The CIO’s next leadership opportunity: Sustainability

 
By focusing on the role of information, CIOs can drive engagement and embed sustainable practices across IT, the enterprise, and value chains.
 
By Vinod Baya and Bud Mathaisel
 

Features


Introduction

Sustainability is one of the most important strategic initiatives enterprises will undertake in the coming decade. Progress on sustainability is also largely about surfacing new information and then guiding the behavior of staff and others to take appropriate actions based on that information. As discussed in the article, “Sustainability: Moving from compliance to leadership,” the future of sustainability is to embed sustainable practices in business operations, so that it stops being a separate initiative and becomes part and parcel of how a business operates. Information technology makes this possible. Embedding sustainability is the systematic adoption of sustainable practices that integrate the environmental and social impact of products and operations with how economic value is created by the enterprise.

The use of information systems for sustainability efforts is still in its early phase. This presents CIOs with some unique opportunities, particularly given the enterprise-wide and value-generating nature of sustainability. “Sometimes, as in the case of sustainability, a single business unit cannot pull all of the weight on some of the goals. Effective execution depends on how you link multiple businesses to some common themes in the company and then drive certain types of behavior,” explains David Kepler, executive vice president of business services, chief sustainability officer, and chief information officer at The Dow Chemical Company. Kepler’s comments remind us that CIOs have special insight that comes from working on past enterprise-wide initiatives, insight that is pertinent to sustainability.

Deploying infrastructure that surfaces relevant information, creates visibility, and provides feedback across the enterprise and its value chains embeds sustainability practices throughout operations. Given the importance of new metrics and information, embedding sustainability is a natural role for the CIO and the next strategic leadership opportunity and responsibility for IT. “The CIO has the responsibility to create an integrated viewpoint from a business angle, which will help position the organization competitively from a standpoint of energy, resource, and emissions management,” suggests Pat House, senior vice president of strategy at C3.

Sustainability is one of the most important strategic initiatives enterprises will undertake in the coming decade.

CIOs have always managed information infrastructure; what is different about sustainability is that it requires tracking information not collected or managed by existing systems. “SAP, for example, has always tracked financial resources, human resources, and capacities, but the company has never tracked energy, water, wood, or any other type of natural resource,” says Peter Graf, chief sustainability officer at SAP. “We never tracked these as there was no perceived need, because it was considered infinitely available. Now we are starting to manage these areas as a scarce resource, which is why applying enterprise resource planning and management is essential.”

CIOs can demonstrate real leadership with sustainability—may in fact need to take the lead—by surfacing information that educates, motivates, and changes decision making within the enterprise.

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The three dimensions of CIO sustainability leadership

PwC sees CIOs contributing to sustainability efforts along three dimensions (Table 1), which range from activities that the CIO controls to those for which he or she would need to collaborate with the enterprise or value chain partners. The objective in all cases is to provision information so sustainability practices are embedded in operations:

1. Embedding sustainability in IT— The set of actions to measure, monitor, and manage the environmental and social footprint from the use of IT resources, both within and outside IT operations. CIOs must demonstrate success on this dimension, often referred to as green IT, to have the credibility to contribute to other dimensions. The passion begins at home.

2. Embedding sustainability in the enterprise— The internal systems and processes needed to enable the rest of the enterprise to monitor, measure, and manage their environmental and social footprint. Most commonly this includes managing energy and water use as well as waste production across all facilities and internal operations.

3. Embedding sustainability in the value chain— The collaborative activities around the data needed to measure, monitor, and manage the environmental and social footprint in value chains. Others in the value chain affect the sustainability performance of any enterprise; therefore, cooperation and collaboration across the value chain are essential and can have the most overall impact.

The three dimensions are also consistent with the traditional IT control domains, from things IT controls fully to those that IT internally influences, to engaging and collaborating with external partners. Moving a CIO’s focus toward outward strategic influences is consistent with the current patterns in IT leadership and the emerging role of the CIO. (For more information, see the following three PwC publications: I for innovation: The next-generation CIO; The situational CIO; and The value-creating CIO.)

