the$$ Eleva)ng$and$Integra)ng$ the$Dimensions$of$Triple ...

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Eleva)ng and Integra)ng the Dimensions of Triple Bo8om Line into the

Strategic Management System

John Grant

John Latham

BAR Consor)um Fall Forum

New Orleans, October 2, 2008

1/6/10 1 Grant and Latham (c) 2008

Agenda

•  Society’s Evolving Expecta)ons –  Leadership being sought across sectors –  Economic, Ecological and Social dimensions (TBL measures)

•  Current Concepts –  Maturity stages, commensura)on, etc. –  Time Horizons: Is current “long-‐term” long enough?

•  Enhanced Strategy Process –  Strategy Development and Deployment -‐ Flows/Blueprints –  Strategy System “Breadth” & Integra)on –  Enhanced Strategy Maturity Model

•  Examples –  Connec)ng actual organiza)onal ac)ons to concepts

•  Discussion –  Issues, e.g. tes)ng “climate change” through the model


Evolving Global Sen)ment

•  Changing global ice condi)on -‐> sea levels •  Fossil fuel efficiency declining in places

•  Experts expressing urgency – Hansen of NASA – “unprecedented” terms in IPCC – Wigley of N-‐CAR (scenarios: “we need a miracle”) – University ins)tutes (Stanford, Princeton, ASU)

•  Students concerned with future damage/cost

•  Others?? 1/6/10 Grant and Latham (c) 2008 3

What urgency now?

•  “Market failures” increasingly obvious – “tragedy of the commons” in atmosphere, etc.

– Transparency & accountability oden missing

•  Climate change knowledge is improving – Glacier monitoring, air currents, ocean temps – Regional “carbon markets” developing in USA

•  “Third party data” being distributed – www.CDProject.net ; www.CARMA.org

•  Stakeholders concerned with “con)ngencies” – EU, Japan moving quickly; US elec)ons MNCs


Society’s Evolving Expecta)ons

•  MBNQA & “performance excellence” in 2008 – Rapidly evolving criteria – EU, USA, Asia

•  Developments recently – Climate change & carbon emissions trends – Analy)cal efforts (Innovest, PwC, KPMG, banks, TATA, TruEVA, etc.) – technical to $$ data

– AASHE & Prac)ce GreenHealth -‐-‐ expanding •  Performance Excellence – now means what?


6

Investors’ Support of the “Carbon Disclosure (CD) Project:” Firms & $$s Over Time

50

40

Source: www.cdproject.net

CD-2 CD-3 CD-4 CD-5 2004 2005 2006 2007

Trillions US $ =

Number of Firms =

300

200

100

1/6/10 Grant and Latham (c) 2008

Op)ons for Posi)ve Ac)ons

Examples of big “wedges” of opportunity* -‐-‐Energy efficiency

-‐-‐Sequestra)on in many forms

-‐-‐Renewable sources to scale-‐up

-‐-‐Conserva)on )llage in agriculture

-‐-‐What major new innova)ons??

-‐-‐”Choose 7 or more of 15” as a start *Source: Socolow & Pacala, Princeton Univ.

1/6/10 Grant and Latham (c) 2008 7

CARMA -‐-‐ example

•  Carbon Monitoring for Ac)on (CARMA) •  Iden)fies CO2 emissions by:

– Country, company & power plant

•  Encourages poli)cal ac)on globally – China, US, et al crea)ng big L-‐T problems

•  Visibility – encourages replacing dir)est plants – Duke Energy, China’s government

•  Other?? 1/6/10 8 Grant and Latham (c) 2008

Challenges familiar to BAR

•  Defini)ons – “Quality” to “Sustainability” •  “System” boundaries

–  Industrial ecology – eco-‐linkages among firms

•  Standardiza)on of Measures / Concepts – Technical; Financial; Cogni)ve – Many errors persist in data

•  Disclosures – levels of detail vs. confiden)al strategy informa)on

•  Others? 1/6/10 9 Grant and Latham (c) 2008

Carbon Emissions Analyses

•  Innovest -‐-‐ analysts for Carbon Disclosure Project (CDP) –  Offices in several ci)es –  Carbon Beta Analy)cs™ -‐-‐ use GRI’s G-‐3 standards –  Scope of analyses vary (per Pierre Trevet)

