Fourth Wave: EHS&S in the Era of ProductivityMay 17th, 2015 | By Scott Nadler | Category: Featured Articles
The environmental, health, safety, and sustainability (EHS&S) profession is in the doldrums. Just when we thought we’d survived the recession and sustainability could be embraced, we’re back in the world of cuts and delays. It feels like a return to the 1980s or early 1990s, when a CEO would tell a corporate environmental officer: “I haven’t seen you in my office in six months. That must be good news.”
What’s happening? It’s not a recession, but something different. We are seeing a slowdown in economic activity, a growing feeling of pessimism, and a change in the philosophy and lexicon of modern business, but business life goes on, production continues, products and markets cautiously expand, and merger mania continues unabated in some industries. As businesses struggle to grow revenue and profits, they are focusing internally, trying to do more with less.
Brace yourself. It’s the next wave in corporate environmentalism: the era of Productivity. People who have been in our profession for a couple decades have already lived through three distinct waves, the Regulatory wave, the Accountability wave, and the Sustainability wave. Now comes the Productivity wave. Like any wave, it has both opportunities and risks. But ignore it at your peril.
What’s Causing the Productivity Wave
Take a look at The Conference Board’s metrics around CEO confidence. The picture is profoundly… gray. Employment trends and the leading economic indices are marginally positive, or at least not negative. The sky isn’t falling, but consumer and CEO confidence are falling. Again.
That’s the economic reality. More than five years after the end of the US recession, CEOs have stopped waiting for the robust recovery that never really happened. Every time there seems to be some economic momentum, something else crops up. Fundamental economics are weak around the world, exacerbated by geopolitical uncertainty. Private equity threw money at companies for the last few years but is now squeezing those companies for every dollar. Wall Street is accelerating this, with “activist investors” looking over every shoulder. Even the historic slump in oil prices failed to deliver much economic punch. That was supposed to be a two-edged sword for the economy, with local recessionary impacts offset by the economic stimulus of lower raw material costs and freed-up consumer cash. In reality, the stimulus blade seemed a whole lot blunter than the recessionary blade.
The C-suite is caught in a trap, expected to deliver sustained growth in a marketplace of sustained uncertainty. Unable to grow their way to greater profit, many executives have shifted their attention to improving productivity, an internal matter that they can control. The levers of productivity are simple, increase output while decreasing cost. In this environment, capital spending and operating budgets are tight: ensure the most value from every dollar of spending. Margins are smaller: Make it up in volume but keep margins strong by getting the most value from every dollar of labor and equipment. Don’t stop doing business, say the messages from the top, but spend as little as possible to do it.
So what’s new? Haven’t we all survived waves of cost-cutting before? Wasn’t productivity always an important concern? Yes, but now it’s not just an important concern, it’s THE concern. In the past, productivity was often a euphemism for cost-cutting (regardless of whether it affected production or revenue or earnings). Now, it’s not a euphemism, it’s literally
The effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input… (as defined by the OED).
In other words, current efforts to improve productivity are focused on both the numerator and the denominator, and the relationship between them, not just cutting the denominator.
What the Productivity Wave Means for EHS&S
What does this mean for EHS&S? Give up? Keep your head down? Hide under the desk?
Those are understandable reactions, but not terribly strategic or promising. Rather, it’s time to understand that this is turning into the whole next wave of corporate environmentalism in the US, the Productivity Wave:
Different companies have moved through these waves at different paces. The waves didn’t hit every sector or region at the same exact time. Each wave eventually receded, but didn’t end. Each left behind important expectations, processes, and tools that have become “mainstreamed.” The cumulative effect is a perpetually rising bar, punctuated by waves that demand attention to new priorities without providing any relief from the residual expectations.
Each wave has had its own drivers and aspects, audiences and responses. Within companies, different individuals and groups heard and responded to the waves. And CEOs paid attention to different things in different waves:
Productivity can be a threat to any organization, of course. It says “do more with less”, the bane of every corporate manager’s life.
- It can punish good managers: the more you’ve already cleaned up your house, the less you have left to offer up.
