Managing Product Risks and Opportunities

May 13th, 2011 | By | Category: Environmental Management

Getting products “right” is an increasingly important and difficult challenge for many companies—and for those companies’ environmental, health, safety, and sustainability (EHSS) leaders.

The business drivers are compelling.  For most companies, it’s all about growth now.  Few companies can satisfy shareholders and analysts just by cutting costs, no matter how deeply they cut.  The Great Recession has squeezed out huge costs already; that turnip has already given up its blood.  To satisfy markets, companies have to grow quickly.  And for the vast majority of companies that means focusing on products: creating innovative new products or services, or getting existing products and services into new markets. For companies in manufacturing, consumer products, chemicals, pharmaceuticals and healthcare, and technology, there are few alternatives.

The problem is that the world is increasingly skeptical of products.  Led by Europe’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) legislation, legislators and regulators around the world are demanding more transparency with regard to product information, sustainability, registration, and regulation.  China, Japan, Turkey, and Brazil are just a few of the key markets following in Europe’s path. Even in the United States, where national politics seem capable of preventing anyone from agreeing on anything, product regulation is increasing as individual states move into the regulatory vacuum left by federal inaction.  And if formal regulatory attention is not prompt enough, retailers, nongovernmental organizations (NGOs), and the media are quite willing to step in.  This trend shows up in different ways, ranging from product registration requirements at Walmart and related chains to the European Trade Union’s list of substances proposed for the Candidate List and Authorisation regime in Europe.

The challenges facing many companies are thus to defend and support existing products and to get more products more quickly into a marketplace that is more skeptical and more demanding. For EHSS leaders, these challenges will be either an opportunity for a step change in their value to their companies—or the painful failure that relegates them to marginal roles.


The Challenge for Companies

For companies, increasing regulations and uncertain market signals create major challenges.

The immediate pressure is regulatory.  Increasingly, complex and uncertain regulations are limiting what companies can put in their products and where and how they can sell their products.  The REACH regulations in Europe are the most immediate and powerful factor, and the entire scope of REACH is up for review in 2012. New software, tools, and guidance are coming regularly.  However, emerging regulations in China, Turkey, Japan, and elsewhere are rapidly adding to the list of markets that may have similar but not identical limitations.

Uncertainty makes the regulatory burden greater.  Across Europe, regulators are engaging in debates that are reminiscent of American political clichés such as “that depends on what the meaning of ‘is’ is!”  Huge impacts swing on the definition of an “article”—that is, the unit whose component substances must be registered if they make up more than 0.1 percent of the whole entity.  What is an article?  Is it a car?  An engine?  A battery?   Nanotechnology will add another layer of uncertainty. What exactly is the definition of nanomaterials?  How will they be regulated under REACH and in other jurisdictions globally?

Eurocrats are doing little to reduce the uncertainty.  In a recent conference, one regulator listed the next set of steps that would add to the regulatory burden but then interrupted herself to say, “I won’t say the date.”  That makes planning so much easier.

Many companies find themselves challenged by the commercial realities of their supply chains.  From downstream distributors and customers, they are receiving more and more inquiries, data demands, and restrictions.  However, their business models have shifted more and more of their production and sourcing upstream to third parties over whom they have no control and little influence.  Companies increasingly are caught in a squeeze between these downstream pressures and upstream constraints.


The Challenge for EHSS Leaders

Companies are looking for a function within their organizations that will take on the ongoing product responsibility. This function is more and more frequently the EHS and sustainability departments, which are not exactly equipped to handle the technical aspects of the duty at the moment.

Previously, EHS leaders in many companies (especially those with U.S. headquarters or operating bases) mainly came up with “inside the fence line” skills.  They provided great value by helping their companies manage the risks around process and property.  Product is different.   These risks involve different regulations and regulators, different technical skills, and an entirely different network inside the company.  These risks can also turn into opportunities if managed well.  “Opportunity” was seldom in the vernacular of traditional EHS leaders.