•  Directly generated CO2 •  Emissions a8ributed to electricity (fossil-‐based) used •  All inclusive – “cradle to cradle”

–  Applica)on or breadth of CDP •  Gathering data on 2300 firms globally •  Doing some analyses since 1995

–  Criteria for Carbon Beta™ ra)ng of organiza)ons •  Carbon management strategy •  Carbon risk exposure •  Carbon profit opportuni)es •  Improvement/deteriora)on trend in “carbon equivalents”

–  WACCRT (Weighted average country carbon reduc)on target)


“Commensura)on” issues

•  Measuring data conversions for comparability

•  Commensura)on dimensions* –  Technical (measures converted mathema)cally)

–  Value in $$ –  Cogni)ve (common or shared understanding of what these measures mean and what we are trying to do)

•  Shared understanding of organiza)onal boundaries •  Are non-‐CO2 greenhouse gases (GHGs) included?

*Source: [email protected] , 2008


Data Fallibility

•  Data fallibility –  Improper conversions of data

– Lack of comparability across repor)ng periods

•  Examples – Bri)sh Telecom -‐-‐ ABB – Ford -‐-‐ Diahatsu “Is it be8er to be approximately correct or precisely wrong?” –  Source: [email protected] 2008


“Industrial Ecology” *

•  System boundaries – oden ambiguous •  Boundaries may vary by stakeholder

–  Investors focus on firms

– Ci1zens focus on “the industrial village” •  Other issues or examples

– Na)onal Industrial Symbiosis Program (UK)

– Greeley’s plans for TIF district *Source: Dr. Volker Hoffmann – Germany , 2008


Collabora)on example* (Los Angeles port, city, etc.)

•  U. So.Cal. Center for Sustainable Ci)es •  Formula:

– Popula)on x Affluence x Technology x “Consciousness” = Sustainability

– NATURAL STEP “framework”

•  System dynamic scenarios looking at the interdependence issues (wind direc)on, etc.)

•  25% of par)culate from Asia, etc. Source: H. Bradbury, 2008


Sustainability Performance: Example of Automobile Industry*

•  Carbon “footprint” during produc1on and delivery

•  Carbon “footprint” during opera1ng years

•  Matrix for automobile brands – BMW – good in both “carbon categories” – General Motors – weak in both categories *Source: Frank Figge, Queens Univ., Belfast & T. Hahn AoM #1203, 2008


Climate Change Responses

•  Organiza)on resilience to extreme weather events

•  Flow chart – levels of a8en)on –  Ignore – Avoid – Adjust –  Influence

Source: M.K.Linnenluecke, et al 2008


Stages of the “Sustainability Journey”

•  “Pyramid” of development/”maturity” stages – Sustainable Enterprise (at the top) – Collabora)on & Integra)on – “Trac)on” with implemented projects – Founda)onal concepts – start of organiza)onal

learning

•  Causal model of performance effects

Source: K. Fairfield, et al -‐-‐ 2008


Sustainability’s Implica)ons for Financial Analysis*

•  Sustainability repor)ng evolving

•  NFP sector – faster than private sector

•  Analyses influence students’ career choices

•  Other?? *Source: Werner, Wankel & Stoner, 2008


MBNQA & Other Examples

•  ST Microelectronics – Reports have matured over last decade

•  CAT – Advisory Board from diverse organiza)ons

•  Educa)on – AASHE, NWF, et al

•  Healthcare – H2E & Legacy Health System (Oregon)


Strategy Development Environmental Scan and Analysis Phase


Government & Regulatory Environment (O/T) Changes in CO2 restrictions, carbon prices, cap-and-trade System v. Taxation changes the economics of CO2

Market (O/T) Changing requirements and shifts in demands of customers that include increased environmental and societal elements (monitor “green” websites, customer surveys, etc.)

