ENGAGING STAKEHOLDERS? Introduction to Stakeholders A stakeholder analysis is required in order to identify all the parties that are directly or indirectly affected by the organization’s activities, products or services. It sets out the interests expressed and the information needs of the stakeholders with respect to the organization’s sustainability activities. Stakeholder analysis is clearly what separates a sustainable business from business as usual. A local business’ existence is directly linked to the community in which it is based (i.e., license to operate). In carrying out its activities, products and services, a local business must maintain respect for human dignity, and strive towards a community where the environment is protected. Identifying the parties that have a vested interest in a local business is a central component of the sustainability concept and leads to greater accountability and transparency. Developing a meaningful approach to stakeholder analysis is a vital aspect of a sustainability management system. The stakeholder analysis begins by identifying the various groups or individuals that have an “interest” in the organization’s activities, products or services. These include shareholders, creditors, regulators, employees, customers, suppliers, business partners, and the community in which the local business operates. It must also include people who are affected, or who consider themselves affected, by the organization’s effect on the environment or on social capital. This is not altruism, but rather good business. Local businesses that recognize what their stakeholders want will be better able to capitalize on the opportunities (good risks) presented. They will benefit from a better informed and more active workforce and better information in the marketplace. After the stakeholders have been identified, management should prepare a description of the interests and expectations that these groups have. This should establish both current and future needs, in order gain a positive view of a sustainable future. The key is to analyze how the organization’s activities, products and services affect each set of stakeholders, either positively or negatively. Because the needs of stakeholder groups are constantly evolving, monitoring them is an ongoing process.
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The stakeholder analysis may even reveal conflicting interests or expectations. A stakeholder analysis can be a useful way to identify areas of potential conflict among stakeholder groups before they materialize. There are some questions that can be used to determine who qualifies to be a key stakeholder. An affirmative answer to any of the questions indicates that there is an “interest” that should make it a concern for the organization. 1. Is there a financial risk (good or bad) to the organization from the interest expressed by the stakeholder? 2. Is there substantial risk (good or bad) to the stakeholder that is related to the interest expressed by the stakeholder? 3. Does the organization say the interest is a priority concern for them? (see the vision, mission and core values) 4. Is the interest common to the business sector within which the organization operates? 5. Is the interest becoming widely judged by the “court of public opinion?”
Stakeholders Internal to the Operations A business excellence framework (as described in the previous narrative) divides the “people” associated with the operations into three classifications: 1. Leaders 2. Employees 3. Stakeholders (“Other Interested Parties”) This model provides a great set of proactive questions that are very helpful for an organization to consider as it prepares people for helping move the company down the path to sustainable development. Let’s look at each of these categories as they contribute to the partnerships needed to move down the path to sustainability.
Leaders Leadership addresses how the organization’s senior leaders guide and sustain the organization as it moves down the path to sustainability. They need to set and communicate the organization’s vision and values while creating and sustaining a high performance organization. A key role played by the senior leaders is in setting values and directions, communicating, creating and balancing value for all stakeholders, and creating an organizational bias for action. Their success depends on a strong orientation to the future and a commitment to continuous improvement, innovation, and organizational stability. To be on the path to sustainability, the leader’s role requires creating an environment for employee empowerment, agility and learning. Another important leadership component involves the governance and social responsibility of the organization. This helps the organization fulfill its public responsibilities and maintain its license to operate. The leaders work within the ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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governance system to behave legally and ethically and encourage everyone in the organization to practice good citizenship. Here are the types of questions that are addressed to senior leadership through the use of a business excellence framework: •
• •
•
How do senior leaders set organizational vision and values? How do they deploy the organization’s vision and values through an established leadership system to all employees, to key suppliers and business partners, and to customers and other stakeholders? How do their personal actions reflect a commitment to the organization’s values? Do these values include a commitment to sustainability? How do senior leaders promote an environment that fosters and requires legal and ethical behavior? How do senior leaders create a sustainable organization? How do they create an environment for performance improvement, accomplishment of the mission and strategic objectives, innovation and organizational agility? How do they relate an environment for organizational and employee learning? How do they personally participate in the sustainable development efforts? How do senior leaders communicate with, empower, and motivate all employees throughout the organization? How do they encourage frank, two-way communication throughout the organization? How do they take an active role in employee reward and recognition to reinforce high performance and a customer and business focus? How are these items integrated into the sustainability program? How do senior leaders create a focus on action planning to accomplish the organization’s objectives, improve performance and attain the vision? How do they include a focus on creating and balancing value for customers and other stakeholders in their organizational performance expectations?
A business excellence framework goes further to require the organization to use its governance system to address its responsibilities to the public, ensure ethical behavior and practice good citizenship. The following key factors should be addressed in the governance system: • • • • •
Accountability for management’s actions Fiscal accountability Transparency in operations and selection and disclosure policies for governance board members Independence in internal and external audits Protection of stakeholders and stockholders’ interests.
