Sustainable Supply Chain Resource Management: Hitachi

Sustainable Supply Chain
Resource Management
KEY LEARNING SUMMARY

Innovation for Today's Challenges

featuring Andrew Winston

March 8, 2011

in collaboration with

© 2011 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com

Sustainable Supply Chain Resource Management:
March 8, 2011

Introduction
John Maring, Executive Vice President, U.S. Integration & Development, Hitachi Consulting
Gardiner Morse (Moderator), Senior Editor, Harvard Business Review

OVERVIEW innovations were inspired by such critical questions as:
Building sustainable supply chains in an increasingly  How can we reduce energy consumption and provide
resource-constrained world requires reaching new levels of less carbon-intensive energy?
resource-management efficiency via social innovation. Social  How do we ensure that clean water is available to all?
innovation business is a strategic priority for Hitachi that  How can we avoid unproductive product delays and
means building efficient, environmentally sound infra- minimize waste in manufacturing processes?
structure while contributing to a more sustainable society.  How can we create a fully sustainable environment for
Hitachi’s new Smart City division exemplifies the opportunity living our lives?
the company sees to lead global change and create value Last year Hitachi celebrated its 100th anniversary and
through social innovation business. It also exemplifies how sharpened its strategic focus to make major market impacts
social innovation business can be driven; i.e., by asking through social innovation business. It reallocated its R&D
heretical questions. budget and aligned the organization for the next 100 years.

CONTEXT Hitachi’s Smart City division asks heretical questions to drive
the social innovation business and lead global change.
Mr. Maring explained how Hitachi thinks about social
innovation business and drives it. Hitachi’s recently formed Smart City division is asking the
tough heretical questions that drive innovation:
KEY LEARNINGS
 What if a global manufacturing leader built entire
Building highly resource-efficient and sustainable supply cities?
chains requires social innovation business.  What if these new cities were sustainable, including
Issues related to building resource-efficient supply chains are clean power production, smart power distribution, and
central to business models in myriad industries such as IT, clean water management and transportation, all
financial services, manufacturing, and transportation. Our connected and supported by IT and control systems?
increasingly resource-constrained world will challenge com-  What if the cities were built in developing markets
panies to achieve new heights of resource efficiency and sus- requiring comprehensive urban strategy and design?
tainability in their supply chains. Social innovation business
will be critical to finding solutions to these challenges and “Hitachi's focus on social innovation business
leveraging the business opportunities they bring.
is the roadmap for leading global change and
creating shareholder value for the next hundred
Hitachi has realigned to sharpen its strategic focus on years.”
social innovation business. —John Maring
For Hitachi, “social innovation business” means “the fusion of
To build and operate smart cities over time, it will be critical
technologies that help build efficient, environmentally sound
to leverage existing business processes and ask the tough
social infrastructure while also contributing to a more
heretical questions that drive social innovation business.
sustainable human society.”
Social innovation business will help Hitachi lead global
The scarcity of natural resources and efficient managing of change and create long-term value for its stakeholders in the
resources long have driven innovation at Hitachi. Many of its decades to come.

© 2011 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com. 1
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March 8, 2011

Keynote Presentation
Andrew Winston, Founder, Winston Eco-Strategies; Author, Green Recovery and Green to Gold

OVERVIEW Mounting and diverse pressures are converging to force
Pressures on corporations to embrace sustainability—and companies to act on sustainability in more substantive ways.
prove to customers and other stakeholders they have done Consider:
so—are bearing down from many directions. Going green is  The world must become more efficient. Globalization
no longer a compliance issue; it is now a business mandate. and the surge in the world’s consuming class have
But this mandate need not be viewed as a burden. Rather, it is driven up demand for, and constrained supplies of, the
a business opportunity. That is because viewing business materials of modern life. With the world’s population
through a sustainability lens brings resource efficiencies, projected to swell to 9 billion by 2050, it is apparent
creates permanent value, and sparks the innovation that will that companies and countries must figure out how to
lead to market dominance in a changed world. provide a high quality of life to many more people
using drastically less “stuff.”

CONTEXT  The public discourse about sustainability is changing.
Titans of capitalism such as venture capitalist John
Mr. Winston discussed the many ways in which companies
Doerr and GE CEO Jeff Immelt are speaking out in
are being compelled to go green and what this means for
favor of a price on carbon, to drive energy innovation.
companies that seize the opportunities that are presented.
 The logic of decoupling economies from dependence
KEY LEARNINGS on fossil fuels is not debatable. The BP oil spill was a
reminder of how difficult it has become to access the
Rapid changes in how the world works have left companies
fossil fuels on which modern life depends.
with little alternative but to embrace sustainability.

