In this Green to Gold Summary you will learn:
1. Why sustainability is a new source of competitive advantage;
2. How to use eight realistic strategies for going green;
3. What mistakes to avoid in improving your green practices; and
4. How your company can jumpstart its sustainability program.
Sony's Nightmare Before Christmas
Christmas time usually brings visions of carols, candy canes and sugarplums. But as Christmas approached in 2001, Sony executives instead had visions of toxic cadmium dancing in their heads. The Netherlands had impounded more than a million PlayStations destined for Santa's sleigh. A cable on the machines, it turned out, contained too much of the element cadmium, in contravention of Dutch environmental regulations. Sony fixed the problem, but it wasn't cheap. $130 million later, Sony found the source of the tainted cables after inspecting 6,000 factories. This crisis led to a new – and better – supply chain system. From a small bit of cadmium in some PlayStation parts, Sony learned a valuable lesson: Smart management of environmental issues is about more than hedging against downside risk. Other companies, including GE, Wal-Mart and Goldman Sachs have learned the same lesson. As Wal-Mart CEO Lee Scott sees it, environmental initiatives "will make us a more competitive and innovative company." Environmental responsibility needn't be a fetter wrapped around your ankle. Instead, make it your comparative advantage. Let your competition be fettered.
Companies are facing, and will continue to face, two kinds of pressure to go green. The first comes from the physical world and the second comes from your organization's stakeholders. Nature is an asset. The physical world makes economic life possible. While different businesses use different natural resources – oil companies need oil, frozen fish stick companies need fish – almost all businesses will feel the effects of ten major environmental problems in the short or medium term: climate change, changing energy sources, water quality and quantity, biodiversity, toxic substances and chemicals, air pollution, waste management, ozone depletion, ocean health and deforestation. Make sure you know which of these issues will affect your business.
Strong scientific evidence proves the seriousness of each of these problems, but even if you don't believe the data, remember that many influential people do. Environmental issues engender strong feelings in various powerful, vocal stakeholders who are pushing organizations to catch the "Green Wave." Though you may hear from others, most stakeholders fall into five large groups:
These pressures create opportunities to compete. How? By running green "plays" that are working pretty well for best-in-class companies, such as GE, Wal-Mart, Shell, Toyota, DuPont and 3M. These eight plays hit either the downside or the upside. Downside plays cut costs (such as waste disposal fees) and decrease the risks of regulatory fines. The upside plays boost revenue by bringing new green products to market, and enhancing brand value and other intangibles. Some bring predictable, short-term benefits; others are more speculative and offer long-term gains. But they all work and if you aren't running them, your competitors probably are.
The first play is improving your use of resources. Often, this is "low-hanging fruit" you can pick without strain. Staples re-engineered its lighting and HVAC systems in 1,500 stores and saved $6 million. The second play is cutting your environmental costs, such as pollution treatment or energy use. The third play is simply removing extra links in your value chain. IKEA's "flat packaging" means it can carry more packages per truck, reducing its fuel costs up to 15% per package. The fourth play is preventing an environmental problem before it can occur. How can you see the unseen? Look at your operations and those of others in your industry. Check your suppliers, distributors and end-users. Stay ahead of regulations and laws – or help draft them yourself so that you can comply (and your competitors can't).
The fifth play is to make products that environmentally conscious customers want (but don't neglect the more "mundane" aspects of your product – it still has to work for the customer and earn profits for you, as well as being green). The sixth play is to show off your green bona fides, thus increasing public approval and brand loyalty. Display "eco- labels" on your products (Energy Star in the U.S., the European Eco-Label and others in the EU). The seventh play can be captured in two words: "Toyota Prius." To use it, innovate; bet on next generation, environment-friendly products – even if they don't fit your existing product categories. Who'd heard of "hybrid" before the Prius? The eighth play puts a "green halo" over your company. Look at what BP is doing with its "Beyond Petroleum" initiative or at GE's "Ecomagination" campaign. Even when BP suffered a PR disaster at a Texas refinery, its image remained largely untainted. But with any of these plays, be sure you can walk the walk if you talk the talk. Ford took a drubbing after Bill Ford committed to going green while his company continued to make Exxon Valdez-sized SUVs.
