Jonathan Scott, director of the Center for Industrial Productivity and Sustainability (CIPS) and author of The Sustainable Business, explains why reducing waste opens the door to sustainable facilities management.
There are compelling financial reasons for operating facilities in a more sustainable manner.
Dutch bank, ING, reported annualised energy savings of more than €2 million within three months of relocating to new, purpose-built, “green” headquarters premises in the Zuidas district of Amsterdam.
Water recycling at PepsiCo’s Frito-Lay factory In Casa Grande, Arizona currently saves the company more than US $60 million every year. Retail giant, Hudson’s Bay, has revealed aggregated energy savings over a six year period totalling Canadian $13 million.
And closer to home, the Co-operative Group’s new headquarters building at One Angel Square in Manchester, looks set to become one of the most sustainable office buildings of all time: its energy-plus credentials that have already won it a coveted, BREEAM “Outstanding”, rating. Behind these successes is the simple reality, however, that building owners and operators across the globe are responding to legislation that has been introduced to counter the effects of population growth and rising demand for natural resources, in particular.
Sustainable facilities management
The word, sustainable is ubiquitous today. However, when it is applied within the context of facilities management, it may be defined as the “capacity to continue operating buildings into the long-term”. In The Fifth Discipline, critically acclaimed author, Peter Senge, observes “rain” to be a meaningless concept if it is explained only by reference to its separate parts instead of as a whole. And in facilities management, sustainability similarly assumes meaning only when it encompasses everything that a facilities manager does; from managing people, processes and technology, to dealing with legal, financial, social and environmental requirements.
For it is only by focusing on the bigger picture (rather than on short-term management priorities), that FMs can add significantly to bottom line profits. Although, in order to understand the broader perspective, it is necessary first to identify common ground upon which the different sustainability concerns in facilities management converge: waste elimination followed by resource-life extension (waste is defined as not achieving 100 per cent of purchases and investments).
The sustainability mechanism
The sustainability mechanism is the term I use to refer to this common ground. And although it is not a law, it is nevertheless a rule that must be adhered to if any business seeks to profit from the numerous benefits that sustainability has to offer. For waste is omnipresent in every business system - and waste is a wound from which money bleeds. Just as importantly, waste isn’t simply about rubbish or lighting (or machinery) left on when it is not needed; since it assumes a myriad of non-physical forms including fraud, human error, poor staff retention and bad customer relations.
Joseph Ling and the 3M Corporation
In the 1970s an employee of the 3M Corporation named Joseph Ling recognised this simple truth and introduced a ground-breaking waste elimination programme. Leaks, spills, and other forms of wastage were reduced or eliminated; lights and machinery were turned off when not needed; scrap material was recycled back into production processes; products were reformulated using more sustainable raw materials; and equipment and manufacturing processes were redesigned to use less energy. Today, 3M estimates that Ling’s progamme has saved the company more than US $1 billion in costs over the years.
Cost-cutting alone will rarely suffice, however, since businesses must make money first. And for this reason, eliminating waste should be regarded only as the symbiotic aspect of a more focused goal: resource-life extension.
Conceived by industry analyst, Walter Stahel (a Ling contemporary), resource life extension - which is also known as “closed loop economics”’ or “the circular economy”, is a profit-inducing concept based on the principle that businesses should redirect expenditure back into their business whenever possible.
Caterpillar, for example, reduces its raw material needs by remanufacturing its products as many times as possible: in some cases it can squeeze three remanufacturing cycles out of purchases of its own products from the second hand market, which effectively means that it makes a product once and sells it three times. Think of the profit margins and the lower costs that attach to remanufacturing (instead of manufacturing from scratch); especially from the perspectives of waste elimination, increased product quality, job creation, and smaller carbon footprints.
The important lesson here is that sustainability doesn’t begin and end with remanufacturing since, to use Peter Senge’s rain analogy, that would be like focusing on one or two drops of water and assuming that the answer to understanding rain lies there. Indeed, in order to benefit to the greatest degree from sustainability, it is imperative that the mechanism behind it (waste elimination leading to resource-life extension), is applied throughout every facet of a business because, without it, most business models are doomed to failure.
