Sustainable Balanced Scorecard and Information Systems for ...

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Sustainable Balanced Scorecard and Information Systems for Environmental Management Frank Medel González1, Lourdes García Ávila1 1

University “Marta Abreu“ from Las Villas, Faculty of Industrial Engeneering and Tourism, Villa Clara, Cuba

Abstract. Nowadays the protection of the environment is a new and important strategic objective of the Cubans companies’ and of the whole world. Many entities present Environmental Management Systems, which are in merely declarative phases, no being capable of translating the environmental strategies in tangible actions. The goal of this paper is to show how the environmental management can be done using tools like Sustainable Balanced Scorecard a management first-rate tool in the process of environmental decisions. Also the paper exposes how the Environmental Information System should support the environmental management and the integration in the Corporate Information Systems. It is proposed the Manufacturing Resource Planning as support to recycling processes. The integration of these tools and systems can strengthen the environmental management.

Keywords: Sustainable Balanced Scorecard, Information Systems, recycling and MRP-ІІ systems.

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Introduction

The protection of the environment is the main challenge nowadays and is going through the politics, economy, technology and investigation areas. The great information volume associated to the environmental acting of the companies and the treatment of this information to obtain a limited number of key indicators should help the managers in the decision-making process related to the environmental behavior of their companies. Many organizations know their duty with the environment but very few can transform their environmental strategic plans into concrete actions, and cannot manage the environmental information in an appropriate way. The goals of this dissertation are approaching to the Sustainable Balanced Scorecard (SBSC), which is a derivation of the BSC, selecting a methodology for their development. Show how the SBSC comes to represent an important management tool, providing the managers a coherent group of key indicators, guaranteeing the translation of the environmental strategy and measuring the progress of the company. Also exposes the Environmental Information Systems (ENVIS) importance and the role played for it in order to collect the environmental data, supporting the environmental management and SBSC. Propose Manufacturing Requirements Planning (MRP-II) systems as the

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base of integration between production and recycling process, ENVIS and MRP-ll can provide data sourced needed to feed the SBSC.

2 The Traditional Balanced Scorecard and Environmental Management The BSC is one of the more developed and applied instruments in the late years, around the world; it was introduced by Kaplan and Norton, in the management space since 1992. The Balanced Scorecard as a strategic management tool claims to identify the strategically major issues of the business, to describe and to depict the causal contribution of these issues which contribute to a successful achievement of the company strategy [8].According to [9] the evaluation of an organization must not be restricted to traditional financial evaluation rather it should be complemented with measures related to the satisfaction of costumers, internal processes and the capability to innovate. These additional measures should guarantee the financial companies future and lead the company toward their strategic goals while it maintains these four perspectives equilibrated and balanced. The objectives and indicators of the BSC are a derivation from the mission and strategy of the organization and classically they contemplate the acting of the organization from four perspectives; The Financial, Costumer, Internal Process and Learning and Growth (L&G). The BSC is considered as a strategically management system, which is structured according to the logic of the cybernetic management cycle (Plan- Do- Check- Act), all this has permitted that BSC had being propagate of all the areas of knowledge that should be managed from strategy to action. In spite of having orientations to seem, diametrically opposed, the environmental management (EM) describing the task to take care about environment issues and the BSC can supplemented it and have contact points. The important point of coincidence between them is external orientation in both cases. In the Table 1 a series of elements in common are presented. A strong knot connector between these two elements is represented by the indicator because they can be used as a base of improvements measures. Considering that corporate environmental strategy execution should have detection and checking system to evaluate the achievement of the environmental objectives. For coincident points between BSC and EM it´s considerate that the BSC must be the instrument that allows make operative the incorporation of the environmental variable in all the organizational environments, using environmental indicators as key elements for tracking the environmental strategy.

