It's been at least a couple years since I published a document with the word "sustainability" in the title, but that's not because environmental sustainability has become any less important to manufacturers. Instead, I've seen environmental sustainability become more embedded into processes and products over time. I think sustainability is still a topic worth discussing, especially in the context of our cross-company and cross-value chain themes that we highlighted in our 2015 predictions for manufacturers – product quality and customer centricity.
Sustainability as an Ongoing Challenge
We're just a few days past the deadline for those companies vying to make the Dow Jones Sustainability Indices (DJSI) for 2015. The indices managed by RobecoSAM apply the full definition of sustainability across economic, environmental, and social factors to evaluate companies for investing purposes. According to RobecoSAM's Annual Sustainability Yearbook published in January 2015, the industry with the highest participation in the evaluation process is Household Products, a sector that is extremely brand and reputation sensitive. And one thing that's very noticeable in the results from year to year - large financially successful companies come and go from the indices, meaning companies of all sizes still face challenges and sustainability is an ongoing effort. Take a look at the largest 10 deletions from the DJSI in in September 2014 and you'll see some very well-known names that were dropped.
What's Most Relevant to Manufacturers for Sustainability and Financial Performance?
In the process of creating the DJSI, RobecoSAM reviews mountains of data, and its analysis prioritizes the sustainability factors that are most relevant to the company’s financial performance. For example, for chemical companies the key material issues are product stewardship, innovation, and environmental management. This approach – associating environmental sustainability factors with financial performance – makes sense. In our review of the manufacturers on the DJSI list, we generally found that their profit margins were stronger than other manufacturers that publicly reported their financials. Yet, we do find that there there's still a disconnect between sustainability and financial return in manufacturers' minds, or at least a perception that sustainability is first and foremost about reducing energy costs and compliance. In fact, our 2015 Product and Service Innovation Survey shows just that. The most prevalent sustainability investments in manufacturing are focused on "lowering the amount of energy required to manufacture a product", followed closely by "complying with government regulations", according to our IDC Manufacturing insights survey. And even though these initiatives are important, they are rarely cross-company efforts.
Make the Connection to Quality and Customer Centricity
Instead, we think manufacturers would benefit by strengthening the connection between sustainability and product quality and customer centricity, the two themes we emphasized in our IDC Manufacturing Insights Worldwide Predictions for 2015. We also recognize they aren't just about the plant or the product or just one department. They impact the entire organization and even impact the value chain, and the same can be said for sustainability.
Enterprise quality can be improved by monitoring, measuring, and managing data and processes. Manufacturers must be able to identify root causes, improve communication, and learn from past mistakes, as well as build in processes and workflows that enable corrections before they become a crisis. Sound familiar? Isn't our thinking around quality just as relevant to sustainability?
Similarly, being customer centric means enabling functional capabilities to support customer and consumer needs, but it also requires that companies be efficient and effective. In our most recent IDC Manufacturing Insights Supply Chain survey, we noted that customer centricity has grown in importance dramatically, not just in terms of classic customer service (on time in full) but also in terms of the role of product quality, from the perspective of both product reliability and performance and also the pace and relevance of innovation. Maybe the reason why so many companies in the Household Products sector participates in the DJSI is because they've understood this for a very long time.
Here in the IDC Manufacturing Insights group, we'll continue to research quality and customer centricity throughout the year, across all our research areas. And even if we don't use the word sustainability, you should know we're making the connection, and we hope you are too.