Embedding sustainability in the IT function

IT organizations have engaged in green IT for some time. There are many examples of best practices; industry organizations, such as the Green CIO (GCIO), encourage collaboration on these initiatives; and vendors offer tools to help. All these constitute the many choices CIOs have to transform IT operations from a sustainability perspective. Table 2 lists some of the most commonly employed initiatives. Best practices are continuing to evolve, and enterprises are sharing their experiences for the benefit of others.

Table 1
The three dimensions of a CIO’s role in sustainability

Table 1: The three dimensions of a CIO’s role in sustainability
CIOs have always managed information infrastructure; what is different about sustainability is that it requires tracking information not collected or managed by existing systems.

IT is also often the largest buyer of electricity and therefore faces risk not unlike technology businesses. “Because we’re a technology business and what we do relies on access to affordable and reliable energy, highlighting the potential risks around any kind of energy price volatility is necessary to understand risk,” explains Ryan Whisnant, director of sustainability at SunGard. Visibility into the overall footprint and exposure helps to manage the risks associated with volatility in electricity prices.

Green IT approaches mostly focus on the data center, where much of the computing and energy use occurs. With cloud computing and associated trends, new approaches are emerging to improve data center efficiency. Although the emphasis on reducing costs for cooling is considerable, increasing server utilization through techniques such as virtualization offers greater potential to improve a data center’s energy productivity compared to exclusive focus on cooling or efficiency of the power source, according to research from Microsoft. (See Figure 1.)

Table 2
Most frequently and commonly employed IT initiatives for sustainability

Table 2: Most frequently and commonly employed IT initiatives for sustainability
“You should evolve and mature so that you have a point of view of how to do something in a way that balances the three dimensions of sustainability: the economic, environmental, and social dimensions.”
—David Kepler, Dow

In addition to increasing utilization, server refresh also can pay dividends, since older servers can be very inefficient. At Intel, 64 percent of servers globally in 2010 are newer, but 60 percent of the energy consumed is by servers that are from 2007 or earlier. “Proactive Server Refresh, a program we initiated in 2007 to refresh our servers on a four-year average cadence, has been the single biggest business value driver within our IT sustainability program for energy footprint reduction,” says Chris Peters, IT director of the Industry Engagement Group at Intel.

Reducing the power consumption of servers and other hardware is an important point of concentration, but energy efficiency in the data center is also a function of the design of the applications in use. Applications are generally provisioned with far more IT resources (servers, CPU, memory, and so forth) than necessary. New benchmarks and metrics can help here. “We’ve created a benchmark on energy efficiency to drive our development. Internally, when our developers create a system, we’ve put in a standard that manages the energy efficiency on a transactional basis,” says SAP’s Graf. The purpose is to enable developers to write applications to be more energy efficient.

IT’s influence also extends to other groups that consume IT and related resources. For example, IT can encourage users to reduce paper consumption, turn off equipment not in use, and promote the use of teleconference or videoconference facilities in lieu of travel. As common practices, some IT organizations build in a sleep mode for unattended devices and make duplex printing the default.

The monitoring and deployment of green IT approaches can result in significant savings while benefiting the environment. Intel IT has been engaged in IT sustainability for more than a decade. In 2010, Intel IT implemented projects that reduced the consumption of IT-associated emissions by about 60,000 metric tons of CO2 and saved Intel’s business approximately $5.8 million.

Green IT is a mandatory starting place for most CIOs. The specific opportunities may vary by industry and geography, and regulations or other mandates are important considerations, but the fundamentals for sustainability in IT and by the users of IT are universally applicable. The good news is that embedding sustainability in the IT function is a natural for CIOs, and wellknown best practices can help.

Embedding sustainability in the enterprise

Using successful IT initiatives as a starting point, CIOs can move to bigger targets. The greater payback over time is to influence the design of enterprise business processes as they impact the management of energy, water, waste, and other resources.

CIOs already manage some of the enterprise systems that relate to sustainability, particularly those supporting regulation and compliance initiatives. For instance, efforts to reduce hazardous substances in electronics (RoHS) were founded on the information systems for manufacturing and the value chain, and were driven by IT. Other compliance systems in environment, health, and safety are also driven by the IT function.

Figure 1
Improving utilization delivers better data center efficiency than improving power supply efficiency or power usage effectiveness.