Societal Environment & Trends (O/T) Increasing pressures from a variety of organizations and interest groups to improve the environmental dimension of the entire value chain and the social impact of operations, products, and services

Technological Environment (O/T) Changes and trends to the technology to address the issues of environmental impact of operations and products and services

Collect and Analyze Data SWOT Analysis

Competitive Environment (O/T) Ability of competitors to address climate change issues in a way that provides competitive advantage with consumers on both price and environmental perception.

Organization Assessment (S/W) Capabilities of the organization and suppliers to address the increasing environmental and societal pressures

Strategic Challenges and

Advantages

SWOT Considerations Environmental and social effects of suppliers, customers, regulatory agencies, etc. highlighting the major challenges and opportunities

Systems Perspective Environmental and social systems surrounding the organization incl. those of the customers, suppliers, etc.

Strategy Development Planning Phase


Extended Time Horizons Environmental and societal impacts of strategy decisions take much longer to manifest themselves in these complex Systems (e.g., sea level changes, regional temperatures, human migration, etc.)

TBL Consideration in Planning Long-term environmental impact of strategic options

Systems Thinking The environmental and social impacts of strategic decisions need to be examined using a systems perspective that illuminates the longer-term impacts.

Time Horizons Strategy

Development Process

Feasibility Assessment

Planning Participants Additional expertise including: environmental managers, ecological consultants, NGO dialectics used to indentify “blind spots” in analysis

Strategic Challenges and

Advantages

Key Strategic Objectives and

Timetable

Long-term Sustainability Viability of transportation networks, availability of key inputs and shifting customer expectations

TBL Considerations Long-term sustainability incl. cost effective labor, water quality and quantity, societal attitudes toward industry, etc.

Strategic Objec)ves and Timeline


Key Strategic Objectives and Timetable

Including objectives that address environmental and social issues

directly and indirectly such as reducing carbon footprint;

neutralizing “societal costs” of the company ahead of regulation

Strategic Challenges and Advantages There are direct and indirect connections to the analysis, SWOT, and strategic challenges and advantages identified in the environmental scan and analysis phase

Opportunities for Innovation Guide our search for new technologies that are chemically complementary to our current and planned operations.

Seek telecommuting, on-site medical clinics, etc. which will make our organization more attractive to future employees/associates

Balance Short- and Long-term Constantly seek to inform investors of the general trade-offs we are making between short-term “expenses” and longer-term “investments” in future sustainability

Balance for ALL Key Stakeholders Stakeholder objectives matrix is updated at least yearly and more often if major environmental shifts occur so the needs of all stakeholders can be systematically balanced over time.

Stakeholders include: customers, employees, investors, suppliers and partners, and communities we operate in and society in general (current and future generations)

Strategy Deployment Ac1on Planning, Implementa1on, and Results


Educate and Enable Ongoing educational programs with staff, customers, suppliers, and regulators to ensure they are all aware of our general assessments of the threats and opportunities facing our organization as a result of shifting technical and social understanding.

Crisis Management Identify key personnel and outside experts that can assist in cases of low probability emergencies, including rapid sea-level changes, political unrest, etc.

Comparisons Performance is compared with both government “targets” as well as guidelines proposed by thought leaders in various sectors so we can be viewed as positive role models in our industry(ies).

Ac)on Plan Development

Implement, Track and Sustain

Performance Projec)ons

Project Management Measures for GHGs, societal effects of our organization, etc. are linked to corresponding measures in our “scorecard” some $$$ and some technical (e.g., metric tons of carbon/year).

Matrix of “stakeholders x scorecard” Enables analysis of evaluation of Adequate coverage.

Key Strategic Objectives and

Timetable

TBL Considerations Action plans include elements of TBL including: ecosystem costs and benefits and changing impacts on the human and other living systems surrounding the organization.

Monitor the availability and cost forecasts for key materials and personnel and develop contingency plans for unusually sharp changes in key variables e.g., fossil fuels supply interruptions or government rationing.

Risk Assessment Expected volatility of Capital markets are Frequently updated and new technical systems are fully tested and insured.

Forecast key financial and human resource needs to develop contingency plans.