Look at your business through a green-tinted lens. This means seeing the forest, not just the trees. Think about the opportunities up and down your value chain. Consider longer- term, more speculative payoffs as well as short-term, certain and tangible payoffs. Start green initiatives at the top of your organization. Senior management must be committed. Inspire people with big challenges. Accept that "feelings are facts" to the public. Remember when Shell planned to sink the Brent Spar oil rig in the North Sea, and Greenpeace raised a hue and cry? Sinking the rig would have been environmentally safe. But that didn't matter: Greenpeace won the PR battle and only later admitted that it got the facts wrong. Inspire your people by doing the right thing. Placards inside IKEA headquarters read, "Low prices – but not at any price."
What gets measured gets done, so collect data and measure your performance against clear metrics. Keep your ear to the ground with an AUDIO analysis. Go through the ten big environmental problems (climate change, biodiversity, etc.) and note how each problem applies (A) to your business. Then look upstream (U) and downstream (D) in your value chain. Spot the issues (I) you should guard against, such as liability, increased costs or scarcity. Then seek opportunities (O) in new products, increased efficiency or links with stakeholders (say, the World Wildlife Fund).
After your AUDIO audit, conduct a Life Cycle Assessment (LCA). Chart your product from cradle to grave. Where do your raw materials come from? Do you face extraction issues? Look at every step. Where do your products go when they are no longer in use? When a customer tosses your product in the landfill, does it leach toxic chemicals? As you run these analyses, look at both absolute and relative numbers, and draw data from throughout your company and your value chain. Get creative. For instance, consider partnering with a government agency, NGO or stakeholder group. Let it measure for you. It may have already discovered many of your environmental issues. Be careful to pick the right partner: you want it to broadcast your successes, not just your failures.
Traditionally, green process re-engineering focuses on the three Rs: Reduce, Reuse and Recycle. Now, consider two more: Redesign and Reimagine. Try "designing for the
environment" (DfE). Rohner Textil makes a carpet so eco-friendly scraps of it can be used as mulch. Investigate "industrial symbioses." Can you sell your waste to another company for use in its product? Try building or leasing green buildings, as Bank of America is doing. Attempt to get your supply chain partners to go green with you. Audit your suppliers and buyers, and share best practices. Embed re-engineering and reimagining in your company's culture with "stretch goals" and big, inspiring environmental bets. Build green thinking into strategic planning. Create incentives for staffers to go green (performance goals, bonuses, awards) and tell compelling stories.
Ford dropped the ball when it gave $25 million to create Conservation International's Center for Environmental Leadership in Business. That NGO focuses on tropical biodiversity, an issue that has little to do with Ford's business of making cars and trucks that spew carbon. Yes, biodiversity is good, but why didn't Ford do something closer to its work, like create a high-quality, Toyota-esque hybrid? Ford saw the trees but missed the forest. Other mistakes to avoid include:
"Misunderstanding the market" – Unilever tried to save cod fisheries by substituting a fish called hoki in British fish sticks. Great idea, but the UK is "Cod's Country" and customers found hoki heretical.
"Expecting a price premium" – Few green products can sell for an extra amount, though the Prius does.
"Misunderstanding customers" – McDonalds asks Swedish customers to sort their garbage and they do. When it tried the same thing in the U.S., customers balked.
"Middle-management squeeze" – Don't give middle managers objectives they can't accomplish. Get incentives right so managers can hit performance goals by being green.
"Silo thinking" – Look at the big picture. If you install a scrubber, you have to dispose of the sludge it collects. Instead, maybe seek an energy source that doesn't need scrubbing.
"Eco-isolation" – Integrate green thinking into your company. Don't create an isolated "green" team that will be ignored.
"Claims outpacing actions" – Walk the talk.
"Surprises" – Start small to see what will happen and forecast cautiously.
