Sustainability as Core Business Strategy

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on August 23, 2008
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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Business leaders now recognise that sustainability has moved beyond the corporate social responsibility agenda to become an integral part of core business strategy and success. Companies are moving from asking what our sustainability strategy should be, to asking what our business strategy should be in light of sustainability.

Companies have used three key approaches to integrate sustainability into their strategy – planning their strategy to include sustainability trends, managing how opportunities are defined and selected, and experimenting with approaches to learn which yield the best results.

High Demand, low supply

Business depends on a host of often unnoticed ecosystem services, from a stable climate to assimilation of waste, from providing food to controlling diseases and pests. It's not just rainforests and tigers under threat, climatic systems, water resources, agriculture and fisheries are all degraded or unsustainable ecosystem services, which we still rely on for business success.

We are depleting our natural capital at the very time when our needs are growing. The planet will be home to 9 billion people by 2050, with the addition of just under 1 billion people in the next 10 years alone.

Profit from sustainability

The surge in population and consumption over the next 20 years looks impossible for damaged ecosystems to sustain. But smart businesses will profit from these challenges by finding ways to give us what we need and want while maintaining the ecosystem services which we rely on.

People increasingly expect business to play a key role in finding solutions to these global problems. Taking the opportunities also brings reputation and brand benefits as well as give employees a larger cause to be motivated by. However, if companies fall short of expectations, then they will experience consumer distrust (or even boycotts), greater regulation from governments, and investors questioning the quality of management.

There is an opportunity now for businesses to explore how to combine profit with creating a sustainable future. Business strategies that address this challenge at a profit will define the successful business of the next 10 years.

Integrate Sustainability into Strategy

We have found that businesses bring sustainability into their strategy process using a combination of three approaches. Firstly, they must plan to include future trends. Most companies have a strategic planning cycle, perhaps five-yearly with annual revisions. Companies can incorporate sustainability into that cycle by introducing material sustainability trends to the external assessment of the structure and dynamics of the business context.

Secondly, companies should manage how opportunities are defined and selected. In most organisations, there is the plan and then there is what happens. Putting any strategic plan into action means changing how opportunities are defined at the “coalface” and selected by managers and then reallocating resources appropriately.

Leading businesses are enabling people to define sustainability as an opportunity through giving clear signals of intent, including announcements and high profile actions. They are also setting a structural context where opportunifies that are on-strategy are favoured. These can be formal, regular reporting to board-level committees, performance targets or internal carbon currency. Or they can be informal such as promoting people who have pushed commercial sustainability-related activities.

Thirdly, organisations need to experiment to learn and create options. The world changes fast, so do the commercial opportunities of sustainability. Speed of change limits how well a company can plan or manage for success. Instead, leading businesses keep their options open and identify the best approach through a range of deliberate and contained experiments.

The experiments could be a new product message, a new product, or a whole new business. Such experiments give them the chance to test different approaches without committing the entire business. Learning is the success factor – even if they lose money, they know how to do it differently next time.

Some companies focus on one strategy, but most companies have a combination of strategies that use core competencies.

Business strategies for sustainability must be built on the specifics of how that company creates and maintains its competitive edge. Any business case is going to be weak for generic initiatives, philanthropic add-ons or being responsible for the sake of it. Instead, business strategies must anticipate emerging issues, build on the company’s strengths, and focus on resolving the challenge of reducing supply and increasing demand.


Written by David Bent. For more information, please contact The Chartered Institute of Management Accountants (CIMA) Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com. Website: http://www.cimaglobal.com

Ways to Retain Talent

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on July 26, 2008
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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From technical skills in disciplines such as finance and accounting to the budding leadership qualities of tomorrow's chief executive officers, employers are facing an uphill battle to get the best people with the right competencies into their organisations. And even those that manage to recruit good staff are finding that they face a new challenge – keeping them on board.

As the business environment becomes more global and demanding, the skills gap means it is a seller’s market for candidates with the right experience and training. The pressure is on employers to understand how to target the right people and offer them the right rewards to stay and grow with the company.

