S. Jimmy Gandhi, Ph.D., California State University, Northridge ( firstname.lastname@example.org)
Christine Bullen, Ph.D., Stevens Institute of Technology (email@example.com)
Wanda Lopuch, Ph.D., MDA Associates (firstname.lastname@example.org)
Global Sourcing continues to grow as a strategic business tool worldwide. Sustainability has increasingly become a key aspect of global sourcing, addressing the social, environmental and economic aspects of sourcing agreements. It is important to remember that sustainability is truly feasible when all three aspects are considered equally. However, despite this, the economic and environmental aspects have received greater attention than the social aspect. This could be because the social aspect of sustainable global sourcing is complex as it requires looking at the impacts on the individuals, families, communities and culture, and universal metrics have not been devised to take these aspects into consideration.
In order to deal with these challenges, The Global Sourcing Council is working on developing a new tool for measuring socially responsible sourcing, the 3S Scorecard. This tool can be used by clients, providers, advisors, governmental entities and professional organizations involved in global sourcing to promote and emphasize corporate social responsibility in the sourcing supply chain.
In the early 1990s, the Green Journal was launched, and a handful of niche companies such as Ben & Jerry’s and Timberland were integrating the social consciences of their founders into the capitalist model of business, by incorporating sustainable practices into their strategies. But these companies were the exception rather than the rule for American corporate culture. In most sectors, driven by short term profit demanded by Wall Street, there has been a resistance in the corporate world to the adoption of sustainable business practices. This has persisted for decades and reflects their complexity and the initial investment that is required. However, some businesses started to recognize consumer preferences for environmental and social values, which drove their purchasing decisions. Gap, Inc. was an early example of an enterprise that was boycotted by consumers who disapproved of the lack of socially responsible business practices th, 2011). Gap realized that consumers would not take kindly to their not being socially responsible, which resulted in management making several changes to their corporate policy on sustainability and social responsibility. This transformed Gap into a socially responsible, well respected organization. Furthermore, as consumers voted with their wallets, other big business, including those in the IT and financial sectors, started to listen. In the first decade of the 21st century, large businesses such as Citigroup, NewsCorp and IBM committed billions of dollars to sustainable business practices. Since sustainability has been given close attention only in the last few years, it is still a major issue for corporate America and is thought of as the major corporate challenge of the 21st century ( 2007).
Bringing sustainable and socially responsible practices into the supply chain, specifically into global sourcing, is an additional corporate challenge. Awareness about sustainability is growing exponentially and sustainability measures will take on broader impacts throughout the supply chains, which will also increase transparency. More companies will “walk the talk” by matching sustainable brand images with internal company behavior. It is clear that sustainability is becoming increasingly important in the 21st century and organizations should pay careful attention to measuring all aspects of sustainability of their projects.
Sustainability in Sourcing – Solving the Paradox
In today’s globalized economy, global sourcing is a business strategy and business practice that most major businesses are involved in, either directly or indirectly. The roots of global sourcing are a need to drive cost reduction and support competitive positioning to bring greater profitability to an enterprise. Although over the years of globalization, the focus of sourcing has shifted to include wider goals such as better quality, increased efficiency and improved flexibility, the “success” of sourcing projects is still often measured in the dollar contribution to the bottom line. Organizations can use global sourcing to achieve economic benefits as well as sustainable growth by balancing short term gains with the model of long term growth. This balance can be achieved by incorporating sustainable practices into the organization’s overall global sourcing strategy. However, this is not an easy task and the inclusion of sustainable practices in sourcing is becoming of increasing concern in the 21st century. Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO) sectors are under pressure in their organizations to reduce costs. Therefore, while the initial adoption of sustainability, particularly social sustainability, principles may increase the cost of doing business in the short term, the forward looking executives in these industries seek a long-term solution.