It is unfortunate that climate change has become so  Stakeholder concerns about sustainability are
politicized in the United States. That hasn’t always been the proliferating. Increasingly diverse groups (NGOs,
case (as Republican presidents have signed most of America’s customers, employees, donors, communities) are
significant environmental legislation), and it isn’t the case asking increasingly tough questions and making
around the world. sustainability-related demands of companies. Environ-
mental concerns run the gamut, from the toxicity of
But from a corporation’s point of view, neither politics nor chemicals to promoting biodiversity, protecting water,
the science of climate change matters. In today’s world, the and securing future sources of energy.
business logic for embracing sustainability is unassailable.
 Countries are aggressively pursuing alternative
Executives from Shell call sustainability a “TINA” issue:
energies. Among announcements over the past six
“There Is No Alternative.”
months, Portugal, Germany, South Korea, and China
Historically, companies viewed sustainability as an invader— are dramatically increasing investments in renewable
an unwelcome expense and obligation requiring compliance. sources of energy. China is investing heavily in high-
Green didn’t belong in the boardroom, the thinking went, speed rail.
having nothing to do with value creation. This “compliance”
lens for viewing sustainability is rapidly becoming outdated.

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March 8, 2011

 Market forces are compelling companies to innovate their brand. Value is being created through sustainability in
on environmental problems. HBSC estimates that the all of these ways.
global market for climate change solutions will grow to
$2.2 trillion by 2020. Alternative energy technologies “Going green actually lowers costs, permanently.
have become big business. More importantly, it drives innovation.”
—Andrew Winston
 Transparency and technology are empowering green-
minded consumers. Consumer product companies
There are four interrelated keys to realizing the opportunities
should be worried about “Good Guide,” a website with
related to sustainability:
an iPhone app that allows consumers to compare
products’ sustainability rankings as they shop by Get Lean
scanning bar codes into phones. The software gives the Energy efficiencies and cost savings go hand in hand. A
scanned product’s ranking and suggests alternatives company might find opportunities in facilities (e.g., changing
with better scores. light bulbs saved a hotel chain $1.2 million per year),
distribution or transportation (slowing its trucks to 62 mph
 Businesses are pressuring each other to go green.
saved Conway $10 million per year and cut carbon emissions
Given its size, Walmart has been a titanic force in
by 15%), or IT systems (Yahoo, Microsoft, and Google now
greening its supply chain. The retailing giant “requests”
build datacenters in climates where no air conditioning is
its suppliers to: reduce their carbon footprints, adhere
needed, saving $3 million per center). Savings of such
to stricter standards than the government on lead in
magnitudes make marked changes in profitability.
toys, and implement systems and processes to trace
every component and raw material. Complying with Get Smart
Walmart’s demands forces the company’s many
Companies are collecting and analyzing data on energy usage
suppliers to make similar demands of their suppliers—
and environmental footprints along their value chains. Data-
creating green ripple effects throughout the economy.
based insights are driving new kinds of conversations among
With so many pressures on companies to go green, including suppliers, employees, and customers and leading to the
from their most important stakeholders, sustainability no capture of new opportunities.
longer is a compliance issue. It is a business imperative.
Data about a product’s environmental footprint might point
to changes in raw materials or processes—even new product
“If your stakeholders—customers, employees—
have higher standards than the government, launches. PepsiCo’s lifecycle analysis of Tropicana’s
those are the standards you’ve got to meet.” environmental footprint led to a fertilizer switch. P&G
—Andrew Winston learned that heating laundry water consumed the most
energy related to detergent use, leading to Tide Cold Water.

