Social Responsibility and Sustainability: CSR, Triple Bottom Line

1 Social Responsibility and Sustainability: Similarities and
Differences
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Learning Objectives
After reading this chapter, you should be able to:
1. Define corporate social responsibility and sustainable
business and describe how these relate to the
triple bottom line.
2. Analyze systems theory and complexity theory and discuss
how both relate to sustainability.
3. Describe how continuous improvement can promote
sustainability.
4. Evaluate the types of waste that reduce financial viability or
increase social and economic impact.
5. Summarize the elements of sustainable business practices.
© 2016 Bridgepoint Education, Inc. All rights reserved. Not for
resale or redistribution.
Section 1.1Corporate Social Responsibility and Sustainability
Pretest Questions

1. The financial bottom line is the only element that determines
a business’s
sustainability. T/F
2. Inputs, throughputs, and outputs represent the three elements
of a system. T/F
3. Continuous improvement applies to individual performance
only. T/F
4. Waste, in its many forms, damages the bottom line but does
not impact a business’s
sustainability. T/F
5. Sustainable businesses have a higher capacity for change. T/F
Answers can be found at the end of the chapter.
Introduction
This book advocates a better way to do business, build
organizations, and benefit society.
We argue for a holistic and sustainable approach to business
because we believe business is
not, nor can it be, disconnected from society, communities, the
environment, government, or
individuals. This chapter lays the foundation for this
perspective by introducing the idea of
socially responsible and sustainable firms and by describing a
leadership mind-set for both.
The sustainability mind-set described here moves leaders from a
reactive stance to a proac-
tive one. When they adopt such a mind-set, leaders move away
from reacting to consum-
ers, trends, and activists and toward being proactive and
strategic about the opportunities
and interconnections in business. The sustainability mind-set
also helps guide leaders and

managers regarding when, why, and how to enact socially
responsible behaviors. We intro-
duce foundational theories that support a social responsibility
and sustainability perspec-
tive. General theories such as complexity theory and systems
theory, among others, provide
the background for lean management and continuous
improvement, practices that reduce
waste and open opportunities for innovation. Thus, this book
alternates between (a) sharing
the theoretical and historical underpinnings of key
sustainability ideas and (b) sharing best
practices and examples from a wide range of industries. The
first task, however, requires us
to further define and characterize the ideals of corporate social
responsibility and corporate
sustainability.
1.1 Corporate Social Responsibility and Sustainability
Defining the relationship between the means of production
(business) and society (employ-
ees, customers, suppliers) has a long history, one that has
usually featured discussions about
the purpose of business. Historical musings about modern
capitalism usually included
attempts to understand the proper role of business in society and
thus formed the foundation
for modern discussions of corporate citizenship, which is a
loose term used to describe the
relationship between a corporation and its society (Barkemeyer,
Holt, Figge, & Napolitano,
2009). The following section defines these concepts and covers
the evolution of key terms.

Defining Corporate Social Responsibility and Sustainability
Corporate social responsibility (CSR) refers to voluntary
actions taken by firms that are
designed to improve social or environmental conditions
(Mackey, Mackey, & Barney, 2007;
McWilliams & Siegel, 2001). More specifically, CSR refers to
the “continuing commitment by
business to contribute to economic development while
improving the quality of life of the
workforce and their families, as well as of the community and
society at large” (as quoted
in World Business Council on Sustainable Development, 2015).
Originally, the CSR para-
digm simply reflected the fact that some corporations were
aware of their immediate busi-
ness context and generous only to the people within that context
(primarily employees and
customers).
Most heavily discussed by business leaders and consumers in
the 1970s, early CSR efforts
primarily focused on compliance with legal commitments to
shareholders or appeasing and
supporting local communities—the earliest efforts and
discussion of CSR largely focused on
corporate philanthropy and workers’ rights. Early CSR by the
Dow Chemical Company, for
example, included donations to the local museum and
sponsoring flower gardens along the
main streets in the headquarter’s town of Midland, Michigan.
CSR at Dow today is a much

more comprehensive practice that includes innovation and
decisions that pertain to new
product development.
Since the 1970s CSR has expanded to focus less on compliance,
philanthropy, and donations
and has become a more strategic, inclusive, and global concept.
Accordingly, the topic has
moved from being discussed primarily in ethical terms to both
ethical and strategic ones;
the word sustainability now also accompanies or replaces the
term CSR in some discus-
sions (Jones Christensen, Peirce, Hartman, Hoffman, & Carrier,
2007). Business sustain-
ability refers to how an enterprise manages the triple bottom
line—a process by which
companies manage financial, social, and environmental risks,
obligations, and opportuni-
ties (often referred to as profits, people, and planet)
(“Definition,” 2015). This definition of
sustainability is partially rooted in the environmental movement
and implies that in order
to increase sustainability, a corporation must reduce its negative
environmental and social
impacts and increase its stewardship of resources. Thus, for
some, sustainability includes
CSR behaviors while also extending and building on historically
CSR activities. This book
advocates the idea that corporate sustainability includes typical
CSR activities and adds
more strategic environmental and social elements to the
concept. Authors writing for the
Harvard Business Review suggest that sustainable business
practices can be the norm in the
future. Chouinard and colleagues (2011) say, “Instead of asking
either ‘how can we turn a

profit?’ or ‘how can we minimize impact?’ managers [of the
future] will see those as two
sides of the same coin. Sustainability will simply be how
business is done” (para. 6). This
book attempts to capture both what it means to be socially
responsible and sustainable and
how to achieve such results.
The choices made by Merck & Co.’s management—from
philanthropy to drug development
and then in-kind donations for low-income communities—
provide an example of a firm that
has run a solid and effective CSR and sustainability campaign.
CSR and Sustainability in Action: Merck & Co.
In 1668 Jacob Friedrich Merck purchased a drugstore in
Darmstadt, Germany, and his
family operated it for several generations. In 1891, when
George Merck immigrated to the
United States, he established Merck & Co. (now Merck & Co.,
Inc.) in New Jersey. Today
Merck is one of the world’s seven largest pharmaceutical
companies. It is also a generous
one. The Merck Foundation, which is funded by the corporation,
gives away as much as
$500 million in products, services, and cash every year.
Merck’s research and development has led the U.S. Food and

Drug Administration to
approve more of its drugs than any other company (Merck &
Co., 2015). These include
groundbreaking drugs that help treat diabetes, high cholesterol,
autoimmune disorders
such as arthritis, and cancer. Merck scientist Maurice Hilleman
developed the first
vaccines for mumps, rubella, and chicken pox. Merck scientists
also developed the first
statin class drug and the first effective treatment for
tuberculosis.
In 1987 Merck & Co. partnered with the United Nations (UN) to
develop a drug to donate to
those who suffered from river blindness in Africa. Estimates
suggest that at that time, the
cost of developing such a drug averaged 12 years and $200
million (Hanson, & Weiss, 1991).
The decision to support drug development when the firm might
never recoup the costs was
a major one that Merck executives ultimately supported. There
are now regions in which
river blindness has been eradicated, in large part because of the
financial and social support
from Merck. Merck’s actions continue to be widely known and
publicly commended.
The reputational benefits and free marketing Merck has received
from its charitable actions
has helped it in social and financial ways equal to or beyond
what it could have gained by
taking a for-profit approach. This book addresses how to
identify, evaluate, and intelligently
lead firms to make such choices. More importantly, it is about
how to think beyond narrow
philanthropy-only versions of social responsibility and toward

the wider and strategic goal of
corporate sustainability. This first chapter sets the stage for this
goal, while the final chapter
(Chapter 10) expands on a series of challenges that future
leaders face in building sustain-
able and socially responsible corporations. By the time readers
reach Chapter 10, such goals
should seem both understandable and attainable.
Sustainability: Long-Term Accountability
The definition of sustainability has its roots in environmental
science and has since been inte-
grated into economics and business. In the language of business,
a sustainable corporation miti-
gates harm and increases social and environmental good over
the long term while remaining
profitable and providing valued products and jobs. At a
minimum such a corporation does not
harm the social or ecological environment, nor does it deplete
national or human resources. All
of these activities explicitly support long-term viability
(McWilliams & Siegel, 2001).
One of the most widely applied definitions of sustainable
development in business comes from
a 1987 document that grew out of the UN-mandated World
Commission on Environment and
Development, which set up a diverse group to define sustainable
development. Headed by the
former prime minister of Norway, Gro Harlem Brundtland, the
results took years to achieve