The major aspects of sustainability in sourcing address the social, environmental and the economic aspects, as shown in Exhibit 1 in The University of Michigan’s sustainability model, (University of Michigan, 2002). We can see that the area where sustainability is truly feasible is when all the three aspects are considered equally. Only considering any two out of the three aspects of sustainability will not work in the long run. For example, if we merely consider the social and environmental aspect of sustainability for a project, it is merely bearable, i.e., it is possible but only in the short term as organizations will not be inclined to undertake the proposition if it did not make economic sense. Similarly, if only the economic and social aspect of sustainability is considered, it would be equitable, but would not be sustainable for the long term, considering the current focus on cost reduction.
Exhibit 1. Three Aspects of Sustainability (Adopted from the 2002 University of Michigan Sustainability Assessment)
However, despite this identification of the need for equal importance being given to all three aspects of sustainability, the economic and environmental aspects have received greater attention than the social aspect. There is no set definition of what constitutes a socially responsible business and it may vary by country and cultural norms. It requires looking at the impacts on the individual, families, communities (local and national) and culture. Measuring these impacts also requires a longer time horizon than the economic and environmental factors.
All enterprises are focused on the creation of shareholder value by embracing opportunities and managing risks. The concept of sustainability involves harnessing the market’s potential for sustainable products and services while at the same time employing sustainable practices to reduce costs and risks. In order to recognize this, the Dow Jones Sustainability Index (DJSI) was established to offer a quantification of a business’ sustainability strategy and their management of sustainable opportunities, risks and costs (DJSI, 2010). The most viable and profitable businesses in DJSI are those that implement sustainability into their overall strategy. In fact, the DJSI (North America) covers the leading 20% of the companies in terms of sustainability of the 600 biggest North American companies in the Dow Jones Global Total Stock Market Index. These “best of breed” companies are evaluated on two major measures: economic performance and sustainability measures. It is seen that there is a correlation between these two factors and that companies which embrace sustainability are the ones that have good economic growth. This correlation or trend is not surprising since companies realize that new consumers of their products and services, although price sensitive, are increasingly looking beyond price itself when it comes to making purchasing decisions. HP piloted the green PC recycling program not only because it was socially desirable, but also because it produced economic gains. Similarly, the incremental expenses by Walmart in implementing its global sustainability program and monitoring suppliers are not viewed as additional costs that will lower their short term gains, but are thought of as a strategic investment in the brand value and acquisition of new customers, which will produce sound profits.
Importance of Metrics in Sourcing
Technical and economic performance metrics have been developed and implemented over time through the use of Service Level agreements in global sourcing engagements. However social sustainability metrics are complex and have not been widely implemented. Despite these challenges, businesses worldwide have realized that consumers are becoming increasing well informed and will not support their business if they do not take the social aspect of sourcing into consideration. Thus sustainability and social responsibility programs are being adopted by both public and private companies, not solely based on becoming politically correct, but because these programs make economic sense in the long run. It is for this reason that companies such as Walmart have started developing scorecards to evaluate the extent to which their providers are using sustainable practices. This effort started in 2009.
The UN Global Compact (United Nations, 2010) is a practical framework for companies that are committed to sustainability and responsible business practices. It seeks to align business operations and strategies everywhere with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption. The Ecolabel (Wikipedia, 2010), is a labeling system for food and consumer products. Ecolabels are a form of sustainability measurement directed at consumers, intended to make it easy to take environmental concerns into account when shopping. Ecolabeling is often voluntary, but green stickers are mandated by law in North America for major appliances and automobiles. There is even an application developed for the iPhone, which enables the user to measure the environmental impact of the product by reading its bar code (Ecosalon, 2009). These efforts demonstrate that organizations and government entities are beginning to recognize the customer interest in the life-cycle impacts of the products and services they consume.
Challenges Faced While Establishing Metrics for Socially Responsible Sourcing
Sustainability is a value judgment that will inherently mean different things to different people. This is particularly true in the case of social sustainability as social values vary from culture to culture.
Moreover, socially responsible sourcing is a relatively new field. However, to guide sustainability action, here are guiding principles of social sustainability, which include the following:
- Equity: When individuals have access to sufficient resources to participate fully in their community and have opportunities for personal development and advancement and there is a fair distribution of resources among communities to facilitate full participation and collaboration.