"Making the perfect the enemy of the good" – Accept second-best when best is unattainable. Expect trade-offs.
"Inertia" – Communicate a vision, then break it into smaller, actionable components to achieve incremental gains. Don't get stuck.
"Ignoring stakeholders" – Get buy-in all along the value chain.
"Failing to tell the story" – Tell your story in your company and externally. Letting staffers be surprised by public stories of your green initiatives undermines morale.
Now that you know what to avoid, get started. To make your task more manageable, map out what you'll do in the short term (within six months), the medium term (six to 18 months) and the long term (18 or more months from now). In the short term, use AUDIO and LCA analysis on the "big ten" environmental problems. Next, map the five categories of stakeholders along two dimensions: how powerful and influential they are, and how much attention you are giving them. Going in, pay the most attention to powerful, influential stakeholders, and the least to weak ones. Figure out your strengths and weaknesses, and then prioritize initiatives that play to your strengths. Start small. Often, you want to begin with a pilot or test project, kicked off with a compelling statement from a charismatic executive.
In the medium term, set up tracking and data gathering. Consider "dashboard" tools that are continuously updated with environmental issue data (such as GE's internal PowerSuite, a complex system for "tracking environmental results"). Create internal ownership of green issues by offering bonuses and including green metrics in performance reviews. Rev up your external communications. Tell your story to the press, NGOs and your internal audience. Conduct scenario planning and "blue sky thinking" about future risks.
In the long term, get your supply chain auditing system running smoothly. Consider new product categories and markets, and start engaging deeply with external stakeholders. Determine which shareholders you can collaborate with long term, and which ones you must defend against. Determine who you should monitor and who can sustain only a moderately deep connection (but not full collaboration). Do these things and you'll not only be green, you'll be golden.
1. Why sustainability is a new source of competitive advantage;
2. How to use eight realistic strategies for going green;
3. What mistakes to avoid in improving your green practices; and
4. How your company can jumpstart its sustainability program.
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| Green to Gold Summary |
Christmas time usually brings visions of carols, candy canes and sugarplums. But as Christmas approached in 2001, Sony executives instead had visions of toxic cadmium dancing in their heads. The Netherlands had impounded more than a million PlayStations destined for Santa's sleigh. A cable on the machines, it turned out, contained too much of the element cadmium, in contravention of Dutch environmental regulations. Sony fixed the problem, but it wasn't cheap. $130 million later, Sony found the source of the tainted cables after inspecting 6,000 factories. This crisis led to a new – and better – supply chain system. From a small bit of cadmium in some PlayStation parts, Sony learned a valuable lesson: Smart management of environmental issues is about more than hedging against downside risk. Other companies, including GE, Wal-Mart and Goldman Sachs have learned the same lesson. As Wal-Mart CEO Lee Scott sees it, environmental initiatives "will make us a more competitive and innovative company." Environmental responsibility needn't be a fetter wrapped around your ankle. Instead, make it your comparative advantage. Let your competition be fettered.
Causes of the "Green Wave"
Companies are facing, and will continue to face, two kinds of pressure to go green. The first comes from the physical world and the second comes from your organization's stakeholders. Nature is an asset. The physical world makes economic life possible. While different businesses use different natural resources – oil companies need oil, frozen fish stick companies need fish – almost all businesses will feel the effects of ten major environmental problems in the short or medium term: climate change, changing energy sources, water quality and quantity, biodiversity, toxic substances and chemicals, air pollution, waste management, ozone depletion, ocean health and deforestation. Make sure you know which of these issues will affect your business.
Strong scientific evidence proves the seriousness of each of these problems, but even if you don't believe the data, remember that many influential people do. Environmental issues engender strong feelings in various powerful, vocal stakeholders who are pushing organizations to catch the "Green Wave." Though you may hear from others, most stakeholders fall into five large groups:
- "Rulemakers and watchdogs" – Governments and nongovernmental organizations.
- "Idea generators and opinion leaders" – Traditional media, academics and think tanks.
