Tapping information to drive sustainability

Peter Graf

Peter Graf is the chief sustainability officer and executive vice president of sustainability solutions at SAP. He is responsible for developing sustainable solutions that best serve the needs of SAP’s global customers, while also driving sustainable operations within SAP.

During his tenure at SAP, Graf has held various management roles. Previously, Graf was the executive vice president of solution marketing at SAP. In this role, Graf was responsible for shaping the company’s industry solution, application, and platform strategy.

Based at SAP Labs in Palo Alto, California, Graf holds a master’s degree in computer science and economics as well as a Ph.D. in artificial intelligence.

In this interview, Graf details how sustainability is about long-term business models and what CIOs can do to give their organizations an edge.

Peter Graf of SAP details the role information and information systems will play in driving sustainability.

Interview conducted by Vinod Baya

PwC: You head the sustainability function at SAP. What does sustainability mean to SAP?

PG: In 2008, our executive board decided to make sustainability the purpose of SAP. In essence, this means we exist for the sake of helping companies manage their operations in a world where resources become scarce, prices become more volatile, consumers are connected over the Internet, environmental concerns and regulations are proliferating, and social aspects have a serious potential impact on a company’s results. So, while we have always been focused on managing the resources of a company, the developments that we see in the world today force us to rethink what enterprise resource management actually means as the importance of resources shifts. One important aspect of our sustainability strategy, therefore, is our commitment to become more sustainable in our own operations. This gives us the experience and credibility in the market to be successful.

PwC: What are the core challenges for companies to move forward on sustainability?

PG: I’d say there are three key challenges today. First, companies need to look beyond pure economics and better understand the environmental and social impact of their operations. You really can’t separate environmental and social concerns from your bottom line any longer—just think of recent environmental disasters or cases of social injustice. On the other side, look at where companies thrive because they deliver shared value to themselves and the communities in which they operate. Second, sustainability needs to be seen as an opportunity and not only as a risk. Many companies still wait for environmental or social legislation to hit and see this as a risk, rather than trying to understand how to create competitive differentiation from sustainability. The third challenge is moving from having a sustainability strategy to making your corporate strategy a sustainable one. That’s a profoundly different and much more challenging task.

PwC: How should they do that?

PG: Sustainability is about ensuring that the company can continue to deliver value in the long run. And for this to happen, all parts of the business must take sustainability into account, from procurement to manufacturing, distribution to accounting, and innovation to customer management. Therefore, making your strategy sustainable requires the company to strategically address critical areas, including operational risk (including the health and safety of workers as well as environmental compliance and incident management), resource productivity (including optimizing the use of natural resources or energy), sustainable supply chains and products and, finally, creating a sustainable workforce. For this effort to be effectively managed, and for sustainability performance to be measured, companies invest in software.

PwC: What you’re talking about is really business model transformation.

“We set targets for sustainability goals and make the progress visible to encourage awareness and personal accountability.”

PG: Absolutely. That’s why it’s so interesting. We don’t see transformations of this scale happen too often, but when they hit, their impact is significant. The Internet and globalization are two such transformations that are similar in scale and longevity. They create new winners (search engines, online stores on the Internet) and new losers (travel agents, book stores). So, for example, if you look at an oil company, there are two scenarios for the future. Either oil consumption will rise, prompting the company to spend more money finding oil, or people will turn to alternative sources of energy, lowering the cost of oil. So how will that company transform itself? Those are the fundamental questions, and they all start with the current focus on sustainability.

PwC: What role does software play in the sustainability trend?

PG: For me, the use of software is to (a) collect information, (b) analyze information, (c) set targets and put these targets into the organization, and then (d) operate.

Enterprises have so many choices in how they can act on sustainability. They need an optimization function that looks across all options. They can’t do that without software. For example, we are using our software to manage the energy-efficiency question: “What gives me the most financial return and what other options do I have?”

We have also created an internal abatement curve using our software. This curve visually shows the financial impact of making changes across our operations. For example, my curve tells me that through the use of videoconferencing capabilities, we can remove another 39,000 tons of carbon by 2015. And for every ton that we remove, our analysis says that the company saves 654 euros. That’s the bottom line financial implication.

Another example is our internal deployment of our Sustainability Performance Management software, where we track 400 key performance indicators [KPIs]. We cascade those KPIs in dashboards that we use to track our performance against goals across the course of the year. This includes leveraging these dashboards as a tool for discussion and decision making during our quarterly sustainability councils with our co-CEOs and the board.

PwC: How is information you collect in these systems being used to change the behaviors of employees?

PG: We are using software to create transparency. Every employee can go to the portal and see the computing stats, review the energy consumption trends in buildings, and discover printing data for every printer. How much has been printed in black and white vs. color? Are we printing less or more as a company or in this office? We set targets for sustainability goals and make the progress visible to encourage awareness and personal accountability.