There has to be effective review of the performance of the senior leaders and the governance board. The legal and ethical behavior provisions seek to know how any adverse impacts on society of the products, services and processes are evaluated and addressed. How does the organization anticipate public concerns with current and future products, services and ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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processes? How does it prepare for these concerns in a proactive manner, including using resource-sustaining processes? What are the key compliance processes, measures and goals for achieving and surpassing regulatory and legal requirements? What are the key processes, measures and goals for addressing risks associated with the products, services and operations? How doe the organization promote and ensure ethical behavior in all interactions with stakeholders? What are the key processes and measures or indicators for enabling and monitoring ethical behavior in the governance structure, throughout the organization and in interactions with customers, business partners, and other stakeholders? How does the organization monitor and respond to breaches of ethical behavior? Finally, a business excellence framework asks how the organization actively supports and strengthens the key communities. How does it identify key communities and determine areas of emphasis for organizational involvement and support? What are the key communities? How do the senior leaders and the employees contribute to improving these key communities?
Employees Employees are a key success factor in any sustainability program. The leaders will get ideas, loyalty, and more commitment from the employees if they share the business and sustainability goals with them and listen carefully to their ideas. The business depends on its employee. It is best to keep them involved. Employees are the eyes and ears of the organization. They are on the frontline both in the company and in the community. Often they see problems and solutions before management does. By developing communication with the employees, leaders can improve their commitment and productivity. A business excellence framework examines how the organization’s processes and work systems and its employee learning and motivation enable all employees to develop and utilize their full potential in alignment with the organization’s overall objectives, strategy and action plans. Also examined and encouraged are the organization’s efforts to build and maintain a work environment and employee support climate that is conducive to performance excellence and to personal and organizational growth of the employees. The three principal questions for employees that are asked in a business excellence framework are as follows: 1. How does the organization enable employees to accomplish the work of the organization? 2. How does the organization contribute to employee learning and motivate the employees? 3. How does the organization contribute to employees’ sense of well-being and work to grow employee satisfaction? The organization must address how its processes, work and jobs enable all employees and the organization to achieve high performance and sustainability. The organization must ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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address how its compensation, career progression and related workforce practices enable employees and the organization to achieve high performance. Some questions that are asked in this item are as follows: •
• •
How does the company organize and manage work and jobs, including skills, to promote cooperation, initiative, empowerment, innovation, and the preservation of the organizational culture? How does the company organize and manage work and jobs, including skills, to achieve the agility to keep current with business needs and to achieve the sustainable development action plans? How do the work systems capitalize on the diverse ideas, cultures, and thinking of the employees and the communities with which it interacts? How does the organization achieve effective communication and skill sharing across work units, jobs and locations?
The organization needs to address its employee performance management system, including feed back to employees that supports high performance work and contributes to the achievements of the sustainable development action plans. How does the employee performance management system support a customer, stakeholder and business focus? How does the compensation, recognition and related reward and incentive practices reinforce high performance work and a customer, stakeholder and business focus? The final part of this work system evaluation involved the methods used to identify characteristics and skills needed by potential employees and how the organization recruits, hires, and retains new employees with these skills. The business excellence system asks how the organization ensures that employees represent the diverse ideas, cultures, and thinking of the hiring community. It also evaluates how the organization effectively manages career progression for all employees throughout the organization. In the area of employee learning and motivation, a business excellence framework asks how the organization’s education, training, and career development supports the achievement of the overall objectives and contributes to high performance and sustainability. The organization should evaluate these capabilities build employee knowledge, skills and capabilities. The following questions need to be addressed: •
•
How do employee education and training contribute to the achievement of the sustainability action plans? How does this program address the key needs associated with organizational performance measurement, performance improvement, and technological change? How does the approach balance shortand longer-term organizational objectives with employee needs for development, ongoing learning, and career progression? How do employee education, training, and development address the key organizational needs associated with new employee orientation, diversity, ethical business practices and management and leadership development? How does the program address the key organizational needs associated with employee, workplace and environment, health and safety?
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•
•
• •
How does the organization seek and use input from employees and their supervisors and managers on education, training, and development needs? How does the organization incorporate the employee learning and knowledge assets into the education and training? How does the organization deliver education and training? How does it seek and use input from employees and their supervisors and managers in determining the delivery of the training? How does it use both formal and informal delivery approaches including mentoring and other approaches? How doe the organization reinforce the use of new knowledge and skills on the job and retain this knowledge for long-term organizational use? How does it systematically transfer knowledge from departing or retiring employees? Hoe does the organization evaluate the effectiveness of education and training, taking into account individual and organizational performance and sustainability?
This business excellence framework item concludes with an evaluation of how the organization motivates employees to develop and utilize their full potential. How do managers and supervisors help employees attain job- and career-related development and learning objectives? The final business excellence item for employees evaluates how the organization maintains a work environment and an employee support climate that contributes to the well-being, satisfaction, and motivation of all employees. For the work environment, the organization must evaluate how it ensures and improves workplace health, safety, security, and ergonomics in a proactive manner. How do employees take part in these continuously improved efforts? How does the organization ensure workplace preparedness for disasters or emergencies? To determine employee support and satisfaction, the following questions are asked: • • •
•
How does the organization determine the key factors that affect employee wellbeing, satisfaction and motivation? How are these factors segmented for a diverse workforce and for different categories and types of employees? How does the organization support employees via services, benefits, and policies? How are these tailored to the needs of a diverse workforce and different categories and types of employees? What formal and informal assessment methods and measures does the organization use to determine employee well-being satisfaction and motivation? How do these methods and measures differ across a diverse workforce and different categories and types of employees? How does the organization use other indicators, such as employee retention, absenteeism, grievances, safety, and productivity to assess and improve employee well-being, satisfaction and motivation? How does the organization relate assessment findings to key business results to identify priorities for improving the work environment and employee support climate?