I was once approached by two students enrolled on a course I was teaching at the Rotterdam School of Management who wished to discuss a business plan based on the idea of wrapping inefficient industrial furnaces and boilers across Central and Eastern Europe with avant-garde technology that converts wasted heat into electricity. Their idea was to store and sell electricity so generated.
The number of poorly designed or insulated furnaces and boilers in the region is staggering, and the countries they are located in certainly need more electricity. However, inspection of the financials revealed the value of energy wasted to be lower than of any electricity that might have been generated under the proposed scheme; which meant the business model was destined to lose money - as can occurr when any business tries to ‘close its loops’ before eliminating its waste.
For the sustainability mechanism must be applied to all processes and procedures, which means that even the manufacturing plant that believes it can reduce its energy costs by investing in renewables should first establish through a programme of waste elimination, whether the capital expenditure required to implement such a programme might be reduced.
Citing results from thousands of energy assessments as evidence, David Klockner, vice-president of energy consulting, engineering, and project development firm, ENERActive, says: “it is is quite possible to reduce the energy needs of buildings and factories by 35% or more”.
Meanwhile, researchers at the Massachusetts Institute of Technology (MIT) are currently trying to double the battery life of smartphones by reducing their energy requirement instead of focusing on increasing battery size. To date, they have established that reducing consumption in just one area of a phone’s electronics can reduce its energy requirement by 65 per cent and extend the time required between charges.
Improving the way a product or service works by making it more efficient (read waste elimination) leads to an increase in resource-life extension possibilities (in this case, increased battery life) and greater cost savings all round. Fortunately, the sustainability mechanism doesn’t stop there. Even hard-to-quantify intangibles such as the value that people add to a business also benefit from this rule.
An example is the development of the Starbucks Frappuccino® product line (which includes a wide range of “blended” coffees that are available in cups or bottled). Originally the idea of a frontline employees, the suggestion was rejected by the corporate office until a store manager decided to follow the employee’s instinct which resulted in a billion-dollar, star product for Starbucks. Viewed through the prism of waste elimination leading to resource-life extension, the story demonstrates that by recognizing and acting upon the potential of employees (read: not wasting people), Starbucks gets more use out of its equipment, its labour force, and its coffee shops (read: resource-life extension).
Underdeveloped markets provide yet more proof of the validity of the sustainability mechanism; particularly in the form of re-tooled business models (read: the elimination of wasted markets) that encourage new and repeat customers (read: resource-life extension).
Stated differently, an increase in customer numbers and/or repeat-customer sales is a form of waste elimination and resource-life extension for the simple reason that an untapped potential sale (or market) is a form of waste, and a customer not returning to a business is an example of an unclosed loop.
Understanding this is the key to how a company like Grameenphone (the Telenor joint-venture and leading mobile phone operator in Bangladesh), generates £60 million in annual profits by ethically selling mobile phone services to customers whose average yearly wage is £170.
Measurement is the Key
Perhaps the most useful aspect of the sustainability mechanism is its measurement component. Corporate social responsibility (CSR), social accounting and ethical consumerism sometimes struggle with the issue of measurement, yet waste elimination and resource-life extension (think of them as two sides of the same coin) meet the need for measurement by explaining what being responsible means and providing a pathway to quantify and record it. In short, the sustainability mechanism is a tool that helps to make long-term business profitability easier to understand, easier to teach and easier to apply because it forces managers and employees to look at current business systems, examine the big picture, record on-going measurements, and work towards creating waste-free, streamlined operations that facilitate generation of revenues while enabling a less costly and more profitable future.
And as facilities management continues to extend the range of services that it offers; even beyond current, “non-core” offerings such as help-desk and data centre services, so shall the need for better management of waste and resource-life extension within both core and non-core services arise.
More to the point, a growing number of your competitors have already awoken to this reality!