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I participated last week in Redefining Value: The New Metrics of Sustainable Business, a day long workshop produced by Sustainable Life Media and the Wharton School of Business. I moderated the first half of the day. Here are my opening remarks.

I’m Gil Friend, founder and CEO of Natural Logic Inc. We help companies design, implement & measure profitable sustainability strategies.

Throughout the last 20 years this has included a big focus on metrics. We built Business Metabolics — probably the first sustainability dashboard — in 1995, then evolved it into OpenEco.org with Sun Microsystems, and lately with a startup bringing radical transparency to supply chain metrics.

We’ve done this because metrics are about decision making, not just reporting. Because what companies measure matters, and drives decisions, behavior and results. This is no different than financial metrics; nobody thinks a balance sheet is just something the 10-K or annual report, but too often sustainability metrics are relegated to CSR reports, when they belong on management dashboards.

This leads to some of the key questions we’ll consider today: How do we measure what matters? How can we use “new metrics” to make us smarter? All of us, not just leaders, but everyone in the organization.

J.M. Juran, one of the fathers of Total Quality Management observed (in 1948) that, “to be in a state of self-control, a person should be provided with knowledge about what he [sic]… is supposed to do, what he is actually doing, and what choices he has to improve results wherever necessary…. If any of these three conditions [is] not met,” Juran noted, “a person cannot be held responsible.” Unfortunately, in most organizations, one and sometimes all of these conditions is lacking. We fly blind and yet expect performance from people and organizations, even though it’s clear from Juran’s formulation that most of us are not in a “state of self-control… [and] cannot be held responsible.” But if we’re to have any chance of success in the battle against climate change, we have to be both self-controlled and held responsible.

Put another way, how can we give people a clear line of sight that connects actions, results and goals? People perform best with it; markets can’t work without it.

Chauncey Bell and I observed, seven years ago, that “Business is on a collision course with a set of global shifts that almost no one has adequately prepared for. These inevitable surprises are coming fast. For those who are ready, these shifts will be platforms for change; for those who are not ready, they are traps.”

So businesses need to be able to align their own needs, the needs of the planet and the needs of the market. The problem was, and is that “most companies are spending good money on accounting structures and traditional ways of observing the business that have you watching and measuring the wrong things, in the wrong time frames” — and in ways that overlook material risk and material value.

“The wastes you’re watching, ” Chauncey notes, “are not the wastes that will matter in the future. From force of habit you are spending good money accounting for obsolete waste, while overlooking other kinds of waste that are far more costly for you.” (Careful. What he means by waste is not what you probably mean.)

This is challenge not just for sustainability leaders but it’s especially pertinent for CFOs. With a few notable exceptions, CFOs are mostly new to the sustainability game. At most companies CFOs are peripheral to the sustainability conversation, but central to its — and their own — success!
So what can we do about it? How can we measure what matters and use those metrics in WAYS that matter. That’s what we’ll be discussing today — to see what we can learn together, how we can build on this, and elevate the body of practice for all of us.

(Here’s a summary of the day, with links to the presentations.) And a few of my past writings on the subject:
Key Sustainability KPIs: the simple, the sobering, the significant
Generative Feedback
Metrics for Wholeness (podcast)
EcoMetrics: Integrating Direct and Indirect Environmental Costs into Management Information Systems (PDF: 1998)

I closed the day with these observations:

This has been an full and stimulating day. There are many things I could highlight from the day’s presentations, but i’ll just mention two that particularly stuck with me.

Paul Herman, CEO of HIPinvestor, asked “what’s your most important asset?” This was a smart room, so everyone said “People.” “Then where,” Paul asked, “are people on your financial statements?” They’re a cost and a liability. How can anyone manage a company with metrics that present such a distorted picture of what really matters? (Especially when the 100 best companies to work for have outperformed the S&P500 by 2-3x over the past 10 years?)

Dave Stangis, Vice President for CSR, Sustainability and Community Affairs of Campbell Soup, brought it down to earth, with a simple, pragmatic approach that has resulted in common sense metrics like growing the percent of revenue delivered by “Better For You” foods. “A goal,” Stangis reminded us, “is not a prediction of what you already know you will do.” But that raises another challenge — how to handle the essential role of failure.

It’s essential, as we drive relentlessly toward success (and often tie metrics to tie to compensation), that we also allow room for failure. Modern business culture tends to punish failure, quickly and mercilessly. But without failure, there is no success. Ed Land understood this; Land issued a memo to the staff at Polaroid in the early 50 saying that he would fire people who didn’t fail enough — because he understood that an innovation company couldn’t succeed if people didn’t feel free to try many ideas, and to fail often, while finding the best ones.

Don’t we need key metrics to help guide behavior? Maybe. The book of Deuteronomy recounts the final teachings that Moses, just before his death, offered to the children of Israel. After leading them through the wilderness for 40 years, after delivering the principles, laws and social infrastructure on which to build a community, he summed it up very simply: “Do what is right and good.”

Paul Herman asked Dave Stangis earlier — and each of us — “If you were CEO, what would you do?” I would ask everyone “Why are you working here? What do you most want to do with your job, and this company?” It’s a version of the powerful question we ask all our clients: “What are you really here to do?”

Because it’s not really all about metrics. As our old pal Al Einstein observed, “Not everything that matters can be measured; not everything that can be measured matters.” Metrics don’t tell you what to do, any more than than a business case tells you what to do. They can tell you how well you’re doing, but what to do comes from your heart. As does courage.