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Archive for the ‘manufacturing’ Category

Something has been bugging me for a while now. It’s not a new issue but something that has been slapping me on the head daily for the last few months more than it has done in the past. Maybe it is the continued economic struggles the world is going through. Maybe it is the Occupy movement. Or maybe it is just me in desperate need of a vacation on my dream island of Kauai. Whatever the reason might be… The question I ask myself is whether we working in sustainability/CSR/Shared Value (or whatever you call it) are dealing with the fundamental challenges the world face today or are we just working on some of the symptoms and applying band-aid to a sickness that needs much more than what we have to offer?

I don’t question that we are doing the right thing for the right reason. We are trying to make this world a little bit more sustainable. We are trying to make companies be more responsible as good citizens of this world. We are trying to prove that good business can be done by doing good. That capitalism with a heart is possible. That money can be made by sharing value with society. That business has a social purpose that it should embrace. Yes, we are doing good work and we are making a difference. But is it enough?

The world is consuming at levels that are unsustainable. We cannot consume the way we have in the past and expect everything to be okay. But the economic system that we live and survive on is based on more consumption. Consumption of products. Consumption of credit. Consumption of energy. More and more of each and everything.

We’ve seen where this has got us so far. The rich are getting richer and the poor are getting poorer. It’s been like a frog being boiled. It’s been a slow squeeze on the middle class and the working class over decades. When the system started running into problems we the people adapted and everyone started to work to pay the bills and buy those things we need – and those things we want. But income didn’t keep up. And slowly the world got into more debt to stay afloat. And then the bubble when kaboom.

The same is true of the environment. We consume so much more crap food, in the West especially, that farming had to change from providing us with food to providing us with GM foods, hormone injected meat, fields of corn for sugar and cereal and everything you can think of, and so much more crap. All because we wanted more and more of this crap food to feed our greed and insecurities. And we manufactured in ways and drove our cars without knowing that slowly but surely we are choking the world and messing with the climate.

And so it goes on. We know how we got here. We got here because we believed we needed things when we really just wanted it. And lines got blurred more and more between need and want. Between necessity and luxury. We consumed and we consumed and we consumed. It worked for a long time. It fed us and made us wealthy – or some of us. And we got addicted to it. Growth, growth, growth. The bigger the better – in what we have and how we looked. We consumed ourselves to a standstill.

But the “system” cannot live any other way. How do we get out of the economic slump? We’re told by consuming more. A key moment for me was when then President  Bush said right after 9/11 that people should go and shop and go on with their daily lives as if nothing happened. Well, something did happen. The same is going on right now. The world is suffering on a societal and environmental perspective. The world is a very different place from 3 or 4 years ago. But we’re told we need to consumer more to get us out this slump.

I always tell my kids and my clients that we can’t expect different outcomes by doing the same thing. The same is so true for us right now. We can’t go on the way we have and expect the outcome to be different. We cannot consume the way we have and expect a different outcome. We cannot do business the way we have and expect a different outcome. We as humans know this when we hit our heads against a wall – we stop doing it and go around the corner. We’re not stupid. Or are we?

So what does this have to do with sustainability? Well, we’re still telling people to consume. Yes, we are telling them “buy this product because it is so much more sustainable”. Energy? We’re not asking people to cut down on their use but rather to use renewable energy. Okay, sometimes we ask them to use less energy but not really to buy less energy using products. Do you really need so many televisions? Do you really need 2-4 cars? Do you really need a house that large? Do you really need spend so much money during Black Friday? No one is advertising asking people to please not buy so much of their products this coming festive season. Very nice of Patagonia to say they want people to buy less but we know they aren’t really saying that they need to grow a little bit less. Or not at all. They still want to grow but hoping that people will buy the slightly more expensive and sustainable product or buy the Patagonia product instead of buying from a competitor.

