BUS 205 week 1 Discussion

1 Social Responsibility and Sustainability: Similarities and Differences Joyt/iStock Editorial/Thinkstock Learning Objectives After reading this chapter, you should be able to:1. Define corporat e social responsibility and sustainable business and describe how these relate to the triple bottom line.

2. Analyze s ystems theory and complexity theory and discuss how both relate to sustainability.

3. Describe how continuous impr ovement can promote sustainability.

4. Ev aluate the types of waste that reduce financial viability or increase social and economic impact.

5. Summarize the elements of sustainable business practices.

2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability Pretest Questions 1. The financial bott om line is the only element that determines a business’s sustainability. T/F 2.

Inputs, thr oughputs, and outputs represent the three elements of a system. T/F 3.

Continuous impr ovement applies to individual performance only. T/F 4.

W aste, in its many forms, damages the bottom line but does not impact a business’s sustainability. T/F 5.

Sustainable businesses ha ve a higher capacity for change. T/F Answers can be found at the end of the chapter. Introduction This book advocates a better way to do business, build organizations, and benefit society.

We argue for a holistic and sustainable approach to business because we believe business is not, nor can it be, disconnected from society, communities, the environment, government, or individuals. This chapter lays the foundation for this perspective by introducing the idea of socially responsible and sustainable firms and by describing a leadership mind-set for both.

The sustainability mind-set described here moves leaders from a reactive stance to a proac- tive one. When they adopt such a mind-set, leaders move away from reacting to consum- ers, trends, and activists and toward being proactive and strategic about the opportunities and interconnections in business. The sustainability mind-set also helps guide leaders and managers regarding when, why, and how to enact socially responsible behaviors. We intro- duce foundational theories that support a social responsibility and sustainability perspec- tive. General theories such as complexity theory and systems theory, among others, provide the background for lean management and continuous improvement, practices that reduce waste and open opportunities for innovation. Thus, this book alternates between (a) sharing the theoretical and historical underpinnings of key sustainability ideas and (b) sharing best practices and examples from a wide range of industries. The first task, however, requires us to further define and characterize the ideals of corporate social responsibility and corporate sustainability. 1.1 Corporate Social Responsibility and Sustainability Defining the relationship between the means of production (business) and society (employ - ees, customers, suppliers) has a long history, one that has usually featured discussions about the purpose of business. Historical musings about modern capitalism usually included attempts to understand the proper role of business in society and thus formed the foundation for modern discussions of corporate citizenship, which is a loose term used to describe the relationship between a corporation and its society (Barkemeyer, Holt, Figge, & Napolitano, 2009). The following section defines these concepts and covers the evolution of key terms. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability Defining Corporate Social Responsibility and Sustainability Corporate social responsibility (CSR) refers to voluntary actions taken by firms that are designed to improve social or environmental conditions (Mackey, Mackey, & Barney, 2007; McWilliams & Siegel, 2001). More specifically, CSR refers to the “continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as of the community and society at large” (as quoted in World Business Council on Sustainable Development, 2015). Originally, the CSR para- digm simply reflected the fact that some corporations were aware of their immediate busi- ness context and generous only to the people within that context (primarily employees and customers).

Most heavily discussed by business leaders and consumers in the 1970s, early CSR efforts primarily focused on compliance with legal commitments to shareholders or appeasing and supporting local communities—the earliest efforts and discussion of CSR largely focused on corporate philanthropy and workers’ rights. Early CSR by the Dow Chemical Company, for example, included donations to the local museum and sponsoring flower gardens along the main streets in the headquarter’s town of Midland, Michigan. CSR at Dow today is a much more comprehensive practice that includes innovation and decisions that pertain to new product development.

Since the 1970s CSR has expanded to focus less on compliance, philanthropy, and donations and has become a more strategic, inclusive, and global concept. Accordingly, the topic has moved from being discussed primarily in ethical terms to both ethical and strategic ones; the word sustainability now also accompanies or replaces the term CSR in some discus- sions (Jones Christensen, Peirce, Hartman, Hoffman, & Carrier, 2007). Business sustain- ability refers to how an enterprise manages the triple bottom line—a process by which companies manage financial, social, and environmental risks, obligations, and opportuni- ties (often referred to as profits, people, and planet) (“Definition,” 2015). This definition of sustainability is partially rooted in the environmental movement and implies that in order to increase sustainability, a corporation must reduce its negative environmental and social impacts and increase its stewardship of resources. Thus, for some, sustainability includes CSR behaviors while also extending and building on historically CSR activities. This book advocates the idea that corporate sustainability includes typical CSR activities and adds more strategic environmental and social elements to the concept. Authors writing for the Harvard Business Review suggest that sustainable business practices can be the norm in the future. Chouinard and colleagues (2011) say, “Instead of asking either ‘how can we turn a profit?’ or ‘how can we minimize impact?’ managers [of the future] will see those as two sides of the same coin. Sustainability will simply be how business is done” (para. 6). This book attempts to capture both what it means to be socially responsible and sustainable and how to achieve such results.

The choices made by Merck & Co.’s management—from philanthropy to drug development and then in-kind donations for low-income communities—provide an example of a firm that has run a solid and effective CSR and sustainability campaign.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability CSR and Sustainability in Action: Merck & Co.

In 1668 Jacob Friedrich Merck purchased a drugstore in Darmstadt, Germany, and his family operated it for several generations. In 1891, when George Merck immigrated to the United States, he established Merck & Co. (now Merck & Co., Inc.) in New Jersey. Today Merck is one of the world’s seven largest pharmaceutical companies. It is also a generous one. The Merck Foundation, which is funded by the corporation, gives away as much as $500 million in products, services, and cash every year.

Merck’s research and development has led the U.S. Food and Drug Administration to approve more of its drugs than any other company (Merck & Co., 2015). These include groundbreaking drugs that help treat diabetes, high cholesterol, autoimmune disorders such as arthritis, and cancer. Merck scientist Maurice Hilleman developed the first vaccines for mumps, rubella, and chicken pox. Merck scientists also developed the first statin class drug and the first effective treatment for tuberculosis.

In 1987 Merck & Co. partnered with the United Nations (UN) to develop a drug to donate to those who suffered from river blindness in Africa. Estimates suggest that at that time, the cost of developing such a drug averaged 12 years and $200 million (Hanson, & Weiss, 1991).

The decision to support drug development when the firm might never recoup the costs was a major one that Merck executives ultimately supported. There are now regions in which river blindness has been eradicated, in large part because of the financial and social support from Merck. Merck’s actions continue to be widely known and publicly commended. The reputational benefits and free marketing Merck has received from its charitable actions has helped it in social and financial ways equal to or beyond what it could have gained by taking a for-profit approach. This book addresses how to identify, evaluate, and intelligently lead firms to make such choices. More importantly, it is about how to think beyond narrow philanthropy-only versions of social responsibility and toward the wider and strategic goal of corporate sustainability. This first chapter sets the stage for this goal, while the final chapter (Chapter 10) expands on a series of challenges that future leaders face in building sustain- able and socially responsible corporations. By the time readers reach Chapter 10, such goals should seem both understandable and attainable.

Sustainability: Long-Term Accountability The definition of sustainability has its roots in environmental science and has since been inte- grated into economics and business. In the language of business, a sustainable cor\ poration miti- gates harm and increases social and environmental good over the long term while remaining profitable and providing valued products and jobs. At a minimum such a corporation does not harm the social or ecological environment, nor does it deplete national or human resources. All of these activities explicitly support long-term viability (McWilliams & Siegel, 2001).