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Customers and Stakeholders From a business point of view, the customer represents a very important voice when considering the journey to sustainability. There is a great need to listen to and involve customers in the business. It is not sufficient to just consider this stakeholder as the sole focus of marketing and sales. Customers are a source of great ideas for new products, processes and services. By listening to customers, it is possible to identify and fix their issues thereby enhancing customer loyalty. Sometimes customers have a mistaken view of the business and listening to them can help improve how you can communicate with them. The business excellence framework specifically addresses the customer and taking a market focus. The model examines how the organization determines the requirements, needs, expectations and performance of customers and markets. It also examines how the organization builds relationships with customers and determines the key factors that lead to customer acquisition, satisfaction, loyalty and retention as well as business expansion and sustainability. First, the business excellence framework addresses how the organization can ensure the continuing relevance of its processes, products and services and to develop new business opportunities through the sustainability program. How does the organization listen and learn to determine key customer requirements, needs, and changing expectations and their relative importance to customers’ purchasing and relationship decisions? How does the organization use relevant information and feedback from current and former customers that includes, marketing and sales information, customer loyalty and retention data, win/loss analysis, and complaint data for the purpose of planning processes, product and services and scoping the reach of the sustainability program? How is this information and feedback used to become more customer-focused and to better satisfy customer needs and desires? How does the organization keep the listening and learning methods (e.g., stakeholder engagement) current with business needs and directions, including changes in the marketplace? Second, the business excellence framework helps an organization build relationships to acquire, satisfy and retain customers and to increase customer loyalty. It does this by encouraging the organization to meet and exceed their expectations, to increase loyalty and repeat business, and to gain positive referrals. It has them consider how they handle complaints and resolve them effectively and promptly. It looks at how customer satisfaction, dissatisfaction and loyalty are determined. Sustainability programs also need to involve the suppliers. Together with the customers, they are involved in the life cycle of the process, product or service. The program needs to listen to and work with the suppliers to strengthen relationships, address supply chain problems and identify new opportunities to move down the path to sustainability.
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The topic of life cycle will be covered when we look at the value chain associated with processes, products and services. For now, the first tier suppliers and customers represent important connections to the processes of organizations seeking to move down the path to sustainability and need to be included as supporting processes to link them to the interests that are sought from the stakeholders.
Stakeholders External to the Operations An organization can enhance its business performance, profitability and reputation by working with the local community. The business excellence framework covers this to some extent with its focus on social responsibility. This community perspective includes the local government, local businesses and the local citizens. There is a clear connection between a healthy and profitable business and the well-being of the community in which it does business. It will help the organization to recruit, motivate and retain employees. The community program can be used as part of staff training and development. These relationships and partnerships are keys to improving business reputation and profile. Being in touch with the local community can lead to new business opportunities. Community involvement also boosts networking opportunities with suppliers and customers. Helping to tackle social issues in the local area, such as crime, can help the bottom line of the business.
Local Government The International Council for Local Environmental Initiatives1 (ICLEI) is a not-for-profit organization that helps local governments initiate programs that will help them move down the path to sustainable development. There are three programs to choose from: • • •
Cities for Climate Protection2 (CCP) Local Agenda 21 Campaign3 Sustainable Cities4
The CCP Campaign helps local governments adopt policies and implement measures to achieve reductions in greenhouse gas emissions, improve air quality, and enhance community livability and sustainability. This campaign is structured around a standard framework with fixed milestones that the local governments commit to adhere to. The milestones allow local governments to understand how their decisions affect energy use and how these decisions can be used to mitigate global climate change while improving the quality of life in the community. The CCP methodology provides a simple, standardized means of acting to reduce greenhouse gas emissions and of monitoring, measuring and reporting performance. The participants form partnerships with local businesses to help set and meet the goals for the jurisdiction. 1
International Council for Local Environmental Initiatives; http://www.iclei.org/ ICLEI Cities for Climate Protection Program; http://www.iclei.org/index.php?id=800 3 ICLEI Local Agenda 21 Campaign; http://www.iclei.org/index.php?id=798 4 ICLEI Sustainable Cities; http://www.iclei.org/index.php?id=801 2
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Communities that participate in the CCP benefit in many ways: • • •
Financial savings in reduced utility and fuel costs to the local government, households and businesses Improved local air quality, contributing to the general good health and well-being of the community Economic development and new local jobs as investments in locally-produced energy products and services keeping money circulating in the local economy.