We also plan to present useful information to help influence actions. For example, when employees book a flight, we will tell them what the carbon footprint of that flight will be. Employees are empowered to take this additional information into consideration when making a decision to travel.

We are also looking at a project to see if we can break down our overall footprint on an individual basis. Employees would receive a message that says, “Your footprint in the company this year is that much, and x percent of our employees have a smaller footprint than you.” Such visibility changes behavior. We already have competitions going between teams and across our global offices. All these approaches are positively influencing behavior.

PwC: What are some results of your sustainability initiatives?

48% Energy

PG: Just on the energy front, SAP sources 48 percent of its energy worldwide from renewable sources. Here in Palo Alto, it’s 100 percent renewable—wind energy, plus the solar energy derived from the 650 panels on our roof. Collectively in the years 2008, 2009, and 2010, our energy-efficiency efforts created savings of a quarter billion dollars. We live the business case.

Last year we reduced energy consumption by 6 percent in spite of the fact that we grew revenues by 20 percent. Our goal is to reduce total emissions back to the levels of 2000 by 2020 and we’re 25 percent of the way to our target already.

PwC: How should CIOs build a system to address sustainability efforts?

PG: They need to focus on three different layers. The first is a transactional layer. This is about opening up the transactional systems, so people can access the data relevant for sustainability that already exists. The second layer consists of sustainability solutions that take the data and put it into perspective so people can collect, analyze, report, set strategies, set targets, and cascade targets—all from a sustainability viewpoint. It is not just an analytical system; it’s an enterprise performance management system. The third layer is putting this information into everybody’s hands—in a mobile manner —so they can access this information wherever they are.

And then, finally, there’s one other step that is often not understood. In today’s enterprise systems, processes are designed to be linear: from extraction, production, distribution, point of sales, retail, consumption, to landfill. That’s how the systems are designed. The longer-term perspective is to use enterprise systems to connect the design of a product with the recycling of a product, so that we come closer to a cradle-to-cradle view of the world.

PwC: So from a linear to a closed-loop system?

PG: Yes. It’s a dramatic change and offers a completely new way of thinking about software. We can extend the edges of processes in a way that they connect. We have recycling administration, and we’re also working on this idea in product life cycle management. These systems need to be designed so that they can connect.

PwC: How is this software different from systems such as ERP [enterprise resource planning] and SCM [supply chain management] and associated business intelligence solutions?

PG: It’s all about visibly connecting two types of business data—financial numbers and numbers we previously didn’t track. 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. 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.

The existing systems, however, continue to play a role here. For example, you can go to the travel and expense system and harvest financial data about the fuel consumed by employees on the road, because that is getting expensed—you have the airlines tickets, the purchasing data, all the electricity you buy. You can harvest a lot of data that already exists, but now the next step is to put it into the context of resource constraints.

PwC: Will the impact of sustainability solutions be different from ERP, CRM [customer relationship management], SCM, and other enterprise systems?

PG: When we implement supply chain management systems, we make the supply chain planners our heroes. When we put out CRM systems, we make the head of sales and the account executives heroes. Sustainability software is about making everyone a hero in the company. It’s about giving everyone that transparency and the information to make the right decisions.

PwC: Sustainability concerns impact the full supply chain. What is the impact on the supply chain you operate in?

“The longer-term perspective is to use enterprise systems to connect the design of a product with the recycling of a product, so that we come closer to a cradle-to-cradle view of the world.”

PG: We obviously drive sustainability requirements into our own supply chain. But for us the supply chain challenges we face are mostly downstream, not upstream. We’ve analyzed the 188,000 SAP systems that are in use at customer sites, and we’ve created visibility into the footprint of our customers’ systems in energy consumption. We can see what kind of products constitute those systems.

We’ve also 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. We measure how many kilowatt-hours of electricity a system needs to achieve a defined business throughput.

The developers need to write the code in a way so that it’s energy efficient. And we have the first partners coming out that are now competing on this benchmark.

PwC: From an enterprise software standpoint, how is addressing sustainability different from other solutions?

PG: To look to the future, I think it’s important to understand a key change we are witnessing today. We have mastered the flow of material. What we haven’t mastered yet is the flow of information with the material. Or, for that matter, the information attached to anything that is being exchanged. Information attached to energy. Information attached to products. I’m not just saying this is the recipe or bill of material of a product; I’m saying this is the toxicity, this is the environmental impact, and so on. To put it in a nutshell, we used to live in a world where energy was cheap and information was expensive. Now, information is a resource that is becoming limitless, and energy and other environmental resources are becoming constrained. The sustainability journey is about using information to become better at managing the constrained resources.