The Bottom Line: Sustainability as Competitive Strategy for San Diego’s Hitachi Data Systems
We recently read a new book called The Future of Value, by Eric Lowitt, and were intrigued by the description of the Sustainability Strategy Maturity Continuum—consultant-speak for the evolution a company goes through as it perfects its sustainability strategy. (In short: the sustainability strategy might begin with a loose collection of grassroots efforts, then move to an articulated sustainability vision that is separate from the over-arching corporate strategy, and finally, over time lead to a “sustainability infused strategy,” where the sustainability strategy is the company’s corporate strategy.)
That sounds a lot like Equinox Center’s vision for the San Diego region itself: that San Diego County will be a model for sustainability and quality of life. Just like Lowitt’s findings for businesses, our research has shown that we can get there by connecting our region’s current disparate, but well-intentioned strategies for our water and energy supply, land planning, transportation and economic development, into a more integrated and cohesive long-term sustainability infused strategy.
As part of our ongoing series, “The Bottom Line” (click here to subscribe), we asked Lowitt to guest author a blog piece for us on the topic of crafting a “sustainability infused strategy” and how one San Diego company has successfully applied this principle.
Here is the story of San Diego’s Hitachi Data Systems, in Lowitt’s words:
Sustainability as Competitive Strategy for San Diego’s Hitachi Data Systems
In June 2011, sustainability blog Triple Pundit named San Diego among “Top 10 Climate-Ready Cities in the US.” The article cited San Diego’s ‘Solar Energy Implementation Plan’ as a primary reason. Another reason surely is the sustainability initiatives of companies based in San Diego County.
Hitachi Data Systems (HDS) is one such company. HDS is a wholly-owned subsidiary of Hitachi, a company I have profiled in my new sustainability and competitive strategy book, The Future of Value. Hitachi stands out from many of its peers in part due to its integration of sustainability into the company’s strategy planning and execution processes.
The following excerpt from The Future of Value describes Hitachi’s approach. It is an approach companies of all sizes and industries can employ to connect sustainability with strategy. Based in Tokyo, Japan, Hitachi opened its doors in 1910, originally focused on producing power generation equipment. While Hitachi still maintains a robust power systems business, the company has diversified into an electronics and business services organization. Sustainability touches and colors many aspects of Hitachi’s business—from the carbon footprint of its power systems to the development and maintenance of its portfolio of licenses to operate in a mosaic of local communities.
As recalled by Brian Larnerd, Hitachi’s senior manager of corporate social responsibility (CSR), wrapping Hitachi’s arms around the range of sustainability issues most material to its business was critical to the development of the company’s sustainability strategy:
We set out our first three-year CSR roadmap that went from April of 2006 to April 2010. Our goal at the end of the three-year period was to be a leading global CSR company. One of my tasks was to identify what that meant. And a separate but related task was to better understand how we would achieve this goal. We have a very small team; I work with a colleague in Japan at the Hitachi headquarters level. So we recognized the need to work with an external third party to gather outside perspectives and insights. So in collaboration with Business for Social Responsibility (BSR), my colleague and I put together a strategy to set us down the course of creating a world class approach to what we’re calling strategic CSR, where we integrate CSR into our business strategy and focus on the issues that matter the most to us as a business over the long term.
Hitachi conducted a “materiality assessment” to better understand the areas where their stakeholders’ interests intersected with Hitachi’s interests. (Materiality helps companies assess the relative importance of an issue based on its impact on business strategy as well as its impact on society.)
(Source: BSR, 2011)
Larnerd continued:
The materiality assessment is about identifying the most important issues to our stakeholders while also analyzing the influence these issues have over our long-term business success. We wanted to revert back to our roots.
So our materiality assessment has been one of, “CSR is at the very heart of Hitachi. And it’s not something that we need to talk about but it’s something that every Hitachi employee needs to understand and needs to know.” We put in place a mechanism to better understand what are the most important issues facing our stakeholders. First we asked who are our most important stakeholders? We decided that we needed to prioritize those issues and then see how they influence our long term business success.
Sustainable Market Leaders such as Hitachi employ a remarkably similar model to determine the importance of evaluated material issues. The model consists of two axes: typically the x-axis represents the importance of the issue to the company’s performance, while the y-axis represents the importance of the issue to the company’s stakeholders:
(Source: BSR, 2011)
Again Brian Larnerd:
We had formed the stakeholder side decisions from stakeholder engagement, various activities like that. Understanding what are trends, local community needs, things linked to millennium development goals, etc. Then on the business success axis we linked some of those stakeholder CSR issues to our business criteria, such as revenue growth, reputation, products and services, synergies, business risks, etc. We completed our analysis by looking at the upper right corner box as, “That’s where we need to focus our CSR strategy to inform the business strategy as well as our communications strategy on the issues that matter the most to us right now.”
A proper materiality assessment can inform the design of a company’s sustainability strategy. That is, the outcome of the materiality assessment—a prioritization of issues deemed highly material to both the company and the company’s stakeholders—naturally leads to a series of performance and strategy questions. What actions are we taking to promote global diversity within our value chain? And how does consistently achieving global diversity relate to our financial performance and our competitive positioning? Larnerd described Hitachi’s approach:
Once the materiality assessment was complete, we worked with our various corporate functions, our corporate strategy team, and our top management, to use the outcome to better inform the competitive strategy decision making process.
Companies worldwide are disqualifying potential suppliers and other business partners that are not connecting sustainability to core values, strategy, and management practices. Therefore companies in San Diego County that choose to embrace sustainability can position themselves for growth and success. A materiality assessment can be an essential step in the process.
Eric Lowitt is a sustainability consultant, speaker and
author of "The Future of Value: How
Sustainability Creates Value Through Competitive Differentiation" (Jossey-Bass, September 2011).
More from our ongoing series, The Bottom Line
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National City’s Chamber of Commerce Launches Green Business Program
Sustainability as Competitive Strategy for San Diego’s Hitachi Data Systems
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