SCIP Oregon

Interview with Dennis Muscato

Posted by campsean - 21/11/08 at 08:11:57 pm

Interviewee: Dennis Muscato

Interviewers:Sean Campbell and Scott Swigart of Cascade Insights

Topics Covered:

The relationship between competitive business intelligence and corporate responsibility

The business value of social responsibility

Value of social consciousness in recruiting new talent

Long-term strategic issues associated with corporate responsibility

Statistical analysis of the benefits of philanthropy

Building corporate responsibility into a company’s DNA

Scott Swigart: Could you please take a minute first to introduce yourself?

Dennis Muscato: Sure. My educational background is a Bachelor of Science in Natural Resources Management and a Master’s in Computer Science. The first phase of my 30-year career was at Oregon State University providing information services for forestry research. I was working with statistics, data management, and biometrics involving old growth, genetics and so forth, trying to understand the ecosystem and biosphere. That was in the mid ’70s.

From 1980 to about 2000, I worked with information technology, building the HP I.T. infrastructure. My work in those days involved Unix and NT. We went from large mainframes, to mini computers, to PCs, what we have today. I’ve worked a lot with SAS and other data management and analysis tools.

My third stage was from 2000 to 2007. HP was interested in building its corporate responsibility. I took some of the background in environment, math, computer science, analytics, and business process, and I started to apply that to helping HP develop its role as a world leader in corporate responsibility.

I took the retirement package in 2007, although I’m not fully retired. I’m still continuing to learn, and I am working on using analytics, computer science, and corporate responsibility to improve marketing and sales.

Scott: Tell us a little bit about the intersection of corporate responsibility and competitive intelligence, if you don’t mind.

Dennis: In the competitive aspects of the corporate world, we measure how well a company does using its financial statements. Over many, many years, those measures and metrics have been well defined: the P/E ratio, the quarterly shareowner meetings with investors/analysts, and annual finacial report metrics. That common mindset is pretty well understood in the corporate world to compare company financial performance.

In terms of corporate responsibility, the same mindset says, "To be a good corporate citizen, what measures, metrics, and processes can I use in this area that are similar to what we do in the financial area? How can we apply similar techniques to know where investments in corporate responsibility are going to give a return?"

In the 1990s, you saw companies doing environmental reports, and around 2000, you started seeing companies doing comprehensive reports on social, environmental, and ethical issues (CSER), especially around the Enron times. There was a pretty sustained effort to try and figure out how to benchmark against those things, and how to know where your investments were going to go, how to improve your brand, and how to find market opportunities. How to compare one company against another in CSER – not just internally but in relationship to its communities and suppy chains.

Scott: Does the competitive intelligence piece relate to seeing what other companies are doing for corporate responsibility?

Dennis: Yes. A lot of forums started to rise up around the world. Business for Social Responsibility is probably one of the largest ones. You can see the issues, company leaders, and key organizations around the world who are part of www.bsr.com

Sean Campbell: I’d like to get your take on situations like when Google, for example, was brought before Congress about how they were assisting the Chinese in blocking access to certain sites, or monitoring. The people of the US Congress said to the Google executives, "I don’t know how you can sleep at night."

I thought, do these people in Congress really not understand corporations?

[laughs]

My view of it is, basically, that corporations do the right thing because it is in the interest of their shareholders. That is the only reason, in general, why corporations do anything.

If a corporation cuts its price, and cuts back its call center, and everybody waits on hold, they’re doing that because they think that’s in the interest of their shareholders. If they invest in customer service as a competitive differentiator, and really try to excel in that, they’re doing it because it’s in the interest of their shareholders.

They’re not beholden to society, or any particular national government. They’re not even, really, beholden to their customers, except insofar as it delivers value to their shareholders.

How does the notion you describe of looking at corporate responsibility from the perspective of return on investment fit into that perspective?

Dennis: At the same time that shareholder value in some of these companies has doubled or even tripled, the model has also gone from consideration of shareholders to stakeholders. That includes how you relate to your customers, as well as a broader perspective about who has a stake in the outcome of a given company. The case of Exxon coping with the outcome of a major oil spill is one classic example.