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The Sustainable Balanced Scorecard

Several authors have approached as the BSC can contribute to the sustainable development, defining the Sustainable Balanced Scorecard developed for the

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Table 1. Common elements between BSC and Environmental Management. (Source: Adaptation of [11]) Environmental Management BSC Start from the analysis of the environment (internal Start from the declaration of the mission and the and external) and their politics’ definition. vision in conjunction with the values. Require de objectives and goals derived from Require the establishment of strategically objectives politics. and corresponding goals They need a clearly defined strategy Based in indicators for the achievement of their goals Based on the construction of a system of indicators and objectives. that will allow to measure the achievement of the strategy and to guide the process of continuous improvement. The technology, the innovation, the communication and the administration of the human resources constitute Critical Success Factors. The commitment of the high direction and the establishment of responsibilities like indispensable requirement for their installation. Both required the commitment of the whole personnel and the alignment of their personal objectives with the organizational ones to be able to develop the strategy and to get the prospective benefits. Considerate the demands of groups of interest like fundamental requirement.

It transcends the frontiers of the internal thing, when considering the clients like reason of being of the company, Establishment of indicators to measure the execution of goals and objectives proposed

“Business Case” (Fig. 1) where the environmental and social topics are used to generate economic value, without committing future generations. A SBSC is a type of BSC specifically designed to reflect the issues and objectives of corporate sustainability. In order to clarify appropriate sustainability strategies and translate them into action, it is generally recommended that managers first design a separate SBSC. This must then be integrated into the traditional BSC in order to ensure a holistic view of sustainability. This process will help to overcome the distinction between a traditional financially oriented management approach and emphasizing sustainability or environmental management concerns [5].

Economic Sustainability

Eco-efficiency

Social Productivity

Ecologic Sustainability

Social Sustainability

Fig. 1. The "Business Case". (Source: [3])

According to [1] the SBSC is based on the traditional BSC, but provides a broader scope, integrating the three dimensions of sustainability. So, it has a different content and possibly a different structure (“architecture”). In addition to the four perspectives of the traditional BSC, it is possible to include a fifth perspective in order to explicitly

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address stakeholder1 issues. Another definition was given for [2], which outlines that the SBSC can help to detect important environmental and social strategic objectives in the company, in a strategic business unit or department, illustrating the causal relationships, among the intangible factors and the finances of the company. The SBSC are considered as a management system of the sustainable strategy. 1.1 Defining the SBSC for the Environmental Management The SBSC should concentrate on a relatively small group of indicators and all the key elements that require the installation and administration of the environmental strategy, it should be adapted to the characteristics of the company that is connected in their organizational culture, in their habits, in their directions styles, taking place a mutual joining among the new direction technique that represents the SBSC. A great quantity of procedures exists for the elaboration of the SBSC; all of them have as common elements: 1. Analysis of Business Objectives (review of corporate strategies). 2. Selection of corporate environmental objectives. 3. Elaboration of strategic maps. 4. Selection and design of indicators. In the Fig. 2 can be observed how the elements can be connected to achieve the alignment of the SBSC. Strategically Maps Business Objectives Corporate Vision

Corporate Mission

Environmental Objectives Environmental Vision

Environmental Mission

Environmental Performance Indicators ¿We work to reach the Environmental vision?

¿We operate inside the purpose and range?

Environmental strategic objectives Environmental Corporate strategies and objectives

Environmental tactical objectives

¿What should be measured?

Environmental operational objectives

Fig. 2. Alignment of common elements in the SBSC.

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It is an English term used for the first time by R. E. Freeman in their work: "Strategic Management: To Stakeholder Approach", (Pitman, 1984) to refer to "who can affect or they are affected by the activities of a company". The most correct definition is interested part.