ICLEI provides regionally-specific tools and technical assistance to assist local governments in the CCP program. An example of the results of this program is the Climate Protection Plan5 prepared by the City of Cambridge (Massachusetts, USA). The Local Agenda 21 campaign promotes a participatory, long-term, strategic planning process that helps local governments identify local sustainability priorities and implement long-term action plans. It supports good local governance and mobilizes local governments and their citizens to undertake multi-stakeholder processes. The concept for this program goes back to the 1992 Rio Earth Summit (Chapter 28). More than 6,400 local governments in 113 countries are involved in these programs. This program is not active in the United States. If the local community has such a program, the local business should seek to get active in efforts to implement and sustain the programs. If the local community does not have programs of this nature, it would be wise for the local business to help the local government find a program that would meet their needs and support local businesses working in partnership with them to move down the path to sustainability. Everyone can benefit from the development and implementation of programs like these.
Local Business Local business organizations (e.g., Chambers of Commerce) should become aware of the many benefits that sustainability can bring to their members and the local community. It can help the community adopt programs or seek mentors for local business from state business organizations or regional chapters of trade associations that represent some of the businesses in the community. Sometimes state and national governments operate voluntary programs that can help develop practices that would help the local businesses move down the path to sustainable development. When you stop to think about it, sustainability is at the core of what the local business organizations seek to promote to its members. It is too bad that many local business organizations know little about the practice of sustainability. The local businesses that do learn about sustainability should invest their time to let other local businesses know about their journey through the local business organization. It is useful to have many local businesses working with the local stakeholders instead of having the entire burden rest with a few businesses.
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Cambridge Climate Protection Plan; http://www.ci.cambridge.ma.us/CDD/et/climate/index.html
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Local Citizens Local citizens may be involved in a variety of interest groups often referred to as nongovernment organizations (NGOs). The City of Cambridge (Massachusetts, USA) has started a project involving citizen Ecoteams6. These teams get together seven times over a period of several months to discover and carry out actions to reduce the environmental impact of the members of the team. Team members use a workbook to determine their household’s environmental impact. They determine what steps they can take to reduce their environmental footprint, and track their results. Each team has about five to eight members and a coach – a volunteer who has gone through the process and is enthusiastic about spreading the word to others. Team members take turns facilitating in the meetings. The teams may be based in a neighborhood, at a workplace, or at a place of worship.
State, Regional and Federal Stakeholders Sometimes governments with authority over the local government exercise their influence on the many cities and towns in their larger jurisdictions. If authorities or NGOs can compel a local government to take some action and thus cause the local business to be bound by outside interests, this is still a local effect. The sum of all of the local issues will constitute the state, regional and federal issues – ultimately the global situation. It is all a matter of scale. There are some effective boundaries on the stakeholder interests as one moves away from the source. However, if one is worried about forests being cut down in a remote old growth forest, all major users of paper are fair game for their scorn.
Stakeholder Engagement The journey to sustainability needs to fully involve people in and out of the organization. By engaging a group with diverse interests, the organization can experience the following; • • • • •
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Learn how those that have an interest perceive the organization Understand the interests and needs of these groups to see how they could best be addressed Open lines of communication on how the interests are being addressed over time – “look-out” function Explore challenges and conflicts of interest between stakeholders and start to build consensus Be sensitive to the changing needs of the organization and the interests of the stakeholders – anticipate and manage risks as they arise.
Ecoteams; http://www.cambridgema.gov/CDD/et/climate/clim_comminit/clim_comminit.html#ecoteam
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Certainly hard decisions and trade-offs are inevitable. However this is the best way to move down the path to sustainable development. A business excellence program will help improve the true performance of the program. Stakeholders help the company move down the path to sustainability by helping it find a way to operate in a way that is consistent with, and supportive of, the optimization of the environment and also the communities and economies in which it operates. The three responsibilities and the five types of capital that it will strive to build will be discussed later in the course. The idea of sustainability is tricky to see how it translates into practice. Consultation and engagement with stakeholders is a learning process for all to learn how this journey can be described in terms of an organization’s strategy and its dayto-day decisions.
Stakeholders and Risk Management By making sustainabilty a part of the decision-making process, organizations are more protected from exposure to risks incurred from the environmental, social and economic realm. Organizations create risks for the stockholders through their activities, products and services. There has long been awareness, if not corresponding actions, that the decisions and behaviors of organizations can create risks for a variety of stakeholders. Many feel that local businesses do not adequately factor in the risks they create. What risks would change the way a reasonable stakeholder views a local business as a “citizen” in the community? Risk is not just about avoiding the negative. It is about accentuating the positive and creating strategies to realize “opportunities for improvement.” This will enable the local business to leverage its assets for the benefit of the environment, the community and the local economy. An article on risk management will be posted this week with this narrative. The risk management perspective is an important way for local organizations to view their engagement with stakeholders.
