Lost Revenue, Strategy, Sustainability and Community Outreach

June 23rd 2013 in Publications

By Dr. Terry Tucker, PhD

The Financial Impact of your Social, Governance, and Environmental Community Projects and Your Organizational Strategy:

Summary

Organizations view emerging and existing Governance, Economic and Social (GES) sustainability as compliance, feel-good projects, do-good requirements, flash fads, or maybe the cost of doing business. However, these programs can add value as well as generate value when aligned with strategies and performance measures. Conversely, the consequences of the mismatch of strategy and tactical methods exponentially impacts revenue and profit.

Analysis

Strategists and organizations use engagement and sustainability programs as a tactic that is meant to increase brand exposure and the financial interests of stakeholders, albeit through Governance, Economic, and Social (GES) domains. Organizations generally promote some kind of “feel good” program with scholarships to a school, volunteer work, charity or by promoting some form of environmentalism.

The revenue cost of these endeavors rarely is considered in the context of a total strategy. 1

Consequently, most organizations failed to understand which of these elements would be critical for resilient success and failed to match tactics and implementation with the strategy.

Although budgeting is a key factor, the tests for how these add-on programs deliver on the organizations strategy, how they impact revenue, and how they further social-organizational interaction or value is rarely considered.

For instance, an oil and gas company might perceive itself vested in the local community through scholarships it sponsors for a local local High School. It expects that this will enhance its brand and reputation in the local business environment. The project is a “do-good” project and the organization has at least some expectation of future value derived from this act.

Simultaneously, the PR department or a mid-level manager is involved in the community issues over drilling, traffic, location of oil and gas pad’s, and added infrastructure burden to the community from this project. The organizational spokesperson downplays the concerns of local consumers and ignores complaints. As a result of downplaying concerns, a local grass roots movement forms and aligns itself with a dozen other organizations.

In the former, the organization placed a priority of GES over financial performance. in the latter, it downplays concerns because of potential impact to financial performance. This mis-match in “body-language” exponentially impacts revenue loss and fuels higher levels of confrontation.

It can difficult to measure the financial performance of GES but not impossible. In this example the impact is bundled and revenue loss is compounded by the social domain, especially the “iphone effect” as the visual and verbal images have immediate reach and resonance across multiple social media platforms.2

The immediate direct revenue loss in this scenario is the cost of legal actions and operational delay. There is also the added unplanned cost from the increasing legal, social, and multiple governance players. a 15 man drilling team is generally on site for about 55 days. The cost of staging, coordinating and then delaying operations for each day can rapidly grow. Costs grow exponentially as multiple locations are affected. Operational delays of $1 million USD a day is common. Adding the legal fee’s, operational delays, Corporate and mid level diversion to crisis issues, and growing negative sentiment all add cost. a two week delay, can easily cost $15 million USD. What organizations don’t calculate is the loss of access rights from legal motions. What if an activist organization gains enough traction from this kind of scenario to buy the lease?

For clarity, an organization receives its license to operate from the State. People – customers and non customers – thru support, purchases and other activities – grant that charter as permission to do business. People have a choice to do business. If an organization treads over expectations of conduct and responsibility, people threaten that organizations ability to continue to do business through multiple means; boycotts, protests, lawsuits and digital influence. All of this erodes revenue, branding, and ability to compete in the market and sector. The license, informally revoked by people, can also be formally revoked by the State if circumstances warrant such action.

Organizations create long term shareholder value when its strategy is integrated with its tactics. Identifying the GES issues, determining what is important from the local market and local sector perspective, evaluating revenue impact and making forward -leaning adjustments can reduce the potential for systemic disruptions.

The strategists and those implementing the plan have forgotten that both competitor and consumer have a say, and a vote, as the physical expression of the plan – the implementation – becomes visible the “political-consumerist” is intentionally and inadvertently created despite an organizations best GES intentions.

Although difficult, analyzing GES sustainability actions and plans through the lens of financial impact provides the organization some clarity on what that GES program will really mean to your business model, organizational culture and if you have complete alignment with the total strategy and implementation.