- "Business partners and competitors" – Industry associations and your suppliers or buyers and your peers.
- "Consumers and community" – Customers, green activists and local communities.
- "Investors and risk assessors" – Insurers, banks and shareholders.
The Green Playbook
These pressures create opportunities to compete. How? By running green "plays" that are working pretty well for best-in-class companies, such as GE, Wal-Mart, Shell, Toyota, DuPont and 3M. These eight plays hit either the downside or the upside. Downside plays cut costs (such as waste disposal fees) and decrease the risks of regulatory fines. The upside plays boost revenue by bringing new green products to market, and enhancing brand value and other intangibles. Some bring predictable, short-term benefits; others are more speculative and offer long-term gains. But they all work and if you aren't running them, your competitors probably are.
The first play is improving your use of resources. Often, this is "low-hanging fruit" you can pick without strain. Staples re-engineered its lighting and HVAC systems in 1,500 stores and saved $6 million. The second play is cutting your environmental costs, such as pollution treatment or energy use. The third play is simply removing extra links in your value chain. IKEA's "flat packaging" means it can carry more packages per truck, reducing its fuel costs up to 15% per package. The fourth play is preventing an environmental problem before it can occur. How can you see the unseen? Look at your operations and those of others in your industry. Check your suppliers, distributors and end-users. Stay ahead of regulations and laws – or help draft them yourself so that you can comply (and your competitors can't).
The fifth play is to make products that environmentally conscious customers want (but don't neglect the more "mundane" aspects of your product – it still has to work for the customer and earn profits for you, as well as being green). The sixth play is to show off your green bona fides, thus increasing public approval and brand loyalty. Display "eco- labels" on your products (Energy Star in the U.S., the European Eco-Label and others in the EU). The seventh play can be captured in two words: "Toyota Prius." To use it, innovate; bet on next generation, environment-friendly products – even if they don't fit your existing product categories. Who'd heard of "hybrid" before the Prius? The eighth play puts a "green halo" over your company. Look at what BP is doing with its "Beyond Petroleum" initiative or at GE's "Ecomagination" campaign. Even when BP suffered a PR disaster at a Texas refinery, its image remained largely untainted. But with any of these plays, be sure you can walk the walk if you talk the talk. Ford took a drubbing after Bill Ford committed to going green while his company continued to make Exxon Valdez-sized SUVs.
Running the Plays
Look at your business through a green-tinted lens. This means seeing the forest, not just the trees. Think about the opportunities up and down your value chain. Consider longer- term, more speculative payoffs as well as short-term, certain and tangible payoffs. Start green initiatives at the top of your organization. Senior management must be committed. Inspire people with big challenges. Accept that "feelings are facts" to the public. Remember when Shell planned to sink the Brent Spar oil rig in the North Sea, and Greenpeace raised a hue and cry? Sinking the rig would have been environmentally safe. But that didn't matter: Greenpeace won the PR battle and only later admitted that it got the facts wrong. Inspire your people by doing the right thing. Placards inside IKEA headquarters read, "Low prices – but not at any price."
What gets measured gets done, so collect data and measure your performance against clear metrics. Keep your ear to the ground with an AUDIO analysis. Go through the ten big environmental problems (climate change, biodiversity, etc.) and note how each problem applies (A) to your business. Then look upstream (U) and downstream (D) in your value chain. Spot the issues (I) you should guard against, such as liability, increased costs or scarcity. Then seek opportunities (O) in new products, increased efficiency or links with stakeholders (say, the World Wildlife Fund).
After your AUDIO audit, conduct a Life Cycle Assessment (LCA). Chart your product from cradle to grave. Where do your raw materials come from? Do you face extraction issues? Look at every step. Where do your products go when they are no longer in use? When a customer tosses your product in the landfill, does it leach toxic chemicals? As you run these analyses, look at both absolute and relative numbers, and draw data from throughout your company and your value chain. Get creative. For instance, consider partnering with a government agency, NGO or stakeholder group. Let it measure for you. It may have already discovered many of your environmental issues. Be careful to pick the right partner: you want it to broadcast your successes, not just your failures.
