Using Metrics to Turn Environmental Data Into a Business Tool
The Holy Grail for environmental managers is both simple and complex: proving that environmental measures bring tangible value to the company.
How to do that? By finding meaningful measurements and applying them in a way that can be easily communicated to others.
Companies increasingly are developing such measurement systems — or metrics, as they are often known — to help those both inside and outside understand how well the company is achieving its environmental goals.
But metrics are much more than a communications vehicle. Increasingly, they are a means of spurring behavioral changes inside the company. A well-developed metric can get individuals moving in a particular direction to meet corporate environmental goals.
Metrics are “the logical next step as people move past the basics of setting up an [EH&S] organization and start asking, ‘What do we do next?'” says Arthur D. Little’s Robert Shelton. Metrics, he says, can “help companies understand how their processes are working and how they’re really doing.”
Companies have been gathering environmental performance data for years, often in response to regulatory requirements. The total-quality management movement of the 1980s helped instill the notion that “you can’t manage what
you can’t measure.” That led to a surge in statistical process analysis that is still part of the fabric at many companies. Benchmarking — assessing company performance against competitors, industry averages, and voluntary codes — unleashed another wave of performance data in the 1990s.
But the leading edge of today’s focus on metrics goes beyond merely collecting and compiling data. It involves creating rich, dynamic indicators that assess — and, in some cases, predict — not only performance, but the value of that performance on the company’s bottom line. As such, the new metrics are an integral means of communicating the
business value of environmental programs, perhaps even justifying their existence.
Creating good metrics is challenging. For one thing, there is no one-size-fits-all approach. Indictors must be tailored to each company’s operations, culture, and goals. Moreover, metrics need to be continually reviewed and refined. Leadership companies we interviewed say they drop
metrics and add new ones on a regular basis.
However challenging, the creation of meaningful indicators will become increasingly important, thanks to ISO 14000, federal and state environmental leadership programs, and other initiatives that require sound environmental management systems. Here are some considerations to help you get started:
Leading and Lagging
A small but growing number of companies have come to understand the value of “lagging” versus “leading” indicators. The former are reactive — they tell you how well you did over a given period — while the latter are
predictive, suggesting what’s likely to happen. Consider trying to lose weight: a leading indicator is measuring how much you eat; a lagging indicator shows how much weight you’ve lost (or gained) at the end of the week.
In the case of environmental management, a leading indicator could be the number of facilities conducting self-audits, while a lagging indicator might be the pounds of emissions reported in those audits. Typically, leading indicators track proactive initiatives: the number of individuals being trained, the number of environmental procurement specifications, raw material use, community outreach activities, certified facilities, and the
like.
But it’s not that simple. “Sometimes, whether an indicator is leading or lagging depends upon where you’re standing,” says J. William Sugar, Anheuser-Busch’s senior director, corporate environmental affairs.
He explains: “We keep track of all minor releases on an internal basis, even though we don’t have to report them. I would call that a leading indicator because it helps us get our arms around why they’re occurring — what’s the root cause and how we can get them under control before we have
to report them to a regulatory agency because we’ve exceeded a threshold level.”
The differences can be subtle, and unique to each situation. But that’s just the point: Each indicator must focus on a specific goal. If the goal is to reduce all releases, and to head off major problems, then even historical data can be meaningful.
But time is of the essence. The usefulness of historical data is increased when it can be put to use quickly. Where at one time, an environmental metric might be compiled annually, companies now find value in feeding it back to key individuals more quickly, in some cases daily, or even hourly.
At Anheuser-Busch, for example, Bill Sugar explains how an effort to reduce the gallons of water used to produce each barrel of beer is leading the company to provide real-time data on video screens to production individuals, enabling them to quickly catch leaks, broken valves, unattended running hoses, or other sources of excess water use.
Money Talks
There’s no better indicator than the bottom line, and several companies have begun to translate metrics into money.
Baxter International, for example, which has aggressively used metrics for several years to help meet its waste-reduction goals, began translating its performance into dollars — internally, at first, eventually publishing it
in its annual environmental report. The data (see box) has garnered interest from other companies and the U.S. EPA, which sent a team to Baxter to look into it.
“The financial statement has become a wonderful tool in
the company because it really has raised the awareness that environmental programs save the company money,” says Verie Sandborg, manager, EHS requirements and communications. “If you want to communicate better in Mexico, it’s helpful to speak Spanish. If you want to talk to businesspeople, you need to use the language of business.”
Getting Started
Translating data into dollars requires a great deal of self-knowledge, as well as an understanding of who the audience is for any particular metric: line employees, senior management, regulators, the public, and others.
Getting to that point requires answering a series of questions:
- What are our key environmental issues and goals? This is the starting point. Start with a single goal, such as reducing energy use or toxic emissions.
- What are the key drivers of that goal? Determining this requires more than a little self-knowledge. Selecting the wrong driver could have
unintended consequences. For example, measuring hazardous waste generated rather than a reduction in hazardous material usage could drive managers to simply recycle materials rather than substitute or eliminate them. - Which data are necessary to measure that goal and drive performance?
There’s a natural tendency to want to gather as much information as possible, but sometimes less is better. “Just because you can collect something isn’t necessarily a good reason to collect it,” counsels Jerry
Schinaman, EHS manager at Bristol-Myers Squibb Co., who says he learned that lesson from experience. - What’s the best way to express the results? This will depend largely on the audience — whether it is internal or external, line workers or senior management. There are countless options. Some companies, like Procter &
Gamble, collect and report 200 or more different measures. Nortel, on the other hand, is one of a handful of companies that compile single-number environmental performance indices.
Some useful tools are available. GEMI, the Global Environmental Management Initiative, has a self-assessment matrix that may be a starting point.Bristol-Myers Squibb used a modified version of the matrix to meet its specific
needs, according to Schinaman.
There are other issues to consider. Information collected should be consistent from one reporting period to the next. The frequency and style of communicating performance data internally and externally is another important consideration. How often the metrics are reviewed and revised to reflect new knowledge and changing circumstances is still another.
When the metrics are done right and communicated well, they are powerful tools. In time, they can be used to diagnose or anticipate problems and accelerate innovative solutions.
That’s a powerful new level of sophistication for most environmental managers. It means managing strategy instead of managing chemistry, focusing on profits instead of pipes.
GEMI has a report, “Measuring Environmental Performance: A Primer and
Survey of Metrics in Use,” to be available this month. It includes four company case studies. Contact GEMI at 202-296-7449 for price and ordering information.
Making Metrics Measure Up
Here are four recommendations for ensuring that the metrics you develop are both useful and appropriate, adapted from GEMI’s draft report:
- Ensure the right data get to the right people in time to take action. For metrics to be useful, they need to be reported to the appropriate corporate officials in time for meaningful action to be taken. Evaluate whether the metrics selected accomplish this objective.
- Use metrics that are consistent with other reporting measures. For example, are data reported to the public consistent with those reported to regulators? Do environmental data collected duplicate data collected for other business functions?
- Employ metrics that drive the desired behavior. Verify whether the metrics are leading to the kinds of improvements sought. Failure to do so could produce a different result from what was intended.
- Get feedback from stakeholders. To ensure continuous improvement, developers of metrics should solicit and receive input from the users of metrics. Consult with employees, business units, environmental groups, stockholders, regulators, and others.