One of the most widely applied definitions of sustainable development in business comes from a 1987 document that grew out of the UN-mandated World Commission on Environment and Development, which set up a diverse group to define sustainable development. Headed by the former prime minister of Norway, Gro Harlem Brundtland, the results took years to achieve \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability and were published in a report called Our Common Future. This document came to be called the “Brundtland Report” or the “Brundtland definition” (even though the entire commission worked to achieve it) and included the following key text:

The environment is where we live; and development is what we do in attempt- ing to improve our lot within that abode. The two are inseparable. Sustain- able development meets the needs of the present without compromising the ability of future generations to meet their own needs. (World Commission on Environment and Development, 1987, Part I) The establishment of this definition became a landmark event for sustainable development.

It was notable because it took a long-term view in its mention of future generations. It also stood out at a time when the majority of the business community was operating under a very short-term and isolationist or nationalist mind-set. With its focus on long-term accountabil - ity to future generations, it gave policy makers, businesspeople, and governments a starting point from which to evaluate actions and choices. Over time, the definition was honored for these accomplishments but also criticized for mentioning “needs,” as needs are hard to define and harder still to agree upon for large numbers of people. Despite that issue, this definition of sustainability continues to dominate the literature and popular press on the topic.

Interface Carpet represents an early example of how a business used sustainability principles to become innovative and profitable while attempting to restore society and the environment.

Ray Anderson, the company’s founder, admits that for the company’s first 30 years of opera- tion he focused solely on profits. He did not consider his own consumption of raw materials as impacting the environment or future generations. As Anderson learned more about the relationship between ecology and commerce, he pushed the firm to take responsibility for its products, from the extraction of raw materials to the disposal of used product. CSR and Sustainability in Action: Interface Carpet, Part 1 In 1973 Ray Anderson founded Interface Carpet to provide modular floor coverings to corporate and institutional clients. He ultimately built a billion-dollar company, but in 1994 Anderson realized the company lacked an environmental policy. As Anderson worked to create one, he was inspired by Paul Hawken’s book, The Ecology of Commerce.

It discusses many principles, but especially how to reframe business toward a goal of zero waste (Anderson, 1998).

Anderson was distressed to learn that it took 800 million pounds of nonrenewable material extracted from the earth to generate $802 million of product (Anderson, 1998).

Inspired by Hawken, he felt that business and industry were the only institutions large and powerful enough to lead society out of the environmental problems that industry had helped cause. Anderson decided to immediately change how he ran his business.

Interface Carpet maintained or improved market strength while also investing in renewable energy, recycling aggressively, and empowering all employees to drive change and create products that are safe for them to handle and for consumers to use.

Interface Carpet now benefits its local community, broader society, the environment, and shareholders as a normal part of running its business.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability Given sustainability’s high potential value to firms and society, how can it be developed, mea- sured, and turned into a business goal? What trade-offs must be considered to keep it from being unattainable in the short term? The next section attempts to answer these questions by describing a form of accountability and a classification of measurements (the triple bot- tom line) that allows users to describe and discuss how an organization progresses toward sustainability.

More Than One Bottom Line A simple way to identify a sustainable business is to determine whether it formally accounts for (or even considers) a “double or triple bottom line.” This phrase builds on the concept of the single bottom line—the term for financial profit. The idea of a triple bottom line refer- ences an analysis or accounting tool that evaluates environmental costs (or liabilities) and benefits (or assets) along with the costs and benefits of social and financial decisions.. If a firm considers two of the three categories, it uses double bottom line thinking; when a firm considers all three categories, it serves and measures the triple bottom line. Some groups refer to these categories as the Three Ps: profit, people, and planet.

The Economic Bottom Line: Profit A basic economic truth about business implies that without some form of outside subsidy or similar intervention, companies need a steady financial profit or they ultimately cease to exist. When the cost of running the business exceeds the firm’s financial profit, it must seek a subsidy or stop operating. Financial profits pay salaries; support research and development; fund investments in property, supplies, and equipment; contribute to the tax base; and other - wise drive operations. In standard accounting practice, financial results enable comparisons to be made between firms, which offer investors and other stakeholders clear signals about viability and value. For many, the financial bottom line represents the most basic type of sus- tainability—the kind where the company is “sustained” to operate and thus able to provide employees and communities with jobs and products. Without profits, there is no business.

The argument for additional types of bottom lines stems from the belief that money is just one type of resource needed to run a firm; however, firms may operate better, last longer, and innovate more if management also considers and calculates human and environmental resources.

The Social Bottom Line: People Organizations differ widely in how they treat employees, customers, suppliers, and even com- petitors. The term human resources typically describes an organizational department that handles employee-related issues such as hiring, firing, promotion, health and wellness, ben- efits, and legal rights. The very term for describing the department implies that people are a resource, just like money. Organizational managers with advanced human resource prac- tices signal to workers and future employees—as well as the community—that the company invests in the very people who sustain the business. Organizations where management pur- posefully supports, nurtures, and protects employees often do so as an expression of CSR. The \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.1 Corporate Social Responsibility and Sustainability underlying logic and motivation can run from ethics (valuing people is the right thing to do) to finances. When employees are happy, secure, and healthy, there is less turnover, higher pro- ductivity, and fewer training and replacement costs (Weber, 2008). Whatever the motivation behind pro-people behaviors, the outcomes remain similar: higher retention rates, higher satisfaction rates, fewer errors, lower health care costs, and other related savings and bene- fits. Cutting-edge CSR and sustainability practices go beyond employees to include suppliers, community members, government, and others (Weber, 2008).

A sustainable firm may also take a long-term approach to developing people inside and out- side the company. Managers in such a company may give employees growth and promotion opportunities, focus on diversity and inclusion, or take an expansive view of work–life bal - ance. Such managers also tend to create an environment where innovation is rewarded, as innovation by definition moves everyone forward. Part of supporting innovation relates to remaining loyal to people when they experiment; it also means giving people the resources and freedom to develop ideas, build prototypes, and test the final product. Merck & Co. offers one example of how investing in employees by providing resources and support for innova- tion can result in social benefits (more health) and corporate benefits (more profits) (“Key facts,” 2015).

Investments in people are often called social investments, which can take the form of money spent on training, fair or above-market wages, motivational programs, benefits packages, and more. Social investments not only acknowledge that employees make a valuable contribution, they also highlight the value of the lives of people outside the company. An excellent example of this is the mission statement (purposefully called a “credo”) of Johnson & Johnson, a drug and consumer products company similar to Merck in some product categories. Johnson & Johnson’s credo highlights its priorities. The first line reads: “We believe our first responsibil- ity is to the doctors, nurses and patients, to the mothers and fathers, and all others who use our products and services” (Johnson & Johnson, 2016).

This important statement guides corporate leaders and employees in their daily decision making because it tells them to put the user of the product first, not the owner of the com- pany or its shareholders. Such a clear sense of focus can help decision making and priority setting, and it likely plays a large role in Johnson & Johnson’s success since the 1860s. That said, Johnson & Johnson’s credo does not ignore the business aspects of the pharmaceutical enterprise. Its credo says later in the first paragraph: “Our suppliers and distributors must have an opportunity to make a fair profit.” The second paragraph states that the employees must have a “sense of security in their jobs” (Johnson & Johnson, 2016).

This last point is evident in Johnson & Johnson’s on-site career center. There employees who leave the company can take advantage of the career center’s resources. Johnson & Johnson employees have a right to access the career center for the rest of their professional lives.

