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Like many manufacturing companies, DuPont traditionally has grown by making more and more “stuff.” And our business growth has been proportional to the amount of raw materials and energy that our plants use—as well as the resulting waste and emissions from our operations. Over the years, though, we have become increasingly aware of an inescapable and disturbing fact: We will not be able to sustain our businesses over the long haul because they are based on two assumptions that no longer hold. One is that cheap, unlimited supplies of hydrocarbons and other non-renewable resources will always be available. The other is that the earth’s ecosystems will indefinitely absorb the waste and emissions of our production and consumption.
Recently, various experts have extrapolated the consumption rates of developing countries. Their conclusions vary, but it appears that for every person in the world to live like the average North American citizen, we would need the resources of at least three planet Earths. Obviously, we have only one Earth, and some argue that the standard of living in the developed world must fall for the developing countries to progress. I strongly disagree with this zero-sum mentality. Instead, I believe that if we use our creativity and scientific knowledge effectively, we can provide a strong return for our shareholders and grow our businesses—all while meeting the human needs of societies around the world and reducing the environmental footprint of our operations and products.
This is the challenge of sustainable growth, and to meet it, the primary motivation for any company must be improved business performance. Of course, environmental and societal benefits will follow, but the underlying rationale, which must always remain in focus, is that in the global economy, sustainability will generate tremendous economic value.
We knew that to translate this concept into nuts-and-bolts business practices at a diversified global company like DuPont, every business unit had to view sustainability as an opportunity for real growth, not just as a kind of corporate philanthropy or do-gooder enterprise. Thus we developed a three-pronged strategy focusing on integrated science, knowledge intensity, and productivity improvement, and we devised a new way to measure our progress quantitatively so that we would not have to rely on qualitative or anecdotal evidence. In implementing this strategy, we knew that even small successes early on would be critical in establishing momentum, so we had to quickly and continually demonstrate to ourselves as well as to our stakeholders that sustainable growth could indeed generate business value. Although we are far from achieving sustainable growth, we have been successful in pushing the understanding, acceptance, and application of it deep into our business operations, making it a comprehensive way for DuPont to do business.
A Business Purpose
As a business practice, sustainable growth seeks to make more of the world’s people our customers—and to do so by developing markets that promote and sustain economic prosperity, social equity, and environmental integrity. In no way should we in industry be apologetic about increasing our customer base. Sustainable growth benefits millions of people, but it is not altruism. We pursue sustainable growth because it benefits our businesses and our shareholders. Although protecting the environment should be a core value of every business—and for many companies, that’s the first place to start—companies will make the biggest contributions to sustainability by doing what they do best: making markets work globally while also protecting the environment. If one is looking for a new definition of corporate social responsibility, sustainable growth is it, and it is directly related to business self-interest.
Sustainable growth seeks to make more of the world’s people our customers—and to do so by developing markets that promote and sustain economic prosperity, social equity, and environmental integrity.
At the same time, we should not forget our greater role and responsibility. Companies will not succeed in the twenty-first century if the world’s ecosystems continue to decline and if societies fail. So at DuPont we have set various stretch goals for 2010, including a reduction of greenhouse gas emissions by two-thirds while holding our energy use flat (using 1990 as a base year). We also plan to increase our use of renewable resources to 10% of our global energy needs—a big step for a company that has depended almost exclusively on oil, natural gas, and coal as its primary sources of energy.
To hit such ambitious targets while continuing to grow as a company, we have had to reexamine many of our fundamental assumptions. For example, our old business models did not tell us how to operate in markets where gross margins are slim, unit sales are high, and people are poor. When I was the head of DuPont’s business in Asia, for example, we had a rule of thumb that we would not invest in building a local infrastructure to sell in a market until the per capita GDP was at least $1,000. Well, in Africa, Southeast Asia, and many other parts of the world, economies are much weaker than that—hundreds of millions of people live on $1 per day or less.
Today we realize that we can succeed in these markets if we carry out a substantial portion of our business operations there. So we hire local people who understand their economy, we site our production facilities near the markets they serve, and we’ve begun to do research and testing locally. For instance, when we developed Avaunt, an insecticide for combating a caterpillar that feeds on the flower buds of cotton plants in West Africa, we solicited the expertise of 20 entomologists from the cotton companies of seven African countries, and our local distributor conducted a series of seminars for farmers and supervisors to educate them about the product. Currently, DuPont’s total sales in Africa amount to about $100 million annually. Of course, we hope to see that number increase, but we must be accomplishing such growth sustainably—and profitably.
Ultimately, real business growth—that is, sustainable growth—represents the only effective way to use the wealth and resources of the world’s largest companies to help the world’s smallest economies develop in a sustainable fashion.