Figure 1: Improving utilization delivers better data center efficiency than improving power supply efficiency or power usage effectiveness.

Looking to the future, the focus on compliance alone is not enough. “If you start with just compliance in mind, then you never really develop a point of view of the best way to do something in an integrated manner. You’re always going to argue about tradeoffs between economic and sustainable practices,” explains Kepler of Dow. “You should evolve and mature so that you have a point of view of how to do something in a way that balances the three dimensions of sustainability: the economic, environmental, and social dimensions,” Kepler continues. Expanding beyond compliance gives CIOs an opportunity to educate other senior leadership on the requirements to create the integrated view necessary to embed sustainability.

Expanding beyond compliance gives CIOs an opportunity to educate other senior leadership on the requirements to create the integrated view necessary to embed sustainability.

CIOs can proactively use information they already manage to get started. “CIOs can actually identify energy costsaving benefits via their technology infrastructures,” says Amit Chatterjee, founder and board member of Hara Software, which makes environmental resource management (ERM) solutions. By analyzing information in the existing systems, CIOs can give their business unit colleagues visibility into how existing business processes are consuming energy and natural resources. This can spark several opportunities to generate cost savings or innovations for sustainability.

One way to get business unit leaders involved is by identifying potential savings that more sustainable operations can generate. CIOs can pull together information from existing enterprise resource planning (ERP), payables, utility bills, and related systems; generate a view of energy consumption across the enterprise; and create visibility into which facilities are underperforming— all without the need to seek investment from business unit leaders.

New technologies and solutions as discussed in the article, “Closing the loop on sustainability information,” are providing new tools for CIOs. Sustainability-oriented applications bring the capability to quantify, monitor, analyze, and report on resource consumption and related metrics. As these applications are deployed and integrated with other applications, enterprises begin the journey toward embedding sustainability concerns in ongoing processes. While implementing any sustainability-related application will borrow considerably from past implementation efforts, there are significant differences to keep in mind as well. Table 3 highlights some of the key differences between sustainabilityoriented applications and past enterprise applications.

Embedding sustainability in the value chain

“CIOs can actually identify energy cost-saving benefits via their technology infrastructures.”
—Amit Chatterjee, Hara Software

Taking the steps to drive sustainability concerns into everyday decision making may be just the start. Most organizations are discovering that the majority of their impact on resources, and therefore their biggest sustainability opportunities, are outside the enterprise. In the first major effort by a large enterprise to publish an environmental P&L, athletic apparel maker PUMA reported that internal operations accounted for 15 percent of the economic value of its greenhouse gas emissions, whereas its supply chain accounted for 85 percent. This sort of insight is motivating entire industries to partner and collaborate in the service of sustainability.

CIOs have many ways to facilitate sharing and collaboration with outside organizations. Nike, for instance, has developed its Environmental Apparel Design Tool to create visibility and feedback around sustainability issues in the supply chain1. This tool allows designers to evaluate, score their design across thousands of material and style choices, and make decisions that help Nike achieve its sustainability objectives. Using the tool, Nike and its supply chain partners can model—before manufacture—the impact of material choices and manufacturing process choices on its sustainability footprint.

Table 3
How sustainability-oriented applications initiatives are different from previous generations of enterprise applications.

Table 3: How sustainability-oriented applications initiatives are different from previous generations of enterprise applications

Industry groups, too, are playing a key role in setting standards and systems for sharing pertinent information in the value chain. The Outdoor Industry Association has created the Eco Index, an environmental assessment tool for the outdoor apparel, footwear, and equipment industry. The index is based on analysis of chemicals for toxicity, equipment and materials efficiency in reducing waste, as well as indicators for social responsibility and fair labor practices. Indicators for end of life, packaging, and facilities are also included. CIOs can tap these standards to integrate their systems with suppliers and extend visibility to allow the entire value chain to move toward a common goal.

CIOs can make contributions at the industry level as well. For example, in industry standards organizations, CIOs and their delegates can serve on specifications committees and help craft industry agreements. This experience would be familiar for some IT organizations. Take the case of RosettaNet, a standards organization covering electronics industry manufacturing and repair. IT took the lead in driving agreements between suppliers and original equipment manufacturers (OEMs) where end-to-end processes important to the industry spanned individual organizations, such as an order-tocash process. The potential exists for CIOs to provide similar leadership in industry-wide sustainability.