It is actually good news that sustainability is now a Data on resource consumption can lead to conservation and
business imperative: Going green creates value and spurs cost efficiencies. Just seeing such data changes employees’
innovation. usage behavior. Smart meters that supply data on facilities’
The reality that green has become a TINA issue need not be electricity consumption saved Valero $200 million per year.
interpreted as a somber message. It is a message of Best Buy made individual stores’ energy consumption data
opportunity, because viewing a business through a sustain- visible to each other, driving competition to reduce usage.
ability lens creates permanent value. It also spurs innovation.
“Give people data; it changes behavior."
There are only a few basic ways that companies create value: —Andrew Winston
lowering costs and/or risks, boosting revenues, or enhancing

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March 8, 2011

Get Your People Engaged  Conway asked, “Does a shipper have to move fast?”
Getting lean and smart—making resource efficiency data Born was its money-saving 62-mph policy.
visible throughout an organization—galvanizes employees,  Tennant asked, “Must floors be cleaned with
bringing numerous engagement-related benefits. For one, chemicals?” Born was a floor-cleaning system using no
more engaged employees contribute more creative ideas, toxic chemicals, only tap water.
leading to more sustainability investment and innovation.
 Hewlett-Packard asked, “Why do we need to ship
Culture is important to generating excitement about green
laptops in boxes with lots of Styrofoam?” They
initiatives. The way sustainability is perceived and discussed
discovered that shipping in bags works as well.
within the organization matters much.
 Xerox asked, “How can people use less paper?” The
Get Creative and Heretical
question is spurring business model innovation that
In an increasingly green economy, success will mean actually poses risk to Xerox’s traditional product lines.
developing new products and services that create revenue in
 Airlines are asking, “Can we fly without biofuels?” In a
socially responsible ways—i.e., social innovation.
world where oil prices are shooting up, it’s a timely
How can companies tap the creativity that leads to social question. The answer is yes.
innovation? They need to engage in business heresy. Game-
changing innovations are often the result of heretical “What’s your heresy? What’s going to really
questions that disrupt existing belief systems. challenge the way your business works?"
—Andrew Winston
Market-disrupting innovation is often the brainchild of a
single heretical question. Some examples:
Climate changes will force more organizations to ask how
 UPS asked, “What if drivers stopped making left they will operate under different environmental conditions
turns?” Born was a policy that reaped safety benefits, (e.g., if Lake Mead dries up). Those that can ask—and
environmental benefits, and cost savings. answer—heretical questions will reinvent themselves to thrive
in a changed world, dominating their markets.

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March 8, 2011

Panel Discussion
David Struhs, Co-Founder and Vice President, C3
David Walker, Director, Environmental Sustainability, PepsiCo International
Andrew Winston, Founder, Winston Eco-Strategies; Author, Green Recovery and Green to Gold

OVERVIEW greenhouse gas emissions. It includes 800–900 best
Data-based tools are helping corporations create value from practices to improve resource efficiency.
sustainability in the four major ways Andrew Winston One surprising insight ReCon yielded was that factories’
identifies: Getting Lean, Getting Smart, Engaging People, and compressed air usage was very energy-inefficient. That led to
Getting Creative. Practical examples from within companies the heretical question: “Why not build a plant that doesn’t
illustrate how data-based insights enhance all of them. need compressed air?” PepsiCo is looking into it.
PepsiCo’s ReCon tool provides the insight into resource Mr. Walker’s three points of advice for sustainability
usage that allowed the company to achieve aggressive initiatives: 1) set clear targets; 2) know your baseline; and
sustainability objectives, and its supply chain partners to do 3) provide resources and tools to help effect change.
the same. C3’s technology provides clients with resource
C3 offers an IT platform that provides clients a wealth of
usage data tied to key financial performance metrics,
resource utilization and other data. Companies can view real-
informing strategic decision making. Knowing the embedded
time metrics from a high-altitude perspective (e.g., a year-
energy costs of goods sold can lead to both money-saving
over-year comparison) or see a high-resolution picture (e.g.,
resource efficiencies and new processes and products.
in a 15-minute timeframe). Different perspectives matter to
different parts of an organization for different reasons.
CONTEXT
Clients can call up information like ambient temperature, for
The panelists shared insights exemplifying how companies
example, in many ways such as by climate zone, product type,
are leveraging resource usage data to create value all along
or utility provider. A platform that provides such diverse
the supply chain.
perspectives opens the door to numerous insights.