and were published in a report called Our Common Future. This
document came to be called
the “Brundtland Report” or the “Brundtland definition” (even
though the entire commission
worked to achieve it) and included the following key text:
The environment is where we live; and development is what we
do in attempt-
ing to improve our lot within that abode. The two are
inseparable. Sustain-
able development meets the needs of the present without
compromising the
ability of future generations to meet their own needs. (World
Commission on
Environment and Development, 1987, Part I)
The establishment of this definition became a landmark event
for sustainable development.
It was notable because it took a long-term view in its mention
of future generations. It also
stood out at a time when the majority of the business
community was operating under a very
short-term and isolationist or nationalist mind-set. With its
focus on long-term accountabil-
ity to future generations, it gave policy makers, businesspeople,
and governments a starting
point from which to evaluate actions and choices. Over time,
the definition was honored for
these accomplishments but also criticized for mentioning
“needs,” as needs are hard to define
and harder still to agree upon for large numbers of people.
Despite that issue, this definition
of sustainability continues to dominate the literature and

popular press on the topic.
Interface Carpet represents an early example of how a business
used sustainability principles
to become innovative and profitable while attempting to restore
society and the environment.
Ray Anderson, the company’s founder, admits that for the
company’s first 30 years of opera-
tion he focused solely on profits. He did not consider his own
consumption of raw materials
as impacting the environment or future generations. As
Anderson learned more about the
relationship between ecology and commerce, he pushed the firm
to take responsibility for its
products, from the extraction of raw materials to the disposal of
used product.
CSR and Sustainability in Action: Interface Carpet, Part 1
In 1973 Ray Anderson founded Interface Carpet to provide
modular floor coverings
to corporate and institutional clients. He ultimately built a
billion-dollar company, but
in 1994 Anderson realized the company lacked an
environmental policy. As Anderson
worked to create one, he was inspired by Paul Hawken’s book,
The Ecology of Commerce.
It discusses many principles, but especially how to reframe
business toward a goal of zero
waste (Anderson, 1998).
Anderson was distressed to learn that it took 800 million pounds
of nonrenewable
material extracted from the earth to generate $802 million of
product (Anderson, 1998).
Inspired by Hawken, he felt that business and industry were the

only institutions large
and powerful enough to lead society out of the environmental
problems that industry had
helped cause. Anderson decided to immediately change how he
ran his business.
Interface Carpet maintained or improved market strength while
also investing in
renewable energy, recycling aggressively, and empowering all
employees to drive
change and create products that are safe for them to handle and
for consumers to use.
Interface Carpet now benefits its local community, broader
society, the environment, and
shareholders as a normal part of running its business.
Given sustainability’s high potential value to firms and society,
how can it be developed, mea-
sured, and turned into a business goal? What trade-offs must be
considered to keep it from
being unattainable in the short term? The next section attempts
to answer these questions
by describing a form of accountability and a classification of
measurements (the triple bot-
tom line) that allows users to describe and discuss how an
organization progresses toward
sustainability.
More Than One Bottom Line

A simple way to identify a sustainable business is to determine
whether it formally accounts
for (or even considers) a “double or triple bottom line.” This
phrase builds on the concept of
the single bottom line—the term for financial profit. The idea of
a triple bottom line refer-
ences an analysis or accounting tool that evaluates
environmental costs (or liabilities) and
benefits (or assets) along with the costs and benefits of social
and financial decisions.. If a
firm considers two of the three categories, it uses double bottom
line thinking; when a firm
considers all three categories, it serves and measures the triple
bottom line. Some groups
refer to these categories as the Three Ps: profit, people, and
planet.
The Economic Bottom Line: Profit
A basic economic truth about business implies that without
some form of outside subsidy
or similar intervention, companies need a steady financial profit
or they ultimately cease to
exist. When the cost of running the business exceeds the firm’s
financial profit, it must seek a
subsidy or stop operating. Financial profits pay salaries; support
research and development;
fund investments in property, supplies, and equipment;
contribute to the tax base; and other-
wise drive operations. In standard accounting practice, financial
results enable comparisons
to be made between firms, which offer investors and other
stakeholders clear signals about
viability and value. For many, the financial bottom line
represents the most basic type of sus-
tainability—the kind where the company is “sustained” to
operate and thus able to provide

employees and communities with jobs and products. Without
profits, there is no business.
The argument for additional types of bottom lines stems from
the belief that money is just
one type of resource needed to run a firm; however, firms may
operate better, last longer,
and innovate more if management also considers and calculates
human and environmental
resources.
The Social Bottom Line: People
Organizations differ widely in how they treat employees,
customers, suppliers, and even com-
petitors. The term human resources typically describes an
organizational department that
handles employee-related issues such as hiring, firing,
promotion, health and wellness, ben-
efits, and legal rights. The very term for describing the
department implies that people are
a resource, just like money. Organizational managers with
advanced human resource prac-
tices signal to workers and future employees—as well as the
community—that the company
invests in the very people who sustain the business.
Organizations where management pur-
posefully supports, nurtures, and protects employees often do so
as an expression of CSR. The
underlying logic and motivation can run from ethics (valuing

people is the right thing to do)
to finances. When employees are happy, secure, and healthy,
there is less turnover, higher pro-
ductivity, and fewer training and replacement costs (Weber,
2008). Whatever the motivation
behind pro-people behaviors, the outcomes remain similar:
higher retention rates, higher
satisfaction rates, fewer errors, lower health care costs, and
other related savings and bene-
fits. Cutting-edge CSR and sustainability practices go beyond
employees to include suppliers,
community members, government, and others (Weber, 2008).
A sustainable firm may also take a long-term approach to
developing people inside and out-
side the company. Managers in such a company may give
employees growth and promotion
opportunities, focus on diversity and inclusion, or take an
expansive view of work–life bal-
ance. Such managers also tend to create an environment where
innovation is rewarded, as
innovation by definition moves everyone forward. Part of
supporting innovation relates to
remaining loyal to people when they experiment; it also means
giving people the resources
and freedom to develop ideas, build prototypes, and test the
final product. Merck & Co. offers
one example of how investing in employees by providing
resources and support for innova-
tion can result in social benefits (more health) and corporate
benefits (more profits) (“Key
facts,” 2015).
Investments in people are often called social investments, which
can take the form of money
spent on training, fair or above-market wages, motivational

programs, benefits packages, and
more. Social investments not only acknowledge that employees
make a valuable contribution,
they also highlight the value of the lives of people outside the
company. An excellent example
of this is the mission statement (purposefully called a “credo”)
of Johnson & Johnson, a drug
and consumer products company similar to Merck in some
product categories. Johnson &
Johnson’s credo highlights its priorities. The first line reads:
“We believe our first responsibil-
ity is to the doctors, nurses and patients, to the mothers and
fathers, and all others who use our
products and services” (Johnson & Johnson, 2016).
This important statement guides corporate leaders and
employees in their daily decision
making because it tells them to put the user of the product first,
not the owner of the com-
pany or its shareholders. Such a clear sense of focus can help
decision making and priority
setting, and it likely plays a large role in Johnson & Johnson’s
success since the 1860s. That
said, Johnson & Johnson’s credo does not ignore the business
aspects of the pharmaceutical
enterprise. Its credo says later in the first paragraph: “Our
suppliers and distributors must
have an opportunity to make a fair profit.” The second
paragraph states that the employees
must have a “sense of security in their jobs” (Johnson &
Johnson, 2016).
This last point is evident in Johnson & Johnson’s on-site career
center. There employees who
leave the company can take advantage of the career center’s
resources. Johnson & Johnson