Replacing Impacts with Stakeholder Interests It is very difficult to determine the environmental, social and economic impacts of a process or service. It depends on where the process takes place. The same process can have entirely different impacts depending on the local surroundings. Furthermore, the impacts at a particular location vary by season of the year, by temperature, wind direction, barometric pressure and a host of other local condition variables. Social and economic impacts are even more difficult to determine even with expert assistance. It is more effective if the organization identify “issues” through engagement with its stakeholders regarding its activities and performance across each of the three responsibilities of sustainable development. By replacing “impacts” with “interests,” it is ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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possible to use social research methods (e.g., surveys, focus groups, and interviews) to determine how the stakeholders view the interests associated with any organization. Remember that you are measuring the stakeholder interests not the specific impacts. This is quite different since most organizations determine impacts. One weakness with the application of this approach is that most stakeholders will not have a good understanding of the process(es) used by the organization. Hierarchical process mapping (papers posted on the web site this week on this topic) is often used with the stakeholder engagement to provide some familiarity with the process and the use and loss of resources in that process and its supporting processes. The stakeholders can respond to these hierarchical process maps and resource accounting sheets in focus groups and interviews. Additional information may be needed by the stakeholder in order to provide a detailed expression of their interest. Sometimes the key stakeholders are invited to use their hierarchical process maps and come over and view the process. Now let’s see how we can take a process view of the operation and use it to focus the stakeholders on how the process can be improved to direct the operation to move down the path to sustainability. Every product and service is the result of a process. These processes have supporting processes. All suppliers are treated as supporting processes. Customer use of the product or service can also be treated as a supporting process. All resources, activities, and information from the supporting processes can be traced back to the activities in the main process that are responsible for them. The hierarchical process map is used to capture all the work steps in the main process responsible for the product or service. Resource, activity and information are tracked by activity using accounting sheets. All this information can be tracked using a process database. Management and design professionals can use the database to understand the true impacts on their decision-making on the entire system. The hierarchical process mapping approach creates a visualization of the systems thinking that is needed to improve the sustainability of the organization by helping it address the three responsibilities: environment, social, and economic. By having all three responsibilities related to the process, it is possible to integrate them to enhance sustainability and create lasting value for the organization. The Systems Approach (paper posted to the web site this week) and sustainability rests on a firm foundation of understanding the process. This understanding is critically important for all those involved in process improvement activities, including the designers. The focus will be on the process – not on problems and waste. Process improvement seeks to change the process to prevent the problem and waste whenever possible. The same is true with products – to prevent stewardship issues in the use and end-of-life of the product. However, the issues in the process of making that improved product must also be factored in. By creating a “book of maps” for the entire product life cycle, one can begin to “see” the 20% of the work steps that create 80% of the issues
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expressed by the stakeholders. It is possible to build a product life cycle database by placing a priority on collecting the information on the key process steps. All the information on the process is tracked using accounting sheets that are linked to the process work steps in the database. Examples of these accounting sheets are provided below both for process management and for use in the sustainability program.
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RESOURCES – A PROCESS VIEW RESOURCES USED (Normal Operations) (Special) (Emergency)
WORK STEP
RESOURCES LOST (Normal) (Special) (Emergency)
SUPPORTING PROCESSES WITHIN COMPANY SUPPLIERS AS SUPPORTING PROCESSES CUSTOMERS (USE) AS A SUPPORTING PROCESS All resources used and lost in the supporting processes need to be attributed to the proper work step in the main process that is responsible for them with a notation of the contribution. All resources and losses can be tracked in a database for the product. The DESIGN of the product and process needs to take into account the resource productivity of the process that will deliver that product and the use factors of the product.
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RESOURCES – A SUSTAINABILITY VIEW RESOURCES USED (STAKEHOLDER INTERESTS)
WORK STEP
RESOURCES LOST (STAKEHOLDER INTERESTS) The organization can prevent resource use and loss. Control lies solely within resource productivity and eco-efficiency. EHS controls are supporting processes. They create additional requirements for resource use and loss and are subject to failure leading to economic risk. It is difficult to measure environmental impacts and occupational health and safety risks accurately and assign costs to them. They vary significantly based on the location and the people/environment in that area. Stakeholder interests can be polled with greater statistical certainty and used by production and design to meet the product’s production environmental responsibility. Suppliers and customer use can be added in the determination of the interests. The stakeholder interests can be measured, tracked and trended to quantify the environmental responsibility. A scorecard can be created. Prevention is used preferentially to address the stakeholder interest. This area is scored using the process management criterion in a business excellence framework.
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PEOPLE (ACTIVITIES) – A PROCESS VIEW
ACTIVITIES USE (Normal) (Special) (Emergency)
WORK STEP
ACTIVITIES LOSS (Normal) (Special) (Emergency) All functional activities that are required for the work step to function under different conditions are included here. These include: human resources, environmental compliance, health & safety compliance, loss management, maintenance, operations, management, accounting, purchasing, public relations, administrative support, etc.). According to the 80/20 Rule, 80% of the functional activities are focused on 20% of the work steps. This focus is what is searched for to improve the process so that it can function more efficiently and effectively. Designers need to have this information to prevent the use of these activities. Resources that are lost also require functional activity. Internal supporting processes, suppliers and customer use need to be considered. All activities in the management systems (e.g., ISO 9001) need to be included.