We in sustainability and CSR are making the world a better place. I don’t doubt that for a moment. If every company does what we in sustainability and CSR want them to do then we will be in a much, much better place. But are we dealing with the underlying weakness of the system or are we delaying the hurt to the next slump? Put it this way. Would the world be in a better economic place if every single product is made in the most responsible way possible? I don’t know – but I think we would’ve been heading to the same problem if we didn’t address the underlying addiction to consumption and growth.

That is really the 3 pillars of sustainability – product, profits and purchase.

Product – how the product is made. Make it as sustainable as possible. Make it by using renewable energy, sustainable sourcing, manufacturing without exploitation etc. Make it the best we can. And make the impact on society and the environment as light as possible.

Profits – do your business to make a profit. No business can live without it. It is at the heart of business. But don’t confuse profits with growth. We’ve become addicted to growth because of the shift in investors from long-term to micr0-term. Not even short-term anymore. That would require a day or a week or two. The majority of investors of today don’t give a damn about the company and what it makes – only about the return they can get in the next 5 minutes, or seconds. And they are holding businesses ransom. We saw this during this recession. Profitable companies laid off workers. How is that for commitment? They didn’t say “we’re struggling on the growth front but still profitable – so we’re going to knuckle down and work, work, work to get out if it but won’t let our people go as long as we are profitable.” No, they let people go because the micro-term investor demanded it. Puh-lease don’t talk to me again about your employees being your greatest asset. Your don’t sell the crown jewels with the first sign of a bit of a struggle.

Purchase – people need to buy your stuff for you to be profitable. But the reality is that we also need to get people to buy less stuff. This is at the heart of the challenge to business. How do you make stuff and sell stuff but make sure people buy less stuff. Guess what… I don’t know.

There is another “P’s” we have to address within the system as well to make the world truly sustainable. Parity…

Parity – we can’t live in a world where so few has so much and so many has so little. It is not sustainable. It. Is. Not. Sustainable. Get it? The gap between the highest earners and the lowest earners are just too wide. The gap between the 1% and the 99% is unacceptable. The gap between the pay of the executive and the lowest paid workers is not good for the company or society. No one is asking for 100% equality in pay. But the gap is just too damn wide. It is greed and nothing more. Any reason given is just snake oil. It is not just and not right. And more importantly, it is not good for business and it is not good for capitalism.

But it goes further than that. The West cannot consume the way they have and allow the rest of the world to slowly die. We live in a global world. The West is the 1% and Africa is the 99%. It is not sustainable. It is capitalism gone bad. It is the dark underbelly of greed. It must stop.

So until then we in sustainability are using band-aid to deal with a much more serious disease – unless we start seriously dealing with all 4 of these P’s – Product, Profits, Purchase and Parity. The challenge is we can’t do this on our own. We need to widen our circle because this means we need to forge new partnerships outside of business to get this right. But that discussion is for another day.

Now I need to get to Kauai to consume some sun.

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Sustainability should be much simpler than what we make it out to be. It’s not very complicated – take actions today that leaves the world in a better or no worse place for future generations. But the devil is always in the details. And this made me think a little of what are the different levels of sustainability. And how the concept of sustainability and the current trends influence business in the future. I’m sure this is way too simple so feel free to chip in and help define the levels of sustainability. These are rough thoughts that was hatched during my daily commute on public transport and therefore very rough…

Why make these distinctions? Because it helps us know how to work with and help each company. They are all very different and needs to be treated differently. Many moons ago I had a client who asked me to help them become “like Timberland”. My response was pretty straight forward – “You know you are an extractive company, right?”

More importantly, it helps us think of the future of sustainability. We know what a sustainable future should or could look like – what role does business play in this future?