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The process of SBSC formulation should consider a basic number of observations that according to [4] they should be: 1. The process must lead to an integration of environmental and social issues into business management. 2. The SBSC should know the characteristics and specific requests of strategy and the environmental aspects of the business unit where it´s goes to apply. His formulation must not be generic, had to be personalized. A third consideration could be: 3. The environmental, economic and stakeholders issues should be integrated and supplemented, guarantying the equilibration of these aspects in the SBSC. Different methodologies were consulted; the proposition of [1] was selected for their simplicity and coherence in the form of approaching the common elements previously mentioned (Fig. 3) on the SBSC elaboration process. Bieker includes into SBSC one more perspective in comparison with a traditional BSC (Social Perspective). This perspective will be excluded by the non relevance of this one, in the article. Those steps defined by Bieker, as the classic definition of the BSC, suggests a topdown orientation crossing from the strategy until the operative level. It starts the analysis of the corporate strategy, clarifying the environmental strategies that will allow the selection of the environmental objectives. After the initial process of strategic analysis, it proceeds to the identification of the causal relationships being elaborated the strategic map that is the heart of the SBSC and is not more than the graphic image that shows the representation of the relationships cause-effect in which the company strategy is based. When the map is being building, should be made in a way that were able to explain the results that it will achieve and like it were achieved. The map should represent the union among the different topics in each one of the four perspectives. The relationship causes-effect defines the logical chain for which the intangible assets become tangible results (see Fig. 4). Corporate vision and mission Clarifying corporate environmental strategies Deduction of environmental objectives Identification of causal relationships Integration into the perspectives

Financial

Stakeholders

Process

Learning

Definition of indicators, targets and measures Integration into the core management system

Fig. 3. Steps when define a SBSC. (Source: Adaptation [1])

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Financial

Improve ROI (incomes)

Incomes diversification

Environmental cost reduction

Stakeholders New market segments

Costumer’s satisfaction

Optimize LCA of products s.

Internal Process Use Clean Technologies

Environmental conditions

Green products/ services Consolidate the EMS

Design efficient process

Sustainable leadership

Learning and Growth

Ecologic conscience

Manage the Competences

Environment IT support

Fig. 4. Generic strategy map. (Source: Own elaboration)

After that, the next step is to design the indicators of the SBSC, Kaplan and Norton to indicate that they should not exceed the twenty, approximately five for perspective, they should be a combination of lagging indicators and leading indicators responding to the environmental strategic objectives per respective (e.g Fig. 5).

Fig. 5. Generic example of indicators per perspective in the SBSC. (Source: Own elaboration)

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The next step is to establish the environmental goals, the performance level or rate of improvement desired, the goals are supposed to become established for each indicators during the different years projected to reach the vision. The establishment of initiatives allows reaching the goals of each objective, being these plans and projects that permit attaining the desired results. It is important to indicate, that apart from the formal structure that can have the SBSC it´s essential the integration of the environmental protection inside the processes of the company at all the levels. The SBSC does not provide enough details needed by an environmental manager, for this reason would never substitute to the systems of environmental management, as ISO 14001 and EMAS2. The SBSC facilitates the development in an active way, of a new dynamic control in organizations impelling the coordination and the complementarities among the different areas of the company and allowing a corporate vision of future.

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Environmental Information Systems

For the implementation of SBSC, it is necessary the existence of an Environmental Information System (ENVIS) in order to collect data. The ENVIS are implemented within organizations in order to improve the effectiveness and environmental efficiency with the objective to prepare and treat massive collections of environmental data to accomplish EM tasks and support the decision-making process, they can be: monitoring and control systems, conventional information systems, computational analysis systems, decision support systems, integrated environmental information systems, geographical Information Systems. It is important to achieve the connection between the ENVIS and the traditional Information Systems within the company, mainly in the areas of collection data and production planning. The connection to accounting management systems is reasonable to achieve an efficient use of the results on the analysis of materials flow. According to [10] the information required by dedicated management systems falls into two categories: 1. Top-down Information on organizational aspects like document control. This proceeds in a work-flow environment. 2. Bottom-up Information on process parameters and physical flows, related to the production process involved. It is necessary to define the factors that should need to be measured and collect only the key and valuable information that responds the necessities of information of the company or organization where it is implanted. The ENVIS supplements the environmental management system defined by ISO 14001. Used in conjunction with the appropriate goals and the commitment of the high management, the

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Eco-Management and Audit Scheme (EMAS) is the Europe Union voluntary instrument which acknowledges organizations that improve their environmental performance on a continuous basis. More than 4,100 registered organizations are legally compliant, run an environmental management system and report on their environmental performance through the publication of an independently verified environmental statement.

