David Secunda runs a kids’ summer camp operation called Avid 4 Adventure www.avid4.com. He talked about setting out to reduce VMT in their vans carrying kids around for summer camps.    They optimized the business, not to get as many kids in as possible, but to ensure that their fleet of vans was utilized as close to capacity as possible, no more, no less. They made the commitment and decided to live with the consequences. As a result, they actually turned away children when they reached that capacity. The surprising result – better profitability in a flat revenue year.  Focusing on optimizing VMT had a direct, and very favorable, impact on costs.

And even more surprising was the experience of David Rubin, of A Spice of Life Catering www.aspiceoflife.com .  A Spice of Life has been in business for 18 years, and was Colorado’s first “sustainable” caterer. They cater all over Colorado, and formerly had employees drive their own vehicles (not reimbursing mileage) to places like Steamboat Springs (a nearly 200 mile trip).  By conventional business logic, this allowed them to send employees home (each in their own car) to drive 200 miles home when they weren’t needed.  Saved a few hours’ wages.  And mileage. David bit the bullet and provided vans for employees to drive together, covering the cost of transportation – which actually increased his costs.  The surprise here was the huge impact on team culture.  It seems that having folks together in the car proved to be a boon in this already very creative, flamboyant team culture – resulting in better performance, happier employees and delighted customers.

The negative consequences of “to each his own car” are pretty evident – we spend our days in a state of isolation from each other, an isolation that is historically unprecedented. In all the conversation about sustainability, we often focus on the technical facts and forget that the way we occupy the landscape and move around on it is directly related to our culture – how we experience ourselves and each other.

I’ve been fond of saying culture change is a driver for sustainability – but these stories show it goes both ways!

Values are a key link between the “inner” and the “outer”. Values matter in an organization or a community, because they provide a consistent guide to decision making, in particular when one value may conflict with another.

In business, values are, too often, a set of nice sounding words on a plaque in the lobby.

Perhaps this is because we confuse values with ideals. People tend to think that values must represent the best of who we are, and of course must be positive.  But what if you work in a company where, for example, secrecy is a hallowed principle of management decision making, but we can’t admit to that without – well – violating that value?  Even if it doesn’t sound warm and fuzzy, isn’t that truly a value?

How do we incorporate values into the practice of strategic planning, and performance management?  The first step is to be able to actually measure values.

My friend and colleague Kathryn Alexander has developed a values assessment tool that links values to business behavior and performance outcomes.  This tool is the basis for a certification program she has developed, called Forever Green™, that provides a “maturity model” for business and other organizations working to improve ethical and sustainable performance.

Kathryn’s work over the years has demonstrated that the values that support sustainability correlate well with an organization’s  capacity for innovation and resilience. On the other hand, there are competing sets of values that will actively undermine a firms ability to achieve sustainability. These values also undermine the resilience and creativity of the firm. In the emerging business paradigm, a commitment to sustainability is just plain good business.

Why?  In a nutshell, sustainability thinking is inherently long term, acknowledges complexity, and addresses what are becoming key risk areas in an age of unprecedented transparency.

This is why tools for measuring values are critical.  How can these metrics be integrated into an overall strategy, using the Balanced Scorecard?

Here’s an example of how a values-based sustainability theme can be expressed in a Strategy Map.  In the Balanced Scorecard, the most foundational level – what we call Organizational Capacity – is intimately linked to leadership, culture and values.  And, thanks to the work of people like Kathryn, we can now measure the evolution of values over time in an organization.

For an organization to develop a sustainable business model, the most basic ingredient is a declaration by leaders that this will be so. This declaration is the basis of a culture that attracts and reinforces like-minded employees.  This builds a culture of people who enter creatively into the collaborative design and implementation of more sustainable products and processes.

This process also has an impact on branding – telling the story of the product, and of the way the company does business, in a way that attracts the attention of consumers whose values match yours.   This in turn results in enhanced customer loyalty and positive revenue results.

For me, what’s missing is an understanding about how we got here in the first place.  How are our behavior and our economic systems rooted in more fundamental assumptions about reality – the way we see, and who we think we are?  Most of the sustainability conversations focus on the level of matter and energy – we take stuff from the earth, do something to it to add economic value, distribute it, use it, and throw it away.  This is the stuff of life cycle assessment. This view of reality is incredibly valuable, and necessary.  And it’s not the whole picture.

It’s great to reduce energy use and reduce packaging, but somehow I doubt that’s going to be enough to achieve change at the level we need.