Resource Allocation Capital markets and other key sourcing systems monitored for vulnerabilities.

Cost/benefit criteria are used to allocate resources to benefit all stakeholders.

TBL Projections Projections include TBL Measures such as Global Reporting Initiative, Carbon Disclosure Project and others.

Integra)ng TBL into the Comprehensive Strategic Scorecard


Financial and Market

Qualify for investment by most SRI (socially responsible) mutual funds; Global Repor)ng Ini)a)ve; Carbon Disclosure Project; and Climate Disclosures Std. Board.

Leadership and Social Responsibility

Community and Society Sa)sfac)on Brand image Community contribu)ons

Customers

Include survey ques)ons of customer interests in “green” products and their percep)ons of our opera)ons, products, and services.

Human Resource

Employee sa)sfac)on Downsizing assistance Out placement efforts

Organiza>onal Effec>veness Augmented to assess the GHGs generated during opera)ons and produc)on, and distribu)on of products and services: CO2 Emissions (gross); Less: Sequestra)on; CO2 emissions (net).

Product and Service

Augmented to assess the GHGs generated from the use and disposal of the products and services.

System Integra)on and Leverage


Strategic Management

System

Leadership System Governance

System Ethics System

Community Support System

Customer & Market

Knowledge System

Customer Relationship

System

Customer Satisfaction

Determination System

Performance Measurement

System Performance Review System

Management Information

System

Knowledge Management

System

Workforce Enrichment

System

Workforce & Leader

Development System

Workforce Assessment

System

Core Competencies

Product & Process Design System

Emergency Readiness

System

Process Management & Improvement

System

ST Microelectronics -‐-‐ example

•  Non-‐financial repor)ng has evolved •  Status at present

– Six major Key Performance Indicator (KPI) categories, e.g.: •  Electricity, water, CO2, etc. per unit of produc)on

– KPIs verified by Bureau Veritas Cer)f. France •  Overall (mul)-‐factor) performance trends

– Measures against 2004 base data


Caterpillar -‐-‐ example

•  Sustainability Reports – Six languages on website – Many criteria – Products to CO2 emissions

•  Advisory Board – 18 outsiders – among na)onal “thought leaders”

•  Goals to 2020 by CEO


Professional Services Expanding

•  Innovest – financial es)mates of ac)ons – Banks adding “sustainability” staff

•  Project analysts & auditors – PwC, KPMG, Deloi8e & Touche, et al

•  Engineering services

•  Others??


Discussion Ques)ons

•  Consider preparing “test applica)ons” using “climate change” scenarios? – What effects from 2 d sea-‐level rise in 1 yr.? – What effects of “China boyco8” from dirty air? – Oil price change effects from poli)cs?

•  $200.-‐/bbl increase in 90 days (ala Simmons)?

•  How quickly can we expect societal interest in various sectors of the economy? – By carbon intensity? By size of organiza)on?


Strategy Development

Strategic Goals and Timeline

Strategy Deployment

Tracking and Performance Projec>ons

Advanced SMS

Intermediate SMS

Beginning SMS

Strategic Management System Maturity Model


Next Steps

•  What might “future leadership” toward “performance excellence” require of BAR members?

•  What connec)ons with SEC, GAO, EPA ?

•  What collabora)on, if any, with Climate Disclosure Standards Board or others?

•  Discussion of future research, case studies, or even ac)on research projects


References (selected)

•  Aspen Environmental Forum, 2008

•  Brown, L. Plan B 3.0, 2008 •  Economy & Lieberthal “Scorched Earth: …China” HBR, 2007

•  Epstein, M. Making Sustainability Work, 2008 •  Friedman, T. Hot, Flat & Crowded, 2008

•  Gingrich, N. Contract with the Earth, 2007 •  Grant, J. “Organiza)onal Performance …” CTM, 2008 •  O’Keefe, B. “The Prophet of $500 Oil” Fortune, 2008 (9-‐29) •  Senge, P. et al. Necessary Revolu1on, 2008 •  Speth, J. Bridge at the Edge of the World, 2008


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