What they do has an impact on the planet, so financial profit isn’t the only consideration. There are also indirect costs if there’s a lot of non-compliance that have a spillover effect to the rest of society that has to pay for it.

Who pays for that? The shareholders paid, but many others did, as well. That leads us to the sense that companies really exist in an global ecosystem rather than just a linear model that’s limited to shareholders. The number of stakeholders and their potential impact has increased. Much of a company’s value is in its brand, and in fact, the ability of the company to even play at the table is predicated on the longevity and health of that brand.

Brand value is made up of all kinds of components. Because the stakeholders live in an ecosystem, at any given time there are either individuals or clusters of individuals that band together about one or more issues. Because of the broad accessibility of information technology, it’s now possible for someone to marshal maybe a $50,000 campaign and do a billion dollars of brand damage to a world-scale brand.

That has changed the situation. The opposite is also true–you can get endorsements from various individuals and groups, and that will build your brand value. Moreover, if you engage properly, stakeholders can provide a real competitive advantage in terms of what kind of product or service that you go after.

Sean: If a company decides there’s business value in corporate responsibility that can benefit their stakeholders, customers, shareholders, and the business ecosystem they play in, it seems like there’s a lot of opportunity for misguided efforts.

How does an organization approach determining where to invest their limited resources–in donating to charity versus R&D, for instance?

Dennis: Traditionally, many companies have undertaken community effort or other "giving back" kinds of efforts, but they can be off to the side of their main operations. Leadership companies have now moved to an integrated model where, from the CEO all the way to the production-line worker, they work with the understanding that environmental, social, and ethical needs must be met in terms of how they go about the work. This way of thinking also goes beyond just the corporate headquarters; it’s throughout the world and all of the company segments, product lines, geographies, and internal/external relationships.

Embedding this type of consideration throughout the operations of a leadership company requires an education process. CEOs and mid-level managers and production workers all interact with other companies in their space. Typically, you can look at leadership overall and see what the best practices are.

You can start to focus in on what the main value proposition is and align your opportunities and efforts so that your philanthropy really supports the line of work that you’re in. It’s not just about write offs. You’re building on your position in the world and how you make the world a better place by what your core business provides.

Sean: What helps convince people, when you’re speaking with CEOs? I would imagine you come up against a whole range of viewpoints, from "Look, we’re not a charity, we’re a business," to, "OK, I see there’s business value in doing philanthropy, but let’s not let it interfere with our core business. Let’s do it over on the side."

Dennis: A big part of the answer is that the new work force does care that what they do makes a difference. There’s a new attitude among students and companies sourcing talent that CSER matters There’s a great report at BeyondGreyPinstripes.org showing that the a number of MBA programs has increased significantly working on getting the future labor force being equipped with core competencies that are geared toward solving 21st century problems.

When the young generation of talent joins a company, they want not just to make money, but also to make a positive difference. Companies are starting to market to them and attract that talent, so you’re getting that embedded inside the company.

Again, in an integrated company, this doesn’t happen in terms of isolated philanthropy. More and more companies see the value of integrating CSER concepts into their overall business model. With greater use of supply chains globally, companies need to take more notices that supply chains use labor in a proper way. There are a lot of measures of performance around supply chains and how best to utilize those.

So you’re really looking at risk and opportunity, and there are so many that it’s better to be transparent about where your progress is than to be hidden. In order to get more transparent, you have to start knowing what the best practices are, especially within your industry group. When you start on this road, you start having people come inside and give you insight about how you’re doing in a variey of areas and against your peer companies in CSER leadership approaches.

As you start to report on it, you have a comfort level of what you transparently report. Most companies today have a financial report and a corporate responsibility report they do annually. In fact, a lot of companies have begun to integrate the two.

There are organizations like the Global Reporting Initiative that standardize on those CSER measures. There are also CSER rating companies to support socially responsible investment firms that only want to invest in certain companies given certain CSER filters and measures while still making a profit. The studies are numerous that responsible companies go hand in hand with innovative, forward-looking, adaptive companies. www.socialinvest.org is a good website to learn about this work.