KEY LEARNINGS Moreover, the resource usage data is linked to the company’s
key financial performance indicators, to aid the C-suite in
The panelists are sustainability innovators whose work
strategic decision making. Although people know that
illustrates the power of Getting Lean, Smart, and Creative.
physical assets are strategic assets, until now they haven’t
Four years ago, PepsiCo set public goals of reducing its water been able to link the resource performance of physical assets
usage by 20% and electricity and fuel consumption by 25% in to the firm’s key financial performance indicators for better
every unit, representing $250 million in annual operating strategic decisions. That has handicapped sustainability
savings. This was the company’s first sustainability objective; efforts to date.
today, PepsiCo has 47, all communicated externally.
“One reason we believe sustainability hasn't yet
To help business units achieve their targets, the company
realized its full potential: People haven't been
developed ReCon, a site-level Resource Conservation
able to link physical assets to their financial
Capability Building Tool. ReCon gives facilities the data to metrics."
understand their energy and water consumption and —David Struhs

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March 8, 2011

Seeing the relationships between resource and financial When customers are businesses versus consumers, they are
metrics has produced insights that have led not just to cost more likely to use sustainability data to influence purchase
savings but to new product launches (such as greener roofing decisions. Companies are increasingly building the relevant
tiles by Dow). When talking to CEOs, Mr. Struhs emphasizes metrics into business models. One example is hedging the
that the opportunities go beyond reducing energy costs of fossil fuels via use of alternative energies when oil
inefficiencies and saving costs. The real goal is optimizing a prices are high.
company’s financial performance by understanding: What is
Getting employees to innovate by asking heretical
the embedded energy cost of goods sold? questions is also facilitated via data.
Having that knowledge might even suggest the somewhat To systematize the asking of heretical questions that lead to
heretical idea of increasing energy consumption in one unit if disruptive innovation, companies can:
doing so created even greater efficiencies in another.
 Set aside time for innovation.
With data, getting suppliers to implement sustainability
solutions is a relatively easy sell.  Set sustainability targets.

Suppliers to consumer product/service companies are often  Set green innovation-related goals.
B2B companies that don’t feel pressure from consumers to go  Devote resources to innovation and sustainability.
green, observed David Walker. PepsiCo persuades them “with
honey versus vinegar.” Mr. Walker noted that simply having a target of shifting
PepsiCo’s product portfolio to a greater percentage of
The company shares its ReCon tool and other resources to healthful SKUs causes product developers to innovate.
help its suppliers save money on energy consumption. That is
a relatively easy sell, since the savings can be significant. “Systemized tension in organizations forces
people to think differently and bring different
Suppliers’ use of ReCon also gives PepsiCo visibility into
products to market."
energy use all along its supply chain. When costs are taken
—David Walker
out of any system, by definition it becomes more sustainable.

Getting consumers to accept green products can be tough, IT systems from which one can call up a wide range of data
but is facilitated with data. facilitates the asking of heretical questions such as, “What
There is often consumer resistance to green products that would we do if water were not available,” or “What would
cost more upfront, even if they save money long term (case in happen to financials if oil prices shot up to a certain level?”
point: compact fluorescent light bulbs)—or that require Rather than hiring someone to research the question, the
tradeoffs like habit changes. For example, PepsiCo’s new answer can be accessed in a day.
biodegradable corn-based bag for Sun Chips was deemed too
noisy by consumers.

The more conscious consumers become about green issues,
the more conflicted they often are. People have difficulty This important discussion is continuing online.
Please add your voice to the blog by going to
weighing the price- and sustainability-related costs and
http://blogs.hbr.org/events/2011/03/heretical-green-
benefits in their heads. A solution is to provide consumers
systems-thinki.html
with data so they can compare.

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March 8, 2011

BIOGRAPHIES
John Maring
Executive Vice President, U.S. Integration and Development, Hitachi Consulting

John Maring is the executive vice president of our Hitachi Integration and Development business unit. He is responsible for
directing the exploration and development of strategic go-to-market solutions that specifically leverage Hitachi enterprise
products and services. To this end, his team is also responsible for managing Hitachi Consulting's "sell to" and "sell with"
relationships with other Hitachi entities, both in the United States and Europe. In essence, John's team provides the strategic
“synergy” with Hitachi. Previously, John led our Services Industry Group (Comm & Content, Financial Services and Healthcare)
and the Comm & Content Industry practice in the United States.

John has focused primarily on the communications industry during his more than 22 years of consulting. He has worked for
several companies during his career including Andersen Consulting, Hewlett Packard and Arthur Andersen. Prior to joining
Hitachi Consulting in 2002, John was a world-wide Partner in Arthur Andersen's Business Consulting business unit.

John earned his bachelor and master degrees with honors in economics from the University of Denver. He has spoken at several
communication industry events over the years, been a board member of several IEEE conferences, and was a pioneer male
mentor in the Women in Cable and Telecom mentoring program.

David Struhs
Co-Founder and President, C3

David Struhs is part of the founding management team and Vice President of C3. The company provides advanced analytical
solutions to enterprises seeking to optimize resource efficiency and financial performance.

