Taking a value chain approach is particularly helpful when addressing how to build in sustainability as an integral part of a large and complex organization. The overarching goal in such an effort is to make the entire organization as well as its ecosystem of suppliers and customers more sustainable. These approaches differ significantly from previous efforts of "greenwashing" the organization or creating a separate sustainability function divorced from the daily life of the organization. The current recognition reflects the importance of making sustainability part of the daily mission and work of each person in the organization.
This post sets out the steps that can be used to accomplish this.
These steps are derived from two Harvard and Stanford business cases, dealing with Unilever and Walmart respectively. The steps tend to be iterative and will apply differently depending on specific conditions.
Develop an overall corporate philosophy, statement of values.
The deep commitment to becoming a sustainable organization is evidenced by statements from the top level of both organizations.
Walmart's CEO:
"Being a good steward of the environment and being profitable are not mutually exclusive."
Unilever's chief supply chain officer:
"To be truly sustainable, our business must deliver triple bottom line value - economic, environmental and social. Integrating sustainability into our brands will encourage innovation, drive cost efficiencies, and create competitive advantage as retailers and consumers increasingly demand sustainable options. We're taking responsibility for our suppliers, distributors and crucially for how our consumers use our products."
Develop overarching corporate goals and objectives for the overall sustainability program.
Among the overarching corporate goals at Unilever were: "Reducing environmental impact; and improving health and well-being."
Unilever's objective for the overall sustainability program was: "Halving the waste generated through the production, use and disposal of its products."
Walmart's overarching goal was: "To dramatically reduce the company's impact on the global environment."
A team of top Walmart executives, high-potential employees and consultants identified three primary areas for reducing Walmart's impact on the environment: Energy, Waste and Products.
Walmart's aspirational goals for its sustainability effort were: To be supplied 100% by renewable energy; to create zero waste; to sell products that sustain our resources and the environment.
Determine who to work with in the sustainability effort.
Who to work with is an iterative process and is determined by the selected areas of focus.
One early step is to obtain resources to start-up the overall effort. This includes obtaining consulting assistance. Walmart hired Blu Skye Sustainability Consulting to perform an environmental impact assessment and to help Walmart launch its initiative. NGO's also bring a wealth of expertise and can be enlisted as paid or unpaid contributors. Government and private agencies can provide resources and access to very helpful data bases.
Figure out where to focus.
Throughout their respective efforts, both companies were asking the strategic question: "Where are we vulnerable?" They were seeking to make decisions on the particular focus for their efforts. Early on in the implementation efforts at Unilever, "the company elected to focus on raw materials it used most." Conducting a detailed analysis led to greater ability to focus, prioritize and organize its effort.
Conduct an analysis and obtain insights.
The process of analysis helps to determine the extent of an issue such as waste and where and how it occurs within each commodity's value chain. The analysis makes use of external resources, NGO's, consulting firms, government agencies and government data and corporate sources of best practices.
Walmart used data compiled by the Union of Concerned Scientists regarding environmental impacts in five primary areas across 134 product categories: Greenhouse gas emissions; Air pollution; Water pollution; Water use; and Land use. It multiplied environmental impact scores by 2003 sales in each product category to estimate the company's overall environmental impact in each of the five areas.
Unilever determined based on analysis that "about 27% of the tomatoes in Unilever's end-to-end supply chain went to waste and that farms were the leading source of waste (39%). It gained an understanding of the causes of this waste. Among these causes were that "product could be lost on the farm if picked before it ripened or when farmers overproduce and good product is left on the field." From its analysis, Unilever reached the insight that its contribution in the "processing and packaging stages amounts to about 10% of the total end to end food waste."
Determine specific areas of focus and priorities in the supply chain.
Analysis supports the ability to determine where to focus and what to prioritize in the effort to build sustainability into the value chain of the organization.
Criteria are helpful in making this determination. Unilever "prioritized commodities based on three factors: the volume of the commodity used combined with how much was wasted; Unilever's relevance in that specific market; and the positive environmental impact it could foster throughout the entirety of that commodity's system by reducing waste."
