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Performance management and the upside of green

August 29, 2007

As people consider the fate of the planet, businesses are contemplating their own version of the future: What’s the impact on the bottom line?

How they answer that question marks a major difference between how companies used to view the environment and how they see it now.

Instead of high costs and negative impacts, more and more organizations are seeing real business opportunities in an increasingly green future.

That’s a big shift, says BusinessWeek. For companies, sustainability used to be about public relations. Now, they can make the business case showing how green initiatives actually improve profits.

"There’s a more sophisticated understanding that environmental practices can yield strategic advantages in an interconnected world of shifting customer loyalties and regulatory regimes."
– BusinessWeek

In a word: good citizenship equals more sales.

“There’s a more sophisticated understanding that environmental practices can yield strategic advantages in an interconnected world of shifting customer loyalties and regulatory regimes.”¹

And from Andrew Winston, consultant and writer on green business: “The smart companies are climbing on board fast and finding opportunities to create lasting value.”²

The right environmental strategy

Some corporations are stacking up early wins.

3M and Interface carpets, for example, have saved money and built reputations by reducing energy, waste, and resource use. Meanwhile, Toyota has attracted new customers and generated big revenues with its Prius hybrid car.

"This is a mega-trend...We can either be a victim of it or get in front of it." – Lorraine Bolsinger, VP, GE

And GE is embracing environmentalism as a key growth strategy.

“This is a mega-trend,” states GE vice-president Lorraine Bolsinger. “It is something we can own. We can either be a victim of it, [or] use this changed scenario to our advantage and get in front of it.”³

But Winston cautions that it can be tough to get an environmental strategy right, make money, and satisfy a diverse range of stakeholders at the same time: shareholders, consumers, and government.

Winning customers

Consumers, for one, are a big factor. As Winston explains: “for real economy-wide change to take place, end consumers will need to demand greener products.”

More green facts

To make people pay for green, he suggests a “third button” in marketing – win customers on price and quality, and then push the green aspect.

In this case, the percentage of customers who choose green “may rise to nearly 100 percent. It will be a critical differentiator.”⁴

At the same time, you need to tie your business to environmental issues or you won’t have much impact on the market, says BusinessWeek.

A case in point: Ford built a $2 billion green factory. But it continued to churn out big-engine SUVs and pickup trucks. “Having a green factory was not Ford’s core issue. It was fuel economy.”⁵

Winning investors

On the shareholder side, CEOs have to convince financial analysts and investors that going green is an asset. Some ideas? For one, using new kinds of metrics that measure sustainability efforts and show tangible value.

Matthew Kiernan, CEO of Innovest Strategic Value Advisors, suggests sustainability factors can be good proxies for management quality. “They show that companies tend to be more strategic, nimble, and better equipped to compete in the complex, high-velocity global environment.”⁶

Anticipating government moves

“If carbon controls are tightened, the companies that will flourish are those that have positioned themselves well.” - The Economist

Government, too, is moving ahead on legislation to curb environmental impacts and shift economic activity: internationally, nationally, and state-wide. And companies are realizing that they will have to adapt or get left behind.

“If carbon controls are tightened, the companies that will flourish are those that have positioned themselves well,” says The Economist.⁷

And in the U.S., new environmental regulations, combined with profit opportunities, have changed business attitudes. Now many corporations are jumping on the sustainability bandwagon: “the loudest voices are not resisting change but arguing for it.”⁸

Making it work

How to marry business with the state of the planet? McKinsey Quarterly suggests that executives incorporate environmental issues more systematically into their decision-making.

At the practical level, it means a number of steps. Among them: scan the horizon for emerging trends and future risks, master the range of options available to deal with them, and ensure the entire organization takes part in a coherent way.⁹

McKinsey Quarterly suggests that executives incorporate environmental issues more systematically into their decision-making. A performance management system offers the capabilities to aid and speed this process.

From disruption to opportunity

Greg Hackett and David Axson suggest a similar strategy in their paper, The Risk-based Early Warning System.¹⁰

In essence, companies should build a decision-making culture to respond effectively to a rapidly changing world.

First, set up an early-warning risk-based system. Look outside the organization to identify trends based on drivers such as demographics, globalization, competitors, and regulations.

Next, refocus performance reporting and analysis. Performance measures should be based on exceptions and triggered by events and trends. And reporting should be driven by the data that’s needed, not jusy what is available.

Finally, build a dynamic planning process where performance targets are tied to events, trends, and risks. They in turn drive company tactics and new initiatives.

How performance managgement can help

“The smart companies are climbing on board fast and finding opportunities to create lasting value.”
– Andrew Winston, author, Green to Gold

Having everyone working from the same platform with the same information is crucial to making an environmental strategy work.

A performance management system offers the capabilities to aid and speed this process. Reports, scorecards, analysis, and enterprise planning provide the integrated information environment that supports dynamic, company-wide decisions.

This in turn can drive positive change and growth opportunities in an increasingly green business world.

Summary

Environmental sustainability is in many ways like any corporate challenge, albeit a highly important one. It’s about being innovative, finding ways to meet everyone’s needs, and building competitive advantage.

“The leanest, most energy-efficient, most transparent, and most creative companies will win,” says Andrew Winston.

By knowing the market, anticipating environmental issues, and adopting them into the corporate agenda, businesses may not only boost their bottom lines but help to ensure the health and future of the planet.