A lot of new forces are moving companies in the direction of being responsible. It’s quite sophisticated, and whereas in the 90s, this effort was populated by non-business people, it’s being pushed forward now by leading CSER professionals with stacks of studies, approaches, benchmarks, and case studies with years of successful track records helping companies do well and do good as good business.

Scott: To play devil’s advocate for a moment, how do companies know that this isn’t just a fad? For example, we’ve had Enron and the financial meltdown, and some companies like Nike and Wal-Mart got a little bit of a black eye as people talked about sweatshops and that kind of stuff.

That suggests that companies need to embrace corporate responsibility far enough to protect their brands, but how they know their investment in this will continue to pay dividends 10 years later? What forces do you see that cannot be dismissed as being short term?

Dennis: We’re seeing scarcity of resources on a planet with a growing population and developing contries moving to developed country status. The disparity between the rich and the poor is widening.

All of that puts more of a strain on the global environment, so costs go up and we need to create efficiencies around how we use the resources that we have. I think global trends show that this isn’t an open ended system, even with innovation and productivity increases.

There was a model long ago that you could infinitely find resources. You could pollute to your heart’s content, and it didn’t hurt anything. That model has changed, and there is more government regulation happening. If your reputation is hurt by doing bad things, your access to the market will suffer. Good companies want to work with good managed supply chains.

Supply chains have gotten very complex, and the brand of a company depends on them. Wal-Mart has been brilliant with this, and they have exerted influence on the companies they do business with to behave responsibly as a means of securing stability. That’s part of their risk profile.

We’ve seen an extension of companies beyond their walls to their suppliers and even world governments. Governments adopt more regulation to make sure business can proceed without giving them a black eye.

Sean: How do you measure when you’ve done enough? With many of these issues, you could pour in an open-ended amount of money and time, and even if some of the metrics are fairly hard, many seem to be pretty soft.

Part of the issue comes down to the classic CI problem of proving that you avoided a problem, since your success makes the problem itself hypothetical. It also seems that it would be tough to build the proper level of spending into a competitive model, even when there’s the sense that a company needs to do this because everyone else is.

How do you advise a corporation around those types of issues? Making things even more complex, there is both a certain feel-good element to be addressed, as well as the need to prevent bad things from happening. And of course, somewhere in the middle of those two, there is the need to maintain good public opinion and to support recruitment, as you mentioned.

Dennis: On that latter point, we’ve seen some attempts by companies to do what they call "green-washing," meaning that there’s nothing underneath the hood, but they’re using PR communications to talk about all the good things they’ve done. There are tools one can incorporate to measure progress and see return on investment from lowered energy costs–not just in internal operations, but in products that go to consumers. That translates to a financial bottom line one can measure. Other actions are more difficult to translate to a financial value, but work is underway to see how one can measure year over year improvements and how they affect the bottom line.

Sean: Right–like the consumer hard drives you see at the store with the big green sticker on the side. They might save a tenth of a kilowatt hour here and there, but so what? It’s really just a marketing gimmick.

From the company’s perspective, though, they have to consider where they should put in a dollar to make two dollars come out somewhere else, which seems to make it a little harder to figure out when you should start and stop spending money.

Dennis: If you want to get analytic, you can start looking at your consumers’ attitudes and purchasing. How do they make their purchase decisions? You can see some components of their purchase decision on your green index, if you will. There are some studies that show how consumers create preference around corporate responsibility, but there’s still a lot of work to be done.

There is Greenwashing and there are organizations on the watch to point that out. But there are numerous examples where companies have re-engineered themselves and their products to see a high ROI for their efforts that align with CSER values, like Toyota and hybrids.

There is definitely a path you can follow now, and you can decide how far along that path you want to go. There’s certainly the factor of risk mitigation, but we have also seen a lot of data to suggest that companies that pursue corporate responsibility are more successful overall.

There’s something about the DNA of the company that does this kind of work that translates into how they do their business case overall.

Sean: This is really just a guess, but I’d imagine that companies that do this have high net promoter scores and are typically seen as trusted advisors.

Dennis: There’s something about it that goes hand in hand. There’s a wealth of studies on this kind of work these days, showing that type of benefit. People aren’t just taking a leap of faith in making these investments, because there’s a lot of data out there to make the case.

