How IBM honed its execution mechanisms to optimize sustainability

MIT Sloan Management Review

How IBM honed its execution mechanisms to optimize sustainability

To illuminate how the transformation occurs in a company and how a sustainable strategy can be formulated and executed, we studied the organizational models that we refer to as “sustainable” by comparing them with companies that we call “traditional.” We focused on two primary questions:

1. How does a sustainable company create the conditions that embed sustainability in the company’s strategy and operations?

2. What are the specific elements of sustainable companies’ cultures that differentiate them from those of traditional companies?

Our study found that some of the most pronounced differences between sustainable and traditional companies are the presence of mechanisms for execution and how they are used. Sustainable companies are far more likely to have enterprise-wide management systems for executing sustainable strategies (83 percent vs. 20 percent for traditional companies).

These systems consist of structured frameworks of practices and procedures that enable the organization to execute in a consistent and lasting manner. Since specific sustainability objectives often involve trade-offs, an enterprise-wide approach allows for a portfolio perspective to achieve the desired balance among actions and outcomes.

Among the enterprise-wide management systems companies use are processes that connect sustainability to corporate strategy, with direct ties to performance evaluation and compensation (66 percent vs. 10 percent for traditional companies). Sustainable companies also incorporate sustainability metrics into the capital budgeting process, develop solid valuation processes that take externalities into account, set clear targets for sustainability objectives and establish targeted programs linking the objectives to business results (90 percent vs. 10 percent for traditional companies).

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IBM, for example, embeds sustainability strategies and practices into its global environmental management systems, and recently it has begun requiring its suppliers to adopt these systems. Sustainable companies are far more likely than traditional ones to have established accountability processes that measure results and ensure that the objectives are met. Even so, finding appropriate metrics and tools for measurement continues to challenge sustainable and traditional companies alike.

Many of the current methods used to track the impacts of sustainability-related efforts are inadequate for measuring consistent, complete and precise data. For example, although some companies attempt to use standard tools such as Six Sigma and performance scorecards to assess the impact of initiatives connected to sustainable strategies, even these tools fall short in providing the robust valuation methodologies needed to clearly measure and link sustainable strategies to business results. Many traditional metrics do not measure the aspects of sustainability that are material to the specific company or measure sustainability across the entire value chain.

Since traditional measures are subject to a variety of caveats, Dow developed its own innovation metrics for its 2015 Sustainability Goals. The company developed a proprietary Sustainable Chemistry Index to comprehensively measure critical aspects of sustainability for its products and business units across the value chain; it also developed a specific set of criteria and metrics to measure its achievement of Breakthroughs to World Challenges.

Despite the challenges, the sustainable companies we looked at indicated that they are pressing forward and trying out new metrics. Rather than letting the metrics challenges stall their progress, sustainable companies are actively addressing the issues creatively.This piece is an excerpt adapted from the article “How to Become a Sustainable Company”  by Robert G. Eccles, Kathleen Miller Perkins and George Serafeim. It appeared in the Summer 2012 issue of MIT Sloan Management Review.  The complete article is available at http://mitsmr.com/P603a2.

Copyright © Massachusetts Institute of Technology, 2012. All rights reserved.