1. I don’t do sustainability

There are many companies out there who just plain do not believe in sustainability. They believe in one thing and one thing only – increasing their ROI for the next few days. Even a quarter is a long-term vision for them. They will campaign against anything that asks them to take their impact into consideration – climate change, labor rights, equality in the workplace etc. They will comply to local laws because they have to and not always because they want to. That’s why they lobby and fight against so many of these laws. They will take subsidies without thinking of their own responsibility. They will cut corners where they can – and in most cases stick within the law. They will sell you snake oil and call it green. They’ll do the minimum and think that is the actions of a responsible company. They will use meaningless words and phrases that sound cute but mean nothing like “the business of business is business“. I won’t spend too much time on these companies. Arguing with them is a losing fight. They see what they want to see and nothing we can say or do will make them change their ways. I won’t invest in them and I won’t work with them. There are just too many other companies trying their best and who needs counsel, help and support. Let’s rather focus on those who see the sustainability of their company and the world as linked to their business bottom line. In any case, I don’t believe these companies will survive for long. History shows us that companies that think this way eventually just die a slow death. Eventually society will see them for who they are – in it for themselves and not really part of society.

2. I act responsibly

Of course there are a range of companies who just aren’t sustainable. The nature of their business and/or their current business model means that they can act responsibly but the company itself cannot be seen as sustainable. They must change how they source or manufacture over time to become sustainable. It doesn’t mean that they can’t be good corporate citizens. Many if them are good citizens who act with great responsibility. I see them as the CSR group rather than the sustainability group – a small but important distinction. Let me use an industry as an example. Most companies in the extractive industry just cannot be seen as practicing sustainability. They take stuff from the grounds and can’t replace it. They can’t leave that specific world in the same or better place. It’s a stretch for them to claim that. I worked with a very well respected luxury goods company and they refused to use the word sustainability. When I asked them why their response was “Because we mine diamonds and can’t put it back. And eventually we will run out of diamonds.” When will they run out of diamonds? Who knows! But the principle is right. But they do incredible work – one of my top 5 companies when it comes to CSR. Incredible work. They do everything right when it comes to sourcing their diamonds, adding value in developing countries where they source from, refuse to buy rubies from Burma, lobby against unsustainable mining practices – they tick all the boxes. But the nature of their business means they take full responsibility of their impact and are incredible corporate citizens – just not sustainable. This is in no way knocking them. Many of these companies do incredible work in difficult circumstances and delivers a product we desperately need today (and tomorrow) – we can’t live without them. I am proud to be associated with them and to work with them. So many of them are shining examples of what responsible businesses could and should be doing. Those in the group who practice sustainability can learn from these companies on what true responsibility in communities and supply chains mean and how to measure and reduce your impact in the world.

3. I am sustainable

Sustainability is slowly but surely becoming mainstream. More and more companies are embracing the discipline of sustainability to build a better business for the future. They have practices that highlight what can be done to make business work and help secure our joint future. They source in ways that do not deplete these resources. They take action on their energy use and tackle climate change in action and voice. They treat workers with respect and speak out against injustices. They will help their suppliers to become more sustainable themselves. They will take responsibility for their products and empower consumers to take responsiblity where they have a joint responsibility – such as driving recycling with consumers. These are the companies who are the leaders of today. They believe in values adding value. They know their future business success is tied to the sustainability of the world around them. The way they operate, source and manufacture, ensures they still have the ability to operate this way in future – the resources are replenished to ensure a better or same tomorrow. The world will be a poorer place without them. In so many ways.

4. I help make the world sustainable

This fourth category is the one that bugs me the most. It’s the most challenging and most complex. Maybe I should break it up into more levels of sustainable businesses, but for now I will keep the three distinctions of this group here.