This focusing activity occurs over a period of time as the organization first identifies general areas of sustainability or commodities and moves on to identify where specifically in the value chain action is necessary and then identifies the cause of the sustainability issue.
At Walmart, the working group-network that was focusing on electronics defined six areas where it would focus. These were:
- Materials innovation - product modifications.
- E-waste: Recovery and safe disposal of electronics.
- Legislation.
- Green engineering to rethink how products are designed and manufactured.
- Metrics: Measuring and monitoring the performance of employees, the network and suppliers.
- Training and education.
Set up an appropriate organization to drive improvement in sustainability.
At Walmart, fourteen sustainable value networks were defined to drive environmental change in three major areas which were: Renewable Energy, Zero Waste and Sustainable Products. Examples of these value networks are:
- Renewable Energy: Alternative fuels; Global logistics.
- Zero Waste: Operations; Internal procurement and Packaging.
- Sustainable Products: Textiles; Food and Agriculture; Electronics. (The Electronics network is mentioned above).
Each network was staffed with one or more external consultants. In addition, external input was sought from NGO's suppliers, eco-friendly competitors, academics and critics.
Across these fourteen value chain networks, hundreds of external entities were asked to join and participate on an ongoing basis. Network captains managed the involvement of these external participants.
Use the Internal Process of the Value Chain Networks to Take an Expanded View
The networks at Walmart went through a three stage process: Engagement, Exploration and Expansion.
In Engagement, the network looked beyond Walmart's traditional stakeholders to identify and work with a broader community of participants that could provide information, subject matter expertise and other resources to help Walmart further define and achieve its environmental goals.
In Exploration, there was an analysis of the life cycle of particular products or services and investigation of related environmental issues.
In Expansion, the investigation was to look at the value chain and determine which business activities are matched to the issues in question and consider if Walmart should be doing business differently. Specific questions addressed were:
- Does the business activity need to be undertaken at all?
- Does the business activity need to be undertaken by someone else?
- Where are the opportunities to drive improved value for the business and for its stakeholders.
This approach acts to shake up the status quo. It seeks a wider view of the value chain taking more of an ecosystem perspective. It takes a wider view of the life cycle of products and services. Finally, it takes a wider view of what adds value based on the triple bottom-line sustainability goals.
This three-step process in turn lead to the development of desired future outcomes or a future vision.
Develop a future vision
Once Walmart initially identified all the issues, it developed a desired future outcome and then developed a pathway to get from the present to that desired future state. This was called the "Sustainable Pathway."
This pathway is made up of projects of different sizes: Quick wins; Innovation projects which take place over one to three years; and Game changers which are radical departures which may change entire industries.
Each network within the Walmart sustainability effort was asked to define 6 Quick wins, at least 2 Innovation projects and one Game changer.
Measure sustainability within the value chains and across the company.
Effective supplier measurement and motivation is essential.
Sustainability attributes should be translated into an objective measurement system to track the performance of employees in important functions and roles.
Walmart implemented a web-based scorecard to evaluate each product's packaging against nine metrics to deal with waste issues. The scorecard was developed with input from 200 members of the packaging network including NGO's, the EPA, direct suppliers, packaging suppliers and other stakeholders. The system was used to measure its entire supply chain based upon each company's ability to use less packaging, utilize more effective materials in packaging and source these materials more efficiently relative to their suppliers.
Expand efforts into the larger ecosystem.
The overall sustainability effort involves reaching out into the surrounding ecosystem of the company. This entails securing the services of consulting companies, utilizing the expertise and data bases of NGO's, government and private agencies and partnering with others in the industry including customers. Walmart looked outside its customary bubble for input which represented a change in its inward focused culture.
Unilever believed that the "food waste reduction program was part of a much larger set of initiatives." Other parts of the Unilever business asked how they could contribute. There were continuing efforts to spread the sustainability effort to suppliers and customers. There was also a continuing need to obtain participation of all members of the value chain: farmers, suppliers, retailers and end-consumers.
Plambeck, Erica, "Walmart's Sustainability Strategy," Stanford Graduate School of Business, Dec. 6, 2010.
"Unilever: Combating Global Food Waste," HBS, March 6, 2015.
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