Despite this post’s title, it really isn’t focused exclusively on for-profit enterprises. In fact, it’s not focused on the healthcare-delivery industry, either. However, because it is applicable to any organization that raises and spends money to operate, I think you might find it highly useful.
This is especially true if you are a technical professional in one of the sustainability specialties. Harkin back to all the discussions you’ve heard or been a party to where someone makes the point that technical specialists just don’t:
- Know how to talk with organizational leaders in management terms, or
- Understand what organizational leaders really expect of them.
Further, in recent months it has become apparent during discussions with people interested and involved in sustainability that many simply do not understand the motives of those private-sector, for-profit companies that are embracing green disciplines. In fact, many people who work at these for-profits don’t quite understand the motives, either.
So, I wrote this article to explain why for-profits are now finding the idea of sustainability so appealing. It was recently shared through the Orange County Sustainability Collaborative in
. (http://www.ocsustainability.org/) California
For those of you who have read every post in this blog, the ideas presented here will certainly sound familiar. That’s because you’ve read them before, albeit scattered throughout 14 blog posts. However, the value of repeating these ideas is this: they are now collected into one unified, easy-to-share primer on sustainability’s value-proposition at for-profit companies . . . or any other enterprise for that matter.
Rather than examine sustainability from a technical, academic, political or altruistic perspective, this article considers the idea from a business perspective. It is important to do so because many of the discussions around sustainability by technical professionals, academics, politicians and activists center on what business should be doing to be more socially and environmentally responsible.
However, these groups share little of the for-profit business paradigm and, therefore, have an often limited understanding of what motivates companies to enthusiastically embrace the idea of sustainability. Hence, there can be a bit of suspicion around corporate motives. To help dial-down such suspicion, this article is provides insight into sustainability's business management concepts to enable greater understanding, if not mutual respect, among all parties.
It is fair to say that throughout the history of the environmental movement the for-profit economic sector has filled a critically important and melodramatic role, i.e., the Bad Guys! So, what are these “bad guys” really up to when they take up the cause of corporate social responsibility and its subset, sustainability?
What's in it for them? Quite a lot, actually.
But, before digging into why and how a company goes green, let's look at a basic definition of sustainability in a corporate sense. Then, we'll move on to exploring its business underpinnings through:
- The relationship between the no-money, no-mission and the people-planet-profit (3P) concepts
- The green-efficiency concept, and
- The supply chain, value system, value engineering and lifecycle dimensions of green efficiency.
CORPORATE ENVIRONMENTAL SUSTAINABILITY
Here's a basic definition of sustainability from a business management perspective:
Sustainability is the way an organization creates value throughout the entire closed-loop lifecycle of a product or service by maximizing the positive social, environmental and economic effects of its activities while minimizing their adverse impacts.
Notice how John Elkington's triple-bottom-line corporate responsibility concept is integrated into this definition of sustainability. The triple bottom line is a true-cost-accounting concept that considers the full impact of business decisions in terms of ecological and social values, as well as economic value. It is also known as The Three P's of Corporate Responsibility, i.e., people, planet and profit.
Operating within this definition involves the following, as illustrated on The Five Corporate Functions of Sustainability: (Click on Figure Below to Enlarge.)
• Systematically managing all aspects of a sustainability program within an organization's resource limits and opportunities
• Avoiding and controlling risks, including – but not limited to – environmental, health and safety regulatory compliance, as well as compliance with an ever-expanding myriad of industry-specific standards
• Reducing costs by eliminating all kinds of waste, including administrative, operational and environmental wastes
• Growing revenues with green-attribute products and services, and
• Leveraging competitive advantages through greenwash-free organizational transparency.
HARD FINANCIAL REALITIES IN THE FOR-PROFIT, NOT-FOR-PROFIT AND PUBLIC-AGENCY WORLDS: NO-MONEY, NO-MISSION
By all appearances the triple-bottom-line concept assigns co-equal – and perhaps even balanced – status between financial, social and environmental performance. However, in practice the prime directive of finance ekes-out a bit of preeminence on behalf of fiscal performance over the other two . . . and for good reason.
Let's define that strange Trekkie-sounding term, the prime directive of finance. Every organization must obey it above all else. It's the "No Money, No Mission" concept. The only way it can be achieved is by:
Balancing all organizational activities within resource limits and opportunities.
Of course, the no-money, no-mission concept looks a bit different at for-profit companies, not-for-profit institutions and public entities. For example, because of the body of law regulating for-profit corporations – particularly publically traded corporations – their view of the concept is this:
The only reason for-profit organizations exist is to increase the wealth of their equity holders.
Yes, it's cold, hard capitalism at its best – or worst – depending on your perspective. Unless a for-profit company is financially healthy enough to produce profits – and therefore build-up its balance sheet – it will not survive.
Before those of you at not-for-profit institutions and public agencies start feeling a bit smug, though, remember your organizations have a prime directive of finance, too. Here it is:
An organization must secure adequate financial resources to minimally sustain and ideally expand its mission.
In either case without money – i.e., the financial dimension of the triple bottom line – the social and environmental missions are not possible at any organization. Sacrilege? Maybe, maybe not? It's something to ponder, though, isn't it?