While some sustainability leaders come from the EHS ranks, many others have come up through very different functions, including corporate relations, philanthropy, or communications.  If they had product experience, it was in marketing, not in regulation or research and development (R&D).

That great experience only partly prepares EHSS leaders for the product challenge.  It doesn’t tell them what their company needs done; how to sell it to senior management; or how to organize and manage their resources to get it done.  That takes new and still-evolving skills and processes.  That requires agility in EHSS leadership. (For more information on this topic, see Scott Nadler’s EHS Journal article Agility: The New Core Competency for EHS and Sustainability.)


Emerging Lessons for Product Leadership 

Applying the lessons of agility to product leadership suggests several steps that can help EHSS leaders who are moving into the product area:

1.  Focus on the Basics

It’s easy to get lost in regulatory and chemical complexity.  Keep your focus on the three basic questions:

  • What is in your products? What is the chemical composition? If you have these data, are they in a smart-searchable and automatable database system?
  • What matters?  What product performance claims are you making? What obligations or restrictions do you need to be concerned about in the markets where you ship them?
  • What can you do about it? Can you comply, substitute, or reduce; educate regulators or customers; or take other steps that make both market and regulatory sense? 

 2.  Focus on Business Impacts

Translate the answers to these questions into business terms.  Are there products that cannot be sold in certain growth markets?  Are there existing products that will have to be withdrawn?  If steps need to be taken (e.g., investment in information technology tools to track product ingredients), what is the cost and how does it compare with the business impact?

This is where opportunity is as important as risk.  For many business-to-business (B2B) markets, the biggest impacts may be on your customers’ products and markets.  Therefore, your biggest impact may be in reducing the impact of your products on your customers’ market access.  Increasingly in the B2B world, sustainability is more about your offerings than your operations.

3.  Build Collaborative Networks

Getting products right will test every EHSS leader’s networks, both inside the company and outside.

  • Internally, getting products right requires a hugely different network that reaches across functions.  Many of these functions, including R&D, sales, marketing, legal, and country managers, work poorly with each other now (if at all).  EHSS leaders may not be able to insert themselves into existing high-performance networks; they may have to convene and facilitate those networks!
  • Externally, “stakeholders” takes on a whole new meaning.  The number of entities who have a stake in your product activities—and in whose effectiveness you have a stake—is huge. Among them are often your customers, including your counterparts rather than the purchasing people who normally deal with your sales people.  Your stakeholders may include your customers’ customers as well.  Certainly your suppliers must be involved, and sometimes their suppliers.  Other companies who are deadly competitors in the marketplace may need to be collaborators in educating regulators.  Building that trust and collaboration is a long and difficult process.

4.  Update Your Management Systems

Many EHSS leaders have robust, well-defined management systems that focus on both decisions and actions across a wide range of corporate activities.  However, most of these systems were built to manage risks in processes and property, not in products.

Mergers and acquisitions (M&A) processes are a good example. These days, many companies do deals to acquire product lines and market access, not to add to their collection of aging manufacturing facilities and low-value industrial properties.  In fact, most M&A transactions are aimed at acquiring products and shedding or shutting down properties and facilities.  Many companies have EHSS management systems that provide for due diligence—but only of property and process, not product.  In effect, this says: “Before we buy, we’ll study the parts we intend to get rid of.  But we’ll ignore the parts we intend to keep, which are the valuable part we’re really paying for.” Some companies have updated their M&A processes to include products.  One recent due diligence assignment conducted by Environmental Resources Management (ERM) included evaluating the potential toxic tort liability associated with a 100-year-old chemical company’s products, information of some interest to legal and financial officers.

What does your EHSS management system cover?  Are product issues integrated into every step of your system?

5.  Change Your Vocabulary

Getting products right involves incredibly complex regulatory and technical issues.  Understandably, the people who live and work in this world every day have developed a highly efficient language that can use a few letters to convey a whole mouthful of detail.

