How Sustainability Met Profitability

The basis

Measuring business through the lens of profitability is a must. But to measure business only in terms of profitability is limiting and dangerous.

Just take the case of what was supposed to be a natural occurrence of rain water flowing down from the mountains to the river basin after a tropical storm. Cutting the trees in the surrounding highlands of Cagayan de Oro and Iligan was profitable. Still is. But the recent events made it obvious that using only the profitability lens and ignoring safety is a recipe for disaster. That is why it is illegal to cut those trees.

But it is equally flawed and dangerous to use measures like safety and risk and leave out profitability because it leads to a failed business. The key is to design a framework that will represent all the valued variables.

Over the past two decades, the implementation of The Balanced Scorecard that produced terms such as key results area, was a great help.

At the turn of the millennia, as business pace further increased and its size went global, a new business lens emerged and crystallized. Thanks to the dedication and efforts of Al Gore and the film The Inconvenient Truth, sustainability is now part of the business lexicon.

Though the rightness of sustainability and initiatives like corporate social responsibility is unquestionable, a management system linking the effects of these initiatives to the bottom line is mostly confined in academic research papers and carefully crafted corporate financial end-year reports. Its transition into the office floors, the shop floors, the Accounting departments and the daily banter, tsismis, of ordinary Filipino worker is yet to happen.

It must happen.

If not, we all fall victim to the unsustainable and vicious cycle of extracting diminishing and non-renewable resources from the environment to create wealth and capital in order to more efficiently extract the same non-renewable resources. Worse, we will continue to produce emissions (waste) that make supporting life more difficult and expensive for our children when they, too, become professionals.

Further aggravating this situation is the emerging new weather patterns and the experiences people have with it. We all saw these, delivered and duly magnified, in our respective social networking accounts.

A re-imagined business as usual

These scenarios have made business giants redesign their systems and their products. The most obvious and most advertised come from the car manufacturers who have mass produced cars, the hybrids - that radically reduce the use of oil, a non-renewable resource.

At the heart of this transition to a new normal of doing business, is an on-going assimilation of the environment management system into the standard corporate management system.

For a successful assimilation, the environment management system must speak in the oldest language of business – revenues, costs and profits.

During the late 1990s, at the Institute of Management and the Environment (Institut fur Managementund Umbelt, IMU) in Augsburg Germany, a finance-speaking sustainability methodology took form – Material Flow Cost Accounting, MFCA.

But it was Japan, an export-oriented country and a manufacturer of higher-value products, who widely implemented MFCA. And from a decade of planning-doing-checking-acting, Japan amassed a body of knowledge and came up with an implementing methodology that traces waste, emissions and non-products in virtually all types of manufacturing plants and businesses.

Not only did MFCA improve the business’ environmental performance, profitability followed the same curve. ISO incorporated this, named it ISO 14051 and released it last November 2011.

MFCA in a nutshell

Do you still remember that moment when we first used a touch-enabled mobile phone? We are still doing the same thing - communicating with people, but the experience of communicating is different, richer. And that experience allowed us, once more, to consider possibilities.

It is similar when MFCA is applied to a business. It is still the same business but the way one looks at “this same business” will be different. So different that one considers possibilities, again.

One of the benefits in applying MFCA is having a picture and a realization that businesses have been producing two things: [1] the products or services (positive products in MFCA) that customers buy and [2] the emissions and waste (negative products in MFCA) that makes our world less livable. Since it is generally accepted that the manufacture or provision of positive products incur cost, MFCA’s posits that it is also logical and correct to state that the business also incurred costs in producing the negative products. Wittingly or unwittingly, it does not matter but it did. Through MFCA, we will see that disposal cost is just a component of the total cost of the business’ negative products.

It has been a staple of business for over a century to improve the performance and appeal of the positive products. Now, we start and add an equally inspired effort to improve and lessen the negative products.

This logic made MFCA gain traction and acceptance.

Applying MFCA

The following are the generally accepted steps:

STEP 1: Choose a product or service.

STEP 2: Draw its process flow.

STEP 3: For each process, identify – input (material, energy and system), output and negative products.

STEP 4: Do a Material Balance Check on each process to refine input, output and to identify negative products. Take note of Theoretical Loss, Normal Loss and Abnormal Loss.

STEP 5: Assign cost.

STEP 6: Improve.

Begin with the end in mind

The resulting and necessary calculation could get overwhelmimg. To this, Mr. Yoshikinu Furukawa, Nitto Denko Corporation's General Manager of Sustainable Management, the very first adapter of MFCA in Japan offered this hindsight wisdom, "The end we want is not a calculation but improvement."

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This is one of the articles I have written as a result of the MFCA immersion in Japan.

an inspired lift :- )

Life I am the new year.
I am an unspoiled page in your book of time.
I am your next chance at the art of living.
I am your opportunity to practice
what you have learned about life
during the last twelve months.

All that you sought
and didn't find is hidden in me,
waiting for you to search it out
with more determination.

All the good that you tried for
and didn't achieve
is mine to grant
when you have fewer conflicting desires.

All that you dreamed but didn't dare to do,
all that you hoped but did not will,
all the faith that you claimed but did not have --
these slumber lightly,
waiting to be awakened
by the touch of a strong purpose.

I am your opportunity
to renew your allegiance to Him who said,
'behold, I make all things new.'
I am the new year.