Think Globally, Measure Locally, Part 2: Building a Sustainability Scorecard
As described in part 1 of this column, it is becoming increasingly imperative for companies to think about operating in a more sustainable manner. The motivations for this sometimes can be altruistic, but corporate sustainability initiatives can actually reduce costs of operations and create greater efficiencies, resulting in short- and long-term cost savings and competitive advantage. This realization drives interest in business intelligence solutions such as sustainability scorecards.
To get started, companies should approach the development of a sustainability scorecard, like any other BI/performance management solution - by asking a few questions.
Question One: Why?
Before embarking on the development of a sustainability scorecard, a company should first understand why it needs to be done. What business benefits are you trying to achieve? What is the business case? In order to be relevant, the use of a sustainability scorecard should be tied to an overall corporate sustainability initiative. So, it helps to start with the goals of this initiative as drivers for creating the scorecard. These corporate sustainability goals may include:
- Cost reductions for:
- Energy related to company operations such as manufacturing, distribution centers, data centers and offices;
- Transportation, related to company operations such raw materials, product distribution and employee travel;
- Worker health care, which can be greatly affected by workplace environmental conditions;
- Waste and waste disposal, particularly for raw materials waste from manufacturing operations, defective product waste and office supplies;
- Carbon emissions, which already have a cost in Europe and are expected to start having costs associated with them in the U.S. and other parts of the world in the near future;
- Product stewardship/recycling services; and Recruiting and retention due to a greater connection with employees.
- Revenue increase from:
- Sustainable products,
- Sustainability-related services and
- Better brand awareness/affinity from current and potential customers.
- Risk reduction and potential cost avoidance, such as:
- Lawsuits for environmental problems,
- Shutdowns to address environmental, health and safety issues
- Consumer safety issues,
- Government fines for noncompliance with regulations and
- Higher rates from banks and insurance companies that perceive greater business risk due to environmental concerns.
Question Two: Who?
Who is going to use the sustainability scorecard? To answer this question you need to look at the goals of the initiative outlined when answering the why? question. Based on your goals, determine who within the company should be accountable for helping meet those objectives. Top executives will likely be accountable for several of the goals, and others down the company ladder will be responsible for certain aspects of the goals as well. Multiple stakeholders may need regular visibility of the progress toward meeting those goals and updates on who can direct or take specific actions to move the ball forward.
Question Three: What?
Now that you understand the overall goals of the initiative and have determined the people who will be responsible for helping achieve those goals, you need to figure out what specific measures you want to use to track progress and which dimensions you will need in order to analyze those measures (e.g., by product line, facility and date, etc.) Additionally, you may want to set targets for each measure instead of just tracking progress relative to the past. With these targets you can track individual performance toward meeting goals and make them a part of incentive pay.
To make the information actionable, the actual combinations of measures, dimensions and target values should vary based on what is appropriate for each individual. For example, in a manufacturing company the COO may have responsibility for ensuring that the companys energy usage trends downward across all operations that involve manufacturing and distribution. This person might then have metrics for energy usage available to them that include activities such as:
- Aggregate energy use and costs for all facilities with the ability to drill down to the individual facilities and production lines within those facilities and
- Aggregate fuel use and costs for all transportation-related activities with the ability to drill down to details such as individual routes.
However, someone who is responsible for just one manufacturing facility will primarily be focused on ways to reduce energy use at their one location and resultantly would have access to the combination of metrics, dimensions and targets relevant to that specific location.
Additionally, creating compound metrics, such as ratios and growth rates for certain measures (e.g., as energy usage per widget produced or energy usage per employee) can be highly informative, because these tend to be procedures that people can take action on.
After thinking through the metrics, dimensions and targets you will use to measure sustainability, you must figure our where this data will come from. It will likely come from many source systems including financial, HR, supply chain management, manufacturing, facility management/building automation, environmental health and safety and other business operations.
Question Four: How?
Now that you understand what you need, determine how you are going to deliver this to your business users. If you already have standard enterprise BI and data warehouse tools and platforms, consider using them so all of your BI applications can be delivered in a consistent manner. You may also want to evaluate packaged applications that provide sustainability scorecard functionality to decide if they meet your needs or are close enough to be customized to do so.
You may also find that some of the information is not available in any of your current data-collection systems. In this case, youll need to determine the best approach for resolving this gap, such as making additional customizations to existing systems to collect the newly required data, implementing new data collection packaged applications or implementing a custom solution.
A sustainability scorecard can become a focal point for aligning the most important stakeholders in your company around your corporate sustainability initiative. By providing the right people with visibility to all of the critical sustainability measures, your company can start to move the needle on your green agenda.