employees have a right to access the career center for the rest of
their professional lives.
While commitment to employees is a common CSR practice, a
lifelong commitment is more
unusual and sets an example for others to model and adapt.
Benefits from such practices
include employee loyalty, improved rankings as preferred places
of employment, reputational
benefits that enhance recruiting opportunities (Weber, 2008),
and other benefits discussed
in future chapters.
Section 1.2Theories Related to Sustainability
The Environmental Bottom Line: Planet
The final bottom line involves measuring the costs and benefits
of environmental elements
used by the firm. At its most basic, this metric simply means
calculating and understanding
the cost of physical waste or the cost and extent of pollution. At
its most complex, such a
metric means attempting to account for the cost of clean/dirty
air, clean/dirty water, sourc-
ing materials, and the waste that occurs because of a product.
Regarding the most basic level,
most companies do not want to be viewed as polluters. Most
don’t want to pollute, but some
industries inherently operate with more blatant pollution and
environmental disruption. For
example, mining companies by definition dig and disrupt the
earth. The work results in waste

streams that may have some level of toxicity. Pulp and paper
firms and those in the lumber
industry must harvest trees and alter the natural landscape (even
on company property).
Firms in the extractive industry have long received public
attention because mining is danger-
ous and results in obvious pollution. However, there remain
many other and less obvious ways
to consider the environmental impacts of operating a business.
The Environmental Defense
Fund (EDF) reports that 1 in 3 Fortune 500 companies uses
interns and advisors from the
EDF to help reduce their corporate carbon footprint (EDF,
2015). Such support results in sim-
ple initiatives such as carpooling or allowing “work from home
days” to reduce air pollution
generated by employees, as well as more complex initiatives
related to changing packaging
material, altering chemical composition of products, relocating
factories, and so on.
Companies that adopt a CSR and sustainability mind-set no
longer see themselves as iso-
lated in the market or society, or outside of environmental
concerns. They see themselves as
part of the larger system. This mind-set may stem from the
increased global connectivity that
has developed over the past 20 years, as well as from an
increased appreciation for systems
theory concepts, which have been refined and expanded over the
past 60 years. The following
sections introduce systems theory and complexity theory and
examine the impacts of both on
the CSR and sustainability movement.
1.2 Theories Related to Sustainability

The newer approach to CSR takes a systems theory perspective,
which means that respon-
sibility is related to interconnectedness and includes a wide
range of actors. By discussing
theories that underpin CSR and sustainability, this book moves
from describing the goals of
CSR to describing tactics for achieving them.
Before detailing the benefits of building a sustainable business
or organization, or how sus-
tainability feeds and motivates CSR, we discuss the roots of
some CSR and sustainability ideas.
Most great ideas emerge dependently, with roots in other
disciplines. Similarly, many believe
that corporate sustainability stems from a mind-set called
systems theory.
Systems Theory: A Foundation for CSR and Sustainability
Systems theory or general systems theory operates on the
fundamental idea that all
phenomena exist as a network of relationships among elements
in a system. Also, all sys-
tems, whether social or biological, have common patterns.
These theories therefore involve
identifying and considering connections between different
groups, such as ecological sys-
tems, social systems, and biological systems. Elements of
systems theory relate to classical

philosophy. Today biologist Ludwig von Bertalanffy is probably
the best and most noted sys-
tems theorist. He published Perspectives on General Systems
Theory in 1975. In it, he argues
that all systems share certain characteristics. Common elements
include inputs (such as raw
material), throughputs (such as shaping the raw material), and
outputs (a final product ready
to be sold). A system can be defined by what it takes in, what it
changes, and what it puts out.
For example, a lumber company takes in rough-cut trees (input);
then employees dry, saw,
and plane the wood (process); after these processes, the firm
offers a final product in the form
of lumber (output). For a less tangible example, consider a
communication system. There are
inputs (words and signals); throughputs (listening to or
recording the words and signals);
and outputs (additional words and signals that are ideally
related to and link with the inputs).
As mentioned, systems theory operates on the fundamental idea
that all phenomena have a
network of relationships with common patterns. The notion of
patterns leads us to the sec-
ond set of ideas in the family of systems theory that we call
complexity theory. While the
ideas seem closely related to biology and life sciences, business
advisors such as Peter Senge
(1990) and Margaret Wheatley (1992) have written a great deal
about the importance of sys-
tems theory in business thinking and planning. To understand
the relationship, we first need
to describe complexity theory.
Complexity Theory: Another Precursor to Sustainability

Complexity theory refers to a general theory of systems that
describes how corporations,
or any changeable structures, adapt to their environment and
cope with conditions of uncer-
tainty (Gleick, 1987). This theory helps us understand why
sustainability is such a precious
and fragile commodity in business. Complexity theory provides
a lens through which to view
all systems, including organizational ones such as corporations.
Complexity theory stems
from observing nature; its central tenet is the idea that all
systems are organic and emer-
gent (or that they constantly grow and change). Someone who
notices patterns in a business
organization within a dynamic market and says, “This
organization has a life of its own” is
knowingly or unknowingly recognizing a key theme of
complexity theory (Hammond, 1997).
How does such a seemingly vague idea relate to business and
CSR? An organization that builds
cars or creates chemical compounds (or any product or service)
operates in ways bounded
by resources, talent, and market opportunity. Owners and
managers can change somewhat
over time, but the paths for change are limited—a car
manufacturer cannot keep its core
resources, talents, and market opportunities and become a real
estate firm. While firms can
change, we cannot predict which path an organization will take.
Each managerial decision,
each corporate action leads to a new set of complex realities.
Consider how Ray Anderson turned Interface Carpet from a
waste-producing organization
to one with almost zero waste. Doing so required a change in

his mentality and awareness.
He took an unpredictable path and gained an outcome not
foreseen by his employees or his
competitors. Thus, the ideas of complexity theory and systems
theory come together to sug-
gest that it is possible to move business from the typical
unsustainable behaviors commonly
practiced today and move toward the sustainable and restorative
practices of the future. Sys-
tems theory and complexity theory provide a bridge for
understanding how the past need not
determine the future of business. Consider the following
description of complexity theory:
At each level of complexity, entirely new properties appear.
[And] at each
stage, entirely new laws, concepts, and generalizations are
necessary, requir-
ing inspiration and creativity to just as great a degree as the
previous one.
Psychology is not applied biology, nor is biology chemistry.
(Waldrop, 1992,
p. 82)
The idea that a system is nonpredictive (meaning it is not
possible to know how something
will turn out before it is tried) is an essential characteristic of
complexity theory—it also
provides the motivation to innovate. Systems that are predictive

are not dynamic, because
by definition predictive means knowing what will happen, so
there is no surprise or dyna-
mism. Such predictive systems cannot change for the better or
for the worse. More specifi-
cally, Nobel Prize–winning physicist Ilya Prigogine (Prigogine
& Stengers, 1984) showed that
disequilibrium is a necessary condition for a system. Prigogine
called changeable systems
dissipative structures. These are structures that are resilient
rather than stable, and order
comes from within through self-organization. These phrases and
ideas further relate to busi-
ness, because acknowledging that all markets, corporations, and
systems are self-organizing
reflects sustainability—corporations must continually adapt.
Sustainability and CSR directly
relate to a corporation’s ability to adapt. When a person in a
firm sees that action and change
are necessary, applying these theories can help individuals and
firms can take action toward
change. Again, these theories represent both the motivation and
the bridge to move from past
behaviors to future practices.
As defined by complexity theory, a final characteristic of any
dynamic system, including busi-
ness, is that systems must be seen holistically, or as a whole and
not just in parts. This idea
represents another point at which the principles of complexity
theory and the notion of sus-
tainability merge. A system cannot be sustainable without
someone accounting for as many
variables as possible in as much detail as possible.
Sustainability and CSR require that leaders
take a wide account of the source of any problem and any

possible solutions. This idea brings
us back to triple bottom lines and systems thinking, where
future leaders step back from a
decision or from measuring only the dominant bottom line to
see how a larger view and mea-
suring additional bottom lines can lead to positive change. Later
chapters in this book discuss
how to achieve such changes.
The central argument is that in order to create a sustainable
organization, one needs to expect
and account for the dynamic aspects of all organizations. One
needs to look at the points at
which the organization connects with others, markets, social
groups and societies, politics,
the environment, and all other dynamic systems within the
organization’s operations. Note
that this implies that organizations, like people and ecosystems,
are in some way alive. If they
are not alive, they are at least dynamic to the point that they
behave very much like living
things. In order to sustain a living thing, one needs to
continuously improve.
When leaders and managers embrace this idea, it becomes
natural to attempt continuous
improvement in work processes, too. It becomes second nature
to put rules in place to measure
the current state of things and to set goals to continuously reach
for a dynamic future state.
Continuous improvement represents one tactical way that
leaders can help move companies
toward more socially responsible, profitable, and
environmentally sustainable behaviors.

