To Reach for Sustainability, Mind the Gap

To Reach for Sustainability, Mind the Gap

Today, more than ever, organizations are focused on environmental and social responsibility as a strategic objective. IBM's 2009 survey of 224 business leaders worldwide shows that 60 percent believe corporate social responsibility has increased in importance over the past year. Only 6 percent say it is a lower priority. These responses defy the conventional wisdom that the new economic environment dilutes CSR focus.

To be sustainable, businesses are now embracing a relatively new objective: optimizing their operations to minimize environmental impact and improve social outcomes in a manner that also maximizes performance. More than two-thirds of organizations we surveyed focus on CSR as part of an integrated business strategy to grow new revenue streams and control costs.

As a result, they face an entirely new set of decisions. Can they cut down on waste without increasing the price of products? Do they need to rethink distribution options to reduce greenhouse gas emissions and the impact of volatile energy prices? Should they segment products and services to meet a growing number of consumer sustainability concerns?

Challenges abound in addressing these issues, especially in accessing the information needed to meet these new strategic objectives. Overall, organizations have intensified efforts to collect information about their operations in areas from sustainable procurement to ethical labor standards. However, many are still missing -- by a wide margin -- the information they need to operate as a sustainable enterprise.

Organizations that outperform competitors have proven to be far better at casting a wide net for information across their ecosystems. They are also collecting information that is more relevant to understanding and meeting the performance challenges of operating in a sustainable manner. What's holding other organizations back? There are some very real obstacles.

The Optimization Gap

We surveyed leaders on three information areas related to sustainability: operations, supply chain and customers. Our results indicate that operational information needs to be more timely, supply chain information is still too insular and more customer information is needed.

Operational information: Growing but not always timely

Four in ten of the business leaders surveyed reported that over the last three years they have increased the amount of information they collect about their operations in each of eight sustainability areas we tracked: energy management, carbon management, waste management, water management, sustainable procurement, product composition, ethical labor standards and product lifecycle. Not surprisingly, the biggest increase in the amount of information collected is in energy, where just under two-thirds of respondents report increases. About half report increases in carbon, water and waste management; sustainable procurement; product composition; and ethical labor standards.

Nearly 60 percent of organizations are not collecting information about key operations and sustainability objectives on a frequent basis. Even in the high-profile area of GHG emissions management, for example, eight out of ten business leaders surveyed fall short. They may be able to use the information they have for an annual CSR report. But since they aren't evaluating the ongoing impact of actions on their GHG emissions, it's unlikely they can use the data to make their operations more sustainable.

Outperforming organizations in our survey were significantly more likely to collect timely information about their operations. For all companies, peer pressure and persistence may move those numbers up. The longer a company has been required by its business partners to adopt CSR standards, the more frequently it collects data.

Supply chain information: Still too insular

More than half of the business leaders surveyed said they consider the open sharing of information among stakeholders and business partners a high priority. However, the vast majority aren't collecting adequate information from their suppliers to support their CSR objectives. Outperforming organizations, on the other hand, are collecting more information from their suppliers in each of the eight categories we tracked as compared to their peers.

Three out of ten organizations surveyed aren't asking their suppliers for any information in any of the eight categories. Surprisingly, in the GHG and water categories, where cross-ecosystem "footprinting" is becoming more common, approximately eight out of ten aren't collecting information from their suppliers. And, despite a long history of brand-damaging scandals in the area of labor, six out of ten aren't collecting information on ethical labor from their suppliers.

Customer information: Improving but far to go

Consumer purchasing decisions are often influenced by perceptions of how socially and environmentally responsible an organization is. Yet overall in 2009, two-thirds of our survey respondents admit they don't understand their customers' CSR concerns well. This represents an 11 point improvement over the previous year and suggests organizations are making inroads fast. Nevertheless, nearly four in ten organizations reported that they have yet to conduct any research on the topic. Outperforming organizations were nearly twice as likely to understand their customers' needs well.

