KKR Cutting Costs -- and Pollution
Using KKR's experience as an example, Marc Gunther says that by looking at a company's operations through the fresh lens of sustainability, managers will discover new opportunities to save money and reduce their environmental impact.
When Casey Stengel managed the woeful '62 Mets, he'd lament, famously, "Can't Anybody Here Play This Game?" Some days, I ask that question about the people who run corporate America, and I'm not just talking about mortgage brokers and Wall Street risk managers.
The latest data point leading me to wonder whether executives running big companies know what the heck they are doing comes from the nonprofit Environmental Defense Fund and the private equity firm KKR, which formed a partnership last spring, and announced Wednesday that, after studying the operations at three KKR-owned companies, they had identified about $16 million in cost savings that also produced meaningful environmental benefits. Here's the press release.
This is welcome news, of course. U.S. Food Service, a big food distributor, saved $8.2 million in fuel costs through better driver training and technologies that turn off trucks when idling or set maximum speeds. Primedia, which publishes magazines and websites for home buyers and tenants, saved $2.9 million in material costs by shrinking paper sizes and putting more content on the Internet. Sealy Corp., the nation's biggest bedding manufacturer, saved $4 million by recycling the raw materials, like cotton and wood, used to make mattresses. These initiatives all delivered environmental as well as cost benefits, so EDF and KKR have reason to be pleased.
"We were just experimenting, and look what we found," says Gwen Ruta, EDF's vice president of corporate partnerships. An EDF news release described the results as "a high note in a low economy."
Well, sure, but doesn't it make you wonder why all that money was wasted before a bunch of young and likely underpaid environmentalists came along to kelp KKR and its managers run their companies? I had always thought that what the private equity guys did best was to improve operations (i.e., squeeze costs) at the companies they buy.
When I asked Ruta about this, she acknowledged that none of the changes ushered in by the EDF-KKR partnership required technology breakthroughs or top-to-bottom reengineering of manufacturing processes. "None of this is rocket science," she said. "You just need to be more thoughtful about what you are doing."
U.S. Food Service, for instance, advised the drivers of its trucks not to step too hard on the pedal when starting up after making a full stop. Funny, I recall hearing that in a driver ed class, oh, about 40 years ago.
Ruta further explained that KKR had found the efficiency gains after working with EDF to devise new ways to analyze company operations. U.S. Food Service decided to measure how many gallons of fuel the company burned to move each ton of product. By tracking that metric, they improved efficiency by 4 percent, a significant gain. Similarly, Primedia began looking at paper use per dollar of revenue and Sealy began to measure how much scrap it throws away per manufactured bed. There's an old adage in business that "you can't manage what you don't measure," and so by measuring waste and fuel efficiency, these firms are better able to manage them.
The argument here -- and I think it has merit -- is that by looking at company operations through the fresh lens of sustainability, managers will discover new opportunities to save money and reduce their environmental impact. If they are smart, they also will unleash the creativity of their workers, who really know how and where money is being wasted. Wal-Mart learned that when it began rethinking its operations as part of a company-wide sustainability campaign.
KKR and EDF now plan to extend their efforts to other KKR-owned firms in North America and Europe. They will also make their methodology available to anyone who asks; that's required when companies engage with EDF, which doesn't take any corporate donations for its advice. I'm very pleased that Ruta (left), Ken Mehlman, the head of global public affairs at KKR, and Bob Aiken, the CEO of U.S. Food Service, have all agreed to speak in April at FORTUNE's Brainstorm Green conference about business and the environment.
(Disclosure: I've got a contract with EDF to write a report about environmental innovations in business.)
The latest data point leading me to wonder whether executives running big companies know what the heck they are doing comes from the nonprofit Environmental Defense Fund and the private equity firm KKR, which formed a partnership last spring, and announced Wednesday that, after studying the operations at three KKR-owned companies, they had identified about $16 million in cost savings that also produced meaningful environmental benefits. Here's the press release.
This is welcome news, of course. U.S. Food Service, a big food distributor, saved $8.2 million in fuel costs through better driver training and technologies that turn off trucks when idling or set maximum speeds. Primedia, which publishes magazines and websites for home buyers and tenants, saved $2.9 million in material costs by shrinking paper sizes and putting more content on the Internet. Sealy Corp., the nation's biggest bedding manufacturer, saved $4 million by recycling the raw materials, like cotton and wood, used to make mattresses. These initiatives all delivered environmental as well as cost benefits, so EDF and KKR have reason to be pleased.
"We were just experimenting, and look what we found," says Gwen Ruta, EDF's vice president of corporate partnerships. An EDF news release described the results as "a high note in a low economy."
Well, sure, but doesn't it make you wonder why all that money was wasted before a bunch of young and likely underpaid environmentalists came along to kelp KKR and its managers run their companies? I had always thought that what the private equity guys did best was to improve operations (i.e., squeeze costs) at the companies they buy.
When I asked Ruta about this, she acknowledged that none of the changes ushered in by the EDF-KKR partnership required technology breakthroughs or top-to-bottom reengineering of manufacturing processes. "None of this is rocket science," she said. "You just need to be more thoughtful about what you are doing."
U.S. Food Service, for instance, advised the drivers of its trucks not to step too hard on the pedal when starting up after making a full stop. Funny, I recall hearing that in a driver ed class, oh, about 40 years ago.
Ruta further explained that KKR had found the efficiency gains after working with EDF to devise new ways to analyze company operations. U.S. Food Service decided to measure how many gallons of fuel the company burned to move each ton of product. By tracking that metric, they improved efficiency by 4 percent, a significant gain. Similarly, Primedia began looking at paper use per dollar of revenue and Sealy began to measure how much scrap it throws away per manufactured bed. There's an old adage in business that "you can't manage what you don't measure," and so by measuring waste and fuel efficiency, these firms are better able to manage them.
The argument here -- and I think it has merit -- is that by looking at company operations through the fresh lens of sustainability, managers will discover new opportunities to save money and reduce their environmental impact. If they are smart, they also will unleash the creativity of their workers, who really know how and where money is being wasted. Wal-Mart learned that when it began rethinking its operations as part of a company-wide sustainability campaign.
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KKR and EDF now plan to extend their efforts to other KKR-owned firms in North America and Europe. They will also make their methodology available to anyone who asks; that's required when companies engage with EDF, which doesn't take any corporate donations for its advice. I'm very pleased that Ruta (left), Ken Mehlman, the head of global public affairs at KKR, and Bob Aiken, the CEO of U.S. Food Service, have all agreed to speak in April at FORTUNE's Brainstorm Green conference about business and the environment.
(Disclosure: I've got a contract with EDF to write a report about environmental innovations in business.)