Section 1.3Continuous Improvement
1.3 Continuous Improvement
There are essentially two choices when managing a business—
one can either stay the same
and gradually decay over time or purposely enact a cycle where
the business gradually or dra-
matically improves. To strategically decide to analyze all
processes with the intent to under-
stand and improve them is to commit to continuous
improvement in business. In this case,
improve means to adapt to the changing environment and
become more efficient and inno-
vative with the business’s inputs and throughputs. Simply put,
dynamic organizations that
prevail in the market continuously improve. Consider, for
example, how if a company wins
awards one year, those award-winning behaviors become
expected and status quo the next
year; to win the next award, the company must do something
more than before.
Operations management classes teach a number of specific
processes that firms adopt to for-
mally enact continuous improvement. Two examples of such
programs are the Shingo model
and Six Sigma. These programs emphasize ongoing adaptation
as the only way an organiza-
tion can adjust to a changing environment and the only way to
sustain financial stability, cus-
tomer loyalty, employee dedication, and lower environmental
impact (Shingo, 1986, 1987).

At the core of such continuous improvement is a concept called
kaizen, which means “change
good” or “change for good” in Japanese. Kaizen became famous
in the United States from
Masaaki Imai’s 1986 book, Kaizen: The Key to Japan’s
Competitive Success. Continuous improve-
ment concepts are similar to those described previously that
relate to general systems theory.
That is, they are focused on continuously adapting inputs,
processes, and output to reduce
waste and improve sustainability.
The Shingo Model
The Shingo model represents one of the more useful and
successful change management
or kaizen systems. Based on the work of Dr. Shigeo Shingo,
who brought the Toyota Motor
Corporation to manufacturing prominence in the 1970s and
1980s, the model takes a spe-
cific approach to operations and continuous improvement. It is
based on 10 principles that
begin with the social and human side of business. The Shingo
model differs from other kai-
zen systems in that it starts with the human dimension, while
still including economic and
environmental dimensions, in order to help organizations find
long-term ways to become
sustainable. The 10 Shingo principles fall into four overarching
categories. The categories
and principles build on and reinforce each other—the cultural
enablers and human emphasis
form the model’s basis, and all additional principles build on
that foundation (see Figure 1.1;
Shingo, 1986, 1987).

Respect Every Individual
The first principle in the Shingo model involves respecting
every individual (Shingo, 1986,
1987). When people feel respected, they willingly dedicate
effort, mind share, and loyalty
to organizational efforts, which typically increases
effectiveness. Individuals are respected
when organizations nourish employee potential (by offering
them training and development,
good leadership, advancement options, and fair and transparent
procedures). Respect is also
evident when companies invest in employee health, safety,
diversity, and co-ownership. This
can range from simple processes to cutting-edge activities that
lead in social responsibility
and corporate sustainability (or at least the social side of both).
Figure 1.1: The Shingo Model
f01_01
Cultural Enablers
Lead with Humility
Respect Every Individual
Results
Create Value

for the Customer
Enterprise Alignment
Create Constancy of Purpose
Think Systemically
Continuous Improvement
Assure Quality at the Source • Flow & Pull Value
Embrace Scienti�c Thinking • Focus on Process
Seek Perfection
Source: Shingo Institute—shingo.org. Reprinted with
permission.
Lead With Humility
The second Shingo principle involves leading with humility.
Leaders, including senior manage-
ment, need to continuously learn and listen to people within
their organization. As an active
listener, a good leader acknowledges that he or she does not and
cannot know everything.
Leaders who embrace humility tend to take a more open and
learning-orientated approach
to each conversation and interaction with coworkers—and this
applies to coworkers at every
level of the organization. A possible result of doing so is
generating better solutions that
include a wide range of ideas; another is benefiting from more
engaged and involved employ-
ees who each feel they can make a substantive contribution
because leaders listen and care
about new input.

Aim for Perfection
The third Shingo principle involves seeking perfection. Of
course, this introduces a duality
because such a goal is unattainable, as systems are dynamic.
However, while the goal remains
lofty, seeking perfection requires a leader to continually
improve to bring the organization
closer to sustainability. Many companies have expanded the
perspective on what is possible;
as they continually focus on perfection, they find new
opportunities, technologies, and ideas
that lead them forward. Expanding goals can also help achieve
new heights.
Focus on Process
The fourth Shingo principle calls for a focus on process
(Shingo, 1986, 1987). Many orga-
nizations that do not use Shingo or similar principles primarily
focus on output and fail to
fully analyze or consider how employees arrived at that output.
However, a more respon-
sible and sustainable company continually evaluates internal
processes in order to control
the use and flow of inputs and outputs. Focusing on the process
means studying the value
and consequence of each step in any manufacturing or service-
creation process. Focusing
on process also means breaking operations into steps and
dependencies in order to evaluate

which steps (if any) can be eliminated, simplified, improved, or
otherwise changed. Compa-
nies with a focus on process tend to be more humane places to
work, because managers do
not blame people when outputs fall short; rather, they consider
how the process forced a less-
than-optimal outcome. When there is less blame, a culture of
effort and safety can flourish
(Liker, 2004).
Embrace Scientific Thinking
Organizational leaders seeking to be socially and
environmentally responsible by applying
Shingo (or similar) principles learn enough about themselves
and the organization to gain
insight into what is really going on at work, as is illustrated by
the fifth Shingo principle,
which revolves around embracing scientific thinking. In
management, scientific thinking
means using data and clear measurements to verify assumptions.
It involves forming hypoth-
eses, creating tests, gathering data, creating new hypotheses,
and making direct observations.
A key part of the kaizen process involves going to the genba. In
Japanese, this means going to
“the place where things are happening.” Applying the idea of
the genba to CSR and sustain-
ability means that more sustainable choices come from frontline
employees who are doing
the work, rather than from some manager who is far removed
from day-to-day activities and
processes. More generally, the idea applies to CSR and
sustainability because it suggests that
people must analyze the heart of all processes to better
understand why they exist, what pur-
pose they serve, and how they might change.

