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Making Businesses Sustainable: a Liveable Cities Imperative

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Basic liveability and the survival of cities is contingent upon the sustainability of local economies. Economies are made up of numerous organisations ranging from micro businesses to large corporations, all of which employ people, use resources, and
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  Strategic Sustainability & Risk Management    Ian Robert Kirkwood PhD Brisbane February 2014 Page 1 Making Businesses Sustainable – a Liveable City Imperative The Author Ian Kirkwood is an Associate Dean and Senior Lecturer at James Cook University in Brisbane, Australia Feb 18 th , 2014. Ian.Kirkwood@jcu.edu.au . +61 400 143 063 LinkedIn: https://www.linkedin.com/in/ianrobertkirkwood   Facebook: https://www.facebook.com/search/more/?q=Ian+Kirkwood&init=public   Academia.edu:  https://jcub.academia.edu/IanKirkwood/Activity   Keywords Business, industries, economies, strategic sustainability & risk management, Dunphy’s six phases, process of transformation, monitoring system Abstract Basic liveability and the survival of cities is contingent upon the sustainability of local economies. Economies are made up of numerous organisations ranging from micro businesses to large corporations, all of which employ people, use resources, and create wealth. Employment is overtly beneficial in a community plus it provides cash-flows for the purchase and consumption of goods and services. Money flowing through a local community is the economic backbone of any given city; therefore it stands to reason that quality employment must be maintained. This can only happen when businesses, in the main, are wholesome and sustainable. Therefore the main thrust of this paper is to offer a realistic and workable process by which business people can understand the need for their organisations to become sustainable, can identify areas of unsustainability, and can develop a process of transformation so as to develop a workable plan to maintain the newly transformed organisation. It is only through this ongoing process of transformation that communities can be guaranteed that cities, per se, will survive and remain liveable. Introduction Whether we like it or not, the world, and in particular the western world, operates fundamentally on consumer-driven economics which is based on the industrialisation of industries and processes. Back in 1833 when the UK lost a significant form of ‘human energy’ with the passing of the Abolition of Slavery Act, there was a lack of ‘energy’ for use in mining and production based industries. It was no coincidence that within a few short years that the Industrial revolution started with the rapid commercialisation of steam driven apparatus which progressively gave way to the development of other forms of energy efficient machines including petrol and diesel engines. For nearly 200 years since that time, energy has largely come from ‘in-ground’ sources – particularly oil, gas and coal- and this has led to an exponential growth in populations, communities, and subsequently cities. Hence this brings us to the interface between ‘liveable-cities’ and all forms of industrial and commercial activities, plus our absolute reliance on natural resources – oil, gas and coal in particular. In fact cities and businesses as we know them would not exist in their current form if it wasn’t for an ongoing abundant supply of ‘ energy  ’.  Strategic Sustainability & Risk Management    Ian Robert Kirkwood PhD Brisbane February 2014 Page 2 Consumption: The Appetite of Society Modern societies are fuelled by mass consumerism which drives most industries, and this in turn creates work for the masses. Employment gives society its identity through the ongoing generation of wealth that is converted into social infrastructure which subsequently forms the basis of modern western life. In a fairly simplistic way we could say that consumer demand drives all forms of supply, and the act of supplying goods and services creates employment which then contributes to and builds the overall economy. Hence modern cities are based on the natural assumption that people will have gainful local employment and that that employment will be sufficient, satisfactory, sustaining, and sustainable. This brings us to the point of this paper – the sustainability of industries and the companies operating within them. Over the past few years I have conducted a number of cross-cultural training programs on behalf of a relocations company in Queensland and as such I’ve been exposed to a range of managers, executives, and staff in several industries including mining and manufacturing. As a cross cultural trainer, my purpose in being with these people is to help them with relocation issues only. So I tend to catch people off guard if I talk about anything to do with sustainability and I also catch people off guard when I talk about issues involving corporate strategic planning. After some gentle probing, I find out the depths of their thinking regarding these issues and more often than not, I have to leave the subject alone. I mostly find that people are either uncomfortable talking about business sustainability or they instantly consider that sustainability is a ‘green thing’, and not relevant to them. As a result of this I feel a new expression or term is needed regarding business sustainability to better identify the issues involved. To this end I now use the term ‘ strategic sustainability and risk   management’ when discussing the subject with business people. At James Cook University in Brisbane, I have been most fortunate to be the primary lecturer for the past 5 years in a subject entitled Sustainable Enterprise. This subject came from the tourism and hospitality discipline of JCU Townsville and as such was srcinally designed for the hospitality and tourism industries. It has since been expanded and modified to suit any business in any industry, where Master’s level students from the Master of Business Administration (MBA), Master of Information Technology (MIT) and Master of International Tourism and Hospitality Management (MITHM) programs can add their prior knowledge on sustainability (which invariably is minimal) to current ideas and knowledge so as to create workable solutions for any given business in any industry in any country. It is this I want to discuss with you today: how to address sustainability within a business context and the issue of getting managers and executives to treat business sustainability the same as they would treat their long term strategic planning and their recurring annual planning. There are numerous books on the market relating to business sustainability ranging from self-help books to case studies to virtual sustainability encyclopaedia. However in my experience, I am yet to