I attended a fascinating presentation the other night called Integral Sustainability in Action by a group of graduates from Naropa University’s excellent Environmental Leadership program.

They have applied Integral Theory to questions of sustainability, drawing on the work of Barrett Brown in particular.   I won’t attempt to describe Integral Theory here -  Barrett does a great job of it on his site.

In a very comprehensive paper, Barrett did a sentence-by-sentence analysis of the most popular books about sustainability, and found that, by and large, the semantic focus is almost exclusively on the lower right quadrant – that is, the large scale systemic economic, political, and technological issues that enable or hinder progress. The beauty of Integral Theory is that it gives us a framework to understand that this is a necessary, but not sufficient, way to understand, diagnose, and prescribe actions to resolve the large scale problems we face.

Why? Because it only addresses one aspect of the problem, albeit an important one. Beneath all the talk about reducing energy use, creating green businesses and a green workforce, respecting biodiversity, and having healthy communities, there are fundamental assumptions about who we think we are – our consciousness, what we pay attention to, our values, our motivations.  This is the domain of cosmology.

This is not the stuff of science and engineering, but  of philosophy, spirituality or religion.  Increasingly, spiritual leaders from a number of traditions have begun to address this.  Sakyong Mipham Rinpoche summed up the Buddhist perspective:

“Our precious planet and the innumerable beings who dwell here face an unprecedented crisis. The escalating threat to the world’s environment and climate stem from a profound predicament that affects all humanity. We are ever more rapidly losing our connection with the sacred nature of our world. This tragedy affects us in so many ways, but at its heart, it is a crisis of the spirit. We are harming our planet and fellow beings because we are losing touch with the basic goodness of our own sacred being.”

In the Christian tradition, Fr. Thomas Berry has been a leader in what is termed the New Cosmology. This begins with an inquiry into how our spiritual estrangement from the earth is intimately tied into our technological culture.  Fr. Berry proposes a reunification of science and religion through what he terms Earth Spirituality. This is a doctrine of radical respect for the ourselves as well as the other beings of this earth, with very profound implications for science, technology and law

We have lived with a utilitarian assumption that others are here for our own benefit, whether it’s animals, ecosystems, or other people.  This is both a spiritual, and a practical problem. There’s just not enough to go around anymore.

Next post:  Bringing it down to earth: how do we incorporate this thinking into the realm of practical business planning, performance, and leadership?

Building a Balanced Scorecard begins with the collaborative creation of a Strategy Map. The Strategy Map is a highly visual, and easily communicated, way to illustrate how the strategy of the enterprise translates into measurable objectives in each of the four perspectives – finance, customer, process, and organization – that together create a holistic view of sustainable organizational performance.

Sustainability is NOT a single objective with its own metrics.  Rather, sustainability is a theme that is reflected in each of these perspectives.

• From a financial standpoint, sustainability means staying in business.
• From a customer standpoint, sustainability means satisfying, even delighting, the sustainability-conscious consumer.
• From a process standpoint, sustainability means we manage materials, energy, and waste in the most eco-efficient way possible.
• From an organizational standpoint, sustainability means creating a culture that values sustainability, reflected in the choices that employees make every day.

The Strategy Map tells a story about how we will collaborate to achieve all these objectives:

• We will build new sources of revenue by creating positive branding and customer experience connected with how we design and build our products, and how our customers use and dispose of them.  This will be supported by appealing to emerging shifts in consumer tastes by pro-actively communicating our values, and our value, to targeted customers.
• We will reduce operating costs by improving efficiencies in the way we manage materials, energy, and waste disposal, and by the way we identify and manage enterprise risk. This will be supported by improved eco-efficiency of our products, supported by innovative product design, reduced product life-cycle impacts, and strong stakeholder partnering.
• We will reduce risk through a better understanding of the our environmental and social impacts, and through better  relationships with stakeholders including NGO’s, lawmakers, regulators, and members of the communities we impact.
• Underlying all these activities is a commitment to build and reinforce a strong sustainability culture in our enterprise, supported by the right employee skills and knowledge, as well as information systems that give us the capability to measure both sustainability impacts and customer sentiment via social media analysis.

1. How does the business appear from the perspective of an owner or investor?
2. How does the business provide value to customers, and how does that affect their buying behavior and attitudes?
3. How can we provide this value with maximum efficiency in terms of cost/materials/energy ?
4. What organizational capacities – both tangible and intangible – do we need to put in place and maintain?

Each of these questions answers the concerns of a particular constituency.