Consider Flow and Pull Value
The sixth principle in the Shingo process relates to waste. The
principle of waste deserves its
own discussion (see next section) because the topic of waste, or
eliminating it, drives most
initial CSR and sustainability behaviors. The sixth Shingo
principle does not use the word
waste. Rather, the associated phrase is flow and pull value,
which indicates that companies
strive to maximize value for customers. Companies create value
in response to real demand
in a continuous and uninterrupted process of products and
services. Waste is considered any-
thing that disrupts the pull and flow of products and services,
and thus the topic of waste
is implied rather than explicitly stated. We discuss types of
waste in greater detail later in
this chapter.
Strive For Quality at the Source
The seventh concept of continuous improvement in the Shingo
model relates to the others
because its focus is to assure quality at the source. Perfection
can only be achieved if every
element of the work is done right. This means that quality is
measured from the source or the
supplier, all the way through the process, to delivery. Managers

who encourage coworkers to
ensure quality inputs, throughputs, and outputs and to focus on
goals emphasize quality at
every part of the process, not just at the outcome.
Think Systemically
The eighth Shingo principle moves into the area of enterprise
alignment and encourages all
leaders and employees to think systemically (another nod to
systems thinking). It is essential
to thoroughly understand the relationship within and between
different parts of the organi-
zation, in order to make better decisions and improve. In the
Shingo model all levels of the
organization are encouraged to know about the
interrelationships of all the other levels of the
organization. Typically, sustainable organizations are not
congested hierarchies, but rather
flat structures that require less administration, bureaucracy, and
communication.
Create Constancy of Purpose
The ninth principle in the Shingo model relates to creating a
constancy of purpose. The goal of
this principle is to create unwavering clarity about why the
organization exists, its direction,
and its purpose, as well as the role and value of all those
involved. The underlying idea relates
to the concept of unity—that is, in order to create a consistency
of purpose, people need to
innovate, adapt, and take risks together.
Foster Value for Customers
The tenth and final principle in the Shingo model stipulates that
employees must create value
for customers. The customer represents the systemic connection

to the market. Ultimately,
the customer defines the value created and demonstrates that
belief by purchasing or other-
wise interacting meaningfully with the product or service. Thus,
all organizational members
benefit from trying to adopt the customer’s perspective.
Organizations that fail to effectively
and efficiently deliver on what is most important to the
customer typically fail.
Of course, the Shingo model represents just one of many
methods companies can employ to
keep continuous improvement central to the organization. Some
companies choose delib-
erately from the available options, while others may utilize
some key principles without
adopting all of them. Companies that formally embrace and
train employees on continuous
improvement methods tend to experience more consistent
market success and gains.
An early and excellent example of a sustainable manufacturing
organization in the United
States is New United Motor Manufacturing, Inc. (NUMMI) in
Fremont, California. NUMMI
was originally the site of the General Motors (GM) Fremont
assembly plant; it was closed
down until GM and Toyota launched a joint venture to
manufacture vehicles marketed by
both brands. GM considered the venture an opportunity to learn
from Toyota about how to
manufacture high-quality smaller cars, while Toyota sought its
first North American manu-
facturing base and the opportunity to deploy the Shingo model
in production with American
workers. When the NUMMI plant reopened in 1984, 70% of the

hires came from the laid-off
GM workforce. Many of the former GM employees were sent to
Japan to learn the Toyota Pro-
duction System that embodies the Shingo principles. Within
weeks of opening, the NUMMI
Section 1.4Defining Waste
factory produced cars with fewer defects per 100 vehicles than
those produced in Japan (Imai,
1986). Employees reduced waste and were happy, and product
quality was high. Plant own-
ers and the workers’ union engaged in joint activities that
benefited the community, showing
that the new system had implications beyond the factory
boundaries (O’Reilly, 1998).
One important lesson from the NUMMI plant experience relates
to continuous improvement
principles, which can lead to higher sustainability and corporate
responsibility. These prin-
ciples are not culturally embodied in Japanese, Chinese,
Korean, German, or any other culture.
Anyone willing and motivated to learn the principles can apply
them to multiple areas. Some
United Automobile Workers Union members who worked for
GM in the previous plant almost
destroyed the plant with a lack of productivity, acts of sabotage,
and poor behavior. Yet those
same employees, inspired by a system of listening,
empowerment, and improvement without

conflict, created one of the most successful manufacturing sites
in history (O’Reilly, 1998).
Continuous improvement, coupled with and informed by ideas
from systems thinking, cre-
ates a drive to be eco-friendly, humane, and connected to other
entities (such as government
or industry groups) in ways that benefit all parties. It also
creates a passionate drive to reduce
waste and refine processes. As stated earlier, one of the first
(and easiest) goals related to
moving toward more sustainability and greater responsibility
regarding resources is to man-
age waste.
1.4 Defining Waste
Simply defined, waste refers to a product that has zero value.
Waste takes the form of pollu-
tion to the environment, unfulfilled human potential, or missed
market opportunities. Waste
represents activity with no benefit. The more waste an
organization creates, the further it
moves from sustainability and responsibility. Also, waste is
usually costly for the firm and
sometimes for society at large. Creating waste can be viewed as
irresponsible and even uneth-
ical. Learning to avoid waste or turning it into something of
value is a key principle in CSR and
sustainability.
Architect, designer, and sustainability expert William “Bill”
McDonough educates people
about the concept of zero waste using the phrase “waste =
food.” This means that waste in
one part of the organization could become input (or food) for
another part of the organi-

zation or sold to another firm to use as an input. Through this
concept, waste becomes a
potential resource for other systems or organizations. Waste can
be an asset that can be sold
or reused, rather than a liability and a cost. This is the
foundational principle of materials
recycling; when applied to more systems, processes, and
products, however, it can mean more
than recycling paper, glass, and plastic—it can lead to positive
change, significant savings, and
cutting-edge innovation.
The easiest way to identify waste is to attend to the waste
disposal system. For example, con-
sider an electronic components factory in which many cable
stubs were noticed in the waste-
baskets near each workstation. Employees indicated the waste
came from trimming cables
within the electronic component. Employees were taking wires
off a spool using a rough mea-
surement (or by “eyeballing” the length) and distributing them
to each workstation. They
then measured accurately, trimmed the wires to length, and
installed them on the component.
This process resulted in three kinds of waste. First, measuring
the cable twice was a waste of
time. It also was a waste of energy, because employees were
trimming wires that had already

been cut from the spool. Third, the process wasted materials, as
each long strand of cable had
segments trimmed off each end.
After realizing these levels of waste, the factory workers and
managers worked together to
change their processes. They started taking an accurate
measurement when wire was first
cut from the spool. This change allowed each worker to increase
his or her daily output. It not
only allowed the firm to save money on materials, it put less
waste in the landfill.
Firms seeking to be sustainable and to take social and
environmental responsibility for their
operations pay vigorous attention to systems that help identify
where, when, and how to
eliminate waste. A useful example of such a system is the total
quality improvement program
called Six Sigma.
Waste and Six Sigma
Six Sigma refers to a disciplined, data-driven methodology for
eliminating defects in any pro-
cess, from manufacturing to service. It follows formal steps,
often requires specific training
and certification, and can be applied throughout a company or
in a single department. The Six
Sigma process identifies eight different kinds of waste found in
organizations. We also discuss
two additional types not always included in standard Six Sigma
descriptions.
Defects
The first kind of waste involves defects. Defects occur when
manufacturers create products

that do not meet minimum manufacturing or customer standards
or when the service fails to
produce the desired results. Most defects result in a loss for the
company and the consumer.
Almost everyone has experienced a defect in service. An
example of a defect in service is when
you miss a meeting because an airline overbooked a flight. You
paid to get to the meeting but
did not receive the benefit of attending the meeting. Similarly,
if you purchase a car that does
not work, you incur the cost of buying and maintaining the car
without the benefit of using
it. Defects in service or products frustrate customers as well as
the people who make the
product or provide the service. Requesting and granting defect-
related refunds costs money
and represents the waste of having made a product or provided a
service without generating
actual benefit. Defects increase the price of manufacturing, and
the cost can be passed on to
the consumer by increasing the cost of the product or service.
Overproduction
Overproduction represents a second kind of common waste.
Overproduction occurs when
manufacturers create too much of any particular good or
service. A common practice that
leads to overproduction is when companies utilize the batch
system, which means they man-
ufacture something in predetermined amounts regardless of how
many customers order.
When a customer requests a certain product, a factory may
produce more than the customer
requested. The factory does this assuming some other customer
will want the same product.