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PEOPLE (ACTIVITIES) – A SUSTAINABILITY VIEW
ACTIVITIES USE (STAKEHOLDERS INTERESTS)
WORK STEP
ACTIVITIES LOSS (STAKEHOLDERS INTERESTS)
Employees work on process and staff the functional activities. They provide information to management. Management oversees the employee activity. Employees are active in the community. Resource use and loss are transported through the neighborhood and the community. The facility considers its social “license to operate.” The product use and suppliers have their own sets of stakeholder interests that need to be allocated back to the process. The suppliers are provided with a “Code of Conduct” to manage these interests. All process activities need to be aligned to the vision/mission/core values of the organization and measured with the business excellence framework’s strategic planning category. The people activities can be scored with three of the business excellence criteria: leadership, employee involvement, and customers and stakeholders.
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ECONOMIC (INFORMATION) – A PROCESS VIEW
INFORMATION USE (Normal) (Special) (Emergency)
WORK STEP
INFORMATION LOSS (Normal) (Special) (Emergency) Process information allows employees and management to operate the process to ensure an acceptable financial return. All information used by the functional activities as they interact with the work step to function under different conditions are included here Employees learn to make a business case for process improvements. Designers also select process options using the process information that is available to them. Suppliers and customer use are factored into the process financial model as well as all of the supporting operations and activities in the facility. Accounting and finance can now “see” where the costs are more intense and authorize process improvement to address these cases to prevent the costs. Reduction of risk can be directly converted to dollars. All process and design improvements operated on a “profit/loss” basis with formal action plans. This is a major shift from measuring in unit counts, weight and volume! Everything is properly translated into dollars at all levels of the operation.
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ECONOMIC (INFORMATION) – A SUSTAINABILITY VIEW INFORMATION USE (STAKEHOLDERS INTERESTS)
WORK STEP
INFORMATION LOSS (STAKEHOLDERS INTERESTS)
Management, stockholders, and the financial community are not the only stakeholders that worry about value creation in the organization. If affects all of the stakeholders to some extent. Risk information must be monitored and measured in financial terms. This has to be done in a way that is easy to communicate to all interested stakeholders what is included and what is not included and why. One cannot rely entirely on the traditional accounting system that was used to report just to the shareholders. Managerial accounting and real options can be used to supplement the understanding of the costs and benefits of process improvement. Sarbanes-Oxley encourages the use of systems to collect the information to make more reasoned accounting of the financial value of the organization. The Systems Approach and the process focus should be a great way to satisfy this requirement. The information and knowledge management performance is measured with one of the criteria in the business excellence framework.
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As mentioned above, sustainability and Corporate Social Responsibility (CSR) have often been driven by initiatives and conformance to codes/principles/standards. These programs have not chosen to take a process view at this point in their evolution. While stakeholder engagement is an important part of these programs, stakeholder management has been more difficult to grapple with. Environmental responsibility has focused on regulatory compliance and the environmental impacts of the organization. Organizations are using ISO 14001 and OHSAS 18001 (or OSHA VPP) to manage their environmental (and occupational health and safety) impacts and risks. Social responsibility has largely been focused on SA 8000 and the proliferation of CSR codes and best practices. Soon there will be a new ISO 26000 management standard for CSR. For the most part, economic responsibility was integrated into the other two responsibilities and was summed up at the end. The Sarbanes-Oxley Act has changed all of this. Now there is a very clear economic responsibility for all organizations. Sustainability and CSR efforts have also struggled with inclusion of life cycle responsibilities. The various international standards allow an organization to draw a boundary around what will be managed. Suppliers and customers have traditionally been left outside this boundary. In many cases, internally-required supporting processes (e.g., pollution control and safety control equipment; transportation; energy use, waster use and loss; etc.) were also left outside the boundary. Many companies have had difficulty integrating their own sustainability and CSR efforts and then integrating them into the core business instead of allowing them to operate in a silo fashion – similar to most process improvement efforts, such as lean production and six sigma. If all these programs were to adopt a process view and use the very same quality management tools in their improvement efforts, then all the programs could cooperate and communicate with each other on a much more efficient and effective basis. A program could be created to have employee projects address at least three of the silo programs and have all of the silo managers on the management oversight committee. It is possible to use the Systems Approach as the foundation for an organizational improvement program that includes all of these efforts without changing the efforts. They would all adopt a process focus and use the same quality management tools to create employee projects directed to address the three responsibilities and the methodologies of the other programs that sponsor the improvement project. Management oversight is provided. Each project is responsible for measuring the financial impact of their efforts. The overall program is driven using the a business excellence framework. All results are scored. The true performance of the program is also scored and tracked by management and all of the stakeholders.