This linguistic shorthand may be efficient, but it is certainly not effective in communicating with much of the rest of the collaborative network, especially with business managers.  At a recent conference, the average PowerPoint slide contained at least five to seven acronyms that few senior managers would understand.  (And the average presentation included more than twenty slides!)  For hard-core practitioners, SIEFs, SNUR, IECSC, SVHCs, and IUCLID are perfectly clear.  For business managers, at best this language feels like an ineffective tool for communication.  At worst, it can feel like a weapon designed to confuse, obscure, and dominate conversations.


The Next Challenge: Agility and Innovation

The preceding five steps will help EHSS managers deal with product issues, but they will not be enough. To truly succeed in the product world, EHSS managers need to change their thought processes.  They need to become active champions for embracing product issues as a means of both protecting existing business relationships and assuring the company’s future competitive advantage. The easiest way to do this is by continually asking a series of product-related “what if” questions that are designed to change the dialog within the company.

This is a challenge for all of us.  At a recent conference of REACH practitioners, an ERM colleague (a highly respected product regulatory expert) noted:

What if a substance will no longer be available—a substance used in a company’s product formulation on which end-users depend?  That is not part of the day-to-day job now.”

This statement sums up the challenge.  We have to make these “what if” questions part of our day-to-day job.  If technical work finds that a substance is going to be a limiting factor, EHSS leaders should help drive the tough “what if” questions:

  • What if you can educate regulators to alter limitations on registration and use?
  • What if you can find substitute substances to provide the same functionality in your products (or your customers’ products)?
  • What if you can find substitute products to provide the same functionality?  Ultimately, consumers pay for functionality more than for products.
  • What if your company pulled out of this market?  Maybe it is time to cut your losses.  Perhaps you should get out of certain businesses rather than pouring more money into them.  These options may not be comfortable, but they may be essential.

Agility means considering a whole range of business impacts from the EHSS aspects of your products:

  • What do product issues mean for the direction, priority, and urgency of investment?
  • What business outcomes, risks, and opportunities can you influence even if they are beyond your direct control?
  • What do the product issues tell you about the need or opportunity for innovation?  Getting new products and services to market is what drives growth. EHSS leaders who are working urgently to keep product restrictions at bay may need to take a step back and see whether the long-term potential lies in resisting or embracing new restrictions.  Innovation is NOT postponing the inevitable problem for one more year, although that may be very necessary tactically. Innovation lies in being the first company that makes that problem irrelevant.

For EHSS leaders confronting product issues, the key is to become more agile. Embrace the uncertainty. Making “what if” part of your day job will enable you to provide another level of value to your company.


About the Authors

Scott Nadler is a Partner in the Chicago, U.S.A. office of Environmental Resources Management (ERM).  He helps companies integrate environment and sustainability issues with business strategy.  Mr. Nadler speaks on a number of EHS, sustainability, and strategy topics.  Recent conference appearances include Northwestern University’s Summit on Sustainability; Chemicals Forum Europe 2011; and Minnesota’s “Health Care That’s Healthy” sustainability conference.  Mr. Nadler’s writing has appeared in The Wall Street Journal, Sloan Management,  and Safety and Health Practitioner, as well as in the EHS Journal and The Palladium Group Executing Strategy sites online. He also teaches at NorthwesternUniversity, as a Lecturer in Social Enterprise at the Kellogg School of Management, and in the undergraduate program in Environmental Policy and Culture.

Dr. Salvatore Giolando is a Principle at Ramboll Environ in Cincinnati,Ohio,U.S.A. He has a Bachelor of Science degree in chemistry and a Ph.D. in environmental health. For global manufacturing firms, Dr. Giolando leads domestic and international product stewardship programs that include product safety and global regulatory compliance issues. His areas of expertise include REACH, GHS, CLP, risk assessment, toxicology, ecotoxicology, TSCA, FIFRA, and product chemistry.

Other Articles by Scott Nadler in the EHS Journal


Photograph: 3-D by Rodolofo Clix,Brazil.


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