However, when the firm must store excess product and the
product exists as unsold inventory,
it takes up space, ties up resources, and wastes money. Many
consider overproduction to be
one of the worst types of waste because it includes other waste.
For example, overproduction
wastes time, resources, effort, raw materials, transport, and
storage, and it creates landfill.
Waiting
The third kind of waste relates to waiting. We have all
experienced the waste of waiting in
line, for example. When we are forced to wait for a late train or
plane, a response from a com-
pany representative, or receipt of a good or service, we
experience waiting waste. The time
spent waiting is generally time that is not value added; in fact,
the principle of the “time value
of money” implies that time spent waiting has a cost, because
we could have used that time
doing something that could have earned money.
Similarly, if a product sits on a shelf in inventory, it is not
generating income for a company
but rather incurring storage and security costs. For this reason,
the best manufacturing com-
panies are those that have relatively few items in storage. Such
firms bring in supplies and

convert them to product to immediately ship, without wasting
time getting it to the customer
or wasting resources in storage.
As firm managers increasingly understand the costs associated
with storing inventory, man-
agers increasingly compare storage costs with shipping costs. In
fact, they often choose to
use shipping services rather than store products. For example,
consider a company that uses
a warehouse to hold products before shipping them to
customers. After applying the Shingo
principle of scientific thinking and analyzing data, the company
realizes that most customers
request 5-day shipping to save money. However, keeping the
product for several days costs
the company money because storing it requires a facility that
must be air conditioned and
heated and must have security to keep warehoused goods from
being stolen. However, if the
company ships the product using 1-day shipping, the firm
eliminates the need for any stor-
age or warehouse facility. By offering customers free 1-day
shipping, the company eliminates
warehouse costs, lowers customer wait time, and improves
customer service.
Skills and Underemployment
Underutilized talent represents a fourth form of waste. When
managers do not see or utilize
the talents and expertise of employees, the latter become less
energized and engaged with
their work. Distracted employees who use work time and
resources to find other jobs, com-
plain to other employees, or listlessly accomplish tasks can
waste the money paid to them

in salary, create a culture of negativity, and/or make mistakes
and errors that create waste
and rework expenses. In addition, employees in such positions
feel the pain and expense of
wasted potential and may feel like a misused human asset—a
feeling that can generate nega-
tive emotions and even have negative health impacts
(iSixSigma, 2016). Many people have
had the experience of receiving services from people who are
disengaged, which can stem
from many sources, including employees being underutilized or
incorrectly assigned to a
position. Managers have several options to mitigate such
problems: First, they can accurately
screen candidates and take advantage of job-matching services,
which can help place people
properly at the outset of an operation. Secondly, they can
undertake employee satisfaction
surveys and run employee engagement activities, which can
increase the connection people
feel with work, or at least with the workplace and coworkers.
Finally, in jobs where all parties
understand that the work feels menial and repetitive, managers
can offer compensatory ben-
efits and/or frequent job rotations, which provides a way to
support and invest in employees
even when managers cannot change the nature of the tasks.
People may come to enjoy or at

least accept working a menial job because they feel engaged by
interesting training programs,
good benefits, or valuable on-site facilities.
Transportation
Transportation, or unnecessary movement, represents a fifth
kind of waste. Of course, all
products need to be moved to reach customers, but with each
move, the company risks prod-
ucts being damaged, lost, or delayed. A good example of a lean
company that pays close atten-
tion to transportation costs is the 7-Eleven company in Japan.
Transportation costs in Japan
are particularly high because of the country’s narrow roads and
high fuel prices, so 7-Eleven
never opens a store that is more than 1 mile from another store.
This allows stores to cluster
close to each other and reduces transportation costs related to
stocking products. 7-Eleven
stores in Japan also employ a particularly innovative inventory-
control system that requires
daily deliveries to each store. As customer needs are anticipated
and product restocked
quickly, transportation savings dominate stocking and logistical
decision making.
In most parts of the United States, buying local products has
become a way to reduce the
transportation costs associated with manufactured goods and
agriculture. Buying locally
and reducing or eliminating transportation costs can reduce
people’s and companies’ car-
bon footprint. Services have transportation costs as well,
particularly when consultants travel
extensively to reach destinations and stay in hotels while
making site visits. Technology helps

mitigate transportation service costs, as teleconferencing and
videoconferencing enable peo-
ple to achieve face-to-face communication in real time without
travel and other transporta-
tion expenses.
Inventory
Inventory is a sixth form of waste and relates to the
overproduction waste discussed ear-
lier. It may seem strange to claim inventory as a form of waste,
but inventory in the form of
materials, works in progress, or unfinished goods represents an
investment in raw materials
that has yet to translate into a sale or shipment to a paying
consumer. For example, retail
businesses have sales to move inventory when the cost of
storing goods becomes too high.
Phrases like “going out of business” and “everything must go”
trigger assumptions that the
retailer is offering significant savings (or selling at prices lower
than the cost of manufacture);
often this sale occurs because the company needs to reduce the
cost of holding inventory.
In service industries, inventory excess is when people are hired
to provide a particular ser-
vice but are not needed. A restaurant without customers is not
only losing product by attri-
tion, but employees are being paid and sitting idle waiting for
patrons. When firms can use
technology and marketing to better manage customer flow and
match service delivery to cus-
tomer needs, they can significantly limit service inventory
waste.

Motion
The seventh type of waste involves physical motion. This type
of waste differs from transpor-
tation, which refers to product damage and transportation costs.
Motion refers to the damage
the production process inflicts on the person or machine
creating the product or service.
Having too complicated a mechanical process—such as when a
process uses a lot of parts
that must be cleaned, serviced, and tuned—adds to the cost of
creating a product. Similarly,
workers who use too many motions or move inefficiently also
add to a product’s cost, espe-
cially when they suffer repetitive motion injuries or spend too
much time manufacturing too
few products. In the service industry, consultants who spend too
much time and energy on
unnecessary research or conduct unnecessary meetings can
cause multiple people to waste
motion. Think of all the movement required to stop what you
are doing to move to another
place to attend an unnecessary meeting.
Increased motion on the part of employees (and to a lesser
extent, on the part of machines)
also introduces the possibility for accident and diminished work
safety. While safety is a prin-
cipal concern for many manufacturing and service
organizations, the most common impact
that work has on our bodies is related to long-term motion or

lack of motion. For example,
some work environments feature prolonged sitting or cause
problems related to eye strain
and computer work. Many companies have taken steps to offset
these impacts by adding
standing desks to work areas and building exercise rooms in
their office space.
Overprocessing
The eighth kind of waste involves overprocessing, which occurs
when employees or machines
perform work not requested by the customer. This can include
adding components and fea-
tures that were not requested or making the product too precise,
more complex, or of higher
quality than expected or paid for. For example, much of today’s
technology is overprocessed.
There are too many features in particular software or too many
capabilities on a phone or a
laptop computer; typical customers do not need most of these
features. This makes the prod-
uct excessively complex and adds to its cost.
In the service industry, overproduction means providing
customers with something they
did not want or need. Airlines, for example, have stopped
providing services such as in-
flight hot food or luggage transportation for customers who do
not want those services. In
addition, the same firms charge customers a per-service fee
when they want such services.
Implementing pay-for-service fees can reduce wasted resources
and direct resources exactly
where they are needed; this can reduce wasted motion and can
lower costs for airlines and
consumers.

In addition to the eight types of waste commonly covered by the
Six Sigma process and
taught by Six Sigma certification programs, two other types of
waste result from provid-
ing a product or service. The first relates to environmental
pollution, and the second to
overregulation.
Section 1.5Characteristics of Sustainable Corporations
Overregulation
Waste occurs when regulations create workflow and operational
changes that misuse,
reroute, or otherwise direct resources to activities that do not
create value or revenue.
Regulations exist to prevent corporations from damaging the
environment, causing harm to
employees or customers, or breaking the law. Yet even
regulatory authorities can lose sight
of a regulation’s original intentions. For some companies,
regulations that require exces-
sive documentation, one-off routines to demonstrate
compliance, or the purchase of non-
value-added products can over time result in wasted resources
(time, money, effort) that
ultimately slow business.
Environmental Pollution
Every time we put something in the air, in a
landfill, or in the ocean, we not only degrade

the value of the air, land, and water, we cre-
ate health problems or potential health
problems for animal and plant life. Envi-
ronmental pollution differs from the other
types of waste because such pollution can
come from manufacturing processes or the
end-of-life fate of goods. Recycling offers to
recover what was once waste into some-
thing that adds value. Chapter 2 offers an in-
depth discussion of the responsibility that
businesses have toward the environment
and describes the environment as a stake-
holder in the business.
1.5 Characteristics of Sustainable Corporations
What constitutes a socially responsible and sustainable
company? Some people think these
terms are too broad and therefore lack meaning. But
characteristics of sustainable companies
can form a starting point to give the terms meaning. The
remainder of this section will discuss
the seven characteristics of sustainable corporations.
First, a sustainable company has a long-term time horizon.
Second, such a firm conceptual-
izes its relationship with people, including employees,
expansively. Sustainable businesses
are more likely to pay employees a living wage, provide health
care benefits, engage in phil-
anthropic activities, and reward productivity. They provide
growth opportunities for employ-
ees, including tuition reimbursement, health benefits, training,
and promotion opportunities.
As part of the relationship element, such firms support social
causes. They do not abuse rela-
tionships nor manipulate unions and other communities.