Traditionally, green process re-engineering focuses on the three Rs: Reduce, Reuse and Recycle. Now, consider two more: Redesign and Reimagine. Try "designing for the
environment" (DfE). Rohner Textil makes a carpet so eco-friendly scraps of it can be used as mulch. Investigate "industrial symbioses." Can you sell your waste to another company for use in its product? Try building or leasing green buildings, as Bank of America is doing. Attempt to get your supply chain partners to go green with you. Audit your suppliers and buyers, and share best practices. Embed re-engineering and reimagining in your company's culture with "stretch goals" and big, inspiring environmental bets. Build green thinking into strategic planning. Create incentives for staffers to go green (performance goals, bonuses, awards) and tell compelling stories.
Avoiding Fumbles
Ford dropped the ball when it gave $25 million to create Conservation International's Center for Environmental Leadership in Business. That NGO focuses on tropical biodiversity, an issue that has little to do with Ford's business of making cars and trucks that spew carbon. Yes, biodiversity is good, but why didn't Ford do something closer to its work, like create a high-quality, Toyota-esque hybrid? Ford saw the trees but missed the forest. Other mistakes to avoid include:
"Misunderstanding the market" – Unilever tried to save cod fisheries by substituting a fish called hoki in British fish sticks. Great idea, but the UK is "Cod's Country" and customers found hoki heretical.
"Expecting a price premium" – Few green products can sell for an extra amount, though the Prius does.
"Misunderstanding customers" – McDonalds asks Swedish customers to sort their garbage and they do. When it tried the same thing in the U.S., customers balked.
"Middle-management squeeze" – Don't give middle managers objectives they can't accomplish. Get incentives right so managers can hit performance goals by being green.
"Silo thinking" – Look at the big picture. If you install a scrubber, you have to dispose of the sludge it collects. Instead, maybe seek an energy source that doesn't need scrubbing.
"Eco-isolation" – Integrate green thinking into your company. Don't create an isolated "green" team that will be ignored.
"Claims outpacing actions" – Walk the talk.
"Surprises" – Start small to see what will happen and forecast cautiously.
"Making the perfect the enemy of the good" – Accept second-best when best is unattainable. Expect trade-offs.
"Inertia" – Communicate a vision, then break it into smaller, actionable components to achieve incremental gains. Don't get stuck.
"Ignoring stakeholders" – Get buy-in all along the value chain.
"Failing to tell the story" – Tell your story in your company and externally. Letting staffers be surprised by public stories of your green initiatives undermines morale.
Getting into the Game
Now that you know what to avoid, get started. To make your task more manageable, map out what you'll do in the short term (within six months), the medium term (six to 18 months) and the long term (18 or more months from now). In the short term, use AUDIO and LCA analysis on the "big ten" environmental problems. Next, map the five categories of stakeholders along two dimensions: how powerful and influential they are, and how much attention you are giving them. Going in, pay the most attention to powerful, influential stakeholders, and the least to weak ones. Figure out your strengths and weaknesses, and then prioritize initiatives that play to your strengths. Start small. Often, you want to begin with a pilot or test project, kicked off with a compelling statement from a charismatic executive.
In the medium term, set up tracking and data gathering. Consider "dashboard" tools that are continuously updated with environmental issue data (such as GE's internal PowerSuite, a complex system for "tracking environmental results"). Create internal ownership of green issues by offering bonuses and including green metrics in performance reviews. Rev up your external communications. Tell your story to the press, NGOs and your internal audience. Conduct scenario planning and "blue sky thinking" about future risks.
In the long term, get your supply chain auditing system running smoothly. Consider new product categories and markets, and start engaging deeply with external stakeholders. Determine which shareholders you can collaborate with long term, and which ones you must defend against. Determine who you should monitor and who can sustain only a moderately deep connection (but not full collaboration). Do these things and you'll not only be green, you'll be golden.
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