Jim Harris

Strategy

Why Culture Eats Strategy for Breakfast

By

“Culture eats strategy for breakfast, every day.” This was Tyler’s response to a question during a panel session at a recent conference. The panel was discussing the challenges faced by professional managers in their efforts to implement sustainability into business.

The other challenge under discussion was about finding the appropriate balance between sharing insights and strategy with others, versus holding some things back for the competitive reasons.

Tyler’s comment was relevant to both. His point: having a strategy is one thing, but being able to implement it is entirely another. After all, the value of a strategy is not what is written on the whiteboard or the back of napkin, it is the value unleashed by engaging the minds and hearts of motivated employees and suppliers.

The key to unlocking this value is to understand and harness the corporate culture, work within its bounds and value system, while making room for new ideas. Enterprise Risk Management colleagues refer to the ability to implement a strategy (or not) as “execution risk.”

Tyler has been fortunate to have had the experience of developing and implementing business sustainability strategies over the past decade in three different, very large corporations: a $14 billion company, a $400 billion company and Canadian Tire, a $12 billion company. In every instance he had to tailor his approach to the culture’s unique value system and the process by which ideas are accepted into the community.

Making Room for New Ideas

New ideas may not easily find room to coexist with pre-existing ones: There is a natural institutional and cultural inertia that opposes new concepts that compete for acceptance within an established corporate culture. It’s like a new group of people joining a cocktail party that is already well underway. They are either accepted, adding to and changing the pre-existing dynamic — tolerated as a fringe element, talking amongst themselves in the corner of the room — or totally rejected and asked to leave.

In short, one must tailor how the building blocks of the strategy are applied so that they are accepted. This is a very difficult to achieve, particularly for new employees, or “outsiders” tasked with this agenda. And believe us, we’ve both made a few mistakes; but, we’ve also learned that it is important to push the boundaries as well. The trick is knowing when and how to do it.

During the launch of the sustainability strategy for Tyler’s previous employer (a global retailer headquartered in a “dry county” of a US state in the buckle of the Bible belt) business sustainability “milestone meetings” were held every four months for employees and key suppliers to listen and learn from external sustainability leaders, and to share employee progress and success stories.

At one meeting, Ray Anderson, the Founder of Interface carpet, was the guest speaker. [As an aside: Interface’s 15 year sustainability effort has driven $450 million to the bottom line in savings — equal to 28 per cent of the cumulative operating profit over that period.] When Ray was part way through his talk people began to walk out — right in front of the CEO, Board members, senior executives and several hundred employees and guests. Tyler was astonished and had no idea why, or how people could be so rude or have such disregard for a guest speaker.

Later, as he found out via a few blunt e-mails from some of those who had left, he learned that Ray’s use of the geological time scale and comparing it to a 24-hour clock to demonstrate how relatively little time humans had been on the planet — a few seconds on Ray’s clock — and yet had how much we had changed it, was offensive to their fundamental religious beliefs

Being Canadian and new to the US south, being an atheist and someone who had studied geology, Tyler had no idea that such ideas could be a source of friction — that there were still people who believed that the world was only several thousand years old. Who knew?

Debriefing with the CEO after the meeting, Tyler apologized for the cultural oversight. The CEO waved off Tyler’s apology and expressed his disappointment at those who had left the meeting because, as he saw it, part of the value of the business sustainability strategy was opening up one’s perspective to those of others, to listen and learn about what matters to other people and their value systems. To this very day, one of the core competencies Tyler stress’s and includes in job requirements is the ability and wiliness to:

• Raise potentially controversial issues in a manner that encourages dialogue;

• Listen to others while maintaining a wide perspective on issues; and

• Incorporate diverse views and constructive criticism, leading to improved outcomes and understanding.

You Gotta have Faith

Reflecting upon his first few months in his new context, Tyler began to see a pattern of behaviour and expression of acceptance of sustainability into the culture by employees as almost evangelical in nature. People expressed acceptance of business sustainability as they would a faith-based belief system.

It hit Tyler smack in the face when, during one of the regular Saturday morning meetings, a senior vice president stood up and declared that he was now “a believer” in sustainability and its value to business because, if it was not for the business sustainability initiative, he would not have been able to sign the deal with “The Eagles” for the retailer to be the sole distributor of their retrospective CD box set. As it turned out, it was the underlying value system of sustainability that helped the west-coast musicians relate to the executive from rural middle-America. That deal alone probably paid for the entire sustainability team’s payroll and consulting budget for the next decade.