- Social Inclusion and Interaction: This includes both the right and the opportunity to participate in and enjoy all aspects of community life and interact with other community members.
- Security: This entails individuals and communities having economic security and having confidence that they live in a safe, supportive and healthy environment.
- Adaptability: This aspect includes resiliency for both individuals and communities and the ability to respond appropriately and creatively to change. Adaptability is a process of building upon what already exists, and learning from and building upon experiences from both within and outside the community.
As societies are modernizing, particularly in the last decade, the social sustainability themes and domains are shifting from traditional themes such as housing, education, employment and human rights to more emerging themes such as empowerment of people, involvement in strategic decisions, health, safety and overall quality of life. This complicates the process of establishing valid metrics to quantify socially responsible sourcing. Global sourcing increasingly involves the management of several providers introducing more complexity in collecting data and in recognizing differing social structures based on regions, countries, and cultures. When the entire life cycle of a product is considered, many organizations are involved to understand the “womb to tomb” context, and it is hard to predict whether the providers will adopt the practices of social responsibility. For example, at a large organization such as Walmart, there are several layers of providers in the supply chain. This creates increased complexity and difficulty in quantifying the intangible benefits of socially responsible sourcing, such as quality of life and empowerment of people over time.
Most global sourcing projects have at least three major stakeholders, namely, the company that outsources the work (client), the company that is going to perform the outsourced work (provider) and the end user who uses the product or is a beneficiary of the service. Since these stakeholders could have varying business interests, it is extremely challenging to be able to come up with a set of uniform metrics that would work from the perspective of all three stakeholders involved.
The Global Sourcing Council (GSC) and the 3S Scorecard
The Global Sourcing Council (GSC) is a non-profit organization which was founded to focus on helping organizations from all sectors involved in global sourcing. The GSC works with both the client and the provider and tries to help them achieve their economic goals without sacrificing sustainability. One way the GSC is working to achieve this goal is by developing a new tool for measuring socially responsible sourcing called the 3S Scorecard. Several other organizations involved in the sourcing field have also expressed the need and interest to develop scorecards that enable companies to integrate sustainability into their strategy. One of the scorecards being currently developed is the Responsive Business Scorecard (RBS) (Woerd, 2004) which tries to enable companies to score on “profit, people and planet” and at the same time helps them to integrate stakeholder demands into programs to improve performance.
The focus of the GSC is on the full range of sustainable practices as they can be used in the global sourcing marketplace. This includes the environment, employment practices, legal practices, ethical standards, cultural and community impacts and more. “The 3S Scorecard” is a measurement tool for sustainable and socially responsible sourcing practices that can be used by stakeholders involved in global sourcing to promote and emphasize corporate social responsibility in the sourcing supply chain. For a client of sourcing services, the 3S Scorecard would serve as a tool to evaluate and compare service providers on their compatibility with the client’s own corporate sustainability directives. For service providers, the 3S Scorecard could be used as a tool to emphasize the 3S focus and, therefore, serve as a competitive advantage over those providers who do not embrace the 3S principles.
3S Scorecard Metrics for Social Sustainability
Scorecards are an effective way of evaluating and then maximizing partner performance. The purpose of the 3S Scorecard is for the client or external evaluators to be able to evaluate the extent of implementation of social sustainability initiatives by the service providers. In order to be able to do this, the 3S scorecard development team is implementing several metrics such as:
- Employee Satisfaction
- Employee involvement in decision making
- Working conditions & employee safety
- Working hours
- Paid vacation
- Health of employees
- Diversity of employees
- Conflict Resolution
- Employee rights
- Reduction of “us” versus “them” mentality between management and employees
- Salary scale capped at certain level between the lowest and highest paid positions
- Impacts on local culture and attitudes toward the global sourcing work.