find any manager or executive who has read any one book and subsequently built sustainability into their company’s formal planning process. Now I am sure some executives have done this – it is just not within my experience. About two years ago I discussed these issues with two industry colleagues who had set up their own sustainability consulting practice and their key focus was carbon reduction and subsequently accounting for carbon offsets (which was in vogue at that time). Needless to say their fledgling venture flopped and they returned to other employment. I have also spoken to various people about their approach to sustainability and it is invariably been about a specific problem or issue; like transporting coal by rail where coal dust is spread over the countryside, or about making hotels operate more sustainably, and so on. Now these actions are all good and need to be encouraged however it’s still not getting sustainability as a process into the fundamental DNA of business executives. And my only conclusion is that the term sustainability has no relevance or specificity of  Strategic Sustainability & Risk Management    Ian Robert Kirkwood PhD Brisbane February 2014 Page 3 meaning within the lexis of business. The term ‘sustainability’ mostly sits in the green-space, the carbon trading space, the town-planning space, and the urban-dwelling space, but unfortunately has negative connotations in the every-day world of business. It is my plan now to propose a way forward for businesses in general, and to bring the concept of ‘ strategic business sustainability and risk management  ’ (SS&RM) (Kirkwood 2012) to the fore for all business people in a such a way that everyone can clearly understand what sustainability is about within a business context. A clear understanding of SS&RM should get people to willingly ‘buy-in’ to the process as it means that their own business could be made to operate more effectively and more profitably with improved staff recruiting prospects, and they should reap even greater rewards from having staff fully engaged in the process. The SS&RM process is relatively simple to explain. It involves a clear understanding of where the business is today, identifying areas in which the business could improve, the process of improvement, and the development of an ongoing transformation and monitoring plan. To do this we use the best ideas from various sources, plus we gain from having internal staff creatively involved in the entire process. Fixing just one business is fine, but fixing many businesses collectively adds to a higher level of sustainability for all concerned, and this adds to the overall liveable of modern cities. The Triple Bottom Line: What is it and why does it matter? The heart of sustainability is a fundamental immutable value set that involves parallel care and respect for ecosystems, for humanity, and for overall economic performance (Elkington 1998). The result against which success is measured is the achievement of human and ecosystem well-being through sound business governance. In order to succeed and to provide shareholder, employee and community value through sustained economic performance, as well as corporate financial performance, a business must be able to recognize and respond to risks: risks that are known, unknown, and possibly unknowable. Traditionally, risks have been considered mostly from a negative point of view – that is, risks caused losses and losses were charged against earnings to the extent they were available. There is, however, a positive aspect to risks. Risks are a part of every undertaking of a business enterprise. The desire to take risk and the ability to understand it are fundamental drivers behind our global economy. Without it, no one would make investments or take the initiatives required to be successful. Several aspects of risk must be evaluated as an integral part of an SS&RM process. This includes identification, analysis and management of risks that affect current operations. It also includes paying attention to changes in the business, changes in the environment in which the entity exists, and changes in the world that may directly or indirectly impact future success. With respect to new opportunities, businesses must be able to identify, analyse and address risks associated with new ventures. Lastly, the risk management program must be expanded to address emerging sustainability risks such as social and environmental risks, some of which may not be fully evolved or capable of measurement in the same sense that we normally evaluate traditional risks. The three Ps of the triple bottom line are outlined in more detail below: P1: People – Socio-cultural: The incorporation of principles that assure opportunities for full participation of stakeholders in all activities, benefits and decision-making. Social performance includes a philosophy that values human and natural capital and seeks to tap widespread resource productivity improvements coupled with effective design to allow more people to enjoy satisfying employment and financial wellbeing measured in terms of security and social contact rather than consumption. People are viewed as being much more than simple consumers or units of energy to be taken advantage of for commercial gain. P2: Planet – Eco-stewardship:  The ability to produce goods and services with a net zero ecological impact. Environmental performance includes using processes and systems that are non-polluting, conserving of energy and natural resources (especially those that are non-renewable), economically efficient, safe and  Strategic Sustainability & Risk Management    Ian Robert Kirkwood PhD Brisbane February 2014 Page 4 healthful for workers, communities and consumers. Sustainable manufacturers implement pollution prevention practices, use recycled and non-toxic input materials wherever possible, and produce safe and recyclable products in recyclable packaging. P3: Profit – Economic: The ability of an enterprise to survive and thrive through operations that fully internalize all costs (including ecological costs), and plan for and provide responses for both predictable and unpredictable future events. Economic performance includes prudent financial planning and the use of appropriate risk management systems to assure the continued ability to operate profitably. A sustainable business is also transparent in its operations with respect to the stakeholders it serves, its employees, and the communities in which it operates and sells its goods and services. As many externalities as possible are eliminated. Along with the three P’s, there are two other points needing to be addressed: operational and strategic issues (Aon 2007)  Operational  – The incorporation of efficiencies and effectiveness in the structure and activities of an entity so that other objectives are achievable. Operational performance includes systems to monitor