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How You Engage Stakeholders Finding a path to an integrated and complete sustainability will require the teamwork of diverse perspectives, knowledge and resources. No single individual, organization or government is likely to, by themselves, identify and implement a program that will guarantee the attainment of sustainability. It is a journey that will involve the integration of efforts, continuous improvement and monitoring of progress. We need not to act alone, but to be sure we listen to others before embarking on the journey and throughout the trip. We all share in this world and the consequences of many of our actions are not limited solely to our own community. Our actions affect others, whether it is directly or indirectly. This is one of the reasons to acknowledge those who have an interest in an organization’s activities and provide them the right to be heard. Using effective stakeholder engagement is core to any effort to start down the path to sustainable development. A group known as AccountabAbility7 has provided guidance on how organizations can increase their knowledge, their abilities and their license to operate by undertaking stakeholder engagement. Engaging stakeholders needs to be elevated from a risk management tool to an essential element of strategic planning as defined in the business excellence framework. Because of differences in geography, culture and issues, stakeholder engagement needs to be an interactive process that builds on the input of the stakeholders themselves. The AccountAbility Stakeholder Engagement Standard (posted on the web site this week) provides a way to define the practice of stakeholder engagement for sustainability programs. A publication entitled, “The Stakeholder Engagement Manual : Volume 1 – The Guide to Practitioners’ Perspectives on Stakeholder Engagement” (also provided on the web site this week) provides a background for stakeholder engagement. We will be talking about the second volume of the “Stakeholder Engagement Manual” known as “The Practitioner’s Handbook on Stakeholder Engagement.8” “The Practitioner’s Handbook on Stakeholder Engagement” presents the process of stakeholder engagement in five stages: 1. The first stage (Think Strategically) is an overall consideration of strategic business objectives, how these relate to stakeholders and specific interests, and how an organization can undertake an initial prioritization of stakeholder and interests for further analysis. 2. The second stage (Analyze and Plan) introduces different levels of engagement, and guides an organization in analyzing its existing relationships, available resources and organizational constraints. It also helps the organization to learn
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AccountAbility; http://www.accountability.org.uk/
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more about specific stakeholder’s representatives, and to decide on what kind of relationship the organization may want to develop with these stakeholders. 3. The third stage (Strengthen Capacities for Engagement) addresses questions of internal and external competencies and capacities to engage, and provides guidance on how the organization can ensure that all parties to an engagement are able to join and take part in it effectively. 4. The fourth stage (Design the Process and Engage with Stakeholders) outlines different engagement techniques, and – building on the previous stages – helps an organization to design an approach that suits the needs of its specific situation and helps it to reach its objectives. 5. Finally, in the fifth stage (Act, Review and Report), the handbook provides the organization with guidance on how to follow-up on the outputs of engagement, and how to ensure that the organization’s stakeholders feel assured regarding the quality of its efforts. This section will be covered later in the course. The AccountAbility Guide can be printed out by section and has printable and modifiable copies of blank templates that can be used in each of these stages. The guide refers to issues – we are calling these issues, interests. However it is consistent in substituting interests for impacts! Creating an effort to deal specifically with stakeholders should help the organization to shift from a philosophy of indifference, ignorance and, in some cases, fear of stakeholder processes, to a belief in the value of stakeholders and their differing perspectives and interests in the operations of the organization. It is generally believed that to be effective communicators, people must learn to view situations from the perspective of others prior to making judgments or decisions. Initiative-driven sustainability programs do not generally use stakeholder engagement as a tool for determining the interests. These are set by referring to other’s best practices. It is important to both seek stakeholder input and develop a willingness to act on this input. The business implications of poor stakeholder relations are clear. An organization will sometimes go through more costly and adversarial mediations if they fail to recognize this. The result of the dialogue is a consultation process that enhances the organization’s relationship with the local community and helps incorporate stakeholder ideas and interests into their sustainability planning process. The stakeholder consultation process is very simple in concept, but usually challenging to implement. The best business decisions are made after full, fair consideration of the interests and ideas of all key stakeholders. The focus of the consultation is to build a long-term trusting relationship that will maintain and enhance the organization’s license to operate with both governmental and non-governmental groups. Disagreements with some of the stakeholders will occur. The consultative process does not commit the organization to agree with all stakeholders. Instead it seeks to avoid disagreements that are based on misunderstandings. The business value of the stakeholder process should become clear when it is considered that delay in permits and other regulated activities translate into thousands of dollars saved. ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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The next step is to work with the stakeholders to develop different consultation arrangements dependent on their needs. The level of participation is determined by factors such as resource availability, cultural issues, language barriers, historical interactions and existing relationships. It is prudent to agree on a set of principles to guide the consultation process and use a facilitated framework defined by the Systems Approach. This will provide a means for a collaborative process of evaluating and assessing differences and keeping the relationship moving in a common direction to prevent the interests with a clear focus on improving the processes. Some stakeholder principles of consultation are as follows: • • •
•
•
Integrity of regulatory process is preserved. The regulatory process fulfills a legitimate function that must be met at the end of the process. Open and transparent process. All information is made available to stakeholders in a format that is transparent and customized to their needs. All stakeholders receive the information within the same timeframe. Information shared freely and early. To facilitate early stakeholder feedback, information should be shared during the developmental stage of the engagement process. This information would usually be distributed in draft form in order to maximize input. Stakeholders must be able to participate effectively. Stakeholders must have adequate resources to review information and provide valuable input. They must also be allotted time to digest the information and understand the organization’s processes. Sensitivity to all needs of stakeholders. The stakeholder engagement process must respect the needs of all participants and their other relationships.