At the same time, we can expect that these ventures will result in lessons in sustainability that developed countries also need to implement. Sustainability does not pertain to just those societies where people are poor. In fact, by working with developing countries to avoid the environmental failures of developed nations, multinational companies can learn valuable lessons for implementing sustainability everywhere they do business.
A Three-Pronged Strategy
For a company to embark on a process of sustainable growth, its leaders and employees have to understand two critical things: what they value and how they create value. At DuPont, we have a very clear appreciation of both. Our founder E. I. du Pont would recognize few of the products we sell today, but he would have no trouble comprehending the values that drive us: a commitment to safety, health and environment, integrity, and the fair and respectful treatment of people. He would also see that for 200 years, we have created value through science and technology, from our early days as an explosives company through the twentieth century when we diversified into agricultural products, synthetic fibers and pigments, and electronic materials. As we have looked at what we value and how we create value, we have identified three strategic pathways for sustainable growth: integrated science, knowledge intensity, and productivity improvement.
A Three-Pronged Strategy for Action
To achieve sustainable growth, DuPont has developed a three-pronged strategy for action. First, integrated science unites chemistry, biology, and other sciences to develop processes and products that are efficient and environmentally friendly. Second, knowledge intensity creates value when more knowledge content is added to products services. Third, productivity improvement elevates productivity from an operational central, strategic level.
In the twentieth century, we learned how to combine physics and chemistry to create new materials such as nylon, Teflon, Lycra, and Kevlar that have changed the way people live. Now the sciences of biology and chemistry are increasingly overlapping in the field known as bioengineering, and we see an enormous future in that intersection. DuPont’s 1999 merger with seed company Pioneer Hi-Bred International was a major step toward integrating biology into our science and technology base.
To appreciate the increasing influence of biology, consider what is happening with polymers, chemical compounds that form the basis of plastics, synthetic resins, and other materials. Thirty years ago when I joined DuPont, the chemical industry would not have used the words “polymer” and “biology” in the same breath. Thirty years from now, it will be difficult to talk about polymers without mentioning biology. For instance, we have used bioengineering to create a new family of polymers with some of the more desirable characteristics of nylon, Dacron, and Lycra. For this new product line, called Sorona, DuPont has manufactured a critical ingredient by fermenting corn sugar, a renewable resource. Before this development, the substance could be produced only from petrochemicals. In similar research, we are currently investigating other plants and microbes in order to replace petrochemical-derived materials with renewable ones in the manufacturing of new polymers.
Putting additional knowledge content in what we sell is our second pathway to sustainable growth. Our objectives are to develop less material-intensive means of creating economic value and to place greater emphasis on using technology, know-how, and information systems to manage the creation of material value more sustainably. For example, our company has entered into an agreement with Simplyengineering of Markham, Ontario, a Web-based provider of engineering knowledge. Simplyengineering will license our copyrighted corporate engineering guidelines, calculations, and models through its Web site to clients around the world. The agreement will enable us to generate new revenue from our more than 2,000 guidelines and engineering programs encompassing every facet of operating a plant.
DuPont is also commercializing its expertise in workplace safety. Over the years, we have become skillful at managing complex hazardous processes. We helped General Motors’ North American operations reduce their lost-workday cases by more than half and Texas Instruments slash its workplace injuries by 65%. Today we are capitalizing on our knowledge in SafeReturns, a consultancy through which DuPont supplies staffing and training materials and incurs their up-front costs. Payment for these resources comes from a portion of the savings that clients achieve through their SafeReturns relationship. The overall opportunity here is tremendous. Last year, U.S. companies incurred more than $60 billion of workers’ compensation costs due to employee injuries. New enterprises like SafeReturns make DuPont’s growth more sustainable by enabling us to generate additional value with less “stuff.”
Many companies consider productivity to be a cost-saving operational issue. We at DuPont have elevated productivity to the strategic level because we believe that it is central to our efforts in sustainability. As a sign of our commitment in this area, we have adopted six-sigma methodology, a stringent approach that strives to reduce manufacturing defects to just several per million. At the end of last year, we had 1,100 black belts and 1,700 green belts (employees who have undergone weeks of training in the six-sigma methodology) working on 4,200 projects.
In one of them, DuPont was able to increase the production rate of its plant in Buffalo, New York, by 10%—without any capital investments. At the plant, which manufactures Corian, an acrylic-based material used for solid surfaces such as kitchen and bath countertops, a team determined that it could speed up the rate of the manufacturing lines by increasing the concentration of the catalyst used to make the Corian products. The result: $26 million in additional revenue last year. This number might not seem huge for a company with $30 billion in sales, but DuPont has thousands of such projects, and we are adding 200 new ones each month. Altogether, our projects using six-sigma methodology are responsible for savings of more than $1 billion a year, and these efforts to improve productivity invariably result in less waste, both in energy and raw material. For example, a six-sigma team enabled a DuPont plant in Old Hickory, Tennessee, that manufactures medical gowns made of Sontara, a high-strength durable cloth, to slash its defect rate, saving the equivalent of 760, 000 gowns per year. By reducing waste, our six-sigma projects connect directly to sustainable growth.