While commitment to employees is a common CSR practice, a lifelong commitment is more unusual and sets an example for others to model and adapt. Benefits from such practices include employee loyalty, improved rankings as preferred places of employment, reputational benefits that enhance recruiting opportunities (Weber, 2008), and other benefits discussed in future chapters.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Theories Related to Sustainability The Environmental Bottom Line: Planet The final bottom line involves measuring the costs and benefits of environmental elements used by the firm. At its most basic, this metric simply means calculating and understanding the cost of physical waste or the cost and extent of pollution. At its most complex, such a metric means attempting to account for the cost of clean/dirty air, clean/dirty water, sourc- ing materials, and the waste that occurs because of a product. Regarding the most basic level, most companies do not want to be viewed as polluters. Most don’t want to pollute, but some industries inherently operate with more blatant pollution and environmental disruption. For example, mining companies by definition dig and disrupt the earth. The work results in waste streams that may have some level of toxicity. Pulp and paper firms and those in the lumber industry must harvest trees and alter the natural landscape (even on company property).

Firms in the extractive industry have long received public attention because mining is danger- ous and results in obvious pollution. However, there remain many other and less obvious ways to consider the environmental impacts of operating a business. The Environmental Defense Fund (EDF) reports that 1 in 3 Fortune 500 companies uses interns and advisors from the EDF to help reduce their corporate carbon footprint (EDF, 2015). Such support results in sim - ple initiatives such as carpooling or allowing “work from home days” to reduce air pollution generated by employees, as well as more complex initiatives related to changing packaging material, altering chemical composition of products, relocating factories, and so on.

Companies that adopt a CSR and sustainability mind-set no longer see themselves as iso- lated in the market or society, or outside of environmental concerns. They see themselves as part of the larger system. This mind-set may stem from the increased global connectivity that has developed over the past 20 years, as well as from an increased appreciation for systems theory concepts, which have been refined and expanded over the past 60 years. The following sections introduce systems theory and complexity theory and examine the impacts of both on the CSR and sustainability movement. 1.2 Theories Related to Sustainability The newer approach to CSR takes a systems theory perspective, which means that respon - sibility is related to interconnectedness and includes a wide range of actors. By discussing theories that underpin CSR and sustainability, this book moves from describing the goals of CSR to describing tactics for achieving them.

Before detailing the benefits of building a sustainable business or organization, or how sus- tainability feeds and motivates CSR, we discuss the roots of some CSR and sustainability ideas.

Most great ideas emerge dependently, with roots in other disciplines. Similarly, many believe that corporate sustainability stems from a mind-set called systems theory.

Systems Theory: A Foundation for CSR and Sustainability Systems theory or general systems theory operates on the fundamental idea that all phenomena exist as a network of relationships among elements in a system. Also, all sys- tems, whether social or biological, have common patterns. These theories therefore involve \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Theories Related to Sustainability identifying and considering connections between different groups, such as ecological sys- tems, social systems, and biological systems. Elements of systems theory relate to classical philosophy. Today biologist Ludwig von Bertalanffy is probably the best and most noted sys- tems theorist. He published Perspectives on General Systems Theory in 1975. In it, he argues that all systems share certain characteristics. Common elements include inputs (such as raw material), throughputs (such as shaping the raw material), and outputs (a final product ready to be sold). A system can be defined by what it takes in, what it changes, and what it puts out.

For example, a lumber company takes in rough-cut trees (input); then employees dry, saw, and plane the wood (process); after these processes, the firm offers a final product in the form of lumber (output). For a less tangible example, consider a communication system. There are inputs (words and signals); throughputs (listening to or recording the words and signals); and outputs (additional words and signals that are ideally related to and link with the inputs).

As mentioned, systems theory operates on the fundamental idea that all phenomena have a network of relationships with common patterns. The notion of patterns leads us to the sec - ond set of ideas in the family of systems theory that we call complexity theory. While the ideas seem closely related to biology and life sciences, business advisors such as Peter Senge (1990) and Margaret Wheatley (1992) have written a great deal about the importance of sys- tems theory in business thinking and planning. To understand the relationship, we first need to describe complexity theory.

Complexity Theory: Another Precursor to Sustainability Complexity theory refers to a general theory of systems that describes how corporations, or any changeable structures, adapt to their environment and cope with conditions of uncer- tainty (Gleick, 1987). This theory helps us understand why sustainability is such a precious and fragile commodity in business. Complexity theory provides a lens through which to view all systems, including organizational ones such as corporations. Complexity theory stems from observing nature; its central tenet is the idea that all systems are organic and emer - gent (or that they constantly grow and change). Someone who notices patterns in a business organization within a dynamic market and says, “This organization has a life of its own” is knowingly or unknowingly recognizing a key theme of complexity theory (Hammond, 1997).

How does such a seemingly vague idea relate to business and CSR? An organization that builds cars or creates chemical compounds (or any product or service) operates in ways bounded by resources, talent, and market opportunity. Owners and managers can change somewhat over time, but the paths for change are limited—a car manufacturer cannot keep its core resources, talents, and market opportunities and become a real estate firm. While firms can change, we cannot predict which path an organization will take. Each managerial decision, each corporate action leads to a new set of complex realities.

Consider how Ray Anderson turned Interface Carpet from a waste-producing organization to one with almost zero waste. Doing so required a change in his mentality and awareness.

He took an unpredictable path and gained an outcome not foreseen by his employees or his competitors. Thus, the ideas of complexity theory and systems theory come together to sug- gest that it is possible to move business from the typical unsustainable behaviors commonly practiced today and move toward the sustainable and restorative practices of the future. Sys- tems theory and complexity theory provide a bridge for understanding how the past need not determine the future of business. Consider the following description of complexity theory:

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.2 Theories Related to Sustainability At each level of complexity, entirely new properties appear. [And] at each stage, entirely new laws, concepts, and generalizations are necessary, requir - ing inspiration and creativity to just as great a degree as the previous one.

Psychology is not applied biology, nor is biology chemistry. (Waldrop, 1992, p. 82) The idea that a system is nonpredictive (meaning it is not possible to know how something will turn out before it is tried) is an essential characteristic of complexity theory—it also provides the motivation to innovate. Systems that are predictive are not dynamic, because by definition predictive means knowing what will happen, so there is no surprise or dyna- mism. Such predictive systems cannot change for the better or for the worse. More specifi - cally, Nobel Prize–winning physicist Ilya Prigogine (Prigogine & Stengers, 1984) showed that disequilibrium is a necessary condition for a system. Prigogine called changeable systems dissipative structures. These are structures that are resilient rather than stable, and order comes from within through self-organization. These phrases and ideas further relate to busi- ness, because acknowledging that all markets, corporations, and systems are self-organizing reflects sustainability—corporations must continually adapt. Sustainability and CSR directly relate to a corporation’s ability to adapt. When a person in a firm sees that action and change are necessary, applying these theories can help individuals and firms can take action toward change. Again, these theories represent both the motivation and the bridge to move from past behaviors to future practices.

As defined by complexity theory, a final characteristic of any dynamic system, including busi- ness, is that systems must be seen holistically , or as a whole and not just in parts. This idea represents another point at which the principles of complexity theory and the notion of sus- tainability merge. A system cannot be sustainable without someone accounting for as many variables as possible in as much detail as possible. Sustainability and CSR require that leaders take a wide account of the source of any problem and any possible solutions. This idea brings us back to triple bottom lines and systems thinking, where future leaders step back from a decision or from measuring only the dominant bottom line to see how a larger view and mea- suring additional bottom lines can lead to positive change. Later chapters in this book discuss how to achieve such changes.

