Aligning SH&E With Core Business Initiatives
By Kim Weiss & Bill Gonser
OSHA reports that companies spend $170 billion a year on occupational injuries and illnesses and that those costs come directly out of company profits. Executives generally understand the costs and agree that they must be minimized, yet why do SH&E professionals continue to find it challenging to secure the resources required to prevent injuries?
Effective leaders must understand the complete value of an investment before moving forward. Such explanations must include detailed quantification of costs and benefits, and a clear illustration of how the investment aligns with company objectives. Too often, SH&E professionals fail to paint the complete picture or clearly present the broader effect of safety and health efforts on the business in a language that resonates with upper management. Instead, we often retreat to because it is the right thing to do or because it is the law.
To secure support and resources for success, we must understand how to partner with other departments and functions to positively impact core business initiatives. This article explores how to accomplish alignment with two key organizational initiatives: productivity and corporate social responsibility (CSR).
Safety & Productivity
Productivity has been a popular business topic for years. More recently, as wages in developing countries increase more rapidly than wages in developed countries, and as manufacturing work starts returning to the U.S., productivity has grown in importance. Analysis published by The Boston Consulting Group indicates that, based on the economic trajectory of rising wages, by sometime around 2015 . . . manufacturing in some parts of the U.S. will be just as economical as manufacturing in China (Sirkin, Zinser & Hohner, 2011).
Productivity is measured as the ratio of output to input. One way to increase productivity is to decrease the cost of labor or raw materials (input). Another way is to produce more goods or services (output) for the same amount and cost of labor. Decreasing injuries can decrease the cost of labor by reducing workers compensation costs and lost workdays. Likewise, many changes that improve the output and, therefore, productivity of employees also benefit safety and health.
Organizations focused on productivity often turn to the 5S method. This lean manufacturing workplace methodology identifies five crucial components (i.e., sorting, straightening, systematic cleaning, standardization, service) that impact productivity. A quick look at the method can illuminate the compatibility of efforts to reduce workplace injury and efforts to improve employee output and productivity (Table 1, p. 70).
Consider the impact of job hazard analysis (JHA) on productivity efforts. Conducting JHAs includes a step-by-step analysis of workflow safety and suggested actions to reduce the severity or likelihood of injury. The workflow analysis process and suggested improvements mirrors the process often used in productivity efforts; the corrective actions are often similar in both cases.
Take the example of an employee whose job involves repositioning boxes from a high shelf. A JHA would identify the following steps involved in that task:
- Walk to get the ladder.
- Carry the ladder.
- Set up the ladder.
- Climb the ladder.
- Lift the box.
- Carry the box down the ladder.
- Set the box down.
- Carry the ladder back to storage.
Many of these tasks are risky and inefficient. The employee is at risk of injuring him/herself or others by tripping and falling when walking; when carrying the ladder; falling from the ladder; and when repeatedly lifting boxes. One could mitigate these risks with the following corrective actions:
1) store the ladder closer to the boxes; 2) install a rolling ladder that attaches to the shelf; or 3) implement a lift or item picker to move the box.
Similarly, the 5S method might identify straightening (or the same three potential corrective actions noted here) as a key approach to improve the work output of employees performing the box repositioning workflow. To improve productivity, one might identify the same assistive tools that improve safety this time to reduce the time required to perform the task. Now, justification of the corrective action has two pillars. We can continue to promote the safety benefits associated with this modification, reduce workers compensation costs and lost workdays, and maintain regulatory compliance. With productivity as a second pillar, safety efforts can align with other functions needs.
The story for the investment in new ladders and lifting assists, with the inclusion of its impact on labor costs, might look something like this:
- Eliminate five injuries per year, each costing $20,000, for a total savings of $100,000/year.
- Increase the number of boxes an individual can reposition from 100 to 115 per workday, thereby decreasing the number of employees necessary for this task by almost 15%. Assuming this would require 50 fewer people, at a cost of $25,000/year, costs would be reduced by about $1,250,000/year.
- Account for the one-time cost of $75,000 for the new systems.
- Economic benefit is equal to $1,275,000 the first year and $1,350,000 each subsequent year.
As an alternative to presenting the total reduction in labor costs based on eliminating jobs, we could work with other functions to identify a way to reallocate those employees. For example, a production manager might be more compelled by the ability to reassign 25 of the 50 employees reduced from this job to a known operational bottleneck, and 10 more to address quality issues, then eliminate the remaining 15 through attrition. For example, managers responsible for working with unions who opt for reallocation rather than simple job elimination might provide value during union negotiations.
With this example, we have included traditional safety and health rationales, and we have aligned safety initiatives with other core business objectives.