1. Owners, investors and analysts view the organization as a system that provides return on investment.
2. Customers see the business’ products and services as a way to satisfy wants and desires at an appropriate cost – and, less tangibly, may buy out of an identification with brand.
3. Efficiency, particularly sustainability metrics, is the concern of internal management and staff – as well as external constituencies such as as NGO’s, regulators, and the public at large that may not necessarily be investors or consumers.
4. Organizational capacity is the foundation of the others – the physical infrastructure, culture, skills, and information systems required to plan, design, and deliver products and services.

Taken together, the answers to the four questions build a holistic view of the enterprise that describes:

• How non-financial factors (the “intangibles” that make up 50-75% of market value, including leadership, values, culture, and relationships) influence financial performance
• How we get there – translating strategies into actionable, accountable and measurable objectives -that easily and visually communicate the strategy to everyone in the organization
• How sustainability performance impacts “conventional” measures of success like financial and market performance

The last point is why Balanced Scorecard is a useful addition to the big outcome measures found in frameworks like the Global Reporting Initiative.  The result is a collaboratively-developed “Story of the Strategy” that identifies the connection between sustainability performance and market and financial outcomes. This connection may be unique for every enterprise – although GRI identifies the important environmental and social outcomes that matter to all of us, each company has to do the heavy lifting of relating those outcomes to its own competitive differentiation.

These frameworks and certification standards are a huge step forward.  They have utilized extensive multi-sector collaboration to develop consensus about what sustainable business should look like.

What’s the matter with this picture?  Most of the measures employed tend to focus on big outcomes, or on very particular operational processes.  Like many first-generation approaches to performance management, we end up with a loose collection of measures, with no clue how they integrate to create business value. What’s missing is a link that lets the individual business make the connection between sustainability and business success.

The result?  Separate management systems.  Separate reports, one for the NGO’s, one for the financial analysts and investors.

To really take hold,  reporting must address the question of how  sustainability can contribute to the business’ need to satisfy customers and shareholders.

The Balanced Scorecard is an ideal tool for achieving this.  It answers the question “How do we get there?”

Development of a Balanced Scorecard translates your business strategy into a highly visual “Strategy Map” that shows  how sustainability goals interact with other operations, and in turn impact business outcomes like brand recognition, sales performance, cost  reduction, risk management, profitability, and share price.  Development of the strategy map gets everyone on the same page, building a shared understanding of priorities, measures and accountabilities.

To be continued…..

Collaboration – Communicate the facts to employees and customers, and ask for ideas and help.  Companies reported that employees came up with a number of really useful ideas to reduce costs.  Being able to do this underscores the critical importance of building a high-trust communications environment in your organization – so that people are willing to share their ideas, and care about your success.

Transparency – These successful entrepreneurs identified the key metrics that focused everyone on performance, and began reporting on them even more frequently.  To quote the article:  “One company described the increase in their business as ‘reporting that was done yearly was now monthly, monthly reporting was now weekly, weekly reporting was daily, and daily reporting was many times each day.’”

Creating a system for sharing performance measures may seem counter-intuitive during a recession, but the process has immediate payoffs.  In my experience, the act of getting your team into a room and talking about what the key measures ARE is a high value exercise in itself.  Once you’ve arrived at a set of key performance indicators and created a system for regular reporting (whether with a simple spreadsheet or a specialized performance management software package)  you are able to adapt and act, as a team, in a much more dynamic way.

It happened one Friday morning in 1991, just before Christmas. My boss eyed me as I arrived at work, and called me into his office. I found myself staring at a letter outlining my “package”.

As my boss was escorting me out of the building, there was so much I wanted to tell him about what I thought was important to keep doing, and stop doing in the group I managed, but no time.

Since then, I’ve been on the other side of the desk, and much the same thing happens – management huddles behind closed doors, decides that cuts must be made, and who will get the axe.

What’s wrong with this picture? The way we’ve been accustomed to make these decisions is that the managers are the brains, and the workers are the muscle. In a knowledge economy, the workers often know more than the management about what makes the organization tick – so is there a better way?

A big part of the problem, I’m convinced, is that we “visualize” our organizations in the wrong way. We draw organization charts that have no customers, we build process charts that don’t even have people at all. This reflects the heritage of our industrial, “machine” model of organization. I’ve often thought that management fiats such as “Each department must cut 15% of its budget” are rather like losing weight by amputating equal parts of one’s legs, arms and head. At least it’s fair, right?

