As chair of edie Sustainability Leaders Forum 2017, I could close the event with my key themes: 1. the context is shocking; 2. there are leaders making great strides; and, 3. even so the corporate sustainability field needs to pivot. This piece was first posted on edie.
In a meeting today I started to talk about three classic blunders of measuring sustainability: start measuring years after you start executing; choose indicators without knowing how you will use the data; and, expect targets to be hit regardless of circumstance and punish individuals for missing goals.
With apologies to The Princess Bride (if you don’t know what I mean, see the clip and then watch the film), here they are.
1. start measuring several years after you started executing
You’re busy. Someone senior has just signed off on that big thing you’ve been trying to get to happen for ages. You’ve got a target of helping X million people do Y. Let’s go and deliver!
A few years later things are going well, perhaps not everything you hoped but good enough. You realise you’re going to have to report progress – and then you realise you didn’t define what is activity on your part counts as ‘helping people do Y’. Also, you don’t have a baseline. You haven’t kept tabs on the costs and benefits (direct, indirect, tangible or intangible). Or any on-going information in a common format.
You have committed the first classic blunder of measurement – you didn’t set up a measurement system at the start.
The most obvious remedy is to set up a measurement system at the start. If you’ve already set off, it’s not to late to start setting up your measurement system.
2. choose indicators without knowing how you will use the data
You’re interested in outcomes. You’re not one of these process-guys who gets all nerdy and navel gazing. You put all your resource into measuring the results. Easy.
You’ve got very limited resource, and limited time to set up. So, you just pick the indicators which are already being collected, either in-house (often finance-related) or by someone else.
When you get the data it tells you that…well, the outcomes are behind what you want. But you don’t know why so you can’t do anything about it.
The second classic blunder is to choose indicators without thinking through how they will be used. In my view, there are two basic uses of measurement data:
- external disclosure for transparency and accountability, whether with formal regulators or the informal ‘civil regime’ of other stakeholders.
- internal decision-making, to improve performance and set better goals.
On external disclosure there are guides, requirements and so on which constrain choice (I know this because I was on several panels that created the third generation of GRI). I’m more interested in metrics for internal decision-making because there are more choices (so people need more help) and because the purpose of the external disclosure is also to change internal decision-making.
My remedy is this: you start with a hypothesis which says (roughly) I do A, that drives B, which drives C (and so on until…) which drives the outcome I want. (In development circles this is called a LogFrame – see the excellent Sustainability Indicators book for more.)
You then select input, process, output and outcome indicators which tell you about whether your hypothesis is actually happening, plus the outcome. This way you have the opportunity for two levels of learning:
- Single-loop: improving performance based on your existing hypothesis. (“We can see does drive B etc, so let’s do more A.”)
- Double-loop learning: improving your the hypothesis itself. (“Turns out A does drive B, but B doesn’t drive C so we’ll need to do something else.”)
As everyone knows, the map is not the territory, as anyone who just obeys their satnav will tell you. If you’re map is broadly right, you can drive according to the map. If you’re map is wrong you need a new map. And you need a measurement system which can help you tell if your map is good enough.
The measurement system, then, is a way of delivering organisational learning, the vital ability to adapt as things change.
3. expect targets to be hit regardless of circumstance and punish individuals for missing goals
You are under pressure from your boss, and s/he from their boss, to hit that target. Five years ago you promised that you would help X million people do Y – and it looks like you’re going to be short on Y. So, you put pressure on the people who are supposed to deliver.
A couple of things can happen at this point. Even if you do hit Y – hurray! – there could well be a catch. Perhaps you’ve made a short-term gain but undermined the following years. Perhaps people have lied, or gamed the indicator.
Maybe the pressure you apply makes people think that the effort is not worth the candle – “it was always a stretch, I know what I’m being asked to do won’t work, that sustainability gets in the way of my real job anyway, I’ll just ignore that nagging person”.