A beer-drinking Canadian atheist in the Republican dominated dry-county in the US Bible belt, Tyler had his work cut out for him for the next business sustainability Milestone Meeting. The featured guest speaker was non-other than the former Vice President Al Gore, who was going to give his now famous An Inconvenient Truth talk and promote his movie. If some people didn’t believe the world was more than a few thousand years old, how the hell would they ever “believe in climate change” — from a democrat politician?

Remember, culture trumps strategy every time: As it turned out, the answer was to open up with a preacher as the Vice President’s warm-up act. Jim Ball, the Executive Director of the Evangelical Environmental Network, kicked off the meeting’s discussion on climate change playing to the home-town audience — talking about how climate change has repercussions for “the health of our children” and “global and domestic poverty” because it is the world’s poor that will be most affected by it.

Jim’s message was that climate change was not a political issue; rather, it is an issue of moral duty. “How we care for God’s creation is one of the greatest moral challenges of our time. And as Christians, we also know it is a challenge that cuts to the heart of how we promote and cherish life.”

After this meeting, “belief” in climate change was never an issue, and Al Gore received a standing ovation.

In closing we offer you this observation: Implementing a business sustainability strategy into any business is equal parts strategy and change management. They are intertwined and dependent. To be successful, one should use the momentum of the force that oppose change — the cultural values, practices and inertia of the business — as the conduit into the business and its operations. It’s like using a sort of cultural Judo to embed sustainability values into the business operations and its culture.

 

Original Article

The Benefits of Carbon Shadow Pricing

By

Placing a shadow price on carbon can help a company cut costs, while dramatically reducing its risk and exposure to rising energy prices and a price being put on carbon.

One of the roles of corporate strategy function is to assist the CEO and board in managing strategic uncertainty and risk. Knowing that it’s impossible to accurately forecast future events, one of the jobs of corporate strategy is to develop scenarios of potential future realities, strategies for these scenarios, and a portfolio of options that may be exercised in the event that a scenario comes into being.

Royal Dutch Shell is perhaps the best known example of a company using scenario planning to prepare for future events, beginning in the 1970s. Shell’s scenario planning prepared it for the first oil crisis in 1973 — when the price of oil quadrupled in just 18 months. Most recently Shell has been using scenario planning for developing strategies mitigating the effects of climate change.

The greater the value of resources and time invested in a strategic commitment — such as developing a new oil field or pipeline — the greater the value of scenario planning is to an organization. But a firm doesn’t have to be a multinational oil company to get value from managing the risk that is implicit in any business strategy.

Planning for a Carbon-constrained Economy

Placing a price on carbon of anywhere from $10 to $80 a tonne can have a profound effect on business planning. It immediately highlights the areas of business operations that will be negatively affected when a price is finally put on carbon. Using a shadow price can assist management in quantifying and identifying material risk and making strategic decisions on how to take action to mitigate that risk — such as by reducing the energy and carbon associated with material composition of products, manufacturing process, product sourcing and transportation decisions and other business activities.

Doing so identifies “hot-spots” in the value chain and often opportunities for reducing risk where it is currently profitable to do so, financing the mitigation of future commodity and carbon price-risk via energy savings and cost avoidance today.

Canadian Tire has been doing this for four years. Managers coined the term “carbon price-risk” and defined it as the potential economic cost to the value chain of carbon being priced. Managers can tell their executives and the board how a price on carbon will affect the average cost of goods sold, which product categories will be hardest hit, whether or not the energy mix in one country versus another should affect sourcing decisions, and how it could affect transportation practices. And, most importantly, what strategies the company can put in place today to mitigate and prepare for a carbon-constrained world.

The right mind-set makes all the difference

Upon framing the issue in terms of business performance and risk — as opposed to the traditional language of corporate social responsibility (CSR) — the concept of carbon price-risk becomes real and relevant to strategy, the C-suite and the board. Two things become immediately apparent:

First, one does not have to “believe” in climate change to see the value in developing strategies and options for addressing risk. Whether one believes in climate change is irrelevant when the risk is 1) rising energy prices (which are inevitable over the long-term) and 2) legislative and likely to be a significant issue in international trade.

Second, it establishes the value chain as the appropriate scope for strategic thinking, scenario planning, and mitigation — far beyond the traditional corporate mindset and boundaries of “responsibility.” After all, it does not matter if your corporation is “responsible” for the carbon emissions or if it is in a distant third-party in your value chain; in the end, the cost will be passed on to the consumer, like all costs — which is a good thing, because it promotes better decision-making.