The central argument is that in order to create a sustainable organization, one needs to expect and account for the dynamic aspects of all organizations. One needs to look at the points at which the organization connects with others, markets, social groups and societies, politics, the environment, and all other dynamic systems within the organization’s operations. Note that this implies that organizations, like people and ecosystems, are in some way alive. If they are not alive, they are at least dynamic to the point that they behave very much like living things. In order to sustain a living thing, one needs to continuously improve.

When leaders and managers embrace this idea, it becomes natural to attempt continuous improvement in work processes, too. It becomes second nature to put rules in place to measure the current state of things and to set goals to continuously reach for a dynamic future state.

Continuous improvement represents one tactical way that leaders can help move companies toward more socially responsible, profitable, and environmentally sustainable behaviors. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Continuous Improvement 1.3 Continuous Improvement There are essentially two choices when managing a business—one can either stay the same and gradually decay over time or purposely enact a cycle where the business gradually or dra- matically improves. To strategically decide to analyze all processes with the intent to under- stand and improve them is to commit to continuous improvement in business. In this case, improve means to adapt to the changing environment and become more efficient and inno- vative with the business’s inputs and throughputs. Simply put, dynamic organizations that prevail in the market continuously improve. Consider, for example, how if a company wins awards one year, those award-winning behaviors become expected and status quo the next year; to win the next award, the company must do something more than before.

Operations management classes teach a number of specific processes that firms adopt to for - mally enact continuous improvement. Two examples of such programs are the Shingo model and Six Sigma. These programs emphasize ongoing adaptation as the only way an organiza- tion can adjust to a changing environment and the only way to sustain financial stability, cus- tomer loyalty, employee dedication, and lower environmental impact (Shingo, 1986, 1987).

At the core of such continuous improvement is a concept called kaizen, which means “change good” or “change for good” in Japanese. Kaizen became famous in the United States from Masaaki Imai’s 1986 book, Kaizen: The Key to Japan’s Competitive Success. Continuous improve- ment concepts are similar to those described previously that relate to general systems theory.

That is, they are focused on continuously adapting inputs, processes, and output to reduce waste and improve sustainability.

The Shingo Model The Shingo model represents one of the more useful and successful change management or kaizen systems. Based on the work of Dr. Shigeo Shingo, who brought the Toyota Motor Corporation to manufacturing prominence in the 1970s and 1980s, the model takes a spe- cific approach to operations and continuous improvement. It is based on 10 principles that begin with the social and human side of business. The Shingo model differs from other kai- zen systems in that it starts with the human dimension, while still including economic and environmental dimensions, in order to help organizations find long-term ways to become sustainable. The 10 Shingo principles fall into four overarching categories. The categories and principles build on and reinforce each other—the cultural enablers and human emphasis form the model’s basis, and all additional principles build on that foundation (see Figure 1.1; Shingo, 1986, 1987).

Respect Every Individual The first principle in the Shingo model involves respecting every individual (Shingo, 1986, 1987). When people feel respected, they willingly dedicate effort, mind share, and loyalty to organizational efforts, which typically increases effectiveness. Individuals are respected when organizations nourish employee potential (by offering them training and development, good leadership, advancement options, and fair and transparent procedures). Respect is also evident when companies invest in employee health, safety, diversity, and co-ownership. This \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Continuous Improvement can range from simple processes to cutting-edge activities that lead in social responsibility and corporate sustainability (or at least the social side of both).

Figure 1.1: The Shingo Model f01_01 Cultural EnablersLead with Humility Respect Every Individual ResultsCreate Value for the Customer Enterprise AlignmentCreate Constancy of Purpose Think Systemically Continuous Improvement Assure Quality at the Source • Flow & Pull Value Embrace Scientifc Thinking • Focus on Process Seek Perfection Source: Shingo Institute—shingo.org . Reprinted with permission.

Lead With Humility The second Shingo principle involves leading with humility. Leaders, including senior manage- ment, need to continuously learn and listen to people within their organization. As an active listener, a good leader acknowledges that he or she does not and cannot know everything.

Leaders who embrace humility tend to take a more open and learning-orientated approach to each conversation and interaction with coworkers—and this applies to coworkers at every level of the organization. A possible result of doing so is generating better solutions that include a wide range of ideas; another is benefiting from more engaged and involved employ- ees who each feel they can make a substantive contribution because leaders listen and care about new input.

Aim for Perfection The third Shingo principle involves seeking perfection. Of course, this introduces a duality because such a goal is unattainable, as systems are dynamic. However, while the goal remains lofty, seeking perfection requires a leader to continually improve to bring the organization closer to sustainability. Many companies have expanded the perspective on what is possible; as they continually focus on perfection, they find new opportunities, technologies, and ideas that lead them forward. Expanding goals can also help achieve new heights.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Continuous Improvement Focus on Process The fourth Shingo principle calls for a focus on process (Shingo, 1986, 1987). Many orga- nizations that do not use Shingo or similar principles primarily focus on output and fail to fully analyze or consider how employees arrived at that output. However, a more respon - sible and sustainable company continually evaluates internal processes in order to control the use and flow of inputs and outputs. Focusing on the process means studying the value and consequence of each step in any manufacturing or service-creation process. Focusing on process also means breaking operations into steps and dependencies in order to evaluate which steps (if any) can be eliminated, simplified, improved, or otherwise changed. Compa- nies with a focus on process tend to be more humane places to work, because managers do not blame people when outputs fall short; rather, they consider how the process forced a less- than-optimal outcome. When there is less blame, a culture of effort and safety can flourish (Liker, 2004).

Embrace Scientific Thinking Organizational leaders seeking to be socially and environmentally responsible by applying Shingo (or similar) principles learn enough about themselves and the organization to gain insight into what is really going on at work, as is illustrated by the fifth Shingo principle, which revolves around embracing scientific thinking. In management, scientific thinking means using data and clear measurements to verify assumptions. It involves forming hypoth- eses, creating tests, gathering data, creating new hypotheses, and making direct observations.

A key part of the kaizen process involves going to the genba. In Japanese, this means going to “the place where things are happening.” Applying the idea of the genba to CSR and sustain- ability means that more sustainable choices come from frontline employees who are doing the work, rather than from some manager who is far removed from day-to-day activities and processes. More generally, the idea applies to CSR and sustainability because it suggests that people must analyze the heart of all processes to better understand why they exist, what pur- pose they serve, and how they might change.

Consider Flow and Pull Value The sixth principle in the Shingo process relates to waste. The principle of waste deserves its own discussion (see next section) because the topic of waste, or eliminating it, drives most initial CSR and sustainability behaviors. The sixth Shingo principle does not use the word waste. Rather, the associated phrase is flow and pull value, which indicates that companies strive to maximize value for customers. Companies create value in response to real demand in a continuous and uninterrupted process of products and services. Waste is considered any - thing that disrupts the pull and flow of products and services, and thus the topic of waste is implied rather than explicitly stated. We discuss types of waste in greater detail later in this chapter.

Strive For Quality at the Source The seventh concept of continuous improvement in the Shingo model relates to the others because its focus is to assure quality at the source. Perfection can only be achieved if every element of the work is done right. This means that quality is measured from the source or the \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.3 Continuous Improvement supplier, all the way through the process, to delivery. Managers who encourage coworkers to ensure quality inputs, throughputs, and outputs and to focus on goals emphasize quality at every part of the process, not just at the outcome.

Think Systemically The eighth Shingo principle moves into the area of enterprise alignment and encourages all leaders and employees to think systemically (another nod to systems thinking). It is essential to thoroughly understand the relationship within and between different parts of the organi- zation, in order to make better decisions and improve. In the Shingo model all levels of the organization are encouraged to know about the interrelationships of all the other levels of the organization. Typically, sustainable organizations are not congested hierarchies, but rather flat structures that require less administration, bureaucracy, and communication.

