A CAPABILITY MODEL FOR LIFE CYCLE MANAGEMENT Thomas E. Swarr United Technologies Corp., One Financial Plaza, Hartford, CT USA

James Fava Five Winds International, 626 Meadow Dr., West Chester, PA USA

Abstract - Effective integration of life cycle environmental and social objectives into routine business processes must balance the internal demands for customized decision- support methods with external demands for standardized measures to facilitate comparison and accountability. It is also important to assure any sustainability initiative is fully aligned with the business strategy. Capability maturity models provide a practical framework for developing customized methodologies tailored to the specific competitive context of an organization. Action learning workshops are one alternative to accelerate implementation. One of the objectives of the UNEP/SETAC Life Cycle Initiative launched in 2002 was to promote implementation of life cycle thinking in routine business decision – making processes. Stakeholder feedback indicated that life cycle practices were often poorly integrated. Available tools were considered too complicated and lacked practical guidance. Tools needed to be customized for specific product categories or industrial sectors to be useful. However, standardized sustainability reporting e.g. the Global Reporting Initiative, determine the metrics that all companies must track to show their progress. These metrics were formulated to promote the best practices for sustainability developed by leadership organizations. Thus, life cycle advocates are faced with a dilemma. There is a desire for customized solutions and metrics that will facilitate internal learning and decision- making, but external demand for standardized measures to facilitate benchmarking and accountability drives a ‘one size fits all’ approach to push best-in- class practices of leadership companies into all organizations, regardless of capability, readiness, or competitive context. Corporate strategy is a set of targets, policies, and action plans designed to achieve specified business goals. Effective strategy must form a cohesive whole so that limited resources are allocated to establish a unique and defensible competitive position. Sound strategic planning considers organizational strengths and weakness, anticipates changes in the external environment, and accommodates contingent moves by competitors. There is no one “sustainability” strategy that works for all companies in any competitive context. Further, the strategic approach to environmental and social Table 1. Strategic Options for Managing Social and Environmental Issues Compliant Informed Market driven

Description Legal compliance with regulations Tracks key activities beyond compliance, participate in external groups, e.g. trade associations Reactive to customer expectation for environmental issues

Competitive advantage

Proactively uses understanding of environmental issues to take advantage of market opportunities

Sustainable development

Proactively integrates social and environmental concerns to protect long term value of industry sector

Degree of Integration EHS department EHS, manufacturing, government affairs

Business Benefits Compliance and cost Cost avoidance & pollution prevention

Marketing & sales Purchasing Product development Marketing & sales Purchasing Product development Business management Marketing & sales Purchasing Product development Business management Executive leadership Board of Directors

License to operate Access to resources Increased market share Revenue growth Long term competitiveness , innovation

issues must be consistent with the overall business strategy. There are a range of strategic options, moving from compliant to market driven and eventually to sustainable development shown in Table 1 above[1]. Each of these has organizational impacts that must be aligned with corporate strategy. As companies move from compliance to market or competitive driven strategies, effective management of environmental issues depends on broader integration with other business functions. For example, a market- driven approach that is not seamless with the customer value proposition is not likely to succeed. Volvo combines environmental responsibility with a strong message on vehicle safety and quality to strengthen the brand. A company in a commodity market competing based on price and delivery would not necessarily benefit from a similar product- oriented message. However, a message that demonstrates corporate responsibility might be useful to protect the license to operate and facilitate siting of production facilities or access to natural resources. The message is simple. Strategy- business strategy- comes first. This sets the scope of enterprise operations, drives organization architecture, and determines the resource requirements for successful implementation. The approach to sustainability must fit with the corporate strategy, organization, and capabilities. It is obvious that successful implementation of a strategy depends on the available resources and capabilities of the organization. There must be organizational and individual development programs to support a sustainability initiative. Capability maturity models (CMM), originally developed to improve software engineering processes, provide an effective framework for prioritizing improvement actions that are meaningful to the organization [2]. CMMs are a process improvement approach where organizations assess themselves against a structured collection of practices that describe effective implementation. The objective is to incrementally build skills and capabilities, assuring that the organization has a solid foundation before attempting to add higher level capabilities. Processes are gradually developed from ad hoc and chaotic, to managed and repeatable on a project scale, and eventually to optimizing processes continually improved based on quantitative understanding of common causes of variation. A proposal for a sustainability CMM is summarized in Table 2. Table 2. Sustainability Capability Maturity Model Description 1 Ad hoc 2 Managed 3 Defined