and measure activities and outputs to provide the feedback necessary for continuous improvement. It also includes communications that assure internal knowledge of performance and external harmony with stakeholders, customers and communities. Anything that is done on a planned or routine basis that adds to the ongoing maintenance of the business is considered operational in nature. Strategic  – The adoption of business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and environmental factors that will be needed to assure continuing future performance. Strategic performance includes selection and concentration on products that meet the current and future needs of a broad array of customers. It also involves decisions with respect to where manufacturing or other operations will be conducted, where products will be marketed, suppliers that can meet current and future needs and contractors that provide cost-effective equipment and services. Hiring management that understands and embraces SS&RM whilst providing value-adding leadership and vision that inspires performance and investor confidence is also part of strategic performance. By definition, strategy focuses on higher value, higher impact, longer term issues that control the destiny of the organisation and its overall value creation – both to internal stakeholders, the wider community, and to whole cities. Six Phases of Sustainability The first book I read on sustainability was written by Dexter Dunphy (Dunphy et al 2000) where he identified six phases that businesses operate within, either partially or wholly. These six phases are detailed in Appendix 1 and by using them it becomes quite easy to identify whether a given business is unsustainable (Phases 1 & 2), more or less sustainable (Phases 3 & 4), or definitely sustainable (Phases 5 & 6). The most logical and ideal phase for any business to aspire to is Phase 5, however, more and more businesses are now aspiring to Phase 6. Phase 1 is classified as rejection (don’t know & don’t care). Basically, the environment is seen as exploitable, pollution is unavoidable, people are basic units or energy, safety is done to comply with laws, training is considered an expense, and the outside community is not of any concern. Phase 2 is classified as non-responsiveness   (do know but still don’t care) and basically only the issues that are really important and unavoidable are addressed. Phase 3 is classified as compliance (we’ll do it if we have to) where all laws and rules are complied with but no more. Phase 4 is known as efficiency where ISO  Strategic Sustainability & Risk Management    Ian Robert Kirkwood PhD Brisbane February 2014 Page 5 standards like ISO 9000 could be used to gain competitive advantage but community issues beyond the business are neither acknowledged nor addressed. Phase 5 is called strategic sustainability whereby businesses see ‘sustainability’ as being an important issue and one that, if embedded into their corporate strategic DNA, could make the business look better, be perceived better by all stakeholders, and produce more profits. Phase 6 being an ideological commitment to total sustainability is possibly only achievable by businesses that don’t follow the ‘Milton-Friedman’ model of business but follow a more wholesome, better balanced view of the role business plays in society. When trying to analyse what phase the business is currently at, risks are most normally made apparent and all risks, either potential good or potentially bad need to be analysed. Every business has a desire to increase profits and improve cash flows but by avoiding risks, cash flow can be destroyed. The question is whether risk management can be undertaken while implementing an SS&RM program and the reality is that risk management is inherently included in an SS&RM plan. For instance, a customer boycott of a company’s products arising from perceived social or environmental risks could have a far greater negative impact on a company’s bottom line than a natural disaster. In fact there a number of issues that need to be considered with seven of them being identified in Appendix 3. An SS&RM plan must be completely compatible with objectives that include these seven points: reputation, effective products, productivity, trust, supply chain efficiencies, capital costs, and legal liabilities. (Blackburn 2008) Outline: The Strategic Sustainability & Risk Management (SS&RM) Process This is the simplest way to approach sustainability for any business or enterprise. By adopting the basic steps in the SS&RM plan, extraordinary results can be achieved in a time frame that could be styled to suit any business. Implementation of a sustainability program starts with an understanding of a company’s basic principles and values. The fundamental values that unify a company’s actions are formed from thinking about the past, understanding where the business is today, and considering its quest to continue delivering value into the future for all stakeholders. Principles remain unchanged even though the business itself may undergo substantial changes over time. Values associated with the business principles flow through every aspect of the organisation and they provide the energy to drive sustainable changes in performance. To help in this area, five additional issues should be considered from the Sustainability Handbook (Blackburn 2008) and these issues are included as Appendix 2. However, the key to the SS&RM plan is a holistic focus on the three key areas identified as the triple bottom line approach to business performance management and monitoring. Step 1: Current State: where is your business at right now: (Point A) A sound starting point is to analyze the current state of the business by using Dunphy’s Six Phases model (Dunphy) as detailed in Appendix 1. It is recommended that a fully detailed analysis of the current state of the entire enterprise including all upstream and downstream touch-points be undertaken as knowledge of the ‘current state’ is essential in determining what needs to change or what could be improved. From actual cases conducted, we’ve found that it is easiest to start with one section of the company at a time, for instance the HR area. To do this it is recommended that internationally recognized ‘standard indicators’ be used, such as the Global Reporting Initiative (GRI) indicators. All areas and all issues within a company when analysed may vary from poor to average to good when measured using GRI indicators and Dunphy’s model. One analysis of a local Brisbane business showed that the results of their in-house staff training ranged from poor to excellent when measured using GRI indicators Dunphy’s model. Before conducting this analysis, the general manager genuinely thought that their staff training was excellent and that their staff was all well trained. Not so!
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