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Performance Measurement & Reporting: Measuring what your Company Values
By: Francisco Cordero and Susan Graff
This article presents the business case and a simple
four-step process to develop performance measures that
report meaningful progress against company social
responsibility values. It is based on a recent
environmental performance measures and reporting project
for a large consumer brand multinational.
Measuring environmental performance: Business case for a
consumer brand company
The main reasons for measuring environmental performance
for this company were to pursue opportunities for
performance improvement and respond to internal business
pressures for reporting performance. The board of
directors and senior management team wanted to know how
the company was performing globally on environmental
issues in particular. We observed that a culture of
performance measurement and business efficiency already
existed in the company, which operates in 55 countries
and markets consumer products in nearly 200 nations. As
one environmental manager put it, 'at our company, what
gets measured gets done'. The market strategy appeared
to us as growing the top line through focus on the
bottom line, driving down costs. Performance data was
needed to help managers identify opportunities to reduce
impact, risk and costs and share these successes around
the world.
Top management sought environmental performance measures
to aid goal setting, monitor progress, identify and draw
attention to financial implications of environmental
actions, create strategic dialogue between environmental
and other departments, facilitate internal benchmarking,
integrate environmental issues into core business
operations, and identify cost saving and operation
improvement opportunities. All these activities
ultimately support a chief consumer product company core
value - providing goods in a socially responsible
manner.
While external demand for performance reporting and
disclosure was increasing from institutional investors
and business associations, an incremental approach was
viewed as the best business option for evolving a
meaningful report that reflected progress and challenges
the company faced. Environmental performance measures
could identify emerging challenges and facilitate
external benchmarking, paving the way for more rapid
adoption of marketplace approaches to reduce
environmental impact and cut costs. From a public policy
perspective, this voluntary action could reduce need for
regulation, and on issues where regulation might become
necessary due to poor industry participation, the
company would already have a process to assure
compliance.
Measuring What You Value
Charles E. Phillips Jr., Co-President of Oracle, said it
best with his quote "Strategy without metrics are only
wishes".
In this case, the corporate environmental affairs
director and the authors saw an opportunity for the
environmental program to contribute to the company's
core value of being socially responsible. Environmental
performance measures were needed to allow the company to
'measure what it valued' - in other words, track
progress on meeting or exceeding environmental laws,
reducing waste, minimizing overall environmental impact
and enhancing value.
Many companies have increased emphasis on measuring what
they value, rather than falling into the trap of
'valuing what they have come to measure'. Determining
what is important to measure takes tapping into your
human capital. It takes listening to your key employees
who know where to find the environmental performance
opportunities that are good for business and good for
the community - both global and local.
The characteristics of good performance measures are
goal driven, appropriate to the organizational level,
capable of measuring results rather than activities,
appropriate to track trends, understandable to all, and
within the span of control of the organization.
STEP 1 - Getting Started: Appoint an employee team to
guide the data collection process
We got started defining what to measure by appointing an
employee team to guide this process. Careful thought was
given to the appointment of this team; it included key
influencers and process owners that would educate others
about the value of the measures in order to gain early
buy-in and create advocates throughout the company.
Employees from different lines of business (including a
mix of established and newly emerging environmental
programs) were included along with corporate
environmental.
The team was made aware of, and helped shape,
expectations for the end use of the data. In this case,
they defined the measures, the units, the data
collection method, and recommended what personnel to
designate as responsible for data collection. The team
reviewed the business case relevant to the culture of
the company, and was asked probing questions such as
what environmental performance opportunities would allow
the company to stay in business, what issues would cause
the company to lose business, and what were the
interests of internal and external customers and
stakeholders in regions where they operated.
Primary environmental performance indicators were
characterized as outputs and inputs of the business.
Outputs may include air emissions (CO2, SOx, CFCs, etc),
hazardous/regulated and non hazardous waste, quantities
recovered and revenues earned through recovery for each
material type, quantities of packaging and waste water.
Inputs include energy by different fuel source, water
use, raw materials, notices of violations received and
fines paid. Additional measures for consideration
included ISO 14001 certification status, number of
environmental audits, environmental costs and savings,
waste disposal methods data, number of customer
environmental inquiries and raw materials from recycled
sources.
The team established some ground rules. They
acknowledged that data was not always available in the
ideal form, and estimation may be necessary when actual
direct measures were not available, especially in early
stages of data collection. The team defined what to
measure in close consultation with the company's
international environmental management system (EMS)
design committee. The goal was to 'keep it simple' and
evolve from what their leading lines of business were
already doing. The team considered what measures were of
value to the business, as well as the recommendations of
the Global Reporting Initiative (GRI) voluntary
guidelines, given that market peers were also
considering these guidelines in determining measurement
and reporting protocols.
The team decided to initially collect data on five key
environmental performance measures: energy use, water
use and discharge, solid waste, hazardous waste and
regulatory compliance. Most of these measures exceeded
legal requirements, and were chosen to measure resource
efficiency and ensure environmental performance that
contributed to the company's value of leadership in
social responsibility. For the two initial reporting
cycles, it was decided that reporting cost data would be
optional. Based on the significance of business
opportunities that were identified from this data, for
the third reporting cycle corporate decided to make
reporting cost data mandatory to quantify the value to
business from environmental improvement.
