I was wrong about CSR/sustainability reporting

I’ve been skeptical about the value of CSR/sustainability reporting.  I now have to admit I was wrong. Partly.

For years, I viewed reporting as a necessary evil: necessary for transparency and meeting stakeholder expectations, but evil in terms of disproportionate effort and dysfunctional impacts on strategy.

I’m not opposed to reporting.  Going back to the first corporate environmental reports in the 1980s, doing a report has been a great way to hold up a mirror for senior management, helping (or forcing) them to see how their company looks from the outside in. (Disclosure: ERM is one of the world’s leading providers of EHS/CSR/Sustainability reporting services.)

But I have been wary. In an early blog, one of my new year’s resolutions was:

4. Don’t confuse reporting with doing. Transparency is important, but results are more important.

Many readers agreed, saying “too much time spent chasing data to report has led to putting off long term strategizing,” or noting:  “I liked #4 a lot as reporting can take an inordinate amount of time!” I’ve echoed those sentiments over the years.  I’ve frequently urged clients: “Don’t let the reporting tail wag the performance dog.” I often quote a client who said: “I’m afraid my reporting is writing checks that my performance can’t cash.”

Now, though, I’m seeing companies use the reporting process as an incredible strategic tool, as a lever to raise the strategic discussion in their company.  What’s changed?

Fundamentally, the reporting process (in some companies) has changed from peer competition and branding, to a truly strategic process admittedly with branding implications.  Give credit to evolving GRI guidelines, growing analyst attention, and simply the maturing of the art form. Give some credit also to the great subversive work of the green whisperers.

In the past, the reporting process juggled several questions:

  • What do we want to talk about?
  • What good pictures, stories and data do we have that we can use?
  • Who – if anyone – is listening?
  • What do the loudest stakeholders want to hear about?

Increasingly, the process revolves around four very different questions:Reporting-Process (1)

1. What matters?

“Materiality” has finally gotten serious. It has become a true business risk process, asking “what matters to the business?” and “what matters to the stakeholders who matter to the business?”

2. What do we do about “what matters”?

This is the real strategic opportunity. You don’t have to just lunge from materiality to writing any more. This is a huge change.  This step can drive deep questions of goals, priorities, and performance.

3. What do we say about what we do?

You have to talk about “what matters,” but more to the point you have to talk about what you’re doing about the issues that emerged from question #1.

4. What do we do with what we say?

In some companies the emphasis is shifting from “the report” to “communication and reporting.” It’s a process now, not an event.  As one colleague pointed out, “We focus on who owns each chapter of the report going into the process.  We don’t talk about who owns each section coming out of the report.” That’s the emerging challenge: integrating the annual document into an on-going process of communicating with (not just to or at) stakeholders, both inside and outside the company.

Is the process perfect now? No.  Can it still take too much time and attention? Yes. Can the tail still wag the dog? Sure.

But the trend is going the right way. Some companies are using the reporting process to drive deep discussions of business risk, prioritize actions, and stimulate on-going dialog. In some cases, this is an evolution in the companies who were already leaders.  In other cases, it’s a “leapfrog” opportunity for companies who are coming late to the game: they are starting out with a focus on strategy, rather than having to unlearn or dismantle a document-driven, communications-only process.

“Necessary” is increasingly trumping “evil.” I guess I was wrong.

[Scott Nadler is a Senior Partner at ERM.  To share this post, see additional posts on Scott’s blog or subscribe please go to snadler.com. Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of those quoted or cited, ERM, its partners or clients.] 

Fit for Purpose?

A lot of EHS and Sustainability leaders are quietly questioning their management systems. I’m hearing comments like: “We have a great EHS (or Sustainability) management system.  Don’t get me wrong. It’s really been effective and has great support.  We certainly don’t want to go backward. BUT, maybe, if we could get a fresh look…”

Why are EHS/S leaders questioning their systems? Sometimes corporate events (the “five T’s”) drive a clear need to question what you have:

  • Transitions: You’re new in your job with both an expectation that you’ll change things and a short honeymoon period in which to do that.  Or a transition took place above you, and your new boss brought in their expectations from their prior company.
  • Transactions: Your company just got spun off from the “mother ship” and you don’t really have any systems (or even staff).  Perhaps you merged with another company and two great but different systems have to be reconciled.
  • Transgressions: Something went wrong, leading to NOVs or customer concerns or bad press. That creates a need to do something different, or at least look like you are. (Not surprisingly, transgressions often lead to transitions.)
  • Transformations: Management consultants got paid three times your annual budget to play 52 pick-up with your company, and you have to figure out how to live with the results.
  • Transparency: Something – going public, increased GRI reporting, a transgression, or simply growth – is opening your company up to more public visibility, and you have to be prepared.