The staff challenge

Many companies have taken the first step by raising the importance of talent management to the highest levels, realising the strategic importance of finding and keeping the best people. Companies taking a proactive stance towards human resources (HR) are realising that creative thinking and concrete investment in long-term staffing continuity go hand-in-hand. The benefits may not make an immediate impact on the bottomline and do not fit the paradigm of short-termism in which the evaluation of key staff, especially senior executives, takes place these days. For the long-term health of the business, however, they are invaluable.

Changing demographics and increasingly global markets mean that companies must be selective about the talent pool they target to fill key posts, whether at junior or senior levels.

More than money

Having targeted on specific talent pool, companies must ensure that the individuals on which they come to rely on are sufficiently rewarded and challenged to want to stay for the long term.

There was a time when this could be ensured by offering greater financial rewards, but those days are gone. Furthermore, the need to retain key staff has never been greater, so firms that find the right formula could create significant competitive advantage.

Kath Roberts, managing director at Michael Page International, a global specialist in mid-market and executive recruitment, says, “In a buoyant economy, employees take more risks in the knowledge that they can get another job. That is why retention is a massive issue in HR now. Research suggests that a 5 per cent increase in staff retention can result in a 40 per cent increase in productivity.”

Employees’ newfound power in the marketplace means employers must understand their workers’ changing values and provide the right environment for staff to develop and achieve their goals.

Roberts explains, “The 1990s was a decade of cost-cutting and corporate scandals. Employees felt disenfranchised from their workplace. Generation-Y people place greater importance on trust, ethics and pride. They do not believe in blind corporate loyalty. More often, they want to join smaller companies or start their own businesses. So employees prioritise work-life balance and the community values of their employer, not just job security.”

Kelvin Stagg, group financial controller and company secretary at Michael Page International, agrees, “Such is the demand for what is an increasingly sparse population of'skilled, competent and motivated people that simply improved remuneration packages just do not make the difference anymore. It takes an in-depth consideration of what the role and the company has to offer, married with a highly professional approach to career management, to secure the very best.”

Those companies that fail to develop such a professional approach will find that they incur not only the immediate costs of recruiting to fill vacant positions, but also a number of less tangible costs that, while less obvious, are just as harmful to the business.

Strategic staffing

If there is a single key to successfully overcoming the staffing challenge that will face every large company in the coming decade, it is to align staffing strategy with the overall goals of the business. This not only forces companies to identify the skills they need in line with long-term business plans, but also provides the right environment for developing leaders of tomorrow to ensure that succession problems do not weigh down a company.

To develop their top talent and prepare those who will take over the reins, companies need to move individuals around the organisation so they can build a diverse set of skills and offer key people new challenges. This will help companies groom successors from within by providing clear personal and career development plans. Most organisations, however, are lagging in this area.

Roberts says, “Many companies are poor at training their staff. The better companies are good at assessing potential and bringing it out through experience. They measure leadership potential, not just performance.”

Organisations that recognise the need to address the strategic risk associated with skills gap understand that the best practice is to focus on a more holistic, long-term view of staffing needs. They judge talent more on their potential than on quarterly results, and regularly review staff satisfaction to ensure they are providing the necessary framework for personal development.

This can create a virtuous cycle, where organisations that work hard to retain talent also develop as part of their brand the concept that they are good employers. This, in turn, comes to play an important part in attracting new people.

The skills gap will not disappear overnight, so the onus is on employers to develop talent for the future.


Written by Jim Banks. For more information, please contact The Chartered Institute of Management Accountants (CIMA) Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com. Website: http://www.cimaglobal.com

Corporate Social Responsibility (CSR) Gaining Ground

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on December 18, 2004
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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As the driving force behind UK's Associate Parliamentary Sustainable Waste Group, Mark Dempsey's background as an environmental management specialist has made him acutely aware of the series of directives, laws and regulations that are threatening to overwhelm businesses with green tape. With careful waste management alone, he argues, companies can make savings equivalent to one per cent of their annual turnover.

