Benchmarking sustainability performance: the next step in building sustainable business models

• DOI: http://doi.org/10.1002/pa.1606
• Published date: 01 August 2018
• Author: Mark Bateman,Elliot Maltz,Henry H. Bi
• Date: 01 August 2018

■Academic Paper

Benchmarking sustainability performance:

the next step in building sustainable

business models

Elliot Maltz

1

*, Henry H. Bi

1

and Mark Bateman

2

1

Atkinson Graduate School of Management, Willamette University, Salem, Oregon, USA

2

ENSOGO Analytics

Developing sustainable business models incorporating effects on people, profit, and planet is becoming an increas-

ingly important strategic issue. Benchmarking with peer companies can assist a company in setting goals of improv-

ing its performance. As such, developing a methodology for effectively benchmarking sustainable business practices

is an important step in the evolution of sustainability management. However, a company’s sustainability performance

is composed of many elements that may involve difficult tradeoffs, and its performance may vary over time. In this

paper, we propose a data-driven approach of innovatively adapting statistical process control charts, conventionally

used in quality control, to simultaneously compare multiple performance measures and analyze variation in both

trend and performance among companies in a given industry. We apply this approach to benchmarking the sustain-

ability performance of companies in the US utility industry and demonstrate it is robust and reliable for

benchmarking the performance of companies in virtually all industries. Copyright © 2016 John Wiley & Sons, Ltd.

The study and practice of sustainability is matur-

ing. One could argue t hat it has reached a tip ping

point whereby incorporating sustainability into

business practices is becoming a mainstream issue

in strategy. Over the past two decades, scholars in

a variety of business disciplines have focused

largely on whether to engage in sustainable business

practices (e.g., Griffin & Mahon, 1997; Margolis &

Wal s h, 2 00 3 ; Or l it zk y et al., 2003; Porter & Kramer,

2006). More recently, a number of scholars have fo-

cused more on how to engage in sustainable busi-

ness practices (e. g., Epstein et al., 2010; Maltz &

Schein, 2012). Evidence from practice shows a sim-

ilar trend. Massachusetts Institute of Technology

MITSloanManagementReviewandtheBoston

Consulting Group recently conducted their third

annual sustainability survey of executives and

managers worldwide. The results indicate that

an increasing number of managers and compa-

nies are taking sustainable business practices

seriously:

•70% of companies that have placed sustainability

on their management agenda have done so in the

past 6 years, and 20% have done so just in the

past 2years.

•Two-thirds of respondents said that sustainability

was critically important to being competitive in

today’s marketplace, up from 55% in the 2010

survey (Kiron et al., 2012).

However, even with this increased emphasis on

sustainable practices, there is still widespread skep-

ticism that companies have the tools to understand

how to shape efforts effectively. According to a recent

survey, only 38% of Chief Executive Officers believe

they can accurately quantify the value of their sustain-

ability efforts, and 37% see this as a major impedi-

ment to accelerating their efforts (UN Global

Compact-Accenture 2013).

*Correspondence to: Elliot Maltz, Atkinson Graduate School of

Management, Willamette Un iversity, 900 State Street, Salem,

Oregon, USA.

E-mail: emaltz@willamette.edu

Journal of Public Affairs

Volume 18 Number 3 e1606 (2018)

Published online 1 April 2016 in Wiley Online Library

(www.wileyonlinelibrary.com) DOI: 10.1002/pa.1606

© 2016 John Wiley & Sons, Ltd.

A common way to develop successful practices in

a given area is to benchmark firm performance rela-

tive to the best performing competition (Arthur,

2011; Breyfogle III, 2003; Brook, 2010; George et al.,

2005; Kubiak & Benbow, 2009; Martin, 2007; Tague,

2005). Learning best practices from high-performing

companies may not only help a specific company

understand how to maintain high sustainability

performance but also find standardized practices

that can help entire industries improve. However,

it is important to recognize that a number of critics

see the growing business interest in sustainability

as little more than a thinly veiled and cynical ploy

designed to attract socially and environmentally

conscious consumers (Jones et al., 2015). This makes

it difficult to identify true sustainability leaders, as

there may be wide variation between professed

and actual commitment to corporate sustainability.

