The Knowledge Exchange / Business Analytics / The art of the possible

The art of the possible

Business analytics to measure corporate sustainability

In the abstract, business analytics presents a range of powerful options to uncover meaningful insights that promotes action. And that promise is compelling to virtually any organization. But the case becomes even more persuasive when we consider how it can be applied to one of the fastest-emerging issues in corporations today: sustainability and the corporate “environmental footprint.” Today, companies are seeking to strengthen the so-called “triple bottom line” that conceptually expands the traditional financial framework to encompass rigorous reporting on the organization’s performance on sustainability issues such as the carbon footprint, community development, occupational safety and dozens of other metrics.

Three Planning Challenges

Unfortunately, significant barriers have impeded decisive corporate action. In the first MIT Sloan Management Review Business of Sustainability Survey, researchers articulated three major roadblocks. The first is a basic lack of information upon which to base sustainability efforts and decisions. Despite the high profile for sustainability, managers often find themselves forced to speculate about drivers of sustainable performance and lack a deep understanding of issues that are relevant for their industry. Accessing, interacting with and analyzing the fundamental data about energy, water and waste is a nonnegotiable premise for effective sustainability.

Second, companies often have conflicting definitions of precisely what sustainability means to their organizations. This makes it extremely challenging to develop a meaningful business case for sustainable investments and presents an often insurmountable barrier to the effective cross-functional collaboration that is necessary for success.

In a report from the Economist Intelligence Unit, researchers report that the top three motivations for sustainability initiatives are brand enhancement, revenue growth and cost savings – in other words, outcomes that have a direct impact on profitability. Environmental protection only placed fourth on the list, amply demonstrating that pragmatism and not altruism is the dominant motivator.

Third, without that business case based on accepted definitions, companies struggle with precisely how to measure the ROI of sustainability efforts. What’s more, tangible and intangible costs and benefits abound in the sustainability discipline – but they can be especially challenging to forecast because the goals for greenhouse gas emissions reductions established by governments are often in 10- and 20-year time horizons, far exceeding the typical one- to three-year payback period.

Traditional reporting and analysis can often fall short when attempting to predict future impacts of sustainability investments. Business analytics plays a critical role by enabling the organization to balance today’s ROI objectives with longer planning horizons.

These challenges are not uncommon for emerging business issues. Sustainability is a new discipline for most organizations, one where there isn’t a generation of tested and proven models to call upon and modify. As a result, many organizations forego the effort to model the intangible benefits that may result from sustainable practices. Or, they minimize important externalities such as environmental or societal costs and benefits – all of which can become tangible with business analytics.

The ROI Matters

Despite these challenges, creating the strongest possible business case is an essential mandate for today’s sustainability directors. That’s because although few observers fail to see the importance of efforts to reduce carbon output and minimize environmental impact, these benefits are highly unlikely to achieve primacy in profit-driven enterprises. In a report from the Economist Intelligence Unit, researchers report that the top three motivations for sustainability initiatives are brand enhancement, revenue growth and cost savings – in other words, outcomes that have a direct impact on profitability. Environmental protection only placed fourth on the list, amply demonstrating that pragmatism and not altruism is the dominant motivator.

However, while the pro forma income statement in the analysis is paramount, the attention organizations are paying to sustainability matters is definitely not merely pro forma. The actions, when implemented, are far-reaching and transformational. For example, GE announced that its Ecoimagination program to reduce environmental impact generated a $17 billion revenue stream and reduced costs by more than $100 million since 2005. And the US Army reports that 80 percent of its construction meets Leadership in Energy and Environmental Design (LEED) standards, reducing its energy costs by 8 percent.

Delivering Green Analytics

Transformational organizations require a combination of descriptive and predictive insight – the ability to track meaningful green indicators, validate strategies and costs before investing, identify causal relationships and forecast outcomes. And in these areas, business analytics can make the difference. Such a business analytics framework can empower the organization to:

  • Measure sustainability activities using accepted methodologies and protocols.
  • Report on environmental performance to shareholders and regulators.
  • Improve sustainability metrics using analytical techniques such as optimization, forecasting and data mining to deliver metrics that matter.
  • Reduce resource usage by accurately forecasting resource requirements needed to reach desired outcomes for a department or enterprise.

With business analytics, we start to see the “art of the possible” with respect to sustainability. You can measure emissions and resource consumption throughout a value chain or product life cycle. You can ensure regulatory compliance. And you can build green strategies with predicted ROI. You can determine which conservation efforts or greenhouse-gas reduction strategies will have the greatest impact – physically and financially. And you can identify ways to profit from environmentally respectful goods and services.

Undoubtedly, embracing sustainability initiatives will lead to meaningful – sometimes profound – changes to processes and culture. This transformation can be an exciting opportunity to innovate and redefine, to explore new business models and markets. By providing the right information and insights, business analytics can be a key enabler of strategic sustainability initiatives.

Tags: ,
  • Facebook
  • del.icio.us
  • Twitter
  • Digg
  • LinkedIn
  • email

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>