The AccountAbility guide helps to navigate through this difficult engagement. Only a few of the key ideas have been presented here. Now let’s look at some of the complementary methods that can be used with the stakeholder engagement process. There are four basic principles for an organization to embrace as it seeks to operate in a stakeholder engagement process: 1. Minimize Harm. Work to minimize the negative consequences of organizational activities, products and services and any other decisions that affect the stakeholders. Examples include preventing environmental harm, ensuring the safety of employees and delivering safe, high-quality products. 2. Maximize Benefit. Contribute to societal and economic well-being by investing organizational resources in activities that benefit shareholders as well as broader stakeholders. Examples include participating voluntarily to help solve local social problems, ensuring stable employment, paying fair wages, and producing a product or service with social value. 3. Be accountable and responsive to key stakeholders. Build relationships of trust that involve becoming more transparent and open about the progress and setbacks the organization experiences in an effort to operate ethically and sustainably. ©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
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Create mechanisms to include the voice of the stakeholders in governance, produce social reports assured by third parties, operate according to a code of conduct, and listen to and communicate with stakeholders. 4. Support strong financial results. The responsibility of a local business is to return a profit to shareholders must always be considered as part of its obligation to society. Not-for-profit organizations and governments must use the resources provided to accomplish the services expected of them without operating deficits and the need for emergency appropriations.
Systems Approach to Sustainability This method focuses on understanding processes conducted by the organizations that use the stakeholder engagement process. These processes offer opportunities to move to sustainability through continuous improvement and breakthroughs. The organization should decide its vision and core values or guiding principles. By aligning the Systems Approach with these core values enables the organization to both maximize its ecoefficiency as it attends to both its social and economic responsibilities. It is not so important to have a clear idea of what sustainability is using this method. The relationships between each of the three responsibilities and the organization’s process were clearly articulated above. Emphasis is placed on moving down the path and creating a better concept of what sustainability will mean to the organization as it gets closer to this state. To some extent sustainability will be reflected in modified core values or guiding principles as the organization becomes more and more sustainable. The stakeholders will have to consider the vision, mission and core values in light of the Baldrige core values and the overall path to sustainable development. The focus on the process to define the three responsibilities will also be scrutinized. So far, we have only considered the hierarchical process mapping (i.e., understanding the process) tool in the Systems Approach. We will cover other tools used within the Systems Approach to help with the process improvement effort that will be used to integrate the three responsibilities into the process focus of the organization. A graphic describing how it will work is shown below:
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The Systems Approach to Sustainable Development
Local Vision of Sustainable Development and Core Values
Process Focus Search for Opportunities for Sustainable Development
Include Full Range of Community Interests, Values and Perspectives Build Connectivity Across Subjects
Select Opportunities that are Aligned with the Vision and Core Values
Prepare Written Action Plans Using the Systems Approach
Determine Results and Impacts Of Actions and “Lessons Learned”
Planning Cycles Not Linear Pass Keep it Going!
Select Opportunities for Sustainable Development for Next Year Strive for Continuous Improvement
©2008 All Rights Reserved Robert B. Pojasek, Ph.D.
Philosophical vision of a sustainable society
Defining social, economic and environmental impacts Principles/Objectives Conserve Resources Eliminate Wastes
Context – Specific Strategies And Actions
Score Results Using a Business Excellence Framework
Sustain Program Continuous Improvement
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Closing Thoughts This narrative shows the difference between taking an internal view of sustainability and using the stakeholders to gauge their interests in the organization and using that perspective as a valuable guide to figuring out what the organization needs to consider as it plans its journey to sustainability. A key to gaining this perspective is shown in the figure below:
This narrative presents a rather unique way to define the journey that an organization will take to a destination known as sustainability. It is by no means the only journey that can be taken. However, it is very flexible and built on proven methods. The process view is critical along with systems thinking – everything is connected to everything else. Interest in the process by the stakeholders can be met by changing the process so that the interest is eliminated from concern. This prevention at the source approach is the key to sustainability since it addresses environmental and social issues while maximizing the economic value of the organization. The reader should try to better understand how a business excellence framework can be of use to organizations that seek to take the journey to sustainable development. A good document to review is entitled “Why Baldrige9?” A second document is entitled, “Are 9
“Why Baldgrige?”; http://www.baldrige.nist.gov/Why_Baldrige.htm
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we making progress10? It contains a set of questions that can be used as a self-assessment for an organization. Please note how these questions can help change the behaviors that influence an organization’s journey to sustainability. You can see how the Systems Approach (a process improvement method) helps us view both the internal process view and the views that the stakeholders have on that process. The accounting sheets are your first introduction to the three responsibilities that you will study in a couple of weeks from now. The realm of management systems to organize and drive a sustainability program will also be presented in a couple of weeks. First you have to get a feel for the path that will be taken and then you will be able to help the organization with the journey. Now let’s see how we can help the case company use this information to get their program moving forward.
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“Are We Making Progress?”; http://www.baldrige.nist.gov/Progress.htm
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