Successful companies that innovate adopt standard business approches to incorporate CSER concepts. Done well, it is integrated into the strategic fabric of the company as a standard business process and part of overall decision making. It isn’t new, and it’s just the way you do business, not a separate activity outside the mainstream business.

Scott: You mentioned the DNA of companies. Evolutionary biology shows us that organisms don’t suddenly adapt when they’re under stress, like when the Black Plague showed up in Europe. Instead, there’s something already resident in the DNA of certain sub-populations that may have been irrelevant before the stress came along, but once it does, that DNA feature might be responsible for saving that sub-population.

It also occurs to me that you can equate the question about how much investment in corporate responsibility is enough with the question, "How much R&D is enough?" Difficult to quantify questions like that are nothing new.

Dennis: Right. The information about this is collective, so you’re always adding to it. With many companies, there’s a trendline.

For example, when they start to report on their corporate social and environmental performance, they find that when they first report, they’re under-reporting what they’re doing.

It’s the also the first time they’ve ever reached into the entire organization to ask what they’re doing in this area, who is involved and who are key players. It’s the first time that they’ve brought together the key people responsible for the hundreds of different aspects of corporate responsibility. The first reporting year, they start to work together inside the company, as well as interacting outside the company. A couple of years down the road, what they’re actually doing is being reported far more accurately. The report helps drive the business process on corporate social responsibility and the discussions and decisions necessary to deliver next years report, much like the quarterly and annual financial reports.

The next hurdle is that, if you want to increase your leadership, you have to actually lead. You actually have to push, because you’ve already caught up and are reporting accurately. When you do the next report, you want to avoid plateauing, which encourages you to improve your corporate stewardship. At that point, corporate culture can really begin to change.

There’s a large body of knowledge in this area today, but a company just starting out still needs to go through a process of self-examination and discovery before they can rise to the core challenges.

They start by assembling corporate responsibility reports from industry leaders and try to figure out what leadership in this area means to them. You can see a lot of them at www.csrwire.com. Companies get consultants, companies get educated, they read the books, go to the forums, and so forth. Then they actually see what the reports look like from other companies, and they compare that against their own. That takes a couple of years to really learn it well.

Then, after they put out the report, they get the same sort of feedback you would get from an Investor Relations financial report, where investors say, "Oh, what’s this mean? What’s that mean? What are you going to do about that?" The same thing happens in the corporate responsibility world, with people saying, "Oh, you’re using this much water, or you’re using this much electricity. What are you going to do about that?"

The demands for leadership go up as companies move from the stage of just reporting how much water they use, for example, to formulating a policy about how to improve their water use.

If you’re a leader you’ve got to use less water, and you also have to figure out appropriate goals and methods around that. Those goals also have to be decided at the top levels of companies, because it has to factor into their overall strategic planning.

Finally, they also need to see a bottom line benefit from using less water and other resources. It shouldn’t just be a cost; they should actually see more efficiency and higher productivity by doing the right thing.

Scott: I want to be sensitive to the time–do you have any closing thoughts?

Dennis: I would just end on saying that, as people are doing their market research, maybe just along financial lines, they should be aware of the larger context of their company. The companies of today are looking not just at their financial footprints, but at their corporate responsibility footprints as well. It isn’t just about being green, but being positioned to be competitive to provide solutions in a world more interconnected, growing population, scarce resources, with a growing set of shareowners and stakeholders who have a vested interest in the success or failure of your company.

To wrap up, here are four good websites to learn about Corporate Social, Environmental and Ethical Responsibility (sometimes called corporate responsibility, CSR, Green movement, or Sustainability):

• Themes, Issues and Leadership: Business for Social Responsibility
• CSR News and Reports: CSRWire
• MBA’s and CSR: Beyond Grey Pinstripes
• Socially Responsible Investment: SocialInvest.org

I would recommend market researchers familiarlize themselves with corporate social responsibility through the above links and CSR reports of the companies and products they are researching to give added clues in their market research.

Scott: That’s a good place to wrap up. Thanks for talking today.

Dennis: Thank you!

Search