Thinking About the Strategy

Business Strategy analyzes the external and internal environment, looking at resources, performance, and planning allocations based on the organizations vision and objectives. it develops scorecards to assess progress and performance. Another way to say this is that strategy is the consideration of ways, ends, and means. It is calculated risk buffered by caution that translates aspirations and goals into objectives to be achieved.

The absolute essential feature of strategy is the bridge between your actions at implementation, and the broader effect that you intended to produce. The physical expressions of strategy are what can be clearly seen and measured. Acts – physical and verbal – determine the outcome. But the desired ends, your objectives in strategy, is more than understanding the physical and tangible achievements. The inside, intangible and unseen elements of strategy are equally critical and require more attention than they have been given. 3

In short, the result of your strategy is never final. Your competitor and the political-consumerist, considers the outcome transient and will feel that a moral, physical, legal, political or economic remedy can change the outcome in the not so distant future. Some competitors, like some countries, take a long view of this approach. Both sides want to believe they have a concrete and effective strategy. Both believe that with the present outcome the issue has been resolved and there is now closure and finality. No on wants to think that the issue will continue – to continue to drain resources, time and energy.

But once agin, the result is never final. The process of acquiring, exploring and producing oil and gas is one such example that victory or defeat for one is not ipso facto, the point of finality. Even if one side appears to receive the crushing blow, like the case study of the Exxon-Valdez incident, resistance reconstitutes itself in myriad forms and becomes the intangible form of impact on your best laid plans. 4

Symbolic deeds of individual action and resistance are always the precursor to full scale contention and activism. Who would have guessed that when an industry PR Rep downplays the concerns of local home-owners that it would result in organized resistance? Or, a city councilman that said he “wasn’t against drilling, even fracking, but the disregard for home-rule powers is what made him vote against the regulations.”

In another example, “The Niobrara Formation is a game changer. Fracking for oil and gas development went from being a marginalized issue to the mainstream. It’s incumbent on the governor and the state to listen to citizens and take their concerns seriously instead of writing them and warning that they could be sued.”

Conversely, from a strategic market point of view. The investor community is labeling Chesapeake Energy as a poster child for “CEO’s gone wild” over poor corporate governance, lack of oversight and no ethics. Some have labeled Chesapeake as the Bernie Ebbers of Energy, second only after Enron. 5

What other group like “Erie Rising” will appear to come from out of no-where to disrupt and delay the operation? Why the alleged sudden appearance of shareholder activist’s ?

Mao said that political power grows from the end of a barrel of a gun. However, these few, but powerful examples serve to show that it does not, and that strategy effectiveness, impact on ROI and stakeholder value comes from the intangible and inner workings of how you implement your strategy.

Elements that are not viewed as worthy of consideration by organizational strategists, and planners, yet become huge challenges that eat an exponential amount of resources, time, and effort that was not allocated.

Works Cited

1) Harvard Business Review, May 2013, The Performance Frontier, Innovating for a Sustainable Strategy, pp51-55

2) Harvard Business Review, May 2013, What Would Ashton Do – and Does it Matter? pp 25-27

3) Infinity Journal Volume 3 Issue 1, Winter 2012, pp 12-15

4) Private Empire, Exxon Mobile and American Power, Steve Coll

5) http://www.valuewalk.com/2013/02/chesapeake-energy-corporation-chk-the-badfellas

NB – Ten Beads LLC, An Consulting Group, Occasional Paper, April 2013, Financial Impact of Social, Governance, and Environmental decisions republished with permission of Ten Beads, LLC, An Consulting Group.

Dr. Terry Tucker (PhD) is a Senior Consultant for Spatial Terra Consulting Group, a contributor to Wikistrat, a Global Marketplace for geopolitical analysis, and a Department of Defense Analyst. In addition, he is an academic and professor of history. Dr. Tucker was a Senior U.S. Department of Defense Analyst (DoD)  for Yorktown Systems Group, Cubic Applications and MPRI, an L3 Communications Company; a Stability/Counterinsurgency Advisor; trainer to the Royal Saudi Arabian Land Forces;  and was Director of Material Logistics and Planning, and implemented total supply chain solutions for numerous Fortune 500 Companies while he was at National Oilwell-Varco, W.W.Grainger and Prosero.  Dr. Tucker is currently a member of the Ideas That Shape (ITS) Advisory Board.