Sometimes the drivers emerge more gradually. Implementation of your management system may have slowed down due to initiative fatigue from too many competing initiatives and systems.  With experience, you may be seeing progress – but it seems to be too slow or too costly for the business. Or even success may be the concern: effective EHS/S systems can lead to management complacency, where business leaders think the work is now done and they can check the box and move on.

Regardless of the driver, the underlying reality is often the same: the management system is no longer “fit for purpose.” The system isn’t necessarily flawed; the target moved. Some recent examples I’ve seen include:

  • The management system was designed for a company that was 90% manufacturing and 10% service, with most of the risks inside the factory fence.  Now the company gets 50% or more of its revenue and most of its growth from the service side– with risks out on customer sites, where your control is lower and the consequences higher.
  • Due to business changes, operations and exposure have shifted from “intensive” (e.g. a refinery with every risk known to man, in a tightly managed facility) to “extensive”  (e.g. pipelines, terminals, distribution centers or retail outlets strung out over thousands of miles).  In the extensive situation, each site may have less risk individually but has even less management oversight and unique costs, creating large but very different aggregate risk.
  • Risks increasingly are created by the business decisions to pursue particular kinds of work or work in particular locations, but the management system still focuses on how the work is performed on-site, not on how the work is selected, bid, reviewed or prepared.
  • The company has shifted radically from being centralized to decentralized, or vice-versa – and the management system may need to adjust either to match that shift or to compensate for it.
  • Or simply the company has changed dramatically in size and shape – doubled, cut in half, or changed from mostly US and Europe to mostly emerging markets.

Some companies under-respond, tinkering around the edges and hoping they can muddle through. Some focus just on the immediate driver and try to bolt on a fix. Others over-react, junking their system and looking for a magic solution they can cut-and-paste from another company.

EHS/S leaders have found the more effective, practical strategy is to take a fresh look at the management system’s purpose, and see how to ensure that the system is fit for that purpose.  This involves asking a few key questions – and they don’t start with EHS or Sustainability:

  1. What is the business you need to support – now and going forward, not in the past?
  2. What is that business’ strategy for success – growth, geography, differentiation, branding, repositioning?
  3. What does that business need from EHS/S performance to support that business strategy?
  4. What systems do you need to deliver that performance?
  5. What’s already working that you can ruthlessly leverage, and what needs to be altered or built?

That’s how those leaders have refocused their management systems to be fit-for-purpose.

[Scott Nadler is a Senior Partner at ERM.  To share this post, see additional posts on Scott’s blog or subscribe please go to snadler.com. Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of those quoted or cited, ERM, its partners or clients.] 

Sitting here in (strategic) limbo…

Many of us are sitting here in limbo (with all due respect to the reggae management guru Jimmy Cliff).  Senior management faces an uncertain and uncomfortable economic outlook.  It’s not a recession, but it’s not really a recovery. It’s… limbo.

In response, many companies are trying to continue growing, but caution and even hesitation are growing too.  The feeling is far from smooth.  Companies aren’t taking their foot entirely off the accelerator.  But the other foot is simultaneously starting to tap the brakes.  Inside many companies, you can feel the friction, the drag, even some jerky starts-and-stops.

So what are EHS/Sustainability leaders supposed to do in this strategic limbo?  While they are “…waiting for the tide to turn… waiting for the dice to roll”?  Charging ahead seems risky.  But sitting still – and perhaps becoming a sitting target for cost-cutters – is even riskier.

Some EHS/S leaders are taking advantage of this strategic pause to refresh their programs and teams.  As I explained in a new article in the on-line EHS Journal, they’re taking five concrete steps:

  • Look backward: catch up with the changes that came at you too quickly.
  • Look forward: think about what’s coming.
  • Look to the bottom line: think about how you help the company make money.
  • Look inside your program: in light of the past transactions, future scenarios, and bottom-line impacts, what does your program need to do?
  • Look at your people: all of these actions may give you new insight into what your group needs to do and, therefore, what you need out of your team.

A client used this 5-step approach yesterday to help define his strategic priorities. We produced a practical action plan that will help him break out of strategic limbo – and may yield important improvements in his EHS/S programs in the coming year.

For the full article, and more insight into what some companies are doing, check out “Is Your Strategy on Pause?”

[Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of ERM, its partners or clients.]

Which comes first: strategy or capacity?

That’s the chicken-and-egg dilemma most strategists face sooner or later: Do you develop the strategy you need, despite lacking the capacity to implement that strategy?  Or do you develop the strategy that you can implement, even if it’s not really the strategy you need? And how do you tell your CEO that you could have a brilliant strategy but it would require massive changes to build capacity? As companies emerge from the recession and struggle to thrive in an uncertain and uneven recovery, this dilemma is becoming acute.

It would be nice if you could do this in stages: first develop the right strategy for your organization, then neatly build the capacity the strategy requires, and only then implement the strategy.  That’s how the books say to do it.  And if time and resources allow, that’s certainly the best way to go.

In reality, there are a lot of reasons why you may not have that luxury:

  • You may have no resources.  The capacity issues may be in your own organization: Do you have the right people for the strategy you may need?  Perhaps not, but you have the people you have. In corporate EHS groups, that means they’re probably technical people, probably strong in compliance with US regulatory requirements. Your strategic needs, though, may be international, supply chain upstream or product issues downstream. Your team may have been great for the last decade’s needs, but for the next decade?  Not so much.  But budgets are tight.  You may not be able to add staff. Even if you make the difficult decision to lay off your own people to make room for new hires, you may not be able to keep the headcount.
  • You may have no leverage.  Some things are just outside your control.   The capacity issues may be above you: Does your company have the right senior team for the strategy you need?  Do you have a great financial control/execution team when you need a team of inspirational leaders?  Do you have the generals to fight the last war?  If so, you’re not likely to have much chance to change that.
  • You may have no time.  Turmoil (like recessions and recoveries), transitions, transactions or even transgressions may all require a change in strategy NOW.  Your only choice is to work with what you have.

As the saying goes, sometimes you have to go to war with the army you have, not the army you want.  (We won’t explore the source of that quote right now.) So what do you do?

  • Go with the best achievable strategy considering the capacity you have.  This will be frustrating but at times it may be necessary.  A good strategy you can implement is better than a perfect one on the shelf.
  • Use the strategy development process to educate and expand the capacity of the team you have.  You can’t coach height but can teach people to jump higher and to find ladders.  Interestingly, this approach sometimes can work both looking upward in the organization or downward.
  • Use the strategy implementation process to change out roles if not people.  If people buy into the strategy, they may be willing to buy into a redistribution of roles and responsibilities to implement that strategy – a redistribution that may put people in the roles they’re best suited to play.

It’s also useful to keep a little bit of skepticism about capacity for yourself.  If you and your senior management disagree about your assessment of strategy and capacity, don’t assume that you’re right and senior management is wrong. CEOs are usually pretty smart and didn’t get where they are without a strategy of their own – as well as shrewd assessments of capacity.  If the CEO disagrees with your strategic trade-off, don’t assume it’s because the CEO doesn’t have the capacity to understand or implement your strategy.  The CEO may understand exactly what you mean and be perfectly able to carry it out, but just choose not to.  Making those choices about what NOT to do is part of what got CEOs where they are.

Of course, CEOs often bring some caution to their role that can frustrate strategists.  As one CEO told me when I proposed a growth strategy that was more aggressive than felt comfortable to him: “They usually only let you run one of these things once in your life, and even that’s not guaranteed.  If you get that chance, you really don’t want to screw it up.”

There is no perfect answer to the strategy-and-capacity question.  But asking the question is better than charging ahead blindly.

Aspirational Spring

I’ve changed the banner photo on my web site to an early spring picture, perhaps prematurely.

It’s a sunny 60-degree day in Chicago – in March.  Is that a sign that winter is over?  Is the worst behind us? Can we assume that growth and better times are close at hand?  Or am I jinxing myself by thinking about spring?

Those are the same questions we’re all facing with the economy now.  We’ve had some positive signs.  There are some early indications of growth.  We’d like to think that the worst is behind us.

What we think about the physical climate doesn’t actually change the weather, of course.  That’s not so clear on the economic side.  What we think about the financial climate influences our personal and corporate decisions on spending, saving and investing.  And that all has a very direct impact on what happens with the economy.

We can’t just set this aside in the business world.  There, we have no “do nothing” option.  We can’t just shrug and wait to see what the next few months bring.  We have to make decisions about programs and budgets and products and services.  Either we take some chances and invest for growth (and help make it happen), or sit on the sidelines and condemn ourselves to another round of cost cutting and prayer.

