IBM's recently published 2011 sustainability report is a fine piece of communication out lining good performance. But how well is IBM corporate tracking towards its own vision of a 'smarter planet' enabled by the 'globally integrated enterprise'. It would be dead easy to bulk up the post waxing lyrical on how great IBM is at corporate citizenship and it is one of the best. But looking at the gaps leaders leave is a useful proxy for understanding the limitations of corporate social responsibility as a business strategy.
My colleague Heather Clancy details how IBM successfully made environmental protection pay off with an energy efficiency contribution of $43 million to the bottom line last year. But IBM's big sustainability numbers are in the social dimension with a total of $196 million in corporate giving spent in 2011. Admirably, IBM has consistently claimed to 'eschew checkbook philanthropy' where corporate citizenship is pushed below the bottom line with tax deductible cash donations made without much strategic commitment. Instead enlightened companies leverage this activity above the line with deployments of technology and skills to achieve social goals while developing talent and building markets for the future. In an interview with the Wall Street Journal last year IBM's VP for Corporate Citizenship went as far as to say IBM had given up checkbook philanthropy altogether.
But technology and talent is at the heart of business execution where a battle for resources, bandwidth and margin rages. How much tolerance will business leaders have to diverting corporate resources to lower margin & longer term social development activities rather than shorter term, profit maximising commercial activities? Cash is an easy and tempting answer to the community engagement impulse.
If we look to the 2011 IBM numbers we see that the cash/in kind donation ratio deteriorated in favour of check book philanthropy for the first time in five years and we also see overall giving in consistent decline as a percentage of non operating income before tax. However, IBM's easily outspends industry rivals such as HP which has been all over the shop along the the cash/ in kind mix trend. And what do we make of the relative difference in rate of giving between IBM and HP? Is IBM overdoing it, is HP missing out or delivering better value to shareholders and better impact for stakeholders? The point is that both are emphasising spend over all else but not much in the way of ‘shared value’ measurement.
Four other indicators troubling indicators are bound to have management at Armonk concerned:
- The illness and injury absence rate reported increased by 33% over last year
- IBM failed to report any employee satisfaction indicator in 2011 for the first time since the company began reporting 10 years ago. Last year's number had already sunk to a five year low of 65% compared to a high of 71% in 2002. (The report explains a transition to a more 'contemporary approach leveraging technology and analytics' to more 'nimbly' measure employee satisfaction with targeted surveys using 'predictive models', web surveys on hot issues and employee panels. While this new approach should offer much richer insight based on qualitative and quantitative data no analysis of performance at all is offered. Progress?)
- Learning investment fell to $466 million from a five year high of $648 million in 2008. We could do with a value and impact indicator or some narrative – perhaps learning objectives are reached more efficiently now.
- Learning hours per employee fell 6% from last year to 63. Again, this might not be a bad thing but we can’t know with the data provided.
On supply chain due diligence IBM is clearly a class act with 462 audits carried out during the period compared to just 79 at HP. Here the effort is paying off for the least empowered - while 48% of sites initially audited by IBM were found non compliant with health and safety standards, this fell to just 3% upon re-inspection. This is a good example of impact measurement.
In her intro letter to the report, IBM CEO Ginni Rometty's sets the right tone and strategy for where corporate sustainability ought to be going these days:
Most crucially, we must create corporate citizenship and business strategies that are not merely “linked,” but one.
And yet in the expression of corporate citizenship as integral to corporate strategy IBM seems to somehow fall a little short. All the social engagement metrics for instance are outbound measuring expenditure rather than return on expenditure or impact. There is not much exploration of corporate citizenship contributes to ‘one’ strategy and there is clear blue water between the corporate citizenship programme and the Smarter Planet line of business. Absent too is articulation of the value creation cycle with human capital creating intellectual capital creating financial capital invested in human capital.
Maybe the problem here is one of expectations raised by the Smarter Planet ideal making corporate IBM, in practice, a minor victim of its own commercial success. Yet, IBM continues to be amongst the very best, the most sophisticated and most considered in its overall approach. In the days ahead watch out for greater convergence of the Smarter Planet with IBM Corporate Responsibility. IBM is bound to raise the bar again for deeper integration of sustainability to its strategy and business model.
There is a lot to learn and look to from leaders like IBM. Next time I’ll take a look at IBM’s position on human rights.