A Necessary Metric
As we implemented our three-pronged strategy, we needed new ways to quantify whether our businesses were actually becoming more sustainable. Accordingly, we worked with outside experts to develop a new metric, which we customized for DuPont, called “shareholder value added per pound of production,” or SVA/lb.
We define SVA as the shareholder value created above the cost of capital, which typically is 10% to 12% for corporations in the United States. A company can increase its SVA by adding either material or knowledge or both, but SVA/lb. emphasizes only the addition of knowledge: The higher the SVA/lb., the greater the knowledge intensity in creating economic value. Along with more traditional financial measures like return on invested capital and cash flow, the new metric provides a useful indicator of the long-term sustainability of different growth strategies.
At DuPont, we have evaluated the SVA/lb. for each of our business units, and some of them have already set stretch goals to increase it over the next five to ten years. For example, DuPont Advanced Fiber Systems, which makes and sells Kevlar and Nomex aramids, aims to double its SVA/lb. during the next five years. One way that the business unit will accomplish this is by bundling its products with services—for example, hazard assessments for people who buy protective clothing—to create revenue streams that require no additional material resources (that is, increased SVA with no additional lbs.).
The new metric dovetails nicely with our three strategic pathways. We have every reason to expect that as we increasingly integrate biology with chemistry, we will develop more efficient processes that satisfy customer needs while using less material or energy. If so, DuPont’s overall SVA/lb. will undoubtedly rise. By definition, greater knowledge intensity should increase it. And improvement in productivity, especially in operations, will invariably result in a higher SVA/lb. But I should add that we do not feel that this metric is the only way to quantify sustainability efforts. In fact, we are continually tailoring our metrics to individual markets and industries, and we are currently investigating other measures that might complement SVA/lb.
A Focus on Value Creation
Sustainability strategies will fail unless they create or increase shareholder value. Specifically, companies must continually demonstrate that business practices founded on sustainable growth are generating tangible financial gains. Early successes, even small ones, can be critical for establishing and maintaining momentum.
At DuPont, many of our early wins have resulted from higher efficiencies and improved margins. Through better packaging design and increased factory productivity, a DuPont plant in Brazil saved $340,000 per year and reduced annual waste by more than 100 tons. At DuPont Canada, conservation initiatives since 1990 have resulted in a 28% reduction in energy per unit of production—equivalent to an annual savings of $12 million. And a peelable lid system developed by a DuPont team in Europe decreased the materials needed for packaging—and reduced the use of methyl acetate solvent by more than 1,000 tons each year.
Other efforts have resulted in a different kind of business value—that of risk reduction. At our facility in Victoria, Texas, we involved the local community in a project to figure out ways to reduce our deep-well disposal of manufacturing wastewater. The solution was to build a treatment facility that now returns 900 million gallons of clean water to the Guadalupe River for downstream reuse, including drinking water. Thanks to the project, we have slashed the site’s toxic chemical emissions by 50%, as calculated by the EPA’s Toxics Release Inventory.
Furthermore, a focus on sustainability has helped DuPont identify new products, markets, partnerships, and intellectual property—all of which can lead to substantial business growth. In many instances, we have developed new business models to take advantage of these opportunities. DuPont Flooring Systems, for example, has shifted its focus from just selling floor coverings to providing total servicing to customers: carpet life-cycle planning, financing, removal of old carpet (for recycling or waste-to-energy incineration), installation of new carpet, and tailored maintenance.
A Test of Leadership
Sustainable growth should be viewed not as a program for stepped-up environmental performance but as a comprehensive way of doing business, one that delivers tremendous economic value and opens up a vast array of new opportunities. Capitalizing on these benefits may require relentless determination and tenacity, but ultimately companies will find that they can generate substantial business value through sustainability while both enhancing the quality of life throughout the world and protecting the environment.
Today, though, it is still possible to run a successful company without a focus on sustainability. In one sense, business leaders cannot be faulted for pointing to positive financial results and real growth and asking, “Why do I need sustainable practices?” But I believe that applied sustainability will be a common denominator of successful global companies by the end of the twenty-first century—and most likely much sooner.
DuPont is planning to be one of those successful companies. Thus, as we approach our 200th anniversary in 2002, we will continue to incorporate sustainability into the way we plan, develop, and execute our business strategies. Although DuPont is far from its goal of achieving sustainability, we are unblinking in our drive toward that ultimate objective.
A version of this article appeared in the September 2001 issue of Harvard Business Review.