Across the entire sample, the shortfall in collecting information related to operations, supply chain and customers reveals an optimization gap. In addition, we found that outperforming organizations perform better in all three information categories, as do organizations that have focused for more than three years on integrating their CSR objectives to grow revenues and become more efficient. The approach to information and actions taken by these organizations suggest that the gap will narrow over time. The immediate challenge is to identify what information is needed and then aggregate and analyze it so it contributes to efficiency and growth objectives.

Insight, Engagement and Action

Today, every organization is a system of systems, much more bound up in complex, interdependent forces than the traditional business system of years past, with its clear-cut focus on profits. Given increasingly finite resources, businesses depend on balanced natural ecosystems for raw materials, water, energy and the physical health of their employees and customers. They depend on thriving community systems for labor, new sources of innovation and customers. Given the links among its systems, an enterprise committed to practicing sustainability considers both the immediate and far-reaching consequences of any action it takes.

While these dependencies obviously complicate the task of responsible business management, leaders of sustainable organizations are learning to understand and act on them. Mastering this complexity requires new levels of insight, new sources of information and new forms of collaboration. As a result, leaders in CSR are developing coalitions of business partners, NGOs and others to begin to address information gaps in areas ranging from labor to water standards. They're identifying leading practices and techniques to inform and educate stakeholders, such as customers and employees, more broadly.

Overall, most organizations know they need to engage their stakeholders in some way. However, proactive engagement with business partners and NGOs, at 55 and 44 percent respectively, is relatively low, given the benefits that can be achieved from collaboration.

Creating Leading Practices and Standards

Active industry participation now is one way to help ensure that the new practices and codes that emerge will make it easier, not more onerous, to operate a sustainable business. Moreover, industry coalitions are an excellent way to access and share a wider body of sustainability information. These groups can also help organizations make better use of their information by suggesting how, for example, the information can be deployed to change operations and innovate, as well as communicate progress to stakeholders.

For example, water is a topical issue, particularly in countries and regions facing scarcity of this vital resource. To address this need, 12 companies, including Coca-Cola, Diageo, Nestlé, Anheuser-Busch InBev and PepsiCo, have formed the Beverage Industry Environmental Roundtable to collect and share data and leading practices relating to water conservation and resource protection. Together, they established a common framework to exchange information on water reduction, reuse and stewardship, as well as drought preparedness.

Benchmarks and leading practices are important guides to use in setting objectives. The challenge lies in aligning these objectives across constituencies with diverse concerns and goals of their own. These stakeholders include employees, consumers, business partners, investors and NGOs, as well as regulatory bodies and governmental institutions.

Customers: Partners in Sustainability

Most organizations understand expectations for transparency with regard to CSR initiatives. Over one-half of the business leaders we surveyed consider the open sharing of information a high priority. However, until recently, organizations have tended to share information reactively -- in response to stakeholder demands. Those that expect to gain business advantage from CSR are developing new ways to inform and educate their stakeholders, whether they are customers, employees or partners.

For example, customer satisfaction may increase with conveniences like one-day delivery, but fully loaded transport reduces energy costs. One way to evaluate the options: make the customer part of the decision. Point-of-sale information on delivery options could provide them with a welcome opportunity to reduce their carbon footprint: "If you want to reduce your greenhouse gas emissions by 80 percent on the delivery of this television, click here and your package will arrive next week via hybrid carrier."

Results of our survey indicate that organizations placing a higher priority on transparency and those that have attained some maturity find it easier to execute. Clearly, once organizations start efforts to increase transparency, they gain needed experience and greater confidence in the value of sharing information both within their organization and with their stakeholders.

Engineered creatively, these collaborations can do more than inform customers; instead of simply sharing information, organizations are learning to construct a true exchange, where both the stakeholder and the organization gain knowledge to do something new.

Eric Riddleberger is global leader for IBM's business strategy consulting practice. Jeff Hittner is IBM's leader for corporate social responsibility consulting. This article is derived from their paper on IBM's 2009 global CSR Survey, "Leading a sustainable enterprise -- Leveraging insight and information to act," which can be found here: www.ibm.com/gbs/csrstudy.

Photo CC-licensed by Flickr user BurningQuestion.