Environmental Protection

Manager's Notebook:Map Your Value Proposition

Strategy maps can reveal how EHS contributes to the business

EHS professionals know from experience that their efforts impact the company at many levels. For example, a switch to a non-toxic substitute may reduce raw material costs, decrease worker exposure, improve worker morale, reduce customers' disposal costs, improve the brand's image, and so on. Some benefits may be precisely quantifiable; others may be intangible but offer far more value to the company's long-term strategy. Yet in making the case to management, these indirect, "fuzzy benefits" are sometimes poorly communicated or not mentioned at all.

Part of the problem is that EHS programs are not placed within the overall context of the business strategy. EHS value may be seen only in terms of offering opportunities to cut costs. Indeed, EHS professionals may have added to this impression over the years as they became "more business-like" by justifying projects on cost spreadsheets. But long-term success (and your contribution to the business) is not just about the bottom-line financials. This point has been made clear by the writings of Michel Porter, Jim Collins, Peter Drucker, and many other business scholars.

The work by Robert Kaplan and David Norton is particularly relevant in this regard. They coined the term "balanced scorecard" to illustrate that there are four key dimensions for success: (1) learning and growth (human, information, and organizational capital); (2) internal process excellence; (3) customer relationships; and (4) financial performance. In other words, companies don't succeed by just tracking the end results or cutting costs. EHS professionals have embraced the balanced scorecard to develop leading indicators of "bottom-line" performance. This approach is an excellent starting point, but it is unlikely that a balanced scorecard in and of itself will convey the message of how EHS can add greater value. Most business managers still think of "EHS performance results" in terms of reduced accident rates, emissions, and compliance violations. As I stated at the beginning, the benefits are far more extensive and multifaceted. So how do you convey this information to the rushed executive in 10 minutes?

Focus on Strategy
The first step is to understand clearly the elements of the business strategy. Sounds obvious, but few EHS professionals really do and even fewer actually sit down with business management to discuss the business strategy in any detail. I am not talking about getting management's "marching orders" for EHS. What is needed is a thorough understanding of what is important to the business and how management intends to go about accomplishing these business objectives. Again, I'm not talking about EHS objectives, but the business objectives.

The next step is to determine the EHS strategy needed to directly or indirectly support these business objectives. Management may have certain marching orders (typically expressed in the traditional EHS lagging performance targets), but only you can provide all the dimensions of how EHS can support the business objectives. How this can be accomplished requires a robust EHS strategic plan, not just a tactical plan. (Strategic planning is a topic I have covered in several prior "Manager's Notebook" articles.(1)) Strategic planning takes effort and while essential, planning often takes a back seat to the day to day urgent issues that never seem to subside.

In some respects, the effort required for adequate planning is the classic "chicken/egg" dilemma. If you are overwhelmed by day-to-day crisis fighting, how could you do anything more, let alone plan? But if you don't develop a strategic plan to create greater value, how can you ever expect to move beyond the current state of firefighting? The fortunate news is that developing a quality strategic plan and then articulating this plan to management takes relatively few resources compared to the effort spent fulfilling all your other responsibilities.

Once you have a detailed strategy and the related tactics, how do you communicate all this information to management? Business executives face a similar problem: how do they communicate the company's strategy to employees, shareholders and stock analysts in just a few minutes? Typically, a diagram is used that is based on either a standard business model for valuation creation or a custom model created for the company. For example, when I was at GE, I can recall vividly a very animated Jack Welch on the Fairfield headquarters auditorium stage explaining the "GE Growth Engine" using a diagram consisting of twelve interconnected elements.(2)

Last year, Kaplan and Norton published a book on the use of the balanced scorecard as a framework for describing and implementing business strategy.(3) Well-developed and tested models such as theirs illustrate the interrelationships among key strategic elements and how the components ultimately affect long-term shareholder value. It is the big picture, literally. What makes this model so powerful for EHS professionals is that it quickly conveys the many levels of interaction of EHS with business value -- a point that was made in the opening paragraph.

To develop a model for your company based on the balanced scorecard, you should start by evaluating the business' strategic elements. Next, identify those elements in which EHS may have direct or indirect strategic relevance. An example starting point is illustrated in Figure 1. If you are not familiar with this model, the diagram may appear a bit cryptic and I urge you to read Kaplan and Norton's book.

One of the most important considerations is that this is not an EHS tool, but a business tool that is gaining in popularity. There are excellent EHS methods for calculating value such as ROHSEI (Return on Health, Safety and Environmental Investments).(4) These EHS tools can provide the supporting information for building your case. But when it comes to the actual presentation to executive management, you are far better off using a recognized business tool. Using the latest business tools also sends a positive signal: you are thinking and acting like a business manager, not the unfortunate stereotypical environmental cop or safety Nazi.

Evaluate your Strategy
There is another dimension to strategy maps that Kaplan and Norton have not described in their book, but which I have found to be of great value in conducting a self assessment of EHS strategies in the real world.

EHS departments are quite proficient in developing tactical plans, even in the absence of a unifying strategy (a subject about which I have written on several occasions). Once a robust map is developed, based on the essential business objectives, you can test the robustness of the tactics relative to the strategy.

The technique I use is to list the specific tactical programs next to the corresponding strategic element. If the overall strategic plan is going to be successful, each element will need to be supported by tactical programs. Gaps will become obvious. Not all tactical programs are as significant as others, so color-coding or bold-facing techniques can be used to emphasize what elements truly are covered by suitable programs. For example, with one recent client it was instantly obvious that they had well-defined tactics in place to address each strategic element at every level. This is a powerful message that can be sent to business executives in a matter of seconds.

The bottom line of all this is that the world of EHS has become too complicated to rely on standard spreadsheets to convey to business management the dimensions of how EHS adds value. There are business tools (and a number of refinements developed by the author) available to quickly convey to management the possibilities of EHS and its role in the company.

References

  1. For a complete list of my articles on strategic planning, go to http://www.competitive-e.com/publications/chronologicallist.html.
  2. A copy of this block diagram appears in Noel Tichy and Stratford Sherman?s book, Control Your Destiny or Someone Else Will, HarperBusiness, 1994.
  3. R. Kaplan and David Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes, Harvard School Press, Boston, MA, 2004.
  4. www.orc-dc.com/rohsei.htm, last visited 6/5/2005.

This article originally appeared in the 07/01/2005 issue of Environmental Protection.

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