.

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synchronization of the ISO14001 and the environmental information system help to improve environmental performance and reduce negative impacts. In the Fig. 7 are illustrated the main design activities of ENVIS inside the organization. It´s should guarantee the essential alignment that must exist among the corporate environmental strategies, information technologies (IT), organizational environmental and ENVIS infrastructure [6]. The effective transition of the strategy into infrastructure requirements can be observed in both sides of the figure. Corporate Strategy Environmental Corporate Strategy

Strategic Alignment

Information Technologies Strategies

Design activities of ENVIS

Organizational design activities

Environmental Corporate Infrastructure

Infrastructure Alignment

Infrastructure of Environmental Information System

Fig. 7. Main activities of ENVIS design. (Adaptation of: [6])

The design of a good corporate environmental strategy will lead to create a corporate environmental infrastructure and the design of the good strategies of IT like support of environment it will take to an effective infrastructure of the ENVIS. The integration of several technical components (example: databases systems, geographical information systems or environmental simulation) should be developed and integrated inside the ENVIS like a challenge for the computer science [12].

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MRP-II like Support of the Recycling Process and the SBSC

MRP-II is a planning system for all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in money terms. MRP- II offers a variety of functions, each linked together: business planning, sales and operations planning, production planning, master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. The output from these systems is integrated with financial reports such as the business plan, purchase commitment report, budget, and inventory projections in financial terms. One of the SBSC perspectives who more affect in an objective way the natural environment is the Internal Processes perspective. Because it´s where the production processes activities are bounded, taking place a continuous exchange with the natural environment. The ecological damage could decrease if we minimize the material exchange and energy of the systems with the environment. For that reason recycling, production process management and data collection in this area have decisive functions for the execution of the corporate environmental strategies.

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Common elements exist among the production and recycling processes permitting their integration, according to [7]:  On process-level, production and recycling processes should overlap. Overlapping means that i. e. recycling and production processes might demand the same resources or, in the case of recycling of rejects, very short cycles may occur, if processed rejects flow into the same manufacturing process from which they originate.  On information systems-level, production and recycling planning should be based on an integrated set of data and functions. The integration of the production and recycling processes inside the company would facilitate the administration of both, considering this integration as important element when the SBSC is elaborated. The SBSC is a strategic tool and must be feed with real data from the ENVIS and the MRP-II, being these the main sources to obtaining complex information related with the acting, control and environmental improvements of the companies. The MRP-II systems give many pertinent data for the recycling planning like: parts of products, bills of material, operation plans. The basic data structures of the recycling planning and control are similar to the data structures corresponding of the MRP-II systems, being applicable for the recycling process management.

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Conclusions

From the theoretical point of view can be appreciate that the BSC is a sufficiently flexible management tool to deal with environmental aspects, existing great quantity of elements in common between BSC and the EM, using environmental indicators to measure level of execution of the objectives in both cases. 1.

2.

3.

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The SBSC offer a method to translate the sustainable corporate strategies in actions, it allows to introduce the topics related to the sustainability of the companies, helping to detect strategic environmental objectives, the causeseffects relationships and selecting the derived indicators of the objectives, those permit measure execution level of the corporate environmental goals, achieving the environmental integration inside the general management of the company. The SBSC is a management tool of the sustainable strategy and it should be integrated inside the environmental management systems defined by ISO 14001, SBSC by itself doesn't constitute a EMS, but contributes to the revision and the continuous improvement of the corporate environmental strategy. The ENVIS should support the environmental management and the SBSC because it allow capture the environmental data that eventually will generate indicators, to be more effective and efficient the environmental performance of the companies, also in the ENVIS design the alignment should exist between the environmental strategies and information technologies infrastructures. MRP-II systems can provide a platform for the integration of the production and recycling processes at level of processes and functions, providing the necessary data for the indicators of the perspective of Internal Processes of the SBSC, translating in financial flows or materials.

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