An example of such a company is Google, which has long been
seen as a top place to work—
it has made the top of Fortune magazine’s “best company to
work for” list 4 years in a row.
Famous for offering catered meals and clean work
environments, Google carefully monitors
Reed Saxon/Associated Press
Klean Kanteen is an organization that strives
to reduce waste by promoting reusable water
bottles.
all aspects of worker well-being. In doing so, it noticed that the
attrition rate among female
employees was higher than that among male ones and set out to
understand why. Google
found that women who had recently given birth were leaving at
twice Google’s average
departure rate. Therefore, instead of offering an industry-
standard 12-week maternity leave,
new mothers are now offered 5 months off with full pay and all
benefits. Such a change was
designed to attract and retain female workers. While the long-
term results of such a policy
remain unknown, the analysis and resulting policy changes
reflect how a CSR, sustainability,
and profit mind-set can work in concert.

Thirdly, managers in such firms regard the environment as
something to be valued and often
take what is called a full cost or a true cost approach to
accounting. Instead of considering
natural inputs as free goods, this approach tries to reflect the
actual costs of air, land, and
water used by the firm. Thus, sustainable businesses
conceptualize the relationship with the
natural environment differently than traditional businesses.
They take proactive positions on
reducing their carbon footprint. They see the environment not as
a resource to be exploited,
but as a gift to be carefully stewarded and restored whenever
possible. They not only engage
in practices that protect the environment, but also encourage
employees to reduce packaging
and other waste.
Fourth, sustainable firms may have a different kind of
relationship with the government, both
by accepting appropriate regulation and opposing
overregulation. While they accept appro-
priate government regulation in areas that protect the
environment and employee rights or
ensure honesty and fair business practices, they also resist
attempts by government to over-
regulate and cause waste.
Fifth, sustainable businesses attempt to adapt, regenerate, and
reinvent themselves. In other
words, they have a higher capacity for change because they see
change as essential. Change
means continuously improving and setting aspirational goals.
Returning to the story of chief
executive officer (CEO) Ray Anderson at Interface, he set an
aspirational goal for his firm: to

become a restorative company that leaves communities and the
earth better than before the
firm’s involvement. Goals such as these create the opportunity
for sustainability and CSR to
overlap and complement each other.
Sixth, sustainable businesses have a unique relationship with
suppliers and customers. They
try to move the product from a supplier, through the business,
and on to the customer with
maximum efficiency. This means less time or waste in
warehouses; it also means meeting
customer expectations so that the relationship with the customer
persists over time. Sustain-
able businesses may spend less money on marketing because
keeping consumers can be less
costly than acquiring new ones. Some sustainability practices
also garner free press, which
can be more valuable than paid press and can further reduce
sales and marketing expenses.
Finally, sustainable businesses have a higher capacity for
change. They seek to become more
efficient, effective, and innovative, and in the process they may
reduce costs and capture new
and improved forms of value. This sometimes means that they
are able to dramatically reduce
a product’s cost. Sustainable businesses follow new
technologies, change, and adapt, and
managers help partners and customers change and adapt.
Owners and managers see busi-
ness as a way to create wealth not just for themselves, but also
for employees and suppliers.
They take pride in adding value for customers and serving
customers in a way that exceeds
their expectations.

Apply Your Knowledge: Sustainability Analysis
Objective: Apply the principles of a sustainable business to a
real business.
Instructions: Select a business to which you have access. It
might be a place where you
work, a place you can visit and ask questions, or a business with
extensive media coverage.
Answer the following questions regarding the business. Based
on your findings, conclude if
the company is sustainable and in what areas it could improve.
(Note that these questions
are based on the principles of a sustainable business discussed
in this chapter. Students may
focus on one or all of the questions.)
Time
Does the organization take time to develop people, learn, create
a strategy, create increases
in quality assurance, and reduce waste? How? What evidence do
you see of this being done?
Conversely, does the organization do things in a rush? Are there
excessive waiting, delay,
or communication problems? Do e-mails go unanswered? Do
questions go unasked or
unanswered?

People
Does the organization value each person and offer promotion,
development, and training
opportunities? Do leaders lead with humility? If so, what is
your evidence? If not, what is
lacking? Conversely, are people seen as resources to be
exploited? Does the organization
focus on conflict, conflict resolution, and conflict management?
The environment
Does the corporation pay attention to its impact on the natural
environment? Do managers
encourage employees to behave responsibly toward the
environment? Does the corporation
take steps to reduce its carbon footprint and recycle waste? If
so, how? If not, how do you
know? Conversely, is the corporation in conflict with sound
environmental management
principles? Does it resist reducing waste? Does it challenge
criticism to improve? What
evidence supports your claim?
Government
Does the corporation accept appropriate government regulation
and question
overregulation? Conversely, is the corporation in conflict with
regulatory entities, involved in
lawsuits, or lobbying for exceptions? How can you tell? Explain
your findings.
Suppliers and customers

Does the corporation have long and sustained relationships with
suppliers and customers?
Does it see suppliers and customers as partners? Does it respond
to needs and requests?
How do you know? Conversely, does the corporation constantly
change suppliers? Is it
in conflict with its customers over quality issues, including
service quality? Support your
findings.
The corporation
Do corporate documents—such as a vision, strategy, or mission
statement—reflect a broader
set of corporate stakeholders? Do such documents mention or
otherwise include employees,
customers, the community, the environment, and government?
Share the evidence
supporting your findings.
(continued)
Chapter Summary
Apply Your Knowledge: Sustainability Analysis (continued)
Conversely, does the corporation focus primarily on creating
value for shareholders? Explain
your reasoning.
Change

Does the corporation see change as incremental and ongoing?
What steps does it take to
continually improve quality, increase employee satisfaction, and
embrace new technology?
Conversely, does the corporation undergo change processes in
order to “get it right” and then
leave it alone? What evidence supports your conclusions?
Chapter Summary
The beginning of this chapter introduced two closely related
concepts as the foundation for
this book. The first concept, corporate social responsibility,
represents an important lens
through which to view business behaviors. The second concept,
corporate sustainability,
includes all of the concepts associated with CSR and adds a
more strategic and environmen-
tal element to the mix. Sustainability typically incorporates
many CSR principles and can be
measured by the triple bottom line and better understood
through the lens of complexity and
general systems theory.
Chapter 2 introduces the concept of stakeholders, or all of the
people and organizations that
affect and are affected by operations. Stakeholders are not just
shareholders or owners, but
include the employees, the environment, the government, the
social community, future gen-
erations, suppliers, end users, and others. Chapter 3 looks inside
the corporation and exam-
ines employees, suppliers, and investors as specific stakeholders
with unique drivers and
interests. Chapter 4 expands the analysis of people as

stakeholders and examines the role of
local and global communities. Chapter 5 discusses the
corporation as a steward of ecologi-
cal resources in order to help them last longer and benefit more
people over time. Chapter 6
examines the corporation as a force for reversing harm done to
the planet. Chapter 7 exam-
ines socially responsible corporate behavior as a complement to,
or a substitute for, some
governmental functions. It also covers how to individually enact
CSR and sustainability. Chap-
ter 8 examines greenwashing—a term that suggests a firm is
pretending to be responsible or
sustainable but is actually using one positive or seemingly
positive behavior to cover up more
negative or harmful ones. In contrast, we look at best practices
worth emulating. Chapter 9
describes specific reporting standards, because once leaders
make responsible and sustain-
able choices, reporting them creates a road map that others can
follow. Finally, Chapter 10
explores the individual leadership challenges and general
opportunities for building a busi-
ness enterprise that is both sustainable and profitable. Together,
these chapters describe the
business landscape for CSR and sustainability and suggest
specific opportunities for individu-
als and firms interested in advancing both topics.
Chapter Summary