STEP 2 - Collecting Environmental Performance Data:
Evolve a cost-effective, user friendly system
An environmental performance data collection system
should include a user interface for data entry and
submittal, an analysis and consolidation module, and a
reporting module. To define the data collection system,
the team considered cost, information technology (IT)
and user limitations.
In this case, the company aimed to develop a collection
system that was as user friendly as possible, while at
the same time not postponing action until a more
advanced system was available. The collection system
evolved over time.
During the first reporting cycle, data was collected
only from US based operations using spreadsheets that
were distributed and submitted to corporate by e-mail.
The data was consolidated in a master spreadsheet and
then analyzed. In this phase data was collected for only
US based businesses.
During the second reporting cycle, data was collected
using a data input application distributed by e-mail.
This application was installed in the user's computer
and served as a standard interface that allowed data
input in a standard format, including drop down menus
for predetermined units. The application created a
database file that each user submitted by email to
corporate. At corporate, individual files were
consolidated and analyzed within a master database. In
this second reporting cycle the scope of data collection
was expanded to a global level. Minor problems in this
phase were generated by random software incompatibility
problems. In those cases, businesses were asked to use
spreadsheets to report data to report their data to
corporate, were it was manually added to the master
database.
The company, currently the third reporting cycle of data
collection, is now using an intranet-based system. Users
can input data directly into a database using a module
of active server pages within the corporate intranet.
The data is then analyzed using database queries and the
results are displayed as online reports. The scope of
data collection is also global. The use of this
intranet-based system has the benefit of improved access
to information, built in data definitions and checks in
the system to ensure validity of data at the point of
entry. The system also allow users to run their own
reports from the system whenever they want for their own
planning and tracking purposes. This system structure
aims to institutionalize knowledge within a system that
will remain even when individuals leave the corporation.
Data collection proved to be the most challenging of all
the steps involved the measurement of environmental
performance. All phases of this step are labor intensive
for both, the user and the corporate department
collecting the data. From the user perspective there are
three phases: gather the required data, use the data
collection system to report on it and respond to any
data verification requests from corporate. From the
corporate perspective there are 4 phases: assign
responsibilities to report, check that all units report
complete data, consolidate the data from all units and
check the quality of the data.
The intranet-based system proved to be helpful for the
users by facilitating the process of reporting their
data. Upfront validation checks did not eliminate the
need to perform data verification but they significantly
reduced the amount of time spent on this task. The
intranet-based system completely relieved corporate from
the major task of data consolidation.
STEP 3 - Analyze Environmental Performance Data: Define
and generate indicators
Raw data was analyzed and presented in the form of
performance indicators to be used for monitoring
improvement. Indicators were designed to be meaningful
to the operational employees who are ultimately in
charge of making business improvements.
The company defined indicators at the corporate, line of
business, division and facility levels. These indicators
were of different types: direct, relative,
normalized/indexed, aggregated and weighted. This array
of indicators allows benchmarking of business lines,
divisions and facilities that have different products or
processes. These indicators are available through the
corporate intranet to authorized employees.
The system developed by the company and the authors
maintains information integrity and valid comparability
over time even through continual changes in the
company's shape and size.
STEP 4 - Report performance: Communicate to your
audience
To define the final use of its data, the company is now
considering the key audiences it is trying to influence
- internal (and eventually external) stakeholders, data
levels and management targets. Most importantly, the
final use must give back value to business.
In this case, and in many other corporate cultures, the
key audience is employees. Employee innovation and
talent drive results. Because of this, it is important
to acknowledge success and hold businesses accountable
for results. The company's has issued its first internal
environmental performance measures report, which
provided highlights of global environmental performance
data. It was intended to increase company environmental
and business managers understanding of environmental
impacts and the importance of identifying opportunities
for improvement. The data helped different lines of
business identify risk reduction and cost cutting
opportunities. For example, the corporate supplier
management department is now further analyzing the
global solid and hazardous waste data summarized in this
report to find the most economical and eco-efficient way
to strategically source services for waste management.
The company has used this initial performance data to
create a corporate baseline. In subsequent years, it
plans to use this baseline to stimulate setting
practical, specific performance objectives and targets.
Targets will be set with knowledge of differences
between lines of business and facilities capabilities
for achieving improvements, and each line of business
will contribute to performance according to their own
ability and opportunity.
In addition to the corporate report, each line of
business received a data report that provides
information that enables environmental and business
managers to identify issues among facilities with
similar processes and different resource efficiencies.
CONCLUSION
In conclusion, this process worked…during the first
reporting cycle, the environmental performance of the
business units that generate 99.7% of the sales of the
corporation was captured. This had never been done
before. Corporate affairs congratulated the
environmental director on content and context of the
measures and report. This year a more robust report
measuring progress from the baseline and profiling
employee successes is in the works, supplementing
quantitative measures with stories about employees who
make all the difference.
About the Authors: Francisco Cordero is a project
manager with Environmental Resource Services (ERS Global); he
had conducted numerous projects in environmental
management systems and performance measurement for the
private and public sector. Susan Graff in Principal and
founder of ERS Global, with twenty-two years of experience in
environmental management and public policy.
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