fortune 500-size companies globally, so about 1,500 companies around the world. And since we began our green initiatives, we’ve seen big increases in our reputation scores. From 2009 to 2010, Sprint’s overall corporate reputation improved more than any company in the world, out of 1,500. In this past year, we also improved our position again relative to any of our competitors.

So we’ve risen a long way. We believe that green is an element of improved reputation, and that will ultimately lead to more customers, but it’s difficult to translate that into things like exactly how many subscribers it added this quarter. You have to make some reasonable assumptions. It’s important to monitor how your brand and customers’ perceptions about the company is changing.

What about benefits with employees, in terms of recruitment, retention, engagement?

It’s been very popular with our employees. One of the reasons we’ve made as much progress as we have in terms of our goals, like decreased water use and paper use, is that our people get it. They like it. They’re proud to work for a company that focuses so much on green.

When Newsweek comes out and says we’re number three, people get excited and I get great notes from people saying that they’re very proud to work for the company.

I also speak often on campuses as part of our recruiting efforts, and I know that our focus on green helps to attract some of the best and brightest. It’s one of the reasons they come to Sprint, and they tell us so. They like a company that does the right thing and focuses on issues like sustainability.

Talk about the goals you’ve set.

Just after I joined the company, we set and publicly committed to a number of very specific and quantifiable sustainability goals and metrics. We established a set of objectives for the company to reach within 10 years, by the end of 2017.

We developed a scorecard with performance metrics for each year. So, for example, if we are to reduce absolute GHG emissions by 20% by 2017, which is one of the many goals we set, we established interim yearly goals for 2009, 2010, 2011, etc. We couldn’t do it all in 2016 and ’17.

This scorecard looks identical to the way we manage every other part of the business. We have these scorecards that show not only sequential and year-over-year performance, but current performance against the target. For each objective there is a red, yellow or green dot, signifying current status. Green is good. Yellow is okay. And red is not good. Everyone in the company knows what the colors mean.

In our business we measure things like subscribers and churn, in addition to revenue and profit. Now sustainability elements are being measured just like every other metric, with the famous colored dot, so people take sustainability as seriously as other metrics.

How do you track those goals, and who is actually responsible for the goals you’ve set?

We give organizational-level objectives to each organization that plays a role in meeting the overall company objective. Each organization has red, yellow and green assessed against their specific target.

For example, one of the objectives has to do with e-waste, and the IT organization owns most of that. We want to recycle 90% of every device that we sell by 2017, and the marketing and retail organizations have the major ownership for that.

I review how we are doing against our goals with the organization that have an especially crucial role in our ability to achieve those goals: our real estate organization with respect to things like paper use and energy use, and our network organization with respect to energy use because the network is our largest user of energy. Progress is reviewed each year, with particular focus on those organizations that move the needle the most.

How are you organized for sustainability? Did you set up your governance process when you first set your goals?

We began somewhat informally, but we’ve done a number of things to refine the governance process. In 2010 we created an executive steering group, which I chair. We set up a leadership committee underneath it, so it became more formal. Two years later, in 2012, we formalized a process with the Board of Directors as well, and we review our sustainability objectives and performance at the Nominating and Governance Committee.

In 2010, I also established the position of VP-Corporate Responsibility. Ralph [Reid] takes a holistic view of CR. The other people that I spend a lot of time on this subject with are my chief marketing officer and SVP of PR.

The VP of Corporate Responsibility reports to the SVP of PR. The VP manages the Sprint Foundation funds — we sent a check to the American Red Cross when Hurricane Sandy hit, for example. But he also has the responsibility for “green.” He has more people working on the environment than any other because it takes so much work to hit the broad set of green performance targets we’ve set.

Have you re-set any goals, or made them more flexible?

I’m surprised at what a good job we did in establishing goals that were achievable, but have some stretch in them as well. We do revisit them from time to time, and we’ve made some harder to achieve by setting the target higher or shortening the date by which we aim to achieve a goal. We haven’t had to do that much, but we’re only halfway in our journey.

For instance, we set a goal to reduce paper consumption by 40% by 2017. We’ve already reduced it by 65%, so that goal wasn’t aggressive enough. The real estate organization that’s responsible for buying copiers and printers plays a role. Plus everybody knows how much I hate to see thick PowerPoint decks, so that has helped reduce paper usage.