- Good EHS managers are particularly frustrated. After all, if you succeeded in managing environmental and safety risks so that bad things stopped happening, people stopped worrying about bad things happening. It’s hard to justify resources for things that haven’t happened lately. You become the boy who cried wolf – because you succeeded in keeping the wolves away!
- It can dramatically increase risks while cutting the resources to manage those risks. Staffing is cut, managers are stretched thin, equipment is run past its design life, maintenance is deferred, training is deferred, and employees are distracted and angry.
What Do You Do About It? The 6-step Process
Can EHS&S leaders adapt and learn to ride this wave? Can they find the opportunities? Or will they be swamped, swept away in the productivity wave?
There is a path forward, an approach that will work. It’s a 6-step program. (No 12-step program here. In this era of productivity, even becoming more productive has to be … more productive.)
- Step down: Examine current programs and processes. Eliminate unnecessary program elements and meaningless requirements, especially elements that consume staff time but don’t really alter the company’s EHS&S risk profile or contribute meaningful business information. Prepare the answer now, don’t wait to be asked.
- Step up: “Lean” EHS&S. Propose ways to improve productivity. Invest in strategies that reduce EHS&S-related costs and improve operational performance, quality, or reliability. Consider focused energy assessments, resource reduction efforts, replacing multiple antiquated data systems with one new cloud system, or implementing sustainable safety improvements, which not only improve worker productivity, but might also lower costs for insurance and workers compensation. Reconsider your assurance processes: do they drive performance or just document failure and burden the business? You’ll need new investment to implement these initiatives, but the savings you identify will contribute to the bottom line and worker productivity.
- Step inside: Do a deep dive into a business or region. See how all of your programs really work on the ground, what kind of burden and value they create. Don’t look at it by process, rather, determine how everything you oversee works together – or doesn’t. Do it with a business, learning how they view the services you provide and how they’d do it differently if they really had the chance. Help your business partners become more productive.
- Step outside: Look at your company from outside. Some external stakeholders hold your future productivity in their hands. Your ability to grow revenue while controlling cost depends on customers, suppliers, and the communities in which you operate. Make sure you know who those key stakeholders are, what they really want from your company, and how prepared you are to deliver what they want.
- Step back: Take a step back, look at all of the risks related to the business and the controls that are in place to mitigate those risks. Have all of the business and process risks been identified, prioritized, and addressed? Are the operating controls sufficient, maintained, and effective? Then look at what your programs work on. Do they focus attention on the most important risks, or on what is easiest to monitor and measure? Are too many resources going toward asymptotic reduction of already small numbers? Are too few resources going toward step-changes in preventing lower-frequency, higher-impact risks with more potential to disrupt the productivity of the company?
- Step forward: Looking forward 3 to 5 years, what may be different? How would that affect both risk (where you need to spend resources) and productivity (what you get for those resources)?
The Productivity wave is here and it will be for a few years. You can duck your head, wait for someone to cut your budget, and hope for the best. Or you can seek the benefits of a sharpened vision and greater EHS&S productivity. Ride the wave.
About the Author
Scott Nadler is a Partner in the Chicago, U.S.A. office of Environmental Resources Management (ERM). He helps companies integrate environmental and sustainability issues with business strategy. Mr. Nadler speaks on a number of EHS, sustainability, and strategy topics, and his 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 has taught at Northwestern University in the undergraduate program in Environmental Policy and Culture, and currently serves as Program Director with the U.S. Business Council for Sustainable Development. Additional strategic insight for sustainability leaders is provided on his blog, Practical, Sustainable Strategy.
Photograph: Map of the World by Lau, Singapore.
Graphics: Jeff Gorham, Bucktown, Pennsylvania, U.S.A.
Other Articles by Scott Nadler in the EHS Journal
- Helping Business Leaders Talk about Sustainability
- Is Your Strategy on Pause?
- VP EHS: Endangered Species or Emerging Hybrid?
- Geographic Mismatch: Coping with Dislocation in the Global Economy
- Agility: The New Core Competency for EHS and Sustainability
- Managing Product Risks and Opportunities (with Salvatore Giolando)