Third blunder: using the target as a stick and then using the data to punish under-performance. Metrics can set up many unintended consequences and perverse incentives. If you put delivering the target as well above everything then you risk people lying and/or dis-engaging. As importantly, you miss using the chance to use the data as insight into why you are short – is it really about more effort? Or could there be some other reason.
The remedy? I think it has to be about a culture which values learning, where people are accountable for performance, including whether they are improving the hypothesis as they go. Interestingly, it turns out that quality is particularly important when you are doing something new: you need to reward people when their get better at forecasting what happens next (for more see the HBR classic ‘Building breakthrough businesses within established organisations’ (£)).
Last week I was asked to part of a research conference advisory panel for the ICAEW, Europe’s largest accounting institute. To give feedback on their conference idea, I thought about accountants and what companies say they need to take the next step on sustainability. Here is my work-in-progress (aka ‘WIP’), which concludes we need to help the senior executives in leading companies be ambassadors with quantified evidence that reassures the next wave of adoptees.
It’s worth thinking in terms of two groups: the leaders who want to go further, and the potential next wave of companies who are realising they might need to act.
For the leaders the key challenge is how to deliver on their ambitions. Leading companies have set long-term goals (e.g. double financial revenue while not increasing environmental impact) plus have a high-level strategic case for action (e.g. “in order to grow in emerging markets, we must address constraints like access to water and poverty plus we need to signal to regulators and civil society that our success is good for their country”). This brings with it a host of execution problems that are pertinent to the finance function, like:
- how to make ambitious targets relevant to day-to-day decision-making in products and business units;
- how to nurture innovation of product, service and business models;
- how to monitor financial performance at micro-level (eg product, business unit);
- how to allocate financial capital between initiatives which have different financial returns and contribution to sustainability goals; and,
- how to measure progress towards sustainability targets (especially when those targets are societal outcomes like O2 UK’s “10 million people have easier, more sustainable lives”).
For the potential next wave the key challenge is why should they act. What is the strategic case for their company (not for society as a whole, or for a business in general)?
What they need is evidence from the leaders that sustainability pays. Currently there are anecdotal (often self-serving) stories but few credible numbers. They need assurance that they are not taking a big risk, that the costs of action are bounded and that the rewards are large enough to be worth trying.
What does this mean for accountants and change agents? Well, I can imagine a sort of conveyor belt, of experimentation becoming standard practice.
At one end the leading companies are coming up with novel techniques on capital allocation for sustainability and the other challenges. The pioneers might be copying a technique from somewhere else, or adjusting something that already exists. Eventually these techniques will be more tried-and-tested, and ready to pass on to the potential next wave.
But, right now what needs to be passed on to the next wave is what the leading companies were doing a few years ago: the strategic case for action. The difficulty here is the leaders were able to act based on qualitative evidence and prospective vision, while the next wave need quantitative evidence and historic performance. That’s one of the reasons the companies fall into these two camps. Put another way, I think that if a company was going to be convinced by a visionary argument they would have been convinced by now.
So, what the next wave need from the leading companies is not the original why. Instead, it is the subsequent performance – was it worth making the decision? So, it would be great to have senior executives from the leading companies going to their peers in other companies with the financial results of their sustainability activity.
But, for the most part, this is not happening. Why? I suspect that it’s because those leading companies haven’t been measuring the financial performance of sustainability very well. They didn’t need it to make the decision and they haven’t needed it to do the project management. Why should they bother to spend money doing financial analysis that is for others, potentially for competitors?
I can think of two business reasons to bother. First, to help the next wave adopt serious sustainability targets will help the leaders achieve theirs, by providing more potential collaborators and so on. Second, even the leaders will need to increase their level of investment going forward. Next time the big decision will so big they will probably need quantitative evidence and historic performance.
My conclusion? Let’s help the senior executives in leading companies to be ambassadors with the quantified evidence to reassure the next wave of adoptees.
Just a short parish notice to say I was in the Guardian last week. It was their write-up of a roundtable on the power of disruptive technology for a sustainable future – and much fun the roundtable itself was too.
Their key points:
• Disruptive technologies don’t simply improve an existing technology, but offer something radically different.