Create Constancy of Purpose The ninth principle in the Shingo model relates to creating a constancy of purpose. The goal of this principle is to create unwavering clarity about why the organization exists, its direction, and its purpose, as well as the role and value of all those involved. The underlying idea relates to the concept of unity—that is, in order to create a consistency of purpose, people need to innovate, adapt, and take risks together.

Foster Value for Customers The tenth and final principle in the Shingo model stipulates that employees must create value for customers. The customer represents the systemic connection to the market. Ultimately, the customer defines the value created and demonstrates that belief by purchasing or other - wise interacting meaningfully with the product or service. Thus, all organizational members benefit from trying to adopt the customer’s perspective. Organizations that fail to effectively and efficiently deliver on what is most important to the customer typically fail.

Of course, the Shingo model represents just one of many methods companies can employ to keep continuous improvement central to the organization. Some companies choose delib- erately from the available options, while others may utilize some key principles without adopting all of them. Companies that formally embrace and train employees on continuous improvement methods tend to experience more consistent market success and gains.

An early and excellent example of a sustainable manufacturing organization in the United States is New United Motor Manufacturing, Inc. (NUMMI) in Fremont, California. NUMMI was originally the site of the General Motors (GM) Fremont assembly plant; it was closed down until GM and Toyota launched a joint venture to manufacture vehicles marketed by both brands. GM considered the venture an opportunity to learn from Toyota about how to manufacture high-quality smaller cars, while Toyota sought its first North American manu - facturing base and the opportunity to deploy the Shingo model in production with American workers. When the NUMMI plant reopened in 1984, 70% of the hires came from the laid-off GM workforce. Many of the former GM employees were sent to Japan to learn the Toyota Pro- duction System that embodies the Shingo principles. Within weeks of opening, the NUMMI \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Defining Waste factory produced cars with fewer defects per 100 vehicles than those produced in Japan (Imai, 1986). Employees reduced waste and were happy, and product quality was high. Plant own- ers and the workers’ union engaged in joint activities that benefited the community, showing that the new system had implications beyond the factory boundaries (O’Reilly, 1998).

One important lesson from the NUMMI plant experience relates to continuous improvement principles, which can lead to higher sustainability and corporate responsibility. These prin- ciples are not culturally embodied in Japanese, Chinese, Korean, German, or any other culture.

Anyone willing and motivated to learn the principles can apply them to multiple areas. Some United Automobile Workers Union members who worked for GM in the previous plant almost destroyed the plant with a lack of productivity, acts of sabotage, and poor behavior. Yet those same employees, inspired by a system of listening, empowerment, and improvement without conflict, created one of the most successful manufacturing sites in history (O’Reilly, 1998).

Continuous improvement, coupled with and informed by ideas from systems thinking, cre- ates a drive to be eco-friendly, humane, and connected to other entities (such as government or industry groups) in ways that benefit all parties. It also creates a passionate drive to reduce waste and refine processes. As stated earlier, one of the first (and easiest) goals related to moving toward more sustainability and greater responsibility regarding resources is to man- age waste. 1.4 Defining Waste Simply defined, waste refers to a product that has zero value. Waste takes the form of pollu - tion to the environment, unfulfilled human potential, or missed market opportunities. Waste represents activity with no benefit. The more waste an organization creates, the further it moves from sustainability and responsibility. Also, waste is usually costly for the firm and sometimes for society at large. Creating waste can be viewed as irresponsible and even uneth- ical. Learning to avoid waste or turning it into something of value is a key principle in CSR and sustainability.

Architect, designer, and sustainability expert William “Bill” McDonough educates people about the concept of zero waste using the phrase “waste = food.” This means that waste in one part of the organization could become input (or food) for another part of the organi- zation or sold to another firm to use as an input. Through this concept, waste becomes a potential resource for other systems or organizations. Waste can be an asset that can be sold or reused, rather than a liability and a cost. This is the foundational principle of materials recycling; when applied to more systems, processes, and products, however, it can mean more than recycling paper, glass, and plastic—it can lead to positive change, significant savings, and cutting-edge innovation.

The easiest way to identify waste is to attend to the waste disposal system. For example, con- sider an electronic components factory in which many cable stubs were noticed in the waste- baskets near each workstation. Employees indicated the waste came from trimming cables within the electronic component. Employees were taking wires off a spool using a rough mea- surement (or by “eyeballing” the length) and distributing them to each workstation. They then measured accurately, trimmed the wires to length, and installed them on the component. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Defining Waste This process resulted in three kinds of waste. First, measuring the cable twice was a waste of time. It also was a waste of energy, because employees were trimming wires that had already been cut from the spool. Third, the process wasted materials, as each long strand of cable had segments trimmed off each end.

After realizing these levels of waste, the factory workers and managers worked together to change their processes. They started taking an accurate measurement when wire was first cut from the spool. This change allowed each worker to increase his or her daily output. It not only allowed the firm to save money on materials, it put less waste in the landfill.

Firms seeking to be sustainable and to take social and environmental responsibility for their operations pay vigorous attention to systems that help identify where, when, and how to eliminate waste. A useful example of such a system is the total quality improvement program called Six Sigma.

Waste and Six Sigma Six Sigma refers to a disciplined, data-driven methodology for eliminating defects in any pro- cess, from manufacturing to service. It follows formal steps, often requires specific training and certification, and can be applied throughout a company or in a single department. The Six Sigma process identifies eight different kinds of waste found in organizations. We also discuss two additional types not always included in standard Six Sigma descriptions.

Defects The first kind of waste involves defects. Defects occur when manufacturers create products that do not meet minimum manufacturing or customer standards or when the service fails to produce the desired results. Most defects result in a loss for the company and the consumer.

Almost everyone has experienced a defect in service. An example of a defect in service is when you miss a meeting because an airline overbooked a flight. You paid to get to the meeting but did not receive the benefit of attending the meeting. Similarly, if you purchase a car that does not work, you incur the cost of buying and maintaining the car without the benefit of using it. Defects in service or products frustrate customers as well as the people who make the product or provide the service. Requesting and granting defect-related refunds costs money and represents the waste of having made a product or provided a service without generating actual benefit. Defects increase the price of manufacturing, and the cost can be passed on to the consumer by increasing the cost of the product or service.

Overproduction Overproduction represents a second kind of common waste. Overproduction occurs when manufacturers create too much of any particular good or service. A common practice that leads to overproduction is when companies utilize the batch system, which means they man- ufacture something in predetermined amounts regardless of how many customers order.

When a customer requests a certain product, a factory may produce more than the customer requested. The factory does this assuming some other customer will want the same product. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Defining Waste However, when the firm must store excess product and the product exists as unsold inventory, it takes up space, ties up resources, and wastes money. Many consider overproduction to be one of the worst types of waste because it includes other waste. For example, overproduction wastes time, resources, effort, raw materials, transport, and storage, and it creates landfill.

Waiting The third kind of waste relates to waiting. We have all experienced the waste of waiting in line, for example. When we are forced to wait for a late train or plane, a response from a com- pany representative, or receipt of a good or service, we experience waiting waste. The time spent waiting is generally time that is not value added; in fact, the principle of the “time value of money” implies that time spent waiting has a cost, because we could have used that time doing something that could have earned money.

Similarly, if a product sits on a shelf in inventory, it is not generating income for a company but rather incurring storage and security costs. For this reason, the best manufacturing com- panies are those that have relatively few items in storage. Such firms bring in supplies and convert them to product to immediately ship, without wasting time getting it to the customer or wasting resources in storage.

