Rise of the ‘Unreasonable’ Man: Wal-Mart and Sustainability

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.  Therefore all progress depends on the unreasonable man”   George Bernard Shaw

There has been much coverage about sustainability on SAP corporate website and on BPX in past months with interesting and stimulating articles and blogs.  I was motivated to add to the ongoing narrative based on a very recent announcement in the Retail and CPG industries. 

Many years ago during my MBA journey, I encountered the work of a scholar whose writings offered a deeper meaning of corporate values and purpose beyond the hard numbers of the balance sheet;  Her name is Rosabeth Moss Kanter.  The Harvard Business School professor has been widely published on topics of organization and change (recall “When Giants Learn to Dance“).  In her recent blog series “The Change Master”, she writes about Wal-Mart’s decision to  measure the social and environmental impact of every item it puts on its shelves (also see New York Times article) as an environmental game-changer. In effect, Wal-Mart is doing an end run to the ongoing debate over Cap-and-Trade v. tax incentives to fight global warming to make change happen.  Sustainability as a global issue has been around for a long time and many international organizations have been part of the dialogue (e.g., see the US Environmental Protection Agency site for sustainability programs around the world).  More and more corporations are actively, and very publicly, pursuing socially and environmentally responsible behaviors while driving profitability (e.g., see Nike Considered Index and Marks & Spencer’s Plan A).   

Wal-Mart has partnered with universities, suppliers, and invited environmental groups to create a holistic sustainability index that helps consumers make informed buying decisions.  The old business adage, ‘you can’t manage what you don’t measure’ continues to be relevant today.  Wal-Mart’s sustainability page offers the public and suppliers a view into this latest initiative with sustainability index fact sheet and roadmap, and a 15-question survey to its suppliers.  The largest suppliers in the US are expected to respond by October, with a country by country timetable for those non-US suppliers. These questions form the first step along the roadmap articulated by Wal-Mart and gains transparency into the suppliers’ thinking and doing about their sustainable practices.  The second step is the formation of consortium of universities to develop a Lifecycle Analysis Database; University of Arkansas and Arizona State University are leading this effort. The third and final step is to present the index in an easy to understand format to the consumers.  So clearly, this is a process that will take several years to bear fruit and will involve thousands of companies around the globe.

This isn’t Wal-Mart’s first foray into environmental issues.  In late 2006, Wal-Mart announced packaging scorecard to its suppliers in effort to reduce waste and conserve resources.  The stated goal is to reduce packaging by 5% by 2013; the scorecard went live a year and a half later with numerous examples of collaboration and creativity in identifying and evaluating sustainability of packaging.  One can consider the current announcement as a continuation along a trajectory initiated by such work.   Nevertheless, the pressure on supermarket chains (including Wal-Mart) continues as in the just published Carting Away the Sea which scorecards supermarket seafood sustainability practices.  

Any time an industry attempts to identify and construct standards, let alone by a single player within an industry, there will always be challenges and concerns.  One can harken back to when Wal-Mart initiated its RFID mandate in 2003 for pallet level tagging (for history of the mandate check here) and the initial rumblings by its suppliers.  In the case of sustainability, Wal-Mart is not dictating adoption of an emerging technology in support of its low cost strategy. Rather, it is leveraging a global trend and expectations for responsible corporate stewardship, while meeting consumer demand for sustainable corporate practices.  However, creating a single set of sustainability measurements and standards for the retail and CPG industries will not be easy or straight forward, consider:

• How will participants handle the ROI question?
• Will environmentally sustainable production and distribution methods add costs or involve initial investments? 
• How will wages and work conditions be impacted by the effort around such an index?
• What pre-requisites in science, technology, and software applications are necessary for success?
• Will suppliers need to divulge information about proprietary processes?
• What procurement changes (cultural, behavioral, procedural) will be necessary?
• How will clarity and transparency be embedded in the new process?
• How will the consortium build credibility and trust in the labeling?

Also, given the scope and magnitude of this initiative, there will surely be some unintended consequences that must be dealt with.

Despite such challenges, the growing global demand for sustainable behavior is a potential competitive advantage.  Keeping with the fact that corporate operations are embedded in society and the environment, companies need to take a holistic approach to sustainability.  Understanding the pervasive implications to global resources, people, and society especially as we reach back in the value chain to raw material sourcing and manufacturing, will surely impact ongoing sustainable development programs in developing nations.  For an informative and thoughful, if not somewhat controversial, video on sustainability viewed through the material flow of goods from extraction to disposal see Story of Stuff which clearly communicates the complexity of the social and environmental issues that Wal-Mart and the Consortium are about to wade through.

In witnessing the very public rise and relevance of sustainability on the corporate agenda, we should expect to read and see much more in the coming months and years on new organizational thinking to go along with new technologies and behavior patterns.  Wal-Mart’s size and reach gives it gravitas and with that comes global responsibilities.  Similarly, SAP in the technology and application arena, has global reach and impact, and with this also comes responsibilities and expectations.  Wal-Mart’s decision has far reaching implications and offers potentially unprecedented global opportunities with transparency and clarity at our fingertips.