A statistician named George Box made the observation that “Essentially, all models are wrong, but some are useful.” The top-down, command and control visualization of organizations is no longer useful. It would be more accurate today to say that an organization is a complex network of conversations, relationships, and exchanges of value. In a business organization, the objective is to optimize the value-producing capacity of this network.

Value Network Analysis is an emerging and highly useful method for visualizing your business. A VNA can include not only your internal resources but your entire supply chain, and your relationships with customers. Sophisticated mathematical network analysis techniques underlie the model. And, at the same time, once the network is mapped, it can be intuitively obvious where there are problems – bottlenecks, role conflicts, redundant efforts – and where in the organization value is truly being created.

Conventional thinking imagines the organization as a machine. If something’s not working, we optimize the parts – identify which ones are broken and fix, eliminate, or replace them. If, on the other hand, you see your organization as a living system, the objective is to optimize the relationships among the parts. Looked at this way, there are many more choices that can be considered when an organization is forced to reduce costs.

]]> http://www.resilient-strategies.com/2009/08/a-better-way-to-think-about-cost-reduction/feed/ 0 http://www.resilient-strategies.com/2009/06/planning-and-collaboration/ http://www.resilient-strategies.com/2009/06/planning-and-collaboration/#comments Wed, 24 Jun 2009 17:49:48 +0000 admin http://www.resilient-strategies.com/?p=469 Several years ago, I had a client come to me with a brilliantly designed Balanced Scorecard.  He was CFO of a small tech company, and he had done it all by the book.  The Scorecard showed how all kinds of internal objectives and activities would create market success and positive financial results, very clearly. The areas that required investment and expenditure were very precisely laid out and justified. If it had been a class, I would have given him an “A+”

So what’s the problem, I asked?

Nobody else is buying into it, he said.

Why? To make a long story short, he had gone into his office, shut the door, and laid out his view of how the company would be successful.  Only problem was, he didn’t get anyone else involved in the process.

The best plan in the world will not succeed if the people responsible for implementing it don’t buy in to the program.  “Buy in” requires that all concerned get to say their piece, and believe they’ve been heard, whether their idea is adopted or not.

In most of today’s complex business planning situations, two (or more) heads are better than one. How to bring out the best collective intelligence of a group?

An effective, collaborative planning exercise requires a balance of two kinds of conversations:

Divergent thinking is a process of exploring possibilities, brainstorming, different or emerging perspectives, thinking outside the box. The wise leader encourages these contributions from everyone involved.

And, at the end of the day, there needs to be a focus and a plan.  This is convergent thinking – out of all those possibilities, where will we focus?

I’ve heard a lot of leaders say “We operate by consensus around here”, but I seldom believe it.  Often the appearance of consensus is like one of those elections in a country where, say, 95% of the voters support the incumbent. It’s just that people don’t dare to voice what they really think. Everyone would like to believe that a consensus is desirable – but it’s not always possible. If everyone has had their say, however, and understands the reasons for picking that focus, you’ll have a much happier team.

1. Figuring out what’s going on and what’s possible to do. Do we agree on what the situation is?  Do we see a common problem or opportunity? Do we both care to do something about it?
2. Coming to an agreement. Healthy agreements and promises are based on each party clearly understanding what the other person is offering or asking for, and what that will look like when it’s done.  In business planning language, this is expressed as SMART goals – Specific, Measurable, Accountable, Relevant, and Time-bound.
3. Following through, and dealing with breakdowns. This is where things get challenging. If our agreement is clear, whether because it’s very thorough, or because we “understand” each other through past experience,  follow through may be easy and straightforward. If not, we need to get comfortable with addressing the situation early on – a skill I call constructive complaining. The clearer the agreement in the first place, the easier it is to deal with breakdowns.
4. Declaring completion, letting go, and learning. This could be as simple as saying Thank You for a job well done, or a lot tougher if things haven’t turned out the way we wanted or expected. Letting go does not mean forgetting about it, it’s understanding how to get better results next time, and becoming more skillful with our requests and offers to others.

Too often though, we fall into the trap of seeing businesses, or any purposeful organization, as a “machine” – a financial machine, an information machine, etc, as if we simply plan it, program it, and “get” the parts to co-operate.  A more powerful approach is to see the plan as an agreement among all the people that need to make it happen. To be successful in today’s transparent environment, any organization, whether a business, a government agency, or a social enterprise, needs to maintain the confidence of all its stakeholders.  This requires an ongoing conversation about what each stakeholder values and how well we are fulfilling that.  And that’s the foundation for measuring business performance.