4 Quantified

5 Optimizing

Chaotic, success depends on heroic effort of individual Requirements managed, measured and repeatable results on project basis Standard processes, consistent across org., measures of process & work products Statistical process control, quantified objectives, special causes of variation corrected Process improvement objectives continually revised to reflect changing business objectives, agile & innovative workforce

Span of control Individual Project

Metrics

Decisions

Compliance, waste, incidents Process inputs/ outputs

Individual agenda Team- based, visible tradeoffs

Core Competencies Root cause Aspects & impacts Env. Acctg Risk mgmt

Organization

Gate- to- gate, use phase, regional or facility focus

Rule- based, trade- offs to achieve org. goals

EMS, LCA, eco- efficiency

Value Chain

Cradle – tograve, value chain, global impacts

Fact- based, anticipate enterprise tradeoffs

6 σ, SPC, LCIA, systems thinking

Society

Sustainability measures, externalities

Value- based, co- evolution of business within socioeconomic context

Dynamic modeling & simulation, ecosystem valuation, innovation

There are significant overlaps with the strategy model presented above. Higher capability levels require broader integration with other functional groups within the organizations and across the value chain, and eventually reaching out to society. Different capability levels have a suite of tools, metrics, and decision- making processes that are appropriate to that level. Effective implementation requires using tools and organizational structures that fit with the capabilities. Just as formal education develops a curriculum that incrementally builds skills, process improvement initiatives must move through a sequence of learning steps that build capacity to successfully learn higher level skills. While CMM presents a logical path for the development of organizational resources aligned with strategic objectives, it creates an administrative challenge for the cost- effective delivery of necessary training and development support. Action learning workshops have been used to accelerate process improvement initiatives [3]. A common objection to formal classroom training is that standardized presentations are difficult to apply to real work problems. Also, the lack of retention for material presented verbally is well documented. Action learning workshops are facilitated by subject matter experts that provide just- in- time training to conduct just- enough analysis to successfully complete the task at hand. Participants learn based on their prior knowledge and practice, stimulating growth tailored to their stage of development. Learning is structured as a collective activity, and team members are encouraged to provide emotional support necessary to draw participants out of their comfort zone to openly question underlying assumptions of practice. Most importantly, the workshop provides intrinsic feedback from the work itself rather than an external authority. Learning is personalized and more likely to result in behavioural changes necessary for sustainable practice [4]. The design of action workshops can be tailored to the CMM level of the organization to develop the appropriate skills. Duration and scope of the event can be adjusted to fit the resource constraints of the Day One organization. However, it is imperative • Goals & objectives that the event be framed as “real work” • Training: Kaizen principles, process mapping, and that it is expected to generate hazard identification sufficient financial benefits to more • Activity: Map processes, identify inputs & outthan cover any costs. A process puts, hazards improvement Kaizen on the metal Day Two finishing lines should be given a goal • Training: Risk assessment, root cause analysis, for annual savings from reduced water brainstorming and chemical use. • Activity- Rank & prioritize hazards, conduct root • • • • • •

cause, brainstorm potential alternatives Day Three Training: Alternative selection process Activity: Investigate alternatives, implement quick fixes Day Four Training: Developing alternatives, financial analysis Activity: Complete alternatives assessment, apply cost accounting tool, project schedule Day Five Training: Ground rules for mgmt presentation Activity: Complete report to mgmt, complete quick fixes, Make final presentation to mgmt

