5 reasons CR professionals need a value chain map
To improve sustainability strategy and materiality assessments, consider this handy tool.
Value chain mapping is a process that identifies the main activities associated with a company's service or product line and is often used in corporate strategy in order to identify performance improvement opportunities. Corporate responsibility (CR) professionals are beginning to use value chain mapping in the development of sustainability strategy and materiality assessments.
Obtaining a clear picture of the fundamental inputs and outputs of your business provides valuable information for sustainability program development, as well as CSR reporting. CR professionals are developing sustainability-specific value chain maps in order to systematically assess the company's impacts throughout product sourcing, transport, development, use and disposal.
The mapping process
The value chain mapping process usually begins by grouping the company's main supplier groups with customer groups that represent the company's key business inputs and outputs. Looking at top suppliers and significant product lines is often a good place to start for companies in manufacturing. Service-based companies might instead explore the entities affected by their services. Other useful tools to have on hand include a list of key stakeholders and a map of your locations.
When a value chain is being developed for the purpose of assessing environmental, social and economic impacts, entities usually can be grouped by industry, but sometimes other factors also should be considered. The idea is that entities with roughly the same general impacts should be grouped together. For example, an industrial manufacturer might group copper mining companies together as one node in the value chain and silica sand mining companies as another. Even though mining companies have many of the same general impacts, if the copper suppliers for a particular company are mining in China whereas the silica sand suppliers are mining in Minnesota, this would warrant separating the two because many regional and regulatory impacts for each group will be quite different.
The same can be said for customer groups. For example, a company traditionally might group together all customers who purchase a certain adhesive, even though the adhesive is being used differently by different customer groups. When developing a sustainability value chain map, the customer groups should be separated into different nodes because product impact will be different in the two cases.
Once the value chain is mapped according to significant inputs and outputs and the nodes represent entities with the same general impacts, it then is used to identify the main environmental, social and economic impacts generated as a result of your business. This is exemplified in the image below.
The value chain map is used as a starting point for researching the primary needs and impacts for each node in the value chain. A good source for this information is to look at sustainability reports from a representative company for each node, or by conducting interviews with a company in the group. The value chain map is expanded to account for the top needs and impacts for each node in the value chain, as shown below.
Why do this?
Here are five reasons why embracing value chain mapping is a smart idea:
1. Are you looking for ways to introduce sustainability into discussions with internal strategy teams? A value chain map will start the conversation.
Mapping value chain impacts provides a platform for communication with many stakeholder groups. Often, the mapping process will open up channels of communication with corporate strategy, business continuity and risk assessment teams who may have independently developed value chain maps of their own. Recognizing an overlap in the objectives of the CR team and other core strategic functions raises internal understanding of the business opportunities that arise from assessment of sustainability impacts. The value chain mapping process often requires input from various internal departments, including purchasing, sales, operations, marketing, logistics and customer service. The value chain map provides a common platform for discussion, which serves as a catalyst for crossing internal departmental boundaries.
2. Do you need help prioritizing which stakeholder groups to engage? A value chain map reveals missing information.
Once the value chain map is populated with impacts and needs for each node in the value chain, gaps and questions surface. You may find, for example, that your key industrial suppliers have little to no information about risks or impacts publicly available. Seeing gaps like this will reveal which stakeholder groups need to be probed for more disclosure. Recognizing information gaps helps to prioritize which stakeholders should be engaged and facilitates discussion with groups in industries or countries where reporting key risks, opportunities and impacts can be improved.
3. Are you worried that your company may have overlooked sustainability topics? A value chain map broadens your perspective.
Amazon's emissions associated with the transport of packages and the fuel efficiency of the Chevy Volt. Neither of these are true operational impacts, although they represent significant impacts for Amazon and GM.
A value chain map provides you with a concrete way of thinking about what's outside your organization. Systematically assessing impacts throughout the value chain uncovers risks or opportunities not previously considered. In addition to assessing risks within your supply chain, you also may find sustainable product opportunities on the customer side. When you look at the various ways your products are being used and then assess the greatest needs for each customer group, innovation opportunities for sustainable products will emerge.
4. Are you planning to produce a GRI G4 report? If so, you'll probably wish you had a value chain map.
If you're planning to report to G4, two important disclosures will require some attention. G4-20 and G4-21 asks reporters to indicate whether material topics are relevant inside or outside the organization. Companies will need to say not just what impact is occurring, but also where it is occurring. G4-21 says, "If the Aspect is material outside of the organization, identify the entities, groups of entities or elements for which the Aspect is material. In addition, describe the geographical location where the Aspect is material for the entities identified."
GRI G4 reports will need to clarify topics to a greater level of specificity. For example, instead of simply saying that compulsory labor is material, Apple might say that compulsory labor is material within their electronics suppliers in certain regions of China. In some cases, a topic will be relevant only for a certain business unit, within a certain region or with a certain end-user group; a G4 report will need to provide this level of specificity for every material topic.
Although a value chain map is not explicitly required within a G4 report, it is not clear how one could do a systematic internal assessment of impacts outside the organization without one. Because the boundary can be different for each topic, reporting to G4 requires a company to demonstrate an understanding of its impacts throughout the value chain. A G4 materiality matrix will have more specific topics than previously reported and a value chain map serves as a kind of geography for the topics in the matrix.
5. Do you want the results of your materiality assessment to be actionable? A value chain map helps identify valuable metrics.
Often, CR professionals use surveys to prioritize sustainability topics. The increased specificity of topics (described above) will do much more than just enable G4 reporting. If you've done a value chain map and tied the topics in your materiality assessment to certain entity groups within the value chain, the topic descriptions will be much more tangible for stakeholder groups who take your survey.
Consider first the case where a survey asks the less specific question, "Which topic is a greater reputational risk — water or energy?" Those taking the survey may have different perceptions of what water management is. One person may think of it as municipal water used to water the landscaping. Another might think of it as water withdrawn from a local well for use in operations. Yet another may think of it as how efficiently your products use water once it's in the hands of the end user. In addition to getting inconsistent data, the person using the survey results still has to determine what specific data to gather if water turns out to be a prioritized topic.
In the case where the survey topics are more specific because they are tied to a specific node in a value chain map, the survey instead would ask something like, "Which topic is a greater reputational risk — water withdrawn from local wells at our U.S. manufacturing facilities or energy use at our U.S. manufacturing facilities?" The specificity not only removes some ambiguity in the data, it also provides actionable data. The purpose of doing any of this work is to better manage your sustainability impacts. Managing how much water comes out of your sprinklers is quite different from managing the R&D process to develop water-efficient products. If your survey questions are specific enough, the person using the survey results will understand which topics should be prioritized as well as what specific data should be gathered. The metrics and management strategy becomes easier to map when the value chain is considered early in the process.
Value chain mapping provides many benefits that help to make the lives of CR professionals easier while identifying opportunities for companies to better manage its sustainability impacts. A value chain map is useful tool for broadening your perspective of company risks and opportunities and provides tangible outcomes for use in a sustainability strategy. Furthermore, if you are a GRI reporter planning to report to G4, a sustainability value chain map will improve the quality and efficiency of your materiality assessment.
Join us for our pre-conference tutorial on Value Chain Mapping at the GreenBiz Forum on Feb. 18 in Phoenix, Ariz.
Map photo by Taina Sohlman via Shutterstock