Previously, Mr. Struhs was Vice President of Environmental Affairs and Sustainability at International Paper, the world’s largest
forest products company. He has also, as Vice President of The Canyon Group, Inc., provided strategic consulting on energy
efficiency and emissions management to leading North American electric and gas utilities.

Mr. Struhs’ public service career began at the federal Environmental Protection Agency as part of the team that developed the
strategy to clean up Boston Harbor. He served as Chief of Staff of the President’s Council on Environmental Quality in the first
Bush Administration. He served as the Commissioner of the Massachusetts Department of Environmental Protection for four
years. And he was appointed and unanimously confirmed twice as Environmental Secretary in Florida, where he was recognized
for helping launch and accelerate the State-Federal partnership to save America’s Everglades, which was the largest habitat
restoration, flood control and water supply project .ever undertaken.

Mr. Struhs has led teams that have developed and proven new solutions for optimizing environmental, energy and economic
performance. This record includes:

The Environmental Results Program – a self-certification approach to environmental compliance that has eliminated
thousands of environmental permits while improving environmental results. The approach was subsequently adopted by
EPA and half of the states;

The nation’s first Generation Performance Standard, which rationalized regulation and incentivized efficiency by basing
emission standards on the amount of electricity generated by power plants rather than the amount of fuel consumed; and,

Two of the earliest international Joint Implementation projects for proving the concept of cost-effectively offsetting electric
utility carbon dioxide emissions.

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March 8, 2011

Mr. Struhs’ work has had national influence. He has served on the National Electricity Advisory Board, by appointment of the
U.S. Secretary of Energy. He was appointed by the EPA Administrator to the National Advisory Council on Environmental
Technology and Policy. He has served as an adviser to the Wharton School’s Initiative for Global Environmental Leadership.
And he currently serves on the board of Duke University’s Center for Energy, Development, and the Global Environment.

Mr. Struhs holds degrees from Indiana and Harvard universities and was a Fulbright Fellow at the University of Nairobi.

David Walker
Environmental Sustainability Director, PepsiCo International

David Walker, Director of Environmental Sustainability, is responsible for supporting strategies to reduce energy usage,
optimize water efficiency and minimize greenhouse gas emissions across PepsiCo’s international Food and Beverage businesses.

Mr. Walker has extensive field and headquarters experience within PepsiCo, including roles in Manufacturing, Productivity
Improvement and Plant Management.

Mr. Walker currently manages several Environmental Sustainability programs for PepsiCo. These include: “ReCon” – a site-level
Resource Conservation Capability Building Tool; the PepsiCo Partnership with the Earth Institute at Columbia University; the
Global Metrics Program for International PepsiCo and the Sustainable Engineering Guidelines initiative promoting Green
Design within the company.

In addition to work at PepsiCo, Mr. Walker is a member of the steering committee of the Beverage Industry Environmental
Roundtable (BIER), and is the team leader for the development of sector guidance for the standard reporting of GHG emissions
in the industry.

Andrew Winston
Founder, Winston Eco-Strategies; Co-Author, Green Recovery and Green to Gold

Andrew Winston, founder of Winston Eco-Strategies, is the co-author of Green to Gold, the best-selling guide to what works -
and what doesn't - when companies go green. He is a globally recognized expert on green business, and has appeared in The Wall
Street Journal, Time, BusinessWeek, Forbes, The New York Times, and CNBC. Andrew is dedicated to helping companies both
large and small use environmental strategy to grow, create enduring value, and build stronger relationships with employees,
customers, and other stakeholders. His clients have included Bank of America, HP, and IKEA.

Gardiner Morse (Moderator)
Senior Editor, Harvard Business Review

Gardiner Morse is a senior editor at Harvard Business Review where he focuses on energy, innovation, and sustainability and
has acquired or written feature articles on a wide range of topics including disruptive innovation in emerging markets, open-
innovation strategy, and the clean-technology economy. Before coming to HBR in 2001, he served in a range of editorial and
business roles with the publishers of the New England Journal of Medicine where he developed and launched numerous
publications for physicians and the general public.

The information contained in this summary reflects BullsEye Resources, Inc.’s subjective condensed summarization of the applicable conference session. There may be
material errors, omissions, or inaccuracies in the reporting of the substance of the session. In no way does BullsEye Resources or Harvard Business Review assume any
responsibility for any information provided or any decisions made based upon the information provided in this document.

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