The easy part is identifying those social innovators and entrepreneurs who focus on developing a business solution to a social problem. They are different from group 3 mentioned above because the nature of the products and services of group 3 is not aimed at a social problem but more about the “wants” of people. Most of the purchases of today are not because we need it but because we want it. We think we need a tablet but we don’t really need it, we just want it. A smartphone is a luxury and not a need. How many pairs of shoes do you need versus how many you want? Companies who are in group 3 still sells products in the “want” category but do so by taking responsibility for their actions and impact by making sustainability part of how they source, manufacture and take responsibility for their final product (waste etc). The social innovators focus on creating products and services society needs – new ways to get clean water to the poor, medicine people need to survive, nutritional products aimed specifically at groups in need, renewable energy solutions in challenging environments, energy-efficient cars (it’s more of a need than want if you only have one car!) – and much much more. They link the need of society to new product or service development and build a business around that. In some cases they might be a non-profit but the principle is still providing a tradeable solution to societal needs – micro-financing is a classic example.

Some of the companies in this category falls outside of this social innovation group though. They are still innovators but they actually focus on the want and not on the need. They develop new products and services that still deal with the current consumer behaviour of buying more stuff that is cool. They tap into the pop culture and fashion of the day and gives it a unique spin by giving it a social value over and above the hip new product. Think of TOMS. The product they sell isn’t unique and neither did they bring a product to life that deals with a specific societal need. They tapped into the mainstream consumer market by creating a cool new “I-want-that” product that has a huge societal benefit attached to it. The business model is very unique but the product itself is not. The concept itself is not that unique either. It is a logical evolution of cause marketing coming into maturity. From attaching a cause to a product to the cause becoming central to the product concept development itself.

The 3rd and last group in this category is the one I struggle with the most and my ideas are still only half-baked here so please feel free to rip it apart. But humor me for a moment.

All of these businesses in this group and the other categories still work within the system we know – sell more products and services to consumers. It operates within the current system. The challenges we face as a society today is challenging this system though. The question being asked is whether we can continue to expect these levels of consumption and be a sustainable world? I’m not talking about a narrow definition of sustainable consumption. Sustainable consumption debates have focused on selling more sustainable products and taking responsibility for your product post-consumer- whether it is how they are manufactured or used. The premise remains the same – sell more stuff. Sell stuff to increase ROI by creating new markets or pushing market share.

Is this system itself sustainable though? Can we really expect to build a more sustainable future by maintaining the same credit levels and expecting people to continue to buy more things? Let me give you an example… Are we any closer to sustainability if every single pair of shoes sold in the world now and in the future is made by TOMS? If we buy TOMS at the same rate of growth – does that make the world sustainable? TOMS might have a great business model but the world can’t handle buying at the same level we’ve had over the last 10-30 years – even if it is TOMS…

That is the essence of the challenge for companies – how to change the business model to remain profitable in a world that needs lower consumption levels and somehow keep investors happy. This would be the next level of business and sustainability. But this is a balancing act that is asking a lot…

The honest truth is that I have no clue how we can do this. Like I said, it’s just something that is bugging me at the moment. Somewhere the answer lies and I believe that good businesses, and society in general, will come up with an answer. We don’t have much of a choice as the runaway levels of consumption is not sustainable. And neither is the continuous pressure on the business bottom line via squeezed margins and market share. We’re close to a tipping point.

This goes way beyond the “Shared Value” concept. Shared Value argues we look at where business and society intersects and finding the joint value in that relationship to drive business and societal benefits. But what if the real value is to share less?

I don’t have the answer. But it’s worth exploring the options as doing nothing might not be an option for much longer.

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This post was originally posted on Vault’s CSR Blog - a great resources and a huge thank you to Aman Singh! It was part of a discussion between Alberto Andreu (Chief Reputation & Sustainability Officer at Telefónica)  and I on CSR and Sustainability. He countered with a great post. Great guy and great thinker. It was an honor to have such a constructive discussion with someone like him.

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I am afraid Alberto and I violently agree with each other on the most important aspects of CSR: Where it comes from and where we are today. Where we might not agree as much is whether this is still CSR.

In my view, CSR is not a revolutionary process but one that continues to go through many changes—an evolutionary process. The graphic below is my first attempt to describe this evolutionary process.