When any organization embraces sustainability, it begins achieving its prime directive of finance by collating the essential business-based concept of green efficiency into all of its basic management policies, strategies, tactics, procedures and activities. Here's the green efficiency mandate:
Achieve the organization's people, planet and profit objectives with least cost, effort and risk throughout the entire closed-loop lifecycles of its services and products.
The suspicious among you have probably figured out that a company can set high standards or it may set low ones. Either way, it may claim to be a corporate "good guy" by simply achieving its 3P objectives no matter how spurious they might be. However, leaders at ethical companies know when it comes to "corporate reputation" it doesn't pay to set anything but high-level, yet realistic, green performance standards.
GREEN MANAGEMENT PERSPECTIVES THROUGH SUPPLY-CHAIN, VALUE-SYSTEM, VALUE-ENGINEERING AND LIFECYCLE CONCEPTS
To truly go-green a business must eventually redefine its corporate responsibilities within the frameworks of its product and service lifecycles. Let's consider the four key concepts in this redefinition: supply chains, value systems, value engineering and lifecycles. Why these concepts? Because it is through them a company manages risks, reduces costs, increases revenues and leverages other competitive advantages.
Supply Chains – The redefinition starts by expanding the industrial-engineering-based view of its supply chains, which are:
The movement and storage of raw materials, work-in-process inventory and finished goods from point of origin to point of consumption.
Did you notice how this definition of supply chains stops with the point of consumption? That's not very sustainable, is it? You're right! It's missing the reverse-logistics element! Reverse logistics is:
The discipline of planning, implementing, and controlling the efficient flow of materials, production inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
Value Systems – Well, as you might imagine, such conceptual limitations have inspired others to expand the supply chain idea. For example, Harvard professor Michael Porter expanded it in these paraphrased terms by introducing the idea of value systems:
A value system includes all of the supply chains of an organization's suppliers, the organization itself, the organization's distribution channels, and the organization's downstream buyers and so on until the product or service has reached the end of its useful life.
As products – as well as services – pass through all sourcing, production and distribution activities in order, they should gain some value. Of course, being systems designed and operated by humans, they have built-in inefficiencies and also accumulate more over time. As a result, contemporary operations management is focused on identifying and eradicating inefficiencies. Such management activities even have a name: value engineering.
Value Engineering – Value engineering is a body of operations management and industrial engineering techniques that identifies and removes unnecessary expenditures, thereby increasing value for producers and their customers. The basic idea of value engineering is this:
Get the junk out of corporate activities because for every dollar put into production and/or service delivery the organization should have more product and/or service capacity to sell by eliminating that waste!
It's not too hard, then, to understand that each activity in a value system presents significant risks to the desired achievement of value gain. In standard value engineering terms, the junk that diminishes or prevents value gains includes:
- Waste of all kinds
- Work-arounds and rework, which are two rather insidious forms of wasted labor effort and other production resources
- Accidents, and
However, when a company goes green, it focuses even more heavily on solid, hazardous, gaseous, aqueous, and energy wastes than before. The reason is that these wastes are the ones that cause significant adverse changes in the environment over the lifecycles of products and services, and thereby create risks and liabilities for the company.
Further, any potential or actual social or economic harm to internal or external individuals, groups or communities arising from corporate activities is wasteful. Here's why. It requires diversion of scarce corporate resources to manage unnecessary, avoidable problems.
Hence, eradication of these wastes through continuous-improvement methods has critical business importance in terms of:
- Managing risks
- Reducing expenses
- Creating green-attribute and otherwise socially responsible products and services to increase revenues, and
- Leveraging competitive advantages through greenwash-free transparency.
With inefficient junk of all sorts removed from its various corporate activities, a company has a better chance of achieving not only its financial objectives, but its environmental and social ones, too.
Lifecycles – The lifecycle concept expands the idea of value systems with these two additional dimensions.
- The first dimension is a clear focus on the upstream, current and downstream lifecycle phases like those shown on the figure, Basic Closed-Loop Lifecycle Phases. (Click on Figure Below to Enlarge.) Effective management of lifecycle phases generally offers several advantages. Here are two of the primary ones.
- By influencing upstream suppliers to become more sustainable, an organization may create specific opportunities for lower production and service-delivery costs.
- Likewise, specific opportunities may arise by influencing downstream product and service users and end-of-design-life reverse-logistics agents to reduce corporate risks and their associated costs.
- And, the second dimension is recognition that all value-systems must be closed-looped through effective use of the 3-R concepts to manage wastes in every lifecycle phase by reducing, reusing and recycling.
So, as you can see by this discussion, the lifecycle concept may be regarded as the most evolved consideration in value system management. As such, the lifecycle perspective opens-up a new core organizational management view of corporate success by providing:
A closed-loop production and service-delivery framework spanning a product or service's entire lifecycle within which an organization may achieve all of its 3P objectives with least cost, effort and risk thereby enabling achievement of the prime directive of finance.
So, again, what does all of this really mean? Why are the bad guys really going green? Simply this: corporate environmental sustainability, when done right, enables a progressive for-profit enterprise to:
Make money by doing good!
Granted, there is a lot of well-deserved fear and loathing out there for many corporations. However, we've got to give the good ones their due for finding a sound business-based value proposition for environmental sustainability . . . even if we do so begrudgingly. Why? Because as the preceding discussion illustrates . . . and as Kermit the Frog says . . .
"It's not easy being green."