Placing a shadow price on carbon is a powerful tool for corporations to use. It exposes the carbon risk inherent in operations, and it allows management to communicate that risk to the Board and executives — who are tasked with mitigating risk and ensuring the long-term competitiveness of the company. Which brings us to an important question…

What’s your company’s carbon price-risk and what are you doing about it?

Original Article

A Little Less Cardboard Can Save You Millions

By

Using sustainability as strategy can drive change within a company’s supply chain by engaging suppliers and service providers with the resulting savings running into the millions of dollars a year.

A case in point: one of Canadian Tire’s most popular products is a six-foot folding utility table, selling many tens-of-thousands a year. The company collaborated with its supplier on product redesign and packaging to use less raw materials to make and package the product. Now, the tables use 11 per cent less plastic in their construction and occupy 15 per cent less volume for shipping. The annual savings for Canadian Tire: more than $375,000 a year as a result of reduced material, packaging and shipping costs.

Employee Engagement

Sustainability as strategy can also engage employees. In 2010, Canadian Tire’s Senior Vice President of Merchandizing invited all the company’s buyers to the conference centre for an afternoon departmental meeting. Employees thought it was to discuss organizational restructuring. Before the start of the meeting, the conference centre was very quiet.

The goal, it turned out, was to engage buyers in a creative way — to shake things up — to facilitate some disruptive innovation on something that should have been a core element of their business activities, but at the time wasn’t.

Corporate thinking is often to execute on a perfect plan — in this case, we wanted to take buyers out of their usual, comfortable environment and see what insights could be developed by briefing them on a subject and then turning them loose in a store to see how they could apply it. We wanted our buyers to see things with new eyes.

At the conference centre the buyers learned the real purpose of the event: to gain new insight into how packaging sustainability can affect profitability and the environment. After a couple of presentations, the group boarded buses to a local Canadian Tire store where the goal was to discover examples of “stupid packaging” — examples of too much packaging, improper packaging, or even too little packaging resulting in damaged product, waste, squandered energy use, and excessive greenhouse gas emissions from shipping damaged product that can’t be sold.

The buyers identified over 3,000 examples and calculated the potential savings to the company of improving the packaging into the millions annually in cost avoidance. One of the best finds: the company sold a tool for opening plastic clamshell packaging. And guess what? The tool came in a thick plastic clamshell.

Prior to the session buyers really hadn’t seen the relevance or value of packaging to profitability. The session kicked off a disciplined, systematic focus on package right-sizing that each year results in hundreds of packaging changes and is generating more than $3 million annually in avoided costs.

In 2011 and 2010, Canadian Tire completed 320 packaging changes that saved the company $6.3 million in costs, while reducing greenhouse gas emissions by more than 4,300 tonnes each and every year the products are stocked.

Of course to sustain such an initiative requires more than just a bus trip, it also requires the systems and structures to support and foster the ongoing effort, such as good measurement, reporting — and aligned incentives — now going into a third year.

Mitigating Risk

There’s another reason for companies to focus on cutting unnecessary packaging. Extended Producer Responsibility (EPR) costs are rising dramatically. Since 2004 stewardship fees charged to companies and the associated cost of managing dozens of different EPR programs across Canada have grown at a cumulative average rate of 38 per cent.

This dramatic rise has been driven by four factors: 1) implementation of EPR legislation in provincial jurisdictions across Canada; 2) increasing rates being charged for products and packaging under EPR programs; 3) a shift of those costs from government to business, and 4) the data management, point of sale and other systems and resources required to manage them.

The cost of the Blue Box program used to be shared equally between companies and the government. But today, corporations are paying all the blue box fees. For Canadian Tire in 2008, fees alone were $8.9 million and these basically have doubled to $18.5 million in 2011. In 2008 only 4,000 products had environmental fees and this has grown almost six-fold to 23,541 at the end of 2011 with many products being attached to multiple programs in different provinces.

Fees are based on the type of material used and the weight and volume of packaging. Having a disciplined focus on packaging materials and right-sizing can decrease the fee rates applied and the volume and weight of packaging, dramatically mitigating costs and the risk of increasing EPR fees.

Of course there is a balance that needs to be achieved: packaging can’t be reduced so much that it results in higher damage rates to the goods being sold.

Rightsizing packaging also resonates with customers, as the number one complaint re sustainability from customer is excessive packaging

So using sustainability as strategy is a way of engaging employees, suppliers and service providers in a concerted effort to drive innovation within retail, to drive out waste and inefficiency, and to lower the corporate footprint and reduce the liability to extended producer fees. We believe all retailers should be aggressively pursuing sustainability as strategy.

