Delivering sustainable value in manufacturing industry

Individual businesses cannot deliver the system changes required for sustainable value creation and novel solutions for circular economy.
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Economic, environmental and social impacts occur throughout the value network. Developing attractive and common approaches for sustainable products and services will assist in enabling collaboration among partners and stakeholders in manufacturing industry.  This requires management of internal activities and operations of the producing organization and getting all the value network partners to follow the same principles and performance standards that have influence on the sustainable product and service delivery.

The existing business models in manufacturing industry are often based on delivering and capturing economic value for customers and shareholders, with limited or no attention to environmental and social value and to a broader range of stakeholders. These traditional business models are linear and externalise environmental and social impacts. They cannot support the sustainable value co-creation that is required to meet the future needs of the planet and of increasingly discerning customers wanting features other than economic value or product ownership. Therefore, the need for a circular economy is evident given that a significant proportion of non-renewable resources is diminishing and natural resource price volatility is increasing (Ellen MacArthur Foundation, 2012).

New dynamics and uncertainties call for novel sustainable solutions in the global manufacturing industry.  It is important to provide tools and methodologies for companies to fully embrace sustainability. It also is important to do this at the level of the network, as the impacts do not mainly occur inside one company. Sustainability mega-trend is becoming a central factor in companies’ long-term competitiveness and when doing this it will affect their value networks. The business partners and stakeholders within these networks make planning, coordination and management a challenging task.

Traditionally, the manufacturing industry has been driven by technologies, but future competitiveness requires new managerial capabilities and development tools in terms of:

  • network governance model that addresses the rules, processes, metrics and organisational structures needed for effective planning, decision making, steering and control,
  • business models and sustainable solutions over life-cycle perspectives, which considers a wide set of stakeholders across the business network to deliver sustainable value,
  • key performance indicators that consists of three interlinked principal components: network conditions, internal structural elements, and outcomes.

The above key findings of the SustainValue project, coordinated by VTT, are presented in a new book published by the Springer International Publishing.

Value Networks in ManufacturingThe book: “Value Networks in Manufacturing. Sustainability and Performance Excellence” highlights innovative solutions together with methods and tools that can help manufacturing companies to excel in economic, social and environmental terms in networked business environment. The book is available from https://doi.org/10.1007/978-3-319-27799-8

Recently, research and development work that started in SustainValue, continues e.g. in “From Data to wisdom – Approaches enabling circular economy” project (also known as D2W). The main goal of D2W is the systematic identification of relevant data, creation of radically new value constellations, and the conversion of this data into wisdom that is used to pilot and implement new circular operational and business models. More information about the D2W project: http://www.vtt.fi/sites/datatowisdom.

Katri Valkokari, Teuvo Uusitalo, Pasi Valkokari

How to measure impact

We are currently carrying out a research project that aims to advance companies’ ability to create value and to provide decision models and tools to evaluate investments and to assess uncertainty and risk. MittaMerkki project will provide a methodological framework and practical tools for integrating wider value creation perspective into the investment decision-making. Investments should be evaluated, selected and prioritized not only in terms of money but also with regard to sustainability, safety, quality, social acceptability and other typically intangible criteria. This blog will feature a series of texts from the project team. In this first text I will focus on the topic of impact investment and impact measurement.

Impact assessment models

In recent years there has been an increasing interest towards impact investments. These impactare “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return” [i].

In order to demonstrate economic, environmental and social results of these investments impact measurement needs to be carefully planned and applied. Several frameworks have been developed to assist in planning the impact measurement for impact investment projects. These are e.g. IRIS, Outcomes matrix, HIPSO, and European Venture Philanthropy Association (EVPA).

Key factors for successful impact measurement are [ii]:

  1. Set goals. Define the desired impact of the investments.
  2. Develop framework and select metrics. Determine metrics to be used for assessing the performance of the investments.
  3. Collect and store data. Capture and store data in a timely and organized fashion.
  4. Validate data. Ensure sufficient quality of the data.
  5. Analyse data. Review and analyse the data for insights.
  6. Report data. Share progress with key stakeholders.
  7. Make data-driven investment management decisions. Assess stakeholder feedback, address recommendations and make the necessary changes.