In this paper, we propose an innovative, data-

driven approach traditionally used in quality control.

It simultaneously compares multiple performance

measures to analyze variation and trends among

companiesinagivenindustry.Thisapproach,statisti-

cal process monitoring, is flexible enough to assess

sustainability performance at multiple levels. Thus, it

can be used by managers to assess organizational sus-

tainability and more granular levels of performance.

In the next section, we highlight the challenges of

benchmarking sustainability practices. We then

describe the theory and methodology of statistical

process modeling and apply this approach to

benchmarking the sustainability performance of

companies in the US utility industry. This approach

meets the criteria for a strong benchmarking meth-

odology that can be used in any industry:

•It measures actual performance on multiple fi-

nancial (profit), environmental (planet), and so-

cial (people) measures of sustainability.

•It indicates tradeoffs between various financial,

environmental, and social measures.

•It measures the consistency and trajectory of per-

formance both at the dimension level (people,

profit, and planet) and at the overall firm level

incorporating all three dimensions.

Challenges in benchmarking sustainability

performance

Before we can benchmark against high-performance

companies, there is a basic question that needs to be

answered: How do we identify the top performers?

To answer thisquestion requires a reliable methodol-

ogy with appropriate metrics for identifying high-

performing companies. However, developing such a

methodologyfor benchmarking a sustainabilitystrat-

egy faces a number of significant hurdles.

Sustainability strategies must satisfy diverse goals

Proponents of sustainable practices argue that

building responsible enterprises requires consider-

ing and measuring impacts on people, profits, and

the planet (Elkington, 1998). Companies seeking to

pursue sustainable strategies must find ways to in-

tegrate the tradeoffs between social, economic, and

environmental impacts in decision-making (Epstein

et al., 2015). In doing so, they face three challenges.

Managers often face significant opposition from

shareholder value advocates who characterize the

triple bottom line as a zero-sum game in which cre-

ating value for society reduces value for the firm

(Lazlo & Zhexembayeva, 2011). Managers arguing

for investments in the social and environmental

dimension of sustainability are tasked with demon-

strating these investments, at minimum, do not hurt

returns to shareholders. As such, any benchmarking

methodology focused on improving the social and environ-

mental dimensions of an organization’sbusinessmodel

must consider the relationship between sustainability ini-

tiatives and financial performance. With ou t thi s as pec t

of the benchmarking methodology, companies’de-

ployment of capital for sustainability initiatives may

be blocked.

Moreover, it may even be the case that achieving

some ‘socially responsible’goals may come at the

expense of some other socially desirable outcome.

For instance, investing in technology to reduce the

use of toxic material in a manufacturing process

may make the workplace safer for the employees.

However, the introduction of the advanced tech-

nology can often generate more ou tput utilizing

fewer workers. Thus, a seco nd requirement for any

good benchmarking methodology assessing sustainabil-

ity strategies is to be flexible en ough to measure at mul-

tiple levels of performance. T hat is, it should be able to

assess performance at the organization level, the indi-

vidual dimension (people, profit , and planet) level,and

even different key performance in dicators (KPIs) of each

dimension.

A related issue is how to assess tradeoffs between

goals (Epstein et al., 2015). It is not unusual for a

strategy to have diverse goals. When all of the goals

are financial metrics, it is relatively easy to assess

comparative performance. Simply consider the cost

savings and/or revenue enhancements associated

with achieving the goals. However, assessing rela-

tive tradeoffs between financial outcomes and re-

ducing carbon outputs or enhancing the welfare of

the community are more complicated because

performance metrics are typically measured on

2 of 16 E. Maltz, H. H. Bi and M. Bateman

© 2016 John Wiley & Sons, Ltd. J Public Affairs 18, e1606 (2018)

DOI: 10.1002/pa