Phase 1: Philanthropy

In its initial phase back in the 1970s, CSR was all about philanthropy and what business should do with some of its profits. Small shifts in thinking pushed this early form of CSR forward. Companies became more strategic with philanthropic initiatives and tended to focus on projects in their local communities. This eventually grew into Corporate Social Investment that brought a business sense to philanthropy – focusing on results and outcomes.

 

Phase 2: Globalization Forces Standards

Slowly, globalization started shaping our world more and the impact of business in this globalized world became an increasing focus for activists. From a narrow focus on philanthropy we moved into an era of citizenship. Companies became business players in a globalized world, or, as it became known, Corporate Citizenship.

They started developing standards to manage their risks. This led to the need for global standards – from extractive companies and human rights to how we report on CSR today.

Phase 3: Citizenship-led Cause Marketing

When the term cause marketing was initially floated, CSR became something business could benefit from for the first time. It was a huge shift in how we perceived CSR,– not just risk management. This benefit-based approach brought operations back on the table leading to the development of CSR as a business strategy.

Now, CSR was suddenly not about cutting costs but about increasing profits.

Phase 4: CSR & Sustainability Tied with Future Business Growth

The latest evolution of CSR, or sustainability, has taken this concept of business benefit even further and started looking into the future of business and society—the heart of CSR. Sustainability today looks at finding mutually-beneficial solutions to the challenges we face as society as well as future challenges.

But CSR, even today, is  still about how business can operate profitably within this role as a responsible citizen toward society.

From Reactionary to Risk Management

We have moved from a reactionary model of philanthropy to a crisis-led model in the early stages of globalization to a risk-based model in citizenship to a mutually-beneficial business model in sustainability.

We might have seen our understanding of CSR deepen throughout this evolution but the definition of CSR hasn’t changed much over time—CSR is the way a company manages and communicates its impact on society and the environment.

Many of the individual parts of this evolution (Philanthropy, standards, etc.) remain with us today but these are not the only parts of CSR anymore. We’ve adapted and moved on – keeping the good stuff, improving on them and adding to it.

The world of CSR is very, very different today. But it is still CSR.

An Argument for Terminology: Corporate Social Responsibility Fits Best

While this might be somewhat semantic in nature, it is still an important part of the debate: We should look at the description of CSR itself. Why do we use these very specific three words to describe what we do?

I would argue that the concept is actually a very good description of what we do today. Here’s why:

Corporate implies that this is about business.

  • It not only describes that we are busy with a discipline involving business but goes deeper.
  • It is about profits – how we make them and how we can make more of them today and tomorrow.
  • It is not about charity.
  • It is about building a sustainable business model that will continue to deliver business results for stakeholders – especially shareholders.

Social tells us this is about society.

It is about the impact business has on society and how we can manage this impact to ensure both business and societal benefit.

Even the environmental part of CSR is about society – how we can minimize environmental impact to benefit society in the end of the day.

The new developments in CSR – sustainability – further continue to prove that CSR is about a mutually beneficial relationship between product and service development, and societal value chains.

Responsibility reveals that business does carry a responsibility in this world – to do business in a way that benefits both business and society. Further, this responsibility gives business the opportunity to create new solutions to the needs of society. I would even argue that it is their responsibility to develop these new solutions and benefit by capturing new avenues of sustainable profit.

All three concepts—Corporate, Social and Responsibility—tell us exactly what we do today. CSR is also the perfect reminder of the relationship between business and society, and the responsibility they have towards each other. None of the other concepts proposed today actually tell us what we are doing and what we should be doing.

I say, long live CSR, and may it continue to evolve and change our business world for the better.

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I’ve always been sceptical about CSR rankings and ratings. Partly because there are just so many of them. It sometimes feels as if we have a ranking and rating system for every company. Just find the one that fits your needs and away you go! But this also underlines a deeper problem with rankings and ratings – is it even possible to have a ranking or rating system capture all the differences and diversity amongst businesses?