Original Article

In Business, Don’t Waste a Crisis

By


Many Canadians are trying to do more with less during this economy of thrift. But we all face essential expenses — those costs associated with “keeping the lights on” — often, literally.

Whether you’re managing a household or a large corporation, energy — that stuff that enables your car to move from one place to another, keeps your beer cold and your shower hot — is generally regarded as an essential expense. Sure, you could drink warm beer and take cold showers; but really? There’s got to be a better way.

During a poor economy, it can be a challenge for a business to increase profitability as competition for the “cautious consumer” intensifies and there is increasing pressure on margins. But a recession offers the perfect opportunity to question the way things have always been done — and drive out waste and inefficiency. One of Jim’s favourite slogans is: “a crisis is a terrible thing to waste.”

While most are cautiously optimistic about the North American economy today, it was a different story in the latter half of 2008 when Canadian Tire launched its Business Sustainability Strategy with an aspiration to profitably grow the business without increasing energy use or contributing to an increase in the carbon footprint of the economy.

And the company has been somewhat successful: energy and fuel used to move product from vendors to stores is nine per cent lower, despite a 22 per cent increase in tonne-km of product shipped. And energy use for buildings and operations has been cut nine per cent despite more than a nine per cent increase in the amount of real estate square footage.

So sustainability cut costs and mitigated risk against rising energy prices. So how did Canadian Tire achieve this?

The first step was insight and political will. Business leaders need to view sustainability as a way of driving out waste and inefficiency — and a strategic tool in engaging employees and suppliers in transforming operations.

Second was measuring the energy and carbon footprint of the business and its supply chain — after all, what gets measured gets managed. This quickly identified two core operational functions responsible for most of the energy use: heating, lighting and cooling over 34-million square feet of retail space, and moving billions of dollars worth of product from over 50 countries from all over the world to a store near you.

The third step was to recognize that innovation is a social process. Employees formed “sustainable innovation networks” around buildings and operations, product transportation, and products and packaging, bringing together people from Corporate Strategy, Marketing, Merchandizing, Packaging, Real Estate, Supply Chain, Strategic Sourcing and Transportation.

These teams broke through their traditional silos to examine and optimize the systems that are Canadian Tire’s extended value chain, identifying inefficiency and waste. They brainstormed what more streamlined, energy efficient operations would look like in three, five and 10 years. And then the teams brainstormed the projects and initiatives that would get them there.

With the path revealed, they began their journey and started reporting progress quarterly and measuring economic and environmental benefits.

Three years and more than 1,350 business sustainability projects later, the energy use of Canadian Tire’s operations have become significantly more efficient. The amount of energy used to transport a tonne of product one kilometre has decreased by more than 26 per cent, and the amount of energy used to heat, light and cool a single square foot of real estate has decreased by 18 per cent.

That’s like having more cold beer at a lower cost while doing your part for the environment — it’s a win-win-win — or, for Canadian Tire, it’s the equivalent of realizing the net profit of three and a half additional stores without actually having to build and operate them.

So sustainability is a strategy that business should be pursuing, especially in a recessionary market.

Original Article

You Are Better Off Investing in Sustainability Than Stocks

By

It is surprising just how big is the “sustainability” opportunity is.

In just the energy efficiency (EE) field McKinsey & Company estimates that $2 trillion can be invested in EE by 2020 with an internal rate of return (IRR) of 17 per cent. To put that into perspective: that rate of return is better than investing in the stock market or in real estate over the long-term — the two investments we’re always told give the best long-term returns.

The net effect would be equivalent to cutting the need for 64 million barrels of oil a day — about one and a half times today’s entire U.S. consumption.

[…]

How Sustainability Can Save Business

By

Decades of experience have shown that environmental initiatives pursued in isolation of the economic benefit are largely immaterial. But when environmental objectives are framed as business strategy and tied to business operations and measured in terms of cutting cost and increasing profitability — significant environmental benefits are generated. And so we believe that environmentalism can save business, as the more powerful engagement tool that business has at its disposal to drive innovation.

This is the first of a series of weekly columns to be published on Tuesday by Tyler Elm and Jim Harris on how sustainability as strategy cuts cost, raises revenue and mitigates risk for business.