• We are currently living through a digital revolution, where new companies such as Facebook, ZipCar, and Kickstarter are changing the way we live, consume and create.
• Small companies can often be better breeding grounds for innovation than large companies.
• Pressure created by buyer demands or regulation can drive innovation.
• Sustainable technologies must be closed-loop, designed with end-of-life recycling and re-use in mind.
I also wrote a piece for the Forum website on unlocking the promise of disruptive technology. What it says, in 4 bullets:
- Disruptive technologies are part of what we need, but only part
- They need the right circumstances to have a chance
- They need a good strategy to take their chance
- The sustainability movement needs to surf and shape the digital revolution
Just a quick post today to highlight the new sustainability strategy from AkzoNobel, the performance coatings and chemicals company, launched last week.
I led the team in Forum that helped develop the strategy last year, working for the in-house sustainability champions and working with sustainability communications agency Futerra.
You probably don’t know the company, but almost certainly you looked at something today that used their paint, or something that worked better because of their coatings. They are one of those industrial B2B companies (in their case, mostly B2B) which is vital to a modern way of life without anyone quite realising.
This is why, as my colleague Anna Warrington points out in this Forum blog, the most exciting part of the strategy is the commitment to make their customers – and so all of us – more sustainable through the products and services that AkzoNobel provide.
The other exciting part is that the sustainability announcement was part of the relatively new CEO’s statement of AkzoNobel’s strategic direction. In the media briefing, you can see the vision is to have:
Leading market positions delivering leading performance. To be a leader in:
•Operating efficiency and customer service
Now all AkzoNobel need to do, of course, is deliver.I have every confidence they will try their hardest and succeed.
Many of my other projects have rippled effects in companies and value chains without having something in the open I can point to and say “I was part of that”. Well, on AkzoNobel’s sustainability strategy, I was part of that and I’m really excited by what they will achieve.
Last week Verdantix wrote a blog saying that various ‘Net Positive’ sustainability strategies were ‘old wine in new bottles’. I don’t agree. Here’s why.
First, what might we mean by ‘Net Positive’ sustainability strategies? The Verdantix blog says:
These promises of positive environmental and social impact sound quite different from previous aims of “zero negative impact” (Interface, Mission Zero, 1994), “carbon neutrality” (M&S, Plan A, 2007) and “decoupling” (Unilever, Sustainable Living Plan, 2010).
In the past there has been a focus on doing less bad. In the nineties this was often called “eco-efficiency“. Through the 2000s there was a big push on having no negative impact, as symbolised by the phrase ‘Carbon Neutral’ entering (relatively) normal parlance. Companies would ask me: “should we go carbon neutral?”, as if it were the solution to all ills.
Where I would differ from Verdantix is saying that ‘decoupling’ is like ‘zero negative impact’ and ‘carbon neutrality’. The latter two have an absolute – get down to zero.
Decoupling is more complex. It might be relative, so your impact per unit goes down but you have so many more units that the total impact still goes up. It might be absolute, where your impact per unit goes down by so much more than the increase in the number of units that your total impact goes down too. I would argue that absolute decoupling is another way of saying (or of achieving) a net positive impact.
Second, what’s the Verdantix argument? They ask an excellent question:
But do these positively-framed strategies actually represent a change in sustainability management?
They list BT, IKEA, Kingfisher, O2 and PepsiCo launching Net Positive strategies in 2012. They argue that net positive is imply a re-framing of what BT has been doing anyway, and Kingfisher have set such a long time-scale (2050) that it doesn’t require any change in the current management. Therefore there has only been “a shift in how firms communicate sustainability, rather than how they tackle it” – and this is all old wine in new bottles.
Why is it new wine in new bottles? The basic answer is: for the ones I know the scale of intent is so large that the company has to change how they tackle sustainability. Incremental changes to their existing strategy and business model will not be sufficient, and they know this.
Now I have to be a little careful what I say here because of confidentiality. Forum has or is working with all these companies (except IKEA). Plus I helped O2 form their Blueprint.