Citizen IBM had a good piece on how CSR Rankings Can Be Improved. They capture some of the key problems I have – from the needs to acknowledge the differences in industries to the need for continuous improvements to full transparency in the criteria used. But I don’t think they went deep enough – and I would like the scratch the surface a little bit more.

Firstly, as Citizen IBM mentions, the differences between industries should be acknowledged. But it goes deeper than purely the differences between those who manufacture and those who offer services. And it’s these differences that makes it even more difficult to take rating systems seriously. Let’s remove the obvious difference for a moment – let’s exclude for the sake of argument services companies and only focus on companies who manufacture.

Even within manufacturing the differences are just too steep to make a single standard rating workable. Most rating systems looks at the impact of the manufacturing process – environmental impact, workplace practices, financial performance,  governance etc. Most companies within manufacturing can be judged according to these, right? Well, just hang on for a minute there…

What most of these rating systems focus on, measure and rate are the impact of the process and not the impact of the actual product delivered by the manufacturing process. Let me give you an example, it is possible for a tobacco company to have excellent CSR practices in their manufacturing process and therefore rank better than say a pharmaceutical company. But the actual product delivered by the pharmaceutical company is vastly different than those from a tobacco company – the one contributes to the health of society and the other do the opposite.

Now it will be easy to exclude tobacco companies – and many do. However, the basic principle remains. The extremes are easy to differentiate – and we can exclude tobacco and arms manufacturers. But what about comparing the products of an oil company to a pharmaceutical company? How do we judge the end product and the impact of that end product? Especially when we start bringing in the idea of sustainability – leaving the future world in a better or no worse place. How do you rate a product that positions us better for the future against a company who serves an immediate need but at a high environmental and sustainability cost? How do you rate a software company who connects sustainable solutions to a company whose software is used for warfare? The differences in what the products deliver becomes complicated and makes comparisons complicated and almost impossible.

Even within a single industry it is complicated and problematic – how do you differentiate between an energy company that produces only oil to one that only produces solar or another “green” energy? And what about a traditional oil company spending more and more on alternative energy? How do you judge the future impact and value of the product or service?

The approach to ratings also undermines a key development in CSR over the last few years – finding the opportunity of mutual responsibility or shared value between the company and its stakeholders (or society at large). Companies are increasingly seeing CSR as a way to create new opportunities that will be beneficial to both the business bottom line and the needs of society. But the approach of rating systems doesn’t allow for this to be reflected because they focus on the impact of operations and not the business model and approach to CSR. You can (and will) therefore have companies who practice CSR the old way (ticking boxes, compliance etc) have a higher rating than companies who seek new ways to create product and service solutions that will benefit both society and the business itself. Too many ratings take a “tick the box” approach instead of looking at innovation, opportunity, mutual responsibility, societal benefit etc.

And it goes even deeper than that…

The drive towards a common standard has another unwanted impact – individual criteria might mean a company have excellent rankings on some but fail on others. Especially those areas where their major impacts are. Let’s say a company rates highly on governance, philanthropy, financial performance and the environment but their major impact is actually on human rights. And let’s say this company then operates in countries where child labor or forced labor are fine. The fact that they have great rating in all but one will most likely give them a good rating overall. But they fail in the area that matters most to their specific company as it intersects with society. Again, the standardization of ratings therefore fail to acknowledge the area of major responsibility and impact of the company.

That’s my biggest problem with ratings and rankings. They focus too much on the process and too little on the impact and value of the actual products and/or service delivered and those areas of major impact and responsibility. A single standard rating and ranking to compare all companies cannot capture these differences adequately. Rankings and ratings go for the lowest common denominator and fail to truly rate those who benefit society today and tomorrow and fail to acknowledge the differences in impact between different industries – or even different companies within an industry.

Frankly, I don’t rate ratings and rankings that much…

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