As firm managers increasingly understand the costs associated with storing inventory, man- agers increasingly compare storage costs with shipping costs. In fact, they often choose to use shipping services rather than store products. For example, consider a company that uses a warehouse to hold products before shipping them to customers. After applying the Shingo principle of scientific thinking and analyzing data, the company realizes that most customers request 5-day shipping to save money. However, keeping the product for several days costs the company money because storing it requires a facility that must be air conditioned and heated and must have security to keep warehoused goods from being stolen. However, if the company ships the product using 1-day shipping, the firm eliminates the need for any stor - age or warehouse facility. By offering customers free 1-day shipping, the company eliminates warehouse costs, lowers customer wait time, and improves customer service.

Skills and Underemployment Underutilized talent represents a fourth form of waste. When managers do not see or utilize the talents and expertise of employees, the latter become less energized and engaged with their work. Distracted employees who use work time and resources to find other jobs, com- plain to other employees, or listlessly accomplish tasks can waste the money paid to them in salary, create a culture of negativity, and/or make mistakes and errors that create waste and rework expenses. In addition, employees in such positions feel the pain and expense of wasted potential and may feel like a misused human asset—a feeling that can generate nega- tive emotions and even have negative health impacts (iSixSigma, 2016). Many people have had the experience of receiving services from people who are disengaged, which can stem from many sources, including employees being underutilized or incorrectly assigned to a position. Managers have several options to mitigate such problems: First, they can accurately screen candidates and take advantage of job-matching services, which can help place people properly at the outset of an operation. Secondly, they can undertake employee satisfaction surveys and run employee engagement activities, which can increase the connection people \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Defining Waste feel with work, or at least with the workplace and coworkers. Finally, in jobs where all parties understand that the work feels menial and repetitive, managers can offer compensatory ben- efits and/or frequent job rotations, which provides a way to support and invest in employees even when managers cannot change the nature of the tasks. People may come to enjoy or at least accept working a menial job because they feel engaged by interesting training programs, good benefits, or valuable on-site facilities.

Transportation Transportation, or unnecessary movement, represents a fifth kind of waste. Of course, all products need to be moved to reach customers, but with each move, the company risks prod- ucts being damaged, lost, or delayed. A good example of a lean company that pays close atten- tion to transportation costs is the 7-Eleven company in Japan. Transportation costs in Japan are particularly high because of the country’s narrow roads and high fuel prices, so 7-Eleven never opens a store that is more than 1 mile from another store. This allows stores to cluster close to each other and reduces transportation costs related to stocking products. 7-Eleven stores in Japan also employ a particularly innovative inventory-control system that requires daily deliveries to each store. As customer needs are anticipated and product restocked quickly, transportation savings dominate stocking and logistical decision making.

In most parts of the United States, buying local products has become a way to reduce the transportation costs associated with manufactured goods and agriculture. Buying locally and reducing or eliminating transportation costs can reduce people’s and companies’ car- bon footprint. Services have transportation costs as well, particularly when consultants travel extensively to reach destinations and stay in hotels while making site visits. Technology helps mitigate transportation service costs, as teleconferencing and videoconferencing enable peo- ple to achieve face-to-face communication in real time without travel and other transporta- tion expenses.

Inventory Inventory is a sixth form of waste and relates to the overproduction waste discussed ear- lier. It may seem strange to claim inventory as a form of waste, but inventory in the form of materials, works in progress, or unfinished goods represents an investment in raw materials that has yet to translate into a sale or shipment to a paying consumer. For example, retail businesses have sales to move inventory when the cost of storing goods becomes too high.

Phrases like “going out of business” and “everything must go” trigger assumptions that the retailer is offering significant savings (or selling at prices lower than the cost of manufacture); often this sale occurs because the company needs to reduce the cost of holding inventory.

In service industries, inventory excess is when people are hired to provide a particular ser - vice but are not needed. A restaurant without customers is not only losing product by attri- tion, but employees are being paid and sitting idle waiting for patrons. When firms can use technology and marketing to better manage customer flow and match service delivery to cus- tomer needs, they can significantly limit service inventory waste.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.4 Defining Waste Motion The seventh type of waste involves physical motion. This type of waste differs from transpor- tation, which refers to product damage and transportation costs. Motion refers to the damage the production process inflicts on the person or machine creating the product or service.

Having too complicated a mechanical process—such as when a process uses a lot of parts that must be cleaned, serviced, and tuned—adds to the cost of creating a product. Similarly, workers who use too many motions or move inefficiently also add to a product’s cost, espe - cially when they suffer repetitive motion injuries or spend too much time manufacturing too few products. In the service industry, consultants who spend too much time and energy on unnecessary research or conduct unnecessary meetings can cause multiple people to waste motion. Think of all the movement required to stop what you are doing to move to another place to attend an unnecessary meeting.

Increased motion on the part of employees (and to a lesser extent, on the part of machines) also introduces the possibility for accident and diminished work safety. While safety is a prin- cipal concern for many manufacturing and service organizations, the most common impact that work has on our bodies is related to long-term motion or lack of motion. For example, some work environments feature prolonged sitting or cause problems related to eye strain and computer work. Many companies have taken steps to offset these impacts by adding standing desks to work areas and building exercise rooms in their office space.

Overprocessing The eighth kind of waste involves overprocessing, which occurs when employees or machines perform work not requested by the customer. This can include adding components and fea- tures that were not requested or making the product too precise, more complex, or of higher quality than expected or paid for. For example, much of today’s technology is overprocessed.

There are too many features in particular software or too many capabilities on a phone or a laptop computer; typical customers do not need most of these features. This makes the prod- uct excessively complex and adds to its cost.

In the service industry, overproduction means providing customers with something they did not want or need. Airlines, for example, have stopped providing services such as in- flight hot food or luggage transportation for customers who do not want those services. In addition, the same firms charge customers a per-service fee when they want such services.

Implementing pay-for-service fees can reduce wasted resources and direct resources exactly where they are needed; this can reduce wasted motion and can lower costs for airlines and consumers.

In addition to the eight types of waste commonly covered by the Six Sigma process and taught by Six Sigma certification programs, two other types of waste result from provid- ing a product or service. The first relates to environmental pollution, and the second to overregulation. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Characteristics of Sustainable Corporations Overregulation Waste occurs when regulations create workflow and operational changes that misuse, reroute, or otherwise direct resources to activities that do not create value or revenue.

Regulations exist to prevent corporations from damaging the environment, causing harm to employees or customers, or breaking the law. Yet even regulatory authorities can lose sight of a regulation’s original intentions. For some companies, regulations that require exces- sive documentation, one-off routines to demonstrate compliance, or the purchase of non- value-added products can over time result in wasted resources (time, money, effort) that ultimately slow business. Environmental Pollution Every time we put something in the air, in a landfill, or in the ocean, we not only degrade the value of the air, land, and water, we cre- ate health problems or potential health problems for animal and plant life. Envi- ronmental pollution differs from the other types of waste because such pollution can come from manufacturing processes or the end-of-life fate of goods. Recycling offers to recover what was once waste into some- thing that adds value. Chapter 2 offers an in- depth discussion of the responsibility that businesses have toward the environment and describes the environment as a stake- holder in the business. 1.5 Characteristics of Sustainable Corporations What constitutes a socially responsible and sustainable company? Some people think these terms are too broad and therefore lack meaning. But characteristics of sustainable companies can form a starting point to give the terms meaning. The remainder of this section will discuss the seven characteristics of sustainable corporations.