One of the most persuasive ways of encouraging companies to become greener is to show them that it makes financial sense. On a wider scale, this formula of being green, being seen to be green and increasing profits at the same time is now being used to urge firms of all sizes to bite the ethical bullet and accept the more daunting challenges of corporate social responsibility (CSR) reporting.

The business case for CSR is looking increasingly persuasive. According to CSR Europe, one of the leading authorities on the subject, successive studies have shown that a committed CSR strategy improves a company's overall performance in the long term, as well as its attractiveness in the marketplace. For instance, research last year by the Institute of Business Ethics found that firms with a public commitment to ethics made 18 per cent more profits on average than those without one.

Along with the notable growth in socially responsible investment funds in recent years – there are now almost 300 in Europe – investors and consumers are really starting to flex their ethical muscles. Research by McKinsey & Co has found that institutional investors.are prepared to pay a premium of more than 20 per cent for shares of companies that demonstrate good corporate governance.

And CSR Europe's research has shown that 20 per cent of European consumers are willing to pay more for products that they believe to be socially and environmentally responsible.

According to Geoff Lane, head of the CSR advisory team at PricewaterhouseCoopers, interest in CSR from big business has now reached boiling point. The problem lies not in converting companies to the merits of CSR, but in getting them to put into practice. “A lot of it is about changing the culture of the ways companies are run, and that can be quite a daunting prospect,” he says.

The main barrier, Lane feels, is the fear factor linked to transparent reporting. “There is a feeling that companies don't want to rush into it and make mistakes that could put them in the firing line.”

But experience has shown Lane and his team that, once a company appreciates the fundamentals of CSR, these fears diminish.

Whether companies choose to adopt a full CSR strategy or not, they cannot ignore the growing pressure for greater accountability from institutional shareholders, insurance companies, pressure groups, the Government and the media. One of the consequences of this pressure is that risk has become one of the key facets of modern reporting.

“Risk management now extends a long way beyond the financial because so much hinges on reputation,” Lane says. “There's an acceptance that risk has to be approached in a much broader way, using a much more subtle process to capture possible liabilities. It's rather like a radar screen where you can see what's coming at you.”

The effect of enhanced risk management and the greater emphasis on ethical profit-making has led to a situation where, whether they like the idea of becoming eco-warriors or not, financial managers are finding themselves playing a central role in developing CSR strategies.

Lane believes that in the future one of the key roles of the finance director will be to ensure that CSR is part of a company's core strategy. “To get investors and analysts to understand why CSR issues are important, finance directors need to communicate how these issues generate both risk and opportunity for their business in the short and long term,” he says. “This means positioning CSR in the context of the company's core strategy for creating value.”

At the other end of the spectrum, Deborah Doane, chair of the Corporate Responsibility Coalition, urges financial managers to ensure that their CSR strategy documents are supported by measurable indicators.

Doane also believes it's important for those driving CSR to ensure that there is an open and balanced dialogue with all stakeholders and, in particular, those involved in the company supply chain.


Written by Camilla Berens. This article first appeared in Financial Management, a monthly magazine published by the Chartered Institute of Management Accountants (CIMA), United Kingdom, for its members. For more information, please contact The Chartered Institute of Management Accountants (CIMA) Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com Website: http://www.cimaglobal.com

Chen Ming-fa's note: Some actual examples of CSR in action in Malaysia.

1. New use for old batteries

http://thestar.com.my/metro/story.asp?file=/2009/5/25/central/3966450&sec=central

2. Disabled buddies find their niche at hypermart

http://www.nst.com.my/Saturday/National/2563860/Article/index_html

3. The disabled get a break at GCH Retail

http://biz.thestar.com.my/news/story.asp?file=/2009/3/21/business/3398175&sec=business

4. Clearwater focusing on green projects

http://www.star-space.com/news/story.asp?file=/2009/5/23/pnews/3949044&sec=pnews

5. Foundation of tyres

http://thestar.com.my/lifestyle/story.asp?file=/2009/4/7/lifefocus/3626139&sec=lifefocus

6. Panasonic: Go Green, Live Green

http://thestar.com.my/gogreenlivegreen/story.asp?file=/2009/4/7/gogreenlivegreen/3591347&sec=gogreenlivegreen

7. Shell: Gas to Liquids (GTL)

http://www.shell.com/home/content/shellgasandpower-en/products_and_services/what_is_gtl/dir_what_is_gtl_1205.html

Building High-Performance Organisations

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ACKNOWLEDGEMENT

This article was published in the New Straits Times on October 23, 2004
as a CIMA Business Talk article.