Figure 1 – Typical schedule for process Kaizen

An example schedule for a five- day process improvement Kaizen is shown in Figure 1. The focus is on specific projects and developing process mapping capabilities. These workshops would be appropriate for CMM level 1 or 2 organizations. Each day begins with a training session. The team is provided just enough training to complete the planned day’s activities. As the week progresses, training sessions become shorter and activity sessions become longer. If specific issues arise during the day,

the team can be brought back together for additional training or information. The role of the subject matter experts is to assure that the team is given adequate resources to successfully complete the defined goals and objectives. A productive workshop depends on the expectation that the team will deliver the identified objectives at the end of the event. Thus it is critical that the event has an executive sponsor that can assure resources will be available. Typically, the facility operations manager would sponsor a process improvement Kaizen. It is necessary that the event organizers and subject matter experts works with the sponsor to identify appropriate projects and objectives prior to the workshop. These can be tailored to develop the desired organizational capabilities. For example, a level 1 organization might start with goals to reduce waste water discharges. An isolated EHS project might only consider alternative waste treatment technologies. The Kaizen event would strive to build capability by selecting projects that guided the teams back to source process reductions. Team membership would include process engineers, plant floor operators, health and safety, and possibly purchasing personnel. Teams would be encouraged to find ways to reduce waste generation at the source, while promoting more effective integration of the EHS and operation functions. A level 2 organization might conduct similar projects, but the added capability would enable projects that moved even further upstream to consider material substitution or alternative manufacturing processes to reduce waste generation. Another key outcome is to build skills in financial analysis and developing convincing presentations to sell implementation projects to management. As the organization builds capability, more functional groups must be integrated into the action learning events. A design charrette with integrated product development (IPD) teams can touch every functional group in the enterprise. A schedule for a twoday event conducted during the Day One -AM concept development stage is shown • Goals and objectives in Figure 2. These events can be • Training: DfE principles, Product requirements, powerful learning experiences, but the life cycle analysis, hazard identification challenge and cost of pulling together • Activity: Map product system life cycle proca cross- functional IPD can be esses, identify & prioritize hazards daunting. It is critical to have a product Day One - PM manager sponsor for the event and to • Training: Risk assessment, root cause analysis, decision criteria, brainstorming assign a small core team to prepare • Activity- Review & validate priority hazards, rank background material prior to the event. selection criteria, brainstorm potential alternaScheduling demands will typically limit tives access to the full team to no more Day Two- AM than two or three days. The core team • Activity: Continue brainstorming alternatives, working with the product manager will investigate any information gaps develop the goals and objectives for • Activity: Rank alternatives using pre- defined the event and prepare an initial map of selection criteria the product system life cycle. Success Day Two- PM of the event depends on having all • Training: Financial analysis, value proposition necessary functional groups repre• Activity: Develop action plan for detailed evaluation of alternatives sented, and the event should not be scheduled until participants have been Figure 2 – Typical schedule for design charrette identified. Day one starts with an introduction to design for environment (DfE), life cycle analysis, and hazard identification. The sponsoring product manager should also provide an overview of the product charter and customer requirements. There will be a mix of participants; some from the product development world well versed in customer requirements, and some from the EHS world well versed in hazard identification. The intro-