First, a sustainable company has a long-term time horizon. Second, such a firm conceptual - izes its relationship with people, including employees, expansively. Sustainable businesses are more likely to pay employees a living wage, provide health care benefits, engage in phil- anthropic activities, and reward productivity. They provide growth opportunities for employ - ees, including tuition reimbursement, health benefits, training, and promotion opportunities.

As part of the relationship element, such firms support social causes. They do not abuse rela- tionships nor manipulate unions and other communities.

An example of such a company is Google, which has long been seen as a top place to work— it has made the top of Fortune magazine’s “best company to work for” list 4 years in a row.

Famous for offering catered meals and clean work environments, Google carefully monitors Reed Saxon/Associated Press Klean Kanteen is an organization that strives to reduce waste by promoting reusable water bottles.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Characteristics of Sustainable Corporations all aspects of worker well-being. In doing so, it noticed that the attrition rate among female employees was higher than that among male ones and set out to understand why. Google found that women who had recently given birth were leaving at twice Google’s average departure rate. Therefore, instead of offering an industry-standard 12-week maternity leave, new mothers are now offered 5 months off with full pay and all benefits. Such a change was designed to attract and retain female workers. While the long-term results of such a policy remain unknown, the analysis and resulting policy changes reflect how a CSR, sustainability, and profit mind-set can work in concert.

Thirdly, managers in such firms regard the environment as something to be valued and often take what is called a full cost or a true cost approach to accounting. Instead of considering natural inputs as free goods, this approach tries to reflect the actual costs of air, land, and water used by the firm. Thus, sustainable businesses conceptualize the relationship with the natural environment differently than traditional businesses. They take proactive positions on reducing their carbon footprint. They see the environment not as a resource to be exploited, but as a gift to be carefully stewarded and restored whenever possible. They not only engage in practices that protect the environment, but also encourage employees to reduce packaging and other waste.

Fourth, sustainable firms may have a different kind of relationship with the government, both by accepting appropriate regulation and opposing overregulation. While they accept appro- priate government regulation in areas that protect the environment and employee rights or ensure honesty and fair business practices, they also resist attempts by government to over- regulate and cause waste.

Fifth, sustainable businesses attempt to adapt, regenerate, and reinvent themselves. In other words, they have a higher capacity for change because they see change as essential. Change means continuously improving and setting aspirational goals. Returning to the story of chief executive officer (CEO) Ray Anderson at Interface, he set an aspirational goal for his firm: to become a restorative company that leaves communities and the earth better than before the firm’s involvement. Goals such as these create the opportunity for sustainability and CSR to overlap and complement each other.

Sixth, sustainable businesses have a unique relationship with suppliers and customers. They try to move the product from a supplier, through the business, and on to the customer with maximum efficiency. This means less time or waste in warehouses; it also means meeting customer expectations so that the relationship with the customer persists over time. Sustain - able businesses may spend less money on marketing because keeping consumers can be less costly than acquiring new ones. Some sustainability practices also garner free press, which can be more valuable than paid press and can further reduce sales and marketing expenses.

Finally, sustainable businesses have a higher capacity for change. They seek to become more efficient, effective, and innovative, and in the process they may reduce costs and capture new and improved forms of value. This sometimes means that they are able to dramatically reduce a product’s cost. Sustainable businesses follow new technologies, change, and adapt, and managers help partners and customers change and adapt. Owners and managers see busi- ness as a way to create wealth not just for themselves, but also for employees and suppliers.

They take pride in adding value for customers and serving customers in a way that exceeds their expectations. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Section 1.5 Characteristics of Sustainable Corporations Apply Your Knowledge: Sustainability Analysis Objective: Apply the principles of a sustainable business to a real business.

Instructions: Select a business to which you have access. It might be a place where you work, a place you can visit and ask questions, or a business with extensive media coverage.

Answer the following questions regarding the business. Based on your findings, conclude if the company is sustainable and in what areas it could improve. (Note that these questions are based on the principles of a sustainable business discussed in this ch\ apter. Students may focus on one or all of the questions.) Time Does the organization take time to develop people, learn, create a strategy, create increases in quality assurance, and reduce waste? How? What evidence do you see of this being done?

Conversely, does the organization do things in a rush? Are there excessive waiting, delay, or communication problems? Do e-mails go unanswered? Do questions go unasked or unanswered?

People Does the organization value each person and offer promotion, development, and training opportunities? Do leaders lead with humility? If so, what is your evidence? If not, what is lacking? Conversely, are people seen as resources to be exploited? Does the organization focus on conflict, conflict resolution, and conflict management?

The environment Does the corporation pay attention to its impact on the natural environment? Do managers encourage employees to behave responsibly toward the environment? Does the corporation take steps to reduce its carbon footprint and recycle waste? If so, how? If not, how do you know? Conversely, is the corporation in conflict with sound environmental management principles? Does it resist reducing waste? Does it challenge criticism to improve? What evidence supports your claim?

Government Does the corporation accept appropriate government regulation and question overregulation? Conversely, is the corporation in conflict with regulatory entities, involved in lawsuits, or lobbying for exceptions? How can you tell? Explain your findings.

Suppliers and customers Does the corporation have long and sustained relationships with suppliers and customers?

Does it see suppliers and customers as partners? Does it respond to needs and requests?

How do you know? Conversely, does the corporation constantly change suppliers? Is it in conflict with its customers over quality issues, including service quality? Support your findings.

The corporation Do corporate documents—such as a vision, strategy, or mission statement—reflect a broader set of corporate stakeholders? Do such documents mention or otherwise include employees, customers, the community, the environment, and government? Share the evidence supporting your findings. (continued) \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary Apply Your Knowledge: Sustainability Analysis (continued) Conversely, does the corporation focus primarily on creating value for shareholders? Explain your reasoning.

Change Does the corporation see change as incremental and ongoing? What steps does it take to continually improve quality, increase employee satisfaction, and embrace new technology?

Conversely, does the corporation undergo change processes in order to “get it right” and then leave it alone? What evidence supports your conclusions? Chapter Summary The beginning of this chapter introduced two closely related concepts as the foundation for this book. The first concept, corporate social responsibility, represents an important lens through which to view business behaviors. The second concept, corporate sustainability, includes all of the concepts associated with CSR and adds a more strategic and environmen- tal element to the mix. Sustainability typically incorporates many CSR principles and can be measured by the triple bottom line and better understood through the lens of complexity and general systems theory.

Chapter 2 introduces the concept of stakeholders, or all of the people and organizations that affect and are affected by operations. Stakeholders are not just shareholders or owners, but include the employees, the environment, the government, the social community, future gen- erations, suppliers, end users, and others. Chapter 3 looks inside the corporation and exam- ines employees, suppliers, and investors as specific stakeholders with unique drivers and interests. Chapter 4 expands the analysis of people as stakeholders and examines the role of local and global communities. Chapter 5 discusses the corporation as a steward of ecologi- cal resources in order to help them last longer and benefit more people over time. Chapter 6 examines the corporation as a force for reversing harm done to the planet. Chapter 7 exam- ines socially responsible corporate behavior as a complement to, or a substitute for, some governmental functions. It also covers how to individually enact CSR and sustainability. Chap- ter 8 examines greenwashing—a term that suggests a firm is pretending to be responsible or sustainable but is actually using one positive or seemingly positive behavior to cover up more negative or harmful ones. In contrast, we look at best practices worth emulating. Chapter 9 describes specific reporting standards, because once leaders make responsible and sustain- able choices, reporting them creates a road map that others can follow. Finally, Chapter 10 explores the individual leadership challenges and general opportunities for building a busi- ness enterprise that is both sustainable and profitable. Together, these chapters describe the business landscape for CSR and sustainability and suggest specific opportunities for individu- als and firms interested in advancing both topics.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary Posttest 1. A compan y that makes a good profit and takes care of its people but does not take steps to reduce waste neglects which bottom line?

a.

financial b. human c. environmental d.

personal 2.