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A framework for embedding sustainable practices in business operations

“The CIO has the responsibility to create an integrated viewpoint from a business angle, which will help position the organization competitively from a standpoint of energy, resource, and emissions management.”
—Pat House, C3

Most enterprises do not have a model or framework for how to ensure consistent embedding of sustainability in operations. Any framework should cut across strategy, structure, people, and operations. In PwC’s experience, the progress across 13 indicators in these four categories is essential for systematization of sustainability. These indicators are illustrated in Figure 2.

Raising the profile of sustainability requires IT to engage with information it is not accustomed to collecting or managing. CIOs can look back on their experiences implementing human resources management systems within the enterprise for lessons about how to advance sustainability. From an IT perspective, there are strong parallels between the evolution of IT for sustainability and for talent management as detailed in the sidebar, “Parallels between sustainability and human resources management.”

Parallels between sustainability and human resources management
CIOs can build on experience from human resources management to advance on sustainability >
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CIOs can build on experience from human resources management to advance on sustainability.

Sustainability is not the first time an enterprise journey begins with compliance, then leads to a transformation marked by embedded practices with information technology as the key driver, and ultimately achieves lasting competitive advantage. The evolution of human resources management has parallels to the path PwC expects sustainability to take, with IT playing an integral role.

Enterprises have been managing human resources for as long as they have existed. In the pre-industrial age, there were no human resources departments, but laborers and apprentices worked for supervisors or craftsmen who were nominally responsible for their safety and welfare. The Industrial Revolution gave rise to factories, and a related rise in unhealthy and unsafe work conditions led to labor riots. Over the years, the US government created and enforced statutory regulations to provide basic rights and protections for workers. In 1902, NCR (National Cash Register Company) established the first known human resources department to handle issues related to worker grievances, safety, dismissals, legal rights, wage management, and so on. This practice soon spread to other companies.

The compliance responsibilities of human resources departments accelerated in the 1960s and 1970s with the passage of several federal laws, including the Equal Pay Act of 1963, the Civil Rights Act of 1964, the Occupational Safety and Health Act of 1970, and the Employee Retirement Income Security Act of 1974. Today, compliance obligations go well beyond such laws to include professional certifications, ethics and integrity policies, and so on.

Before laws were established, none of these areas was a core requirement for most enterprises, as they were not seen as a source of differentiation or competitive advantage. With each new government regulation, compliance became a higher priority for enterprises because they had to comply to avoid legal penalties.

Compliance led enterprises in the right direction, but it still took time—less for some enterprises and much longer for others—to grasp the notion that human talent was not being optimally used and that without changes to human resources management, there would be implications for overall economic development and national competitiveness.

Managing human resources today brings together a range of concerns across compliance, cost, competitive advantage, strategy, and others. Employee-related priorities have evolved beyond compliance into better ways to run a business, particularly how an enterprise attracts, develops, and retains talent. Enterprises continue to innovate their employee development, career paths, coaching, evaluations, and reward mechanisms. Meeting the objectives of these programs is not only the responsibility of the human resources department, but increasingly of every manager and employee.

At leading enterprises, these concerns have become embedded with larger business processes and are part and parcel of the enterprise culture, ingrained in its core value systems. How enterprises address these concerns is now a source of differentiation and competitive advantage under the broader umbrella called talent management within the human resources management function. Now that enterprises have established processes for following the law, the focus for many enterprises has moved beyond compliance objectives to nurturing talent, providing challenging places to work, and promoting a culture of innovation, learning, and making a difference in the world.

Along the way in this human resources transformation, IT had an important role. At first it played a reporting role by gathering data and documentation to demonstrate compliance with the regulations. Next the IT role extended to bringing visibility and feedback within the employee base, by creating transparency and openness around career path, learning opportunities, growth opportunities, innovation, coaching, collaborations, and so on. IT also tracks new metrics around development, contribution, retention, and others. These are all made possible by deploying systems that make developing, managing, and retaining talent part of everyone’s role and responsibility—and that embed these activities in the enterprise culture. Now progressive practices in talent management are a source of differentiation and competitive advantage for all enterprises. Leading enterprises are rewarded by attracting top talent and being named to lists of the best places to work.