Impact can be evaluated using the logic model approach. This divides the factors to be assessed into inputs, activities, outputs, outcomes and impact.

  • Inputs are the resources needed for the project.
  • Activities are the processes, tools, events, technology, and actions related to the project implementation.
  • Outputs are the direct results of the project.
  • Outcomes are the benefits or changes for participants resulting from the project outputs.
  • Impact is the long term change and consequences of the project.

A guide for logic model development is available from the W.K. Kellogg Foundation website http://goo.gl/LfgfZI.

Social Impact Investment Taskforce has developed an Impact Value Chain model. Impact measures can be divided into qualitative, quantitative and financial. The following table provides some examples of these different types of measures[ii].

Input Activity Output Outcome Impact
Qualitative Description of inputs Description of activity Description of outputs Case studies describing outcomes Qualitative evaluation of impact
Quantitative Volume of non-financial inputs Volume of activity delivered Numbers of outputs delivered Outcomes measured using quantitative indicators Impact measured using robust measurement framework
Financial Financial value of incoming resources Cost of activity Cost per output Cost per outcome; societal financial value of outcome Societal financial value of impact

An interesting approach for impact measurement has been developed by Acumen. This is an organisation that invests in businesses whose products and services are enabling the poor to transform their lives. They have developed an approach based on lean data. Lean data uses low cost-technology to communicate directly with end customers, generating high-quality data both quickly and efficiently [iii]. The approach involves two main elements [iv]:

  • A shift in mindset away from reporting and compliance and toward creating value for a company and its customers.
  • The use of methods and technologies for data collection that emphasize efficiency and rapid response while still achieving a sufficient degree of rigor.

More information from the experiences on using mobile data for impact measurement is available from Acumen’s website.

Next steps

In the MittaMerkki project we are currently working with a Finnish start-up to develop impact assessment framework for their impact investment projects. The main elements for the impact assessment framework will be:

  1. Setting objectives for the investment project.
  2. Identification of the key stakeholders.
  3. Planning activities, resources and funding.
  4. Qualitative, quantitative and financial assessment of outputs, outcomes and impacts.
  5. Reporting the results.

The aim is to develop such a model that could be easily integrated into a web based platform to facilitate agile data collection and analysis. In addition, the model should integrate existing impact assessment frameworks to enable use of these when defining the impact indicators for a project.

Further reading

Several reports have been recently published on the topic.

  1. OECD 2015. Social Impact Investment. Building evidence base
  2. Social Impact Investment Taskforce 2014. Impact Investment: The Invisible Heart of Markets. Harnessing the power of entrepreneurship, innovation and capital for public good.
  3. Purpose Capital 2013. Guidebook for Impact Investors: Impact Measurement
  4. JP Morgan 2015. Impact assessment in practice.
  5. Social Impact Investment Taskforce 2014. Measuring Impact.


[i]
What You Need to Know About Impact Investing https://goo.gl/Gey1v8

[ii] Social Impact Investment Taskforce 2014. Measuring Impact. http://goo.gl/8KhRge

[iii] Acumen 2015. Innovations in Impact Measurement. http://goo.gl/799zmr

[iv] Acumen 2015. The Lean Data Field Guide. http://goo.gl/2e1fnp

Teuvo Uusitalo

Welcome to the VTT risk management blog

The purpose of this blog is to offer inspiring and fresh view points to challenges that people, organisations and societies face today and tomorrow in managing risks.

The writers of this blog are VTT’s experts from risk management related research areas. The topics of the blog will include e.g. experiences on various risk assessment methodologies, implementation of risk management processes, risks related to new technologies and economic benefits of managing risks. We will blog about laP1000911-HDR (1)test research results, future challenges and new innovations.

We hope you enjoy our blog posts! Please, join the discussion, give us feedback and pose questions.