Indeed all the way back in 2006 I helped the Guardian shape a sustainability vision which included a commitment to explore becoming carbon positive. (You can find out more about their journey on trying to implement that commitment here.)
So, what can I talk about. Well, the Kingfisher website has a nice graphic that contrasting Net Positive with the previous conventional approach. They are not just punting Net Positive into the long-grass. For the rest of the decade they are focussing “on pioneering initiatives that will help us in becoming Net Positive in these areas or making a substantial step towards it.” They have near-term targets and initiatives for all four of their pillars.
Also, the Kingfisher CEO has been very public about the need for a new business model, for example shifting from selling to leasing.
The other sort of change is in who the companies engage and with what intent. You cannot deliver on net positive through stakeholder testing of your CR report. You need to get your suppliers to shift their core practice, and/or customers to shift what they buy and/or collaborate with industry peers on a wider, more ambitious range of topics. The companies I know are doing more of at least one of those things because they need to make net positive happen.
The process of getting to a new strategy and then launching it has changed their approach to sustainability management. It has changed the mindset of many across the organisation, the allocation of resources within the organisation, plus what they are innovating up- and down-stream.
These are not new ideas. All the way back in 1998 McDonough and Braungart wrote a brilliant article in The Atlantic calling for the next industrial revolution to focus on eco-effectiveness, solving the problems at the root:
Eco-efficiency would reduce amounts [of dangerous chemicals] to meet certain standards; eco-effectiveness would not use a potentially dangerous chemical in the first place.
The need for a product-to-service shift is as old as the hills. The need for absolute decoupling has also been around for a while, and brilliantly articulated by Tim Jackson in Prosperity without Growth.
And it’s not like O2 or Kingfisher were doing nothing and now are suddenly. They’ve been on a journey, which means things evolve over time. The launches are slightly-arbitrary lines in the sand, to signal and commit to a change of intent.
Was communications a factor? Of course: the launches were also done to get coverage, and the positive framing was deliberately chosen to be appealing.
Plus, all these companies now must really deliver. Of course they do. Just talking about Net Positive is just talking. To get back within environmental limits we need lots of net positive delivery.
But to say that these strategies “reflect a shift in how firms communicate sustainability, rather than how they tackle it” or it is “old wine in new bottles” is just a little disingenuous.
Net Positive approaches are new wine in new bottles. They may fail because of poor execution or it’s a poor framing. Net Positive isn’t going to be right for everyone. But these strategies reflect a change in how these companies are tackling sustainability – and should be understood as such.
A quickie blog today, to salute the pivot.
Yesterday I had dinner with an entrepreneur friend. She has been pursuing a particular concept for well-over a decade – basically the entire time I have known her. In today’s buzzwords, her idea is about using big data for xxx*.
Thing is her company has done OK without ever quite taking off, while others have been more successful in the same zone. But she has a successful sideline organising conferences where other practitioners in that space swap best practice, and training which brings that best practice to other organisations.
She’s realising that she needs to ‘pivot’ her company – have a sudden shift in strategy that turns a mediocre idea into a successful company. Here’s a Harvard Business blog:
Groupon began not as a local coupon business, but as a platform for collective action. Pay Pal started back in 1999 as a way to “beam” money between mobile phones, Palm Pilots, and pagers. Twitter was born from a stalled podcasting startup.
Her pivot is from trying to be a ‘using big data for xxx’ tech company into being a ‘using big data for xxx’ events and training company. That’s where her skills lie, and the relationships she has. Crucially, that’s where the revenue is coming from.
She’s got to respect what the world is telling her about what her business is good at and double down on that. The ambition for xxx remains, but now mediated through enable other practitioners to harness big data rather than directly with customers/users.
The beauty of using the word ‘pivot’ is that it can crystallise a shift in understanding and activity that might have been gradually happening for a while, almost without anyone noticing. You can make sense of your experience by saying “we’re pivoting from X to Y”. Even better if the end goals don’t change, all your shifting is your means to reach those goals.
* Some details have been changed or obscured to preserve confidentiality.