I vote for taking some risks and going for more growth.  With caution, of course.  After all, I’m not putting my Chicago winter gloves and boots in the back of the closet yet either.

[Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of ERM, its partners or clients.]

Turning strategy into action: Getting the experience part right

Turning strategy into action is an overwhelmingly logical process.  Except for the 75% of it that’s emotional.

Over the last two weeks, I’ve been involved in three separate conversations around the “strategy to action” process.  (Two were with clients, one inside ERM.) In each case, a big group session was planned to kick off the next step of the process. In each case, the process sponsors wrestled with two big challenges:

  • Aiming for too many outcomes.  We get greedy.  We want to get everything accomplished at once.  As we get more demands on travel budgets and schedules, face-to-face time becomes scarcer and more valuable. The natural reaction is to load everything into the agenda and get everything done in one meeting.  That produces an over-crowded, over-ambitious agenda that spins participants from topic to topic with more speed than substance. Which, in turn, makes the face time more frustrating and less productive.
  • Forgetting about the experience as we focus on the outcomes.  Outcomes are  important, but the participants are people, not cogs or chips.  Bad human experience seldom produces good outcomes.  Bad experience is even less likely to create learning, commitment, effective co-creation or an on-going community.

These aren’t new thoughts.  We’ve all had them, usually while sitting through a painful meeting someone else planned.  Think about the last one of these you sat through. The planner’s desired outcome was probably a laundry list of objectives.  Your desired outcomes were probably simpler: don’t get embarrassed, don’t pick up new assignments, and maybe get some other useful work done while no one’s looking.

These aren’t original thoughts.  Others have spelled them out before me.  Most notably, late last year my friend and strategy colleague Francis Gouillart wrote an eloquent plea for “Human experience before process, please” that’s well worth reading.

The challenge is to remember to scale down our objectives and scale up our attention to the human experience when we are the ones planning the process:

  • Do we know what the one most important outcome is?  What do we really need participants to know, understand, believe or do differently as a result of the process?  (If we don’t know that, why are we asking people to participate?)
  • Do we respect and value the experience participants bring with them to a session? Do we recognize their experience and give participants a chance to apply it to our process?
  • Does the process create the right experience?  Do we give people a chance to share insights and influence the outcome, or do we make them a passive audience?
  • Is the experience being provided at the right stage of the process?  Are we bringing people in to swallow a predetermined, precooked outcome?  Or are we giving them a chance to help choose the menu and cook the meal?

Maybe there’s a golden rule of process: Design the experience for others as you would have others design the experience for you.

[Opinions on this site are solely my own and do not necessarily represent the views of ERM, its partners or clients.]

New Year’s resolutions for sustainability and strategy professionals

As a sustainability or strategy professional, you probably have too many commitments for 2012 already.  But in case you’re in the market for a few more, here are ten suggested New Year’s resolutions for sustainability and strategy professionals:

1. Think about the long term – and act in the short term with that long-term perspective in mind.

2. Remember the “economics” leg of the sustainability stool – and not just your own economics.  All our progress in social and environmental issues won’t be good enough, if we get the economics wrong.  Dying communities, disappearing jobs and bankrupt suppliers don’t add up to a sustainable future.

3. If you think you’re leading, make sure someone’s following.  Leaders with no followers aren’t leading, they’re just wandering.

4. Don’t confuse reporting with doing. Transparency is important, but results are more important.

5. Think about strategy before it’s time.   If you wait until it’s time, it’s too late.

6. Don’t confuse journalism with history.  What happened in the last 24 hours may be fascinating, but a year from now it may be the answer to a trivia question.

7. Don’t confuse history with planning. It’s nice to have data, but by definition data is backward-looking.  Driving at the speed business moves at now, it’s important to look through the windshield more than at the rear view mirror.

8. Review your plans honestly. Before you ask others to sign up, ask yourself: Is my proposal big enough to matter, small enough to be accomplished, and if we do it – will it really make a difference?

9. Remember both value and values. Any time you’re thinking about only one, you’re destined to fail one way or the other.

10. Do better on your “work-work balance”.  Yes, that was supposed to be “work-life” or “work-family”.  A colleague recently caught himself in that genuine Freudian slip.  It’s a handy reminder for 2012.  My children are now in their late twenties. I don’t hear anyone my age saying: “Darn, I wish I’d spent one more Saturday at the office”  (or “one more family dinner on my BlackBerry”).

Best wishes to all for a happy, healthy, more strategic and sustainable 2012.