We’ve also set goals that I don’t think we’ve stated publically. Eventually, we’d like all our devices to be what we call “ecofriendly,” like ULE platinum-certified, which is the highest level of green from a verifiable third party. We sell the highest number of green devices of any wireless carrier in the U.S., but we’d like ultimately 100% of our devices to be third-party green certifiable by a given date.

Have you encountered any surprises in meeting goals?

One of the pleasant surprises we had as we got into building green devices was what was possible in terms of reusing recycled or biodegradable plastics; building devices without harmful chemicals like cadmium and mercury; what was possible in terms of energy efficiency; and what was possible in the industry by agreeing to support using universal chargers.

What has been a less pleasant surprise is how hard it is to get the consuming public to care that a device is green versus it not being green. My view is still “build it and they will come.” Green devices sell well because they’re good devices, but they don’t seem to sell because they’re green. Consumers are not yet asking for green.

What’s your theory about that?

It just hasn’t cracked the “top five,” like rate plan, network coverage, device brand, screen size or the camera. In a few cases, sustainability might move the needle in terms of device choice.

We do a lot to educate our customers about green choices on our website and in the store. We have a green section in the middle of the store. We even have green accessories like solar chargers and cases for your phone that are made out of recycled materials. Even the boxes our phones come in are made of recycled paper, printed with soy ink.

We believe that over time that green will become more important. If all the devices are ULE platinum, well, it doesn’t need to. We’ve made a difference at Sprint because the requirements that we’ve placed on our manufacturers and our suppliers have made the planet greener.

How does customer indifference affect building a business case?

We build business cases. One of the projects that provides positive value is we’ve made phones easy to recycle, either easy to take apart and take out the components that are reusable, and safely dispose of the stuff that isn’t. That saves us money because we can resell components, or some phones can be shipped to other markets in the world where they still have a useful life.

But we also use a longer payback period or a lower hurdle rate than we might require of other investments. Typically, if we’re going to make a capital investment, we want a payback within four years. With solar panels, it could take seven or eight years, but it’s still NPV positive. So, you still do a business case, but you have slightly more relaxed criteria as long as it’s still profitable over the long run. Because, as I said earlier, there’s additional intangible value we believe that is created in terms of building a brand.

So getting an A+ from the Global Reporting Initiative, the only company in our sector, being ranked the number three greenest company in America by Newsweek, being the only telecom company selected to the Dow Jones Sustainability Index — these are the kinds of things we try to assign a brand value to.

Are there any areas of sustainability where there’s a heavy innovation component, and perhaps even a business model innovation component?

Yes. For instance, we’re enhancing our online capabilities to both decrease our costs and to improve convenience for our customers. And that has sustainability advantages. For instance, we’ve moved a lot more of our activity — our sales, our service, our customer interface — online. For customers, that means fewer trips to the store, and if they pay their bills online, less paper usage.

Sprint provides GPS with our smartphones. There are new applications we call location-based services, LBS. We, of course, let customers opt-in because privacy issues are important. But we can tell customers how to be more efficient, and save time and miles through the applications we provide.

Are there goals that you haven’t set yet that you think you might want to add in?

Well, we will want to continue with what we’re already doing and set even more aggressive goals going forward. But the area that provides even more opportunity for us is how we, as wireless service providers, enable our customers to save energy.

Communications technology has the ability to enable remote work. For example, e-medicine, which includes remote monitoring, patients don’t have to travel to a hospital. Electronic records versus paper records save energy and paper. We’re also putting chips in meters and in vending machines, so drivers won’t have to travel to refill them until they need to.

Wireless technology in the hands of our customers can yield greater benefits than what we can generate on our own.

Some people say that investors are increasingly looking at sustainability measures as a sort of metric of good management. What’s your experience about how much investors value your sustainability effort?

Unfortunately, investors are a lot like customers. I’ve been on almost 20 quarterly earnings calls, and I haven’t gotten a single question about sustainability from investors, not one. Some investors are long term, some are medium term, some are short term, but it is the short-term investors that tend to move the stock price the most because they’re trading regularly. Their time horizon is shorter than the payback period of most green investments, so they’re not particularly interested in what we’re doing from a green perspective.

That being said, as part of our business plan for 2013, we plan to reach out to socially-responsible investment firms and get them into our investor base. Maybe they’ll ask sustainability questions on the earnings calls, which would be a good thing.