Reproduced here with permission from
The Chartered Institute of Management Accountants (CIMA Malaysia).
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Jean-Francois Manzoni from international business school INSEAD has developed a refreshing set of theories on how to drive performance. After working with many leading organisations on the MBA programme at business school INSEAD, Manzoni has defined his own set of drivers for improving performance. They make a refreshing change from the usual empirical view taken by researchers about what drives better performing organisations.

Manzoni, who heads the INSEAD-PricewaterhouseCoopers research initiative on high-performance organisations, makes it clear that the most important catalyst for change is people and their attitude and behaviour. Many of the key issues raised will strike a chord but most would agree that identifying problem areas is always easier than putting them right.

In judging the performance of an organisation, Manzoni first considers.whether the “whole” (the management team) is as great as the sum of its parts. He cites companies where individual executives are competent, often extremely so, but where as a team they do not spark, or pull in the same direction. He then looks at how much effort it takes to get things done. Are processes and systems helping or does running the company feel like pulling a heavy load uphill?

Next he considers the boundary of the firm. Many managers feel it is easier to control and coordinate resources when they are within the firm. The common assumption is that, if an activity is undertaken within an organisation, it must be easier than outsourcing – this is often ill-founded.

Finally, he looks at what he terms the “ideas cost”. How well does an organisation exploit its capabilities and resources, particularly the knowledge and experience of its staff? Building on these observations, the following are key aspects of a framework for organisational excellence:

• A healthy dissatisfaction with the status quo (DSQ). In high-performing organisations, people want to improve, learn and do things better. There is an aggressive culture towards competitors and this drives the DSQ.

• “We can and we will do it” – strong employee self-confidence is important, but must be backed up by a top management team pulling in the same direction and sharing a common understanding of the business model. To give people enough time to focus on important activities, companies must be disciplined in removing work that doesn't add value and that focuses neither on the customer nor on the employees. Many organisations are too lenient over this: there needs to be a constant drive to maximise return on time invested in initiatives. Companies should also consider and influence all the drivers of behaviour – performance measures / rewards, technology, structure, people skills, culture and process, to facilitate work that adds value.

• Change should lead to opportunities. So many organisations recruit good people, train and support them and then offer jobs to external candidates. This makes many employees feel helpless and that they cannot make an impact on problems and issues. A programme aimed at addressing problems with performance can help people to feel empowered and capable of tackling issues.

• A strong sense of “us” in improving performance. Clarity on mission, vision, strategy and values is vital so that all employees understand the basics of an organisation's strategy. Again, this is not possible unless there is a coherent view of strategy at the top. Top management needs to be both distinctive and realistic: distinctive in their strategic choices and realistic in terms of delivery and the culture of the organisation. The business and cultural model has to be enforced. Microsoft, for example, have directors of culture and people who are focused on achieving this.

• A desire to succeed and avoid failure – for many, confronting under-performance feels uncomfortable. Addressing these high-level issues requires multi-disciplinary skills. Management accounting and the advanced management accounting tools that include techniques such as shareholder value management, activity-based management and the balanced scorecard, can help deal with some of the issues raised. But management accounting techniques cannot work alone: it is leadership and the right human resource strategies that will support learning, encourage autonomy and create an environment for success.

Written by Stathis Gould. The writer is head of technical issues at the Chartered Institute of Management Accountants (CIMA), United Kingdom. This article first appeared in Insight – CIMA's online newsletter for accountants in business. Insight is accessible at www.cimaglobal.com/newsletters. For more information, please contact The Chartered Institute of Management Accountants (CIMA), Malaysia at Tel: +603 – 7723 0230 or e-mail: kualalumpur@cimaglobal.com Website: http://www.cimaglobal.com