Ever since Rachel Carson’s groundbreaking Silent Spring was published in 1962, environmentalists have been trying to save the planet. While there has been progress, overall the efforts have clearly failed, because the planet is in worse shape today than 50 years ago. We need not document the litany of damage here.

Decades of experience have shown that environmental initiatives pursued in isolation of the economic benefit are largely immaterial.

But when environmental objectives are framed as business strategy and tied to business operations and measured in terms of cutting cost and increasing profitability — significant environmental benefits are generated. Sustainability then garners executive focus and corporate resources. Companies like General Electric, Interface Carpet and Canadian Tire have realized the profound bottom-line benefit that pursuing sustainability as strategy yields.

In the early 2000’s a number of environmentalists were feeling the futility of the environmental movement’s historic approach to business. In 2004, this led Adam Werbach, then president of the Sierra Club — the largest US environmental group, to proclaim that traditional environmentalism was ineffective, outdated and dead. In a grist.org interview, following his speech called the “Death of Environmentalism” Werbach noted:

“Perhaps during the many battles between environmentalists and business people we have been asking the wrong question all these years. As generally proposed, the question is: ‘How do we save the environment?’ As ridiculous as it may sound to both sides, the question may be ‘how do we save business?’ When you look at the environmental movement, at the great ecological challenges that the planet is faced with, that humanity is faced with, environmentalism has proven utterly incapable of addressing them. The reason we called for environmentalism’s death is so that we could call for a new movement… (one) that can address these challenges.”

And it wasn’t just Werbach that was feeling this — but he captured the zeitgeist of the time. As a result, environmentalists in greater number began working with businesses to prove that going green has incredible bottom-line benefits. This is a fortunate trend for environmentalism and business.

Sustainability as strategy is a rallying cry for driving out waste and inefficiency. It is a powerful tool for engaging employees and suppliers in an innovation strategy drive to both incremental and radical improvements in operations while managing risk. In the two year period of 2010 and 2011, sustainability initiatives saved Canadian Tire approximately $10.7 million in annual avoided costs; 215,000 gigajoules (GJ) of energy (enough to power more than 2,000 homes for a year); 14,000 tonnes of greenhouse gas emissions and more than 6,600 pounds of waste.(LINK)

Just how much potential savings could sustainability generate for corporations and society? Amory Lovins, the founder of the Rocky Mountain Institute, has documented how using best available existing technology we could reduce current energy use in North American by 70 per cent to 90 per cent without changing our current lifestyle!

The Challenge

Like many large, established companies, growing from a single Toronto location in 1922 to the national retailer and brand management company, Canadian Tire, required specialization of business by functions — such as strategic sourcing, merchandizing, marketing, transportation, and the operation of distribution centres and stores.

While enabling the business to scale, the unintended consequence of this organizational structure is that individual functions optimize around an increasingly narrow core purpose, leading to the erosion of a system-wide perspective of the enterprise level. As silos evolve, business decisions in one area may be undertaken without the insight into the unintentional effects on other areas.

Sustainability as strategy forces siloed departments to work cooperatively to both define opportunities and devise solutions. Businesses that are using sustainability as strategy are realizing that it is the most powerful tool for driving cooperation and innovation in the organization.

The result: rethinking business activities, redefining peoples’ roles, responsibilities, measurement and incentives. The experience at Canadian Tire of pursuing sustainability as a strategy has been organizational innovation, while generating millions of dollars cost avoidance, new sources of revenue, and thousands of tonnes of avoided waste and greenhouse gas emissions.

Why CSR is Not the Answer

Today, many companies are focused on Corporate Social Responsibility (CSR). As we often see it practiced, CSR is about reporting the company’s activities. As a reporting function, CSR has little, if any, power to transform the organization. If we were cynical, we might say that many CSR activities are nothing more than a public relations initiative.

What excites us is sustainability as strategy. By dramatically reducing energy use — electricity, natural gas and fuel — companies not only cut costs, but mitigate risk against rising energy prices, and raise revenue from new products and services

Management literature has shown that the majority of change initiatives fail. But sustainability engages the hearts, minds and motivation of employees and suppliers and can become a truly transformative driver. It can drive innovation and create new business value. And tip the balance to ensure success of the change initiative.

When looking at sustainability as strategy you ask fundamentally different questions than looking at sustainability in the framework of CSR. The former focuses business performance, organizational transformation — looking at roles, incentives, re-engineering operational processes, and creating change through the whole supply chain — while the latter focuses on reporting.

And so we believe that environmentalism can save business, as the more powerful engagement tool that business has at its disposal to drive innovation.