ductory session attempts to establish some common language between the groups. One of the first exercises is to have the team validate the preliminary life cycle map. Additional detail may be added, and each functional group is encouraged to discuss their specific issues/ concerns. The goal is to develop a comprehensive list of requirements for a quality design. When the group is satisfied with the life cycle map, event facilitators provide formal training on risk assessment and decision criteria. Various techniques can be used to prioritize the hazards, but nominal group technique is simple and works well. Each member is allowed to vote on which hazard/ problem they would most like to have solved. One exercise that has proved very helpful is to discuss decision criteria. Often the various functional groups will have competing objectives. EHS objectives will also typically be relegated to recycling of packaging materials or conserving energy in the factory. Having the team list the attributes they feel should be used to screen design alternatives never fails to stimulate a spirited discussion. A simple pair- wise comparison of the listed attributes is conducted prior to idea generation. The explicit consideration of trade- offs between various design requirements can help stimulate innovation. Another positive outcome is the discussion elucidates those features where EHS considerations can add business value, building credibility for future sustainability efforts. It is necessary to provide a break after the criteria ranking, and then follow with training on brainstorming. There will be a tendency to impose constraints on potential alternatives based on the project schedule, cost, etc. The facilitator must acknowledge these realities but entice the team to delay the imposition of the reality screen until the following day. It helps to have a preliminary brainstorming session at the end of day one, and then allow participants to “sleep on it.” Brainstorming is the first action to start day two. It is a good exercise to rebuild the group energy level, and to quickly capture new perspectives that arose overnight. When the idea generation has been exhausted, the previously defined and ranked selection criteria are used to evaluate the ideas. In some cases, information gaps have been identified relative to one or more of the alternatives, and it may be necessary to chase down some additional data prior to screening the alternatives. Feedback from these events has consistently identified the formal process of identifying and ranking selection criteria before screening alternatives as a productive exercise. Training is provided on methods to financial evaluate the alternatives, and the final action of the workshop is to develop an action plan for detailed investigation of the alternatives. One of the challenges is that many alternatives may be beyond the scope of the design project. Clear boundaries need to be established with the sponsoring manager prior to the event. The ideas will be captured, categorized as long term solutions and ranked separately from those ideas within the project scope. Design charrettes are somewhat different from the process Kaizens in that there will not typically be the quick fixes that the team can implement during the event. The alternatives are action items that will require formal investigation during the detailed design stage to determine if implementation meets business objectives. The key finding of these events is that each organization must adapt the standard tools and methods to their specific situation. The active engagement of workshop participants in real work and self- directed application of the process improvement and DfE tools is effective at changing behaviour and achieving smooth integration of EHS issues into routine business practices. However, the action learning events impose a high administrative cost to organize and prepare. Capability models provide a helpful framework for organizing supporting materials in a train- the- trainer deployment program. The focus on immediate results achievable with the current organizational capability makes this approach suitable for small to medium sized enterprises (SMEs).

A simple workbook approach can be used to guide organizations first understand where they are and then to improvement activities relevant to their current business situation [5]. Structured questions assess current practice for managing environmental issues. “Do you know which of your processes or activities are associated with air emissions? Has your company reduced hazardous waste generation further than required by permits of regulations?” A second set guide managers to activities relevant to their specific business context, improving the likelihood of cost- effective improvement initiatives. For example, ”In order to maintain good relations with neighbouring businesses, regulators, and the community, circle the issue(s) below that is (are) most important: • Ensuring air emissions comply with environmental regulations and permits; or • Ensuring discharges of wastewater comply with environmental regulations and permits; or • Handling, storing and disposing of non-hazardous solid waste in compliance with environmental regulations and permits; or • Handling, storing and disposing of hazardous waste in compliance with environmental regulations and permits; or • Using energy efficiently and within any set targets (such as targets set by your company or by the region or state where your company operates); or • Using water efficiently and within any set targets for water consumption (such as targets set by your company or targets set by the region or state where your company operates).” Finally, questions address issues that span products, supply chain, and marketing and communications. Combining the workbook which helps each organization know where their stand along the continually of strategy with the CMM shown in Table 2 provides a framework for assessing and comparing organizations at various levels of capability. This framework provides coherence between the analyses valuable to improvement efforts within the company and defines a path for gradual deployment of the measures proposed by various external rating schemes that will likely deliver business value for the organization. References 1. Fava, J.A, Brady, K., Young, S., and Saur, K., Contracting, Partnerships and Costing Innovations to Promote Environmental Excellence, BELL Conference, 2001. 2. Kelly, S. and Allison, M.A., The Complexity Advantage: How the Science of Complexity Can Help Your Business Achieve Peak Performance, McGraw- Hill, 1998. 3. Mackey, W.A. and Carter, J.C., Concurrent engineering: Measure the steps to success, IEEE Spectrum, pp. 33-38, June 1994. 4. Raelin, J., Does action learning promote collaborative leadership?, Academy of Management Learning & Education, Vol. 5(2), pp. 152 – 168, 2006. 5. Pennsylvania DEP and Five Winds International, Steps for improving your business and the environment: Workbook and tools for small to medium enterprises. 2004. Available at: http://www.dep.state.pa.us/dep/deputate/pollprev/Iso14001/SME.htm.