New Metrics
The Only Value Sustainability Can’t Possibly Have

Years ago, MIT Professor John Sterman told his students that if something matters, but you don’t measure it, you are giving it the only value it can’t possibly have: zero.

This is why I wrote my book, The Value of Values, from which this is adapted.

Right now, far too much of the business world is giving sustainability a value of zero, when nothing could be farther from the truth.

Why is this the case? The first, most important reason is that the vast majority of value from sustainability is submerged — hidden from view. To surface it, we have to see things differently and help others in the company do so, as well.

An example I use in the book is that of a European manufacturing company that once asked me for help making the business case for reducing waste in its factories. They couldn’t demonstrate, to the satisfaction of their finance department, that the benefits would generate a good ROI. What were they including as benefits?

• Lower waste-removal costs — which, at between $0.05 and $0.10 a pound, represented a modest savings.

• The ability to purchase less to begin with (because less was wasted), thus lowering their material costs. (This was a noticeable cost reduction but not enough in their case.)

While these two points are real and useful, the company was missing nearly two dozen other areas of benefit. They hadn’t considered that buying less material also meant the following:

• No one had to process additional purchase orders, pay additional invoices, put the extra material in the inventory system, take it off the boat and put it in the truck, or take it off the truck and use a forklift to put it in the warehouse.

• Less warehouse space was needed — which lowered heating, cooling and insurance costs.

• In addition, no one ever got hurt moving material that they never bought to begin with; plus, material that doesn’t get purchased need not be tracked and rotated, and it also doesn’t require certification or compliance with handling and storage requirements.

• Wasting less also means there’s less waste material to take out of the inventory system, put back on the forklift, put back on a truck, and pay someone to take away.

• During this whole process, unpurchased material doesn’t consume working capital and also doesn’t raise inventory levels. This prevents many other potential problems such as reduced flexibility and lower productivity.

Note that none of these benefits are intangible or “fluffy.” There’s nothing intangible about having to heat, cool, and insure warehouse space. Nor is there anything softheaded about the cost of someone getting hurt moving inventory or the expense that comes from increased working capital. Improvements in these areas are real, concrete benefits; they’re just submerged.

Because benefits like these are either unseen or unquantified, they’re currently being given a value of zero. But they’re worth so much more than that — for Valutus clients, the norm is for submerged value to be worth 4-10 times as much as visible value. (And sometimes more; here’s a 40-second video about a 100x difference.)

While the biggest reason to do the right thing is because it’s the right thing to do, that doesn’t mean it doesn’t have business benefits as well. By surfacing and quantifying them, sustainability practitioners can help companies to really see the value of values.