The “Brundtland R eport” was a landmark for sustainable development because .

a.

it cr eated a list of suggestions for organizations in developed countries to follow regarding sustainability b.

it laid do wn regulations regarding sustainability for U.S. organizations c.

it defined sustainable de velopment as something that requires long-term planning and accountability d.

it established best pr actices for short-term sustainable development 3.

The concept of sustainability has r oots in .

a.

common accounting pr actices b.

s ystems theory and life sciences c.

politics d.

human de velopment research 4.

T rees are what component of a lumber creation system or sawmill?

a.

input b. thr oughput or process c.

output d.

product 5.

Which of the f ollowing is NOT a reason why continuous improvement is important in a business setting?

a.

It can help r educe waste and increase revenue.

b.

It can k eep a company ahead of its industry competitors.

c.

It is important t o keep up with the latest trends.

d.

It can r esult in a lower environmental impact.

6.

Which of the f ollowing companies is most likely to remain at the forefront of its indus- try for the next 10 years?

a.

A biot ech company that has won an award for a new process it developed. It uses that same process for the next 5 years, and other companies in the industry also adopt it because it remains an efficient process.

b.

A shipping compan y that is falling behind its competitors that does an internal review and discovers a lot of room for improvement. After 5 years, it is ahead of many of its competitors due to improvements in efficiency and reduction in \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary waste. Every year it does another internal review and makes additional changes as needed.

c.

A cat ering company that does a review of its inputs and outputs, looking for ways to reduce waste and its carbon footprint. After several years, it becomes one of the most eco-friendly catering companies in its region.

d.

A manuf acturing company that institutes an annual internal review and begins improving the efficiency of its processes and reducing waste where possible.

Experts within the company also suggest new innovative techniques, and the com- pany executives decide to implement some of them, despite the risk.

7.

Suppose a compan y builds the body of an airplane on one side of the country and ships it to the other side of the country by rail to complete it. What kind of waste is this practice creating?

a.

mat erial b.

talent c.

motion d.

transportation 8.

A car compan y adds satellite and digital radio features to its cars that are sold in developing countries where neither is available. This is an example what kind of waste?

a.

skills b.

tr ansportation c.

overproduction d.

time 9.

Which of the f ollowing does NOT characterize a sustainable company?

a.

sour cing materials as cheaply as possible to reduce costs b.

pa ying employees a living wage c.

eng aging in philanthropic activities d.

ha ving a long-term strategic plan 10.

Which of the f ollowing is NOT a way for a company to save money while becoming more sustainable?

a.

Use the fr ee press gained from certain sustainability practices.

b.

T ake into account the cost of resources such as air, water, and land that go into cr eating a product.

c.

Incr ease efforts to retain employees by, say, increasing benefits.

d.

Implement mor e efficient and innovative processes throughout the organization.

Answers: 1(a); 2(c); 3(b); 4(a); 5(c); 6(d); 7(d); 8(c); 9(\ a); 10(b) \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary Critical-Thinking Questions 1. Using the basic concepts of s ystems theory and complexity, how is a corporation like an ecosystem?

2.

Considering the Shingo principles e xplored in this chapter, which are most likely to produce a sustainable corporation? Do the value of the principles change by industry?

3.

Identify the diff erent types of waste that are present in a specific business or educa- tional institution. How could waste be eliminated? Remember to think beyond physi- cal waste.

4.

Ho w might your career in a CSR/sustainable company differ from the career of some- one at a similar company in a previous generation?

5.

What is the Brundtland definition of sust ainable development? How does it relate to CSR? What problems are there with the definition? Can you find one you like better?

Why is it better?

6.

Ho w do sustainable corporations view the following topics differently than traditional corporations? Can you think of other categories that should be added to the list?

• Time • People • The environment • Government • Suppliers and customers • Their own corporation • Change Additional Resources To learn more about how Google changed its maternity leave policy to meet the needs of employees, visit: ht tp://w w w.slate.com/articles/technolog y/technolog y/2013/01/google_ people_operations_the_secrets_of_the_world_s_most _scientific_human.html Read more about how to improve supplier relationships: ht tp://w w w.vantagepartners.com/ uploadedFiles/Consulting/Research_ And_Publications/Smart _Form_Content/Publica - tions/Articles/Maxmizing _the_Value_of_ SRM.pdf Answers and Rejoinders to Chapter Pretest 1. F alse. The triple bottom line of people, planet, and profit is the standard for CSR.

2.

T rue. Inputs are resources. Throughputs are processes. Outputs are products and waste.

3.

F alse. Continuous improvement applies largely to processes within organizations that should target excellence but can always be improved.

4.

F alse. Waste is untapped profit, and too much waste can damage sustainability.

5.

T rue. Adaptability is the hallmark of a sustainable business.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary Rejoinders to Posttest 1. W aste is a product with no financial value and often has a cost, as companies pay for physical waste to be removed, and the rates are often higher for more weight or more frequent removal. Note that it is also possible for a company to find a buyer for waste, which thus turns waste into a resource when another company can buy and use it as an input.

2.

The “Brundtland R eport” was drafted in 1987 and defined several important terms, including sustainable development. It featured language that stressed the long-term consequences of sustainability and accountability to future generations.

3.

The concept of sustainability w as adapted for the study of ecosystems and is also tied to systems theory, which looks at the relational components of all corporations.

4.

T rees are the input, or raw material, for the creation of lumber.

5.

While it helps t o be aware of surrounding trends, continuous improvement is more concerned with looking ahead and constantly trying to move forward, rather than just keeping up.

6.

In or der for continuous improvement to be successful, it is important to try new tech- niques and innovate, as well as improve upon existing processes.

7.

T ransportation is a form of waste that creates a non-value-added cost.

8.

This w aste can be considered overproduction, or the addition of unnecessary features.

9.

Sustainable corpor ations consider the full cost of their materials, taking into account environmental and social costs in addition to monetary ones.

10.

While understanding the full cost of a pr oduct is important for sustainability, it does not tend to drive costs down or save money. Key Terms complexity theory  A general theory of systems that describes how corporations or any changeable structures adapt to their environment and cope with conditions of uncertainty.

corporate citizenship A term that describes the relationship between a cor- porate entity and its membered social environment.

corporate social responsibility (CSR)  A firm’s voluntary actions that are designed to improve social or environmental conditions.

Shingo model  A model for change manage- ment organized around the 10 principles of excellent manufacturing, developed by Dr.

Shigeo Shingo.

Six Sigma  A methodology used to improve business processes by utilizing the scientific method and statistical analysis to reduce error rates and waste in systems.

social investment Investment by busi- nesses in people; it can take the form of training and development, fair or above- market wages, motivational programs, or benefits packages.

sustainability  The way in which companies manage financial, social, and environmental risks, obligations, and opportunities with a focus on management and improvement.

\251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Chapter Summary sustainable development Managerial behaviors that meet the needs of the present without compromising the ability of future generations to meet their own needs.

systems theory (or general systems theory) The theory that no complex system can exist independent of other systems; all systems are directly or indirectly connected.

Three Ps Profit, people, and planet; another way of referring to the triple bottom line. triple bottom line The environmental, social, and financial costs and benefits (or assets and liabilities) associated with corporate behavior and profit and loss calculations.

waste A corporate activity with cost but no benefit. \251 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.