Parallels between sustainability and human resources management

Like any large transformation or initiative, the best practice is for the CIO (or the chief sustainability officer) to create a program office to manage changes for sustainability. “One of the first things we did was create a dedicated IT sustainability program office,” says Chris Peters of Intel. The program office defines metrics and develops processes for collecting them.

Emerging enterprise sustainability planning (ESP) systems can be used to aggregate information and publish sustainability metrics from across the enterprise to facilitate other activities. While the program office could be essential to get sustainability initiatives off the ground, the need for this office and its role will be less or unnecessary as sustainability becomes embedded in ongoing operations.

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Acting on sustainability: Role of process transformations

When embedding sustainability in existing operations—in product design, plant operation, transportation, logistics, or others—existing processes will require changes. The CIO and IT department are experienced in process transformations. They have the broadest perspective on information flow and process. Process redesign can take two forms. One is to help redesign the process that creates the information needed. Identifying the carbon footprint, translating activities into carbon footprint equivalents, cataloguing data on the footprint, and providing analytics tools to help manage the carbon footprint are examples of new information generation activities.

A second form of process redesign tackles the transactions and sequence of events in enterprise operations. Examples include major changes that can optimize distribution, reduce supplier production of pollutants, and improve supplier reuse of resources.

Figure 2
A framework for embedding sustainability in operations that engages the enterprise at all levels from strategy, structure, people, and operations

Figure 2: A framework for embedding sustainability in operations that engages the enterprise at all levels from strategy, structure, people, and operations

Although process reengineering methods are familiar to most CIOs and IT departments, a few differences in the sustainability reengineering design process should be addressed:

Measures and metrics— Define sustainability measures and indices that provide an integrated view across environmental, social, and economic dimensions, such as the Sustainable Chemistry Index used by Dow and the Considered Design Index used by Nike. The sustainability measures are in addition to the metrics normally considered in process reengineering, such as time to market.

Closed-loop systems— Sustainability is about closed-loop systems, so the life cycle (cradle-tograve or cradle-to-cradle) must be in the process flow. This includes replacement, recycling, and eventual disposal. Traditional process redesign is typically linear and not closed loop.

Multiple relationships— In the past, process redesigns were about optimization. When one factor was considered, such as time or cost, such optimization was feasible. Sustainability is more complex and will involve multiple variables. The focus should be on developing models that explore the relationship between the economic, environmental, and social dimensions so that progress is not limited to just making tradeoffs.

Central repository— Be prepared to be the source of all information globally that is used to measure, monitor, and manage sustainability. One repository for all sources is the best method for collecting, distilling, analyzing, and publishing data.

Sustainability might be the ultimate challenge in the process reengineering discipline. CIOs have been practicing business process reengineering (BPR) for decades, but it can be even more global in its scope and consequences in the sustainability context.

This process reengineering is evolutionary and follows the continual process improvement pattern. It will not proceed with a big bang.

Ultimately, process reengineering considerations will be the basis for the best long-term sustainability programs—this is the CIO’s forte. As CIOs and IT organizations evolve through the progressive dimensions of sustainability, insightful breakthroughs embed sustainability into new ways of doing business.

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Conclusion

Information is the DNA for driving awareness, understanding, and embedding sustainable practices in enterprises and their value chains to ensure long-term economic growth. As a result, the CIO has the opportunity to be the chief sustainability enabler. Many CIOs have established solid foundations for the systems they deliver today. The next step may be to build on that foundation, using their skills to be strategic enablers of this important next wave.

CIOs can progressively approach sustainability on three dimensions: aspects they control (the IT function), aspects they influence (the enterprise), and aspects on which they collaborate (the value chain).

Sustainability essentially will have an evolutionary nature and will never be finished. Thus, a sustainability journey must start in a way that is straightforward, understandable, and actionable. From there, CIOs can chart a path of progressive enablement.

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1 Nike’s Environmental Apparel Design Tool can be accessed at http://www.nikebiz.com/Default.aspx.