Posttest
1. A company that makes a good profit and takes care of its
people but does not take
steps to reduce waste neglects which bottom line?
a. financial
b. human
c. environmental
d. personal
2. The “Brundtland Report” was a landmark for sustainable
development because
.
a. it created a list of suggestions for organizations in developed
countries to follow
regarding sustainability
b. it laid down regulations regarding sustainability for U.S.
organizations
c. it defined sustainable development as something that requires
long-term planning
and accountability
d. it established best practices for short-term sustainable
development
3. The concept of sustainability has roots in .
a. common accounting practices
b. systems theory and life sciences
c. politics
d. human development research
4. Trees are what component of a lumber creation system or
sawmill?
a. input

b. throughput or process
c. output
d. product
5. Which of the following is NOT a reason why continuous
improvement is important in
a business setting?
a. It can help reduce waste and increase revenue.
b. It can keep a company ahead of its industry competitors.
c. It is important to keep up with the latest trends.
d. It can result in a lower environmental impact.
6. Which of the following companies is most likely to remain at
the forefront of its indus-
try for the next 10 years?
a. A biotech company that has won an award for a new process
it developed. It uses
that same process for the next 5 years, and other companies in
the industry also
adopt it because it remains an efficient process.
b. A shipping company that is falling behind its competitors that
does an internal
review and discovers a lot of room for improvement. After 5
years, it is ahead
of many of its competitors due to improvements in efficiency
and reduction in
Chapter Summary

waste. Every year it does another internal review and makes
additional changes as
needed.
c. A catering company that does a review of its inputs and
outputs, looking for ways
to reduce waste and its carbon footprint. After several years, it
becomes one of the
most eco-friendly catering companies in its region.
d. A manufacturing company that institutes an annual internal
review and begins
improving the efficiency of its processes and reducing waste
where possible.
Experts within the company also suggest new innovative
techniques, and the com-
pany executives decide to implement some of them, despite the
risk.
7. Suppose a company builds the body of an airplane on one
side of the country and
ships it to the other side of the country by rail to complete it.
What kind of waste is
this practice creating?
a. material
b. talent
c. motion
d. transportation
8. A car company adds satellite and digital radio features to its
cars that are sold
in developing countries where neither is available. This is an
example what kind
of waste?
a. skills
b. transportation

c. overproduction
d. time
9. Which of the following does NOT characterize a sustainable
company?
a. sourcing materials as cheaply as possible to reduce costs
b. paying employees a living wage
c. engaging in philanthropic activities
d. having a long-term strategic plan
10. Which of the following is NOT a way for a company to save
money while becoming
more sustainable?
a. Use the free press gained from certain sustainability
practices.
b. Take into account the cost of resources such as air, water,
and land that go into
creating a product.
c. Increase efforts to retain employees by, say, increasing
benefits.
d. Implement more efficient and innovative processes
throughout the organization.
Answers: 1(a); 2(c); 3(b); 4(a); 5(c); 6(d); 7(d); 8(c); 9(a);
10(b)
Chapter Summary
Critical-Thinking Questions
1. Using the basic concepts of systems theory and complexity,

how is a corporation like
an ecosystem?
2. Considering the Shingo principles explored in this chapter,
which are most likely to
produce a sustainable corporation? Do the value of the
principles change by industry?
3. Identify the different types of waste that are present in a
specific business or educa-
tional institution. How could waste be eliminated? Remember to
think beyond physi-
cal waste.
4. How might your career in a CSR/sustainable company differ
from the career of some-
one at a similar company in a previous generation?
5. What is the Brundtland definition of sustainable
development? How does it relate to
CSR? What problems are there with the definition? Can you
find one you like better?
Why is it better?
6. How do sustainable corporations view the following topics
differently than traditional
corporations? Can you think of other categories that should be
added to the list?
• Time
• People
• The environment
• Government
• Suppliers and customers
• Their own corporation

• Change
Additional Resources
To learn more about how Google changed its maternity leave
policy to meet the needs of
employees, visit:
http://www.slate.com/articles/technology/technology/2013/01/g
oogle_
people_operations_the_secrets_of_the_world_s_most_scientific
_human.html
Read more about how to improve supplier relationships:
http://www.vantagepartners.com/
uploadedFiles/Consulting/Research_ And_Publications/Smart
_Form_Content/Publica-
tions/Articles/Maxmizing_the_Value_of_SRM.pdf
Answers and Rejoinders to Chapter Pretest
1. False. The triple bottom line of people, planet, and profit is
the standard for CSR.
2. True. Inputs are resources. Throughputs are processes.
Outputs are products and
waste.
3. False. Continuous improvement applies largely to processes
within organizations that
should target excellence but can always be improved.
4. False. Waste is untapped profit, and too much waste can
damage sustainability.
5. True. Adaptability is the hallmark of a sustainable business.

Chapter Summary
Rejoinders to Posttest
1. Waste is a product with no financial value and often has a
cost, as companies pay for
physical waste to be removed, and the rates are often higher for
more weight or more
frequent removal. Note that it is also possible for a company to
find a buyer for waste,
which thus turns waste into a resource when another company
can buy and use it as
an input.
2. The “Brundtland Report” was drafted in 1987 and defined
several important terms,
including sustainable development. It featured language that
stressed the long-term
consequences of sustainability and accountability to future
generations.
3. The concept of sustainability was adapted for the study of
ecosystems and is also tied
to systems theory, which looks at the relational components of
all corporations.
4. Trees are the input, or raw material, for the creation of
lumber.
5. While it helps to be aware of surrounding trends, continuous
improvement is more
concerned with looking ahead and constantly trying to move
forward, rather than just
keeping up.

6. In order for continuous improvement to be successful, it is
important to try new tech-
niques and innovate, as well as improve upon existing
processes.
7. Transportation is a form of waste that creates a non-value-
added cost.
8. This waste can be considered overproduction, or the addition
of unnecessary
features.
9. Sustainable corporations consider the full cost of their
materials, taking into account
environmental and social costs in addition to monetary ones.
10. While understanding the full cost of a product is important
for sustainability, it does
not tend to drive costs down or save money.
Key Terms
complexity theory A general theory of
systems that describes how corporations
or any changeable structures adapt to their
environment and cope with conditions of
uncertainty.
corporate citizenship A term that
describes the relationship between a cor-
porate entity and its membered social
environment.
corporate social responsibility (CSR)
A firm’s voluntary actions that are designed
to improve social or environmental
conditions.

Shingo model A model for change manage-
ment organized around the 10 principles of
excellent manufacturing, developed by Dr.
Shigeo Shingo.
Six Sigma A methodology used to improve
business processes by utilizing the scientific
method and statistical analysis to reduce
error rates and waste in systems.
social investment Investment by busi-
nesses in people; it can take the form of
training and development, fair or above-
market wages, motivational programs, or
benefits packages.
sustainability The way in which companies
manage financial, social, and environmental
risks, obligations, and opportunities with a
focus on management and improvement.
Chapter Summary
sustainable development Managerial
behaviors that meet the needs of the present
without compromising the ability of future
generations to meet their own needs.
systems theory (or general systems

theory) The theory that no complex system
can exist independent of other systems; all
systems are directly or indirectly connected.
Three Ps Profit, people, and planet; another
way of referring to the triple bottom line.
triple bottom line The environmental,
social, and financial costs and benefits
(or assets and liabilities) associated with
corporate behavior and profit and loss
calculations.
waste A corporate activity with cost but no
benefit.

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