Unlocking Key Performance Indicators
Reading this month's Harvard Business Review, I was reminded of a story about Apple and Greenpeace. Back in 2006, Greenpeace's analysts concluded that Apple's reliance on hazardous substances made them one of the world's least sustainable electronic companies. Apple's iconic CEO Steve Jobs dismissed the assessment, saying the analysis was "like asking a cigarette company how green their office is."
Over the years, through our work on Corporate Responsibility (CR) metrics, we have seen some of the sharpest data gatherers fall into this trap. Despite worthy intentions, companies, investors, analysts and other stakeholders often fail to ask the questions that really matter.
Measuring the right issues is a difficult -- and essential -- first step to managing social and environmental performance. Our experiences show four measurement principles that can help companies and analysts. Good performance indicators need to be:
- Material: indicators should capture information that is relevant to the core business and the concerns of stakeholders. As the Apple example shows, it is important that companies report -- and are held to account against -- performance indicators that are material.
- Timely: increasingly when we talk with investors (both mainstream and those holding socially responsible investments), we hear that they are looking for companies to provide sustainability information more often. In a world where traders' screens update every few seconds, who can wait 12 months for new sustainability data?
- Accessible: metrics should be intuitive and easy to understand. Too often, firms present indicators without sufficient information. One hospital in the Middle East reported that over a 12-month period there was a near doubling in the number of patients who were dropped in the process of being transferred from one hospital bed to another. Only on further questioning did we learn that the number of patients being transferred in this way had substantially increased over the same period. Through a basic calculation we deduced that the information in the public domain gave exactly the wrong impression of the hospital: the likelihood of a patient being dropped had been significantly reduced year on year.
- Aligned to a suitable peer group: while recent years have seen a plethora of toolkits such as the Global Reporting Initiative that recommend suitable indicators, within a given industry there are remarkable variations in the metrics used and the units reported. Our latest benchmarking of greenhouse gas emissions in the world's 500 largest companies shows that, despite the hype, companies use such a jumble of indicators that comparisons are next to impossible. By adopting comparable metrics, companies can improve their own management systems, benchmark performance, and build trust with stakeholders about their sustainability efforts.
Developing key performance indicators is a critical first step to managing social and environmental issues. Embracing these four principles of measurement in a clear and transparent way will be essential for commercial success. Without effective KPIs, a company will never be able to credibly claim a commitment to sustainability.
What's your view?