Each of the above metrics can be evaluated from two perspectives:
- Each metric can be evaluated regarding the extent to which it is implemented by the supplier and
- The perceived importance of the actual implementation of that metric could be gauged.
Both perspectives would be scored on a scale of 1-10, by the involved employees. Then the product of the two ratings would be calculated in order to come up with a total “social sustainability score”. However, the challenge facing the developers of the 3S scorecard is that the scoring of these metrics (from both perspectives) could vary a great deal from country to country, or even from region to region in global sourcing destinations such as India and China. Sustainability in general is a subjective term and social sustainability is particularly vulnerable to this subjectivity and differing interpretation as people have different social values and what might be acceptable in one culture might not be tolerable in another.
Benefits of the 3S Scorecard
Despite the challenges caused by the cultural aspect of social sustainability, the 3S scorecard will be designed to provide benefits to various stakeholders involved in the sourcing process. Some of the primary benefits are:
- For a client of sourcing services, the 3S scorecard will serve as a tool to differentiate among service providers based on principles of sustainable and socially responsible sourcing practices.
- For service providers, the 3S scorecard will be used as a tool to strengthen and emphasize their sustainability focus allowing them to use this focus as a competitive differentiator. An additional benefit of the scorecard is to provide a roadmap for further organizational development.
- An independent tool, the 3S Scorecard will allow both clients and providers to align their practices to support their working toward compatible sustainable practices.
- Other stakeholders in the sourcing process, such as advisors, consultants, government bodies, or professional organizations, such as the GSC, will use the 3S scorecard to evaluate the stakeholders, promote sustainable practices and recognize leadership in the field of sustainable and socially responsible sourcing. For example, the Global Sourcing Council established its 3S award in 2008 and continues to solicit applications from provider candidates based on short video submissions. More information on the upcoming 3SAward competition can be found at http://www.gsc3sawards.com.
The 3S scorecard is a work in progress by the GSC and involves evaluating and further developing current scorecards that are being used by organizations involved in global sourcing. The current provider scorecards evaluate social sustainability only to the extent of checking if it is being implemented or not, that is a simple “yes/no” approach that organizations are able to use in evaluating social sustainability. The 3S scorecard intends to measure the extent to which these social sustainability metrics are being implemented by service providers and come up with a “social sustainability score”. The 3S Scorecard will provide the clients with a tool to evaluate the various service provider options and go with the ones whose social sustainability values align with their own.
Establishing metrics for sustainable and socially responsible sourcing is a daunting task for most organizations. The challenge is to establish a fair and uniform way to evaluate organizations from across the globe, regardless of their location or local practices. This task is made more complex by the use of multiple providers associated with one product or service. One of the most difficult tasks is establishing metrics that can be applied across national boundaries, across a variety of cultures and under many different legal systems. Since this is not possible considering the large number of sourcing markets that the US deals with, in Phase 1 of the development process, the 3S scorecard will be designed specifically for the largest global sourcing marketplaces on a national level. Phase 2 will involve the national level scorecards being fine-tuned to be applicable at regional levels. This would be beneficial for large outsourcing markets such as India and China where the organizational culture could vary significantly from one part of the country to another.
DJSI (2010). Corporate Sustainability, http://www.sustainability-index.com/07_htmle/sustainability/corpsustainability.html (Accessed on August 31, 2010)
University_of_Michigan (2002). Sustainability Assessment and Reporting, University of Michigan
Woerd, F. v. d. and T. v. d. Brink (2004). “Feasibility of a responsive business scorecard — a pilot study” Journal of Business Ethics, 55:173-186.
Christine V. Bullen is a faculty member at the Howe School of Management, Stevens Institute of Technology where she is the coordinator of the four-course concentration/major on global sourcing in the MSIS and MBA programs. She is currently conducting research on an IT workforce deployment model, looking at the impact of sourcing strategy on the in house needs for IT skills. She earned her MS from MIT and her Ph.D. from Stevens. She is also the former chair, president and board member of the Global Sourcing Council. You may reach Christine at Christine.bullen@gscouncil.