Safety & CSR
CSR is another core initiative with which safety and health organizations can align their efforts. CSR is a common business strategy in which companies strive to reduce their negative impact on human health and the environment in an effort to control risk and boost consumer perception of their brand. We can all recall highly publicized events in which corporate action (or inaction) has negatively impacted the environment and/or has resulted in notable injury to or loss of human life, which might cause the company to feel the effects of lost investment and consumer loyalty, in addition to the hefty direct incident costs incurred.
Either in response to such incidents or through motivation to do the right thing, more companies are gaining consumer and investor support by focusing their brands around proactive efforts to improve their community and environment. The majority of S&P 500 and Fortune 500 companies released CSR reports in 2012, which is more than twice as many as did in 2011 (Governance & Accountability Institute, 2012).
These reports often translate into increased public confidence and willingness to invest. In fact, in 2012, strategies of sustainable and responsible investing accounted for more than $1 of every $9 (more than 10%) invested in U.S. capital markets (Voorhes, Humphreys & Solomon, 2012).
It is easy to follow the logic that safety and health can become closely aligned with CSR. Social media and technology have driven a steadily increasing transparency of corporate function, providing insight that consumers and investors use to make decisions. Brand perception is influenced by whether a company prioritizes safety.
Additionally, CSR efforts highlight the value of prioritizing human capital and safety efforts support this value. Employee retention and loyalty continue to grow in importance as key competitive advantages, and an organization that focuses on safety and health is more likely to attract and retain employees, and keep them working productively.
For top executives to become aware of the alignment between safety, health, productivity and CSR, SH&E professionals must take action:
- Research. Know the most important business initiatives for your company and work to align with those specifically.
- Be at the table. SH&E leaders must be part of the CSR and productivity conversation and strategy. Having a voice on the corporate steering committee is an effective way to identify opportunities to partner on and contribute to initiatives.
- Compromise. Not all safety ideas are realistic in the face of competing requirements from other functions. Willingness to compromise is key to making incremental progress.
- Focus on numbers. In todays corporate world, numbers speak louder than words and concepts. This is true for productivity and CSR, both metric-driven efforts. Illustrate the full value of efforts, inclusive of its impact on other functions. Support any initiative with data and metrics that clearly quantify the corporate benefits of your efforts. Illustrate measurements that include, but also move beyond regulatory compliance, improved safety performance and reduced injury costs.
Importance of Technology
A recent study from Aberdeen Group indicates the positive impact of safety and health technology on productivity and CSR efforts in an organization. According to the research, the top 20% of safety and health organizations see significantly decreased injury rates and asset downtime. In addition, these top organizations are 58% more likely to utilize safety technology than organizations less effective in their safety efforts (Paquin, 2013). This is not coincidence. It is unrealistic to manage and continually improve safety operations in complex organizations without the assistance of technology in data management, reporting and safety process management areas of safety that are a natural fit for software.
One-dimensional benefit analysis will not compel sufficient support from executives. Painting a complete picture of the value of SH&E efforts to core business initiatives will facilitate increased investment in safety and health. By fostering partnerships with other functions and leveraging concrete data that demonstrate the value on broader business initiatives, safety leaders can break through barriers and increase the degree to which safety and health is central to the organization.
Governance & Accountability Institute Inc. (2012). Corporate ESG/sustainability/responsibility reporting Does it matter?: Analysis of S&P 500 companies ESG reporting trends and capital markets response and possible associations with desired rankings and ratings. Retrieved from www.ga-institute.com/fileadmin/user_upload/Reports/SP500_-_Final_12-15-12.pdf
Paquin, R. (July 2013). Safety technology: Dont wait until its too late. Retrieved from www.aberdeen.com/Aberdeen-Library/8605/Al-safety-technology-manufacturing.aspx
Sirkin, H.L., Zinser, M. & Hohner, D. (2011). Made in America, again: Why manufacturing will return to the U.S. Retrieved from www.bcg.com/documents/file84471
Voorhes, M., Humphreys, J. & Solomon, A. (2012). Report on sustainable and responsible investing trends in the U.S. 2012. Retrieved from www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf
Kim Weiss is CEO of Remedy Interactive, a safety and health technology company. She has 15 years experience working with Fortune 500 companies in risk management and safety and health markets. She graduated from the Kellogg Graduate School of Business, and received her undergraduate degree from University of California, Berkeley.
Bill Gonser is managing director for CKI Risk Solutions. He has more than 15 years experience in developing and implementing safety, quality and compliance programs for Fortune 100 companies, including many years as the director of environmental, health, safety and workers compensation for the Disneyland Resort.