Saturday, April 11, 2009

Selfish Sustainability - Save or Starve pt 1

Selfish Sustainability - Save or Starve Series [ 1 - 2 - 3 ]

Corporations are based on greed right? Is there any way to use the drive for profits to enforce ecological sustainability? Turns out there is. One of the reasons I love this case (derived from my experience in Malaysia) was that it started out as a standard vanilla business problem and evolved into something wonderful. Suddenly, evil corporations could be on the side of angels.

If there was ever a case where integrative thinking would lead a corporation to pursue success while preserving the environment, my work with hotel developers in Malaysia would certainly fit the bill. It's a great case study for looking at a problem through the framework, coming up with more interesting questions and reaching a surprising conclusion. Another reason why I like this case is that when you use integrative thinking to look at the broad perspective of what's going on, you can often find surprising answers to your original questions.

Let's look at what happened:

*Initial* Problem Definition: Let's Make Money
Our holding company held several properties. Two key properties were beautiful island resort properties which had unfortunately been left in disrepair. Our Managing Director had seen some great potential for these new island properties to be acquired and developed into boutique luxury hotels to service the affluent Asian and Australian market.

Metrics of a hotel are pretty standard. You want to charge good rates and have lots of people come. As I mentioned in my previous post about hotel capacity management, the raw math for making money in a hotel is pretty straight forward.

As I also alluded in my previous post, average room rate (ARR) is dramatically effected by quality (real and perceived). Also occupancy (OCC) was greatly affected by market presence. Both of these qualities are strongly correlated to brand equity. Certainly no surprises here.

(Where new problems and interesting challenges start to surface)
One of the reasons I was brought on the team was to bring in an international perspective. Most of the senior staff was composed of local managers who (although talented) had trouble perceiving (and therefore developing and selling) the differences in the international market. Many of our sales agents had a legacy two-star rating of our old services and facilities. So we set up a framework for dealing with those issues:
  • Upgrade facilities to match a 5+ star boutique quality with a luxury brand network (such as Small Luxury Hotels or Prestige)
  • Leverage network to attract high quality clientele (from outside of local markets - average spend of a visitor to our part of the world was RM2000 (Ringgit Malaysia) or ~$700USD for an entire week long vacation. We were charging $300 USD per night). Relying on the average and status quo wasn't going to work.
  • Renew brand equity and highlight natural beauty and proximity to nature as inimitable point of differentiation against other leading international hotels in the luxury space (in the luxury space you have to be exceptionally unique to attract guests)
  • Have world class operations to support your brand equity promise of a peaceful, serene resort experience
While all of this may seem rather obvious (even those of us who haven't yet finished our fancy MBA school degrees), I deliberately emphasize the importance of natural beauty *and* proximity to nature because without it, we were a resort like any other.

While services like jungle trekking and scuba diving were available in beautiful places like Sipadan (World class diving site) or jungle trekking in the depths of the Sabah's jungles, we were the only location that was located only a 15 minute boat ride from main ferry terminal in the heart of the capital city and offered both.

Every other hot destination required a minimum 3 hour bus ride. Sipadan also required a flight to Tawau on the other side of Sabah followed by a lengthy boat ride. While they are worth it for those who are "hardcore" (I myself have done these trips) they are hardly easily accessible and require additional days travel. We were isolated, pristine and accessible.

Exploit natural resources, build hotel, make money. Right? Well that would seem to be the natural answer. But if you're livelihood depends on the pristine condition of your surroundings you have to make sure that you look after your natural resources.

There was a problem in Sabah. While rich in natural beauty, like many developing nations, the majority of the population was poor. By Malaysian standards. This resulted in some extremely negative short term behaviour.

New problem: Destructive Fishing
One such example is fish bombing. As an outsider, I thought it was an over exaggerated myth until I experienced it on a trip during a day off.

I was taking some time off with the diving staff so we decided to scuba dive in a reclusive area of the island. With our proximity to the city, we often see fishing vessels of locals. Pump boats, notorious for being illegal vessels (because they can outrun police boats in shallow shoals), are still incredibly common. On our search for a dive site, we passed by one and in my good natured naivety, I waved as we passed by. Unamused, the two fishermen, sharing what is essentially a canoe with a lawnmower engine, eyed me suspiciously before returning to their work. I though nothing of it at the time (whereas my two diving companions apparently knew better).

Our dive was nice, but fairly uneventful, until towards the end, just before we decided to surface, I heard a rather forceful explosion and felt as if someone has punched me in the chest. It was incredibly unsettling. At first I thought someone's tank exploded, looking at my two companions they were fine. I checked my equipment and everything seemed to be in order. When we returned to the surface I was shaken: "Did you hear that? What was that?"

"Fish bombing" came the reply, "probably from those guys we passed earlier." Although the explosion was a good distance away (judging by the position we last left the two fishermen in the pump boat) I had temporarily forgotten the physics of propagating waves in water (water is an exceptionally good transmitter of waves and pressure). The force felt so close, I thought it had to be nearby.

It turns out this "urban myth" is all too real. What happens is that poor fish farmers will create homemade grenades, toss them in the water and cause large vibrations which immediately kill the fish in a large area by rupturing their organs and they immediately float up to the top for a catch which will supply the fisher man with as much as a reported RM4000 for a days work (average salary for Malaysian workers ranges from RM300 to RM1000 per month for skilled or semi-skilled labourers) so that translates into a great deal of money.

The obvious problem is that this indiscriminate form of destruction also destroys corals that took years to grow. Besides being beautiful in it's own right, coral also acts as a home and food supply for many forms of aquatic life and is therefore a critical part of the ecosystem in the water. In recursively applying the integrative thinking framework (Salience, Causality, Architecture and Resolution) the less obvious "secondary" problem that surfaces becomes the primary one. Fishermen are poor and have an good financial incentive to take more aggressive measures to ensure their livelihood (exploiting their future for the present).

Suddenly, not only is a matter of developing the resort facilities, but also the society that the resort exists in. Our problem definition has suddenly become more complicated (and enriching) than "build hotel, make money".

[cont'd on pt 2]

Selfish Sustainability - Save or Starve Series [ 1 - 2 - 3 ]


Steve said...

They key for companies taking on CSR initiatives is to tie them in with strategy. Look for opportunities where social, environmental and economic benefits come hand-in-hand (not mutually exclusive). Here's a good example from Ericsson - their top 6 reasons for CSR.

1. GOVERNANCE: "Good governance is about being a trusted partner and a responsible company. As a
proxy for sound management, governance is high on the list of expectations from investors
and other stakeholders. This includes how well companies manage potential risks relating to corporate responsibility. It is also vital for building trust in the Ericsson brand
and attracting and motivating employees.
At a time when a company’s reputation rests increasingly on intangible assets such as sound governance, it’s important to walk the talk."

2. MARKETS: "Markets are where we demonstrate our commitment to Communication for All, with a focus on high-growth markets in Africa and Asia. Over the next five years over 80 percent of new subscriptions are expected to come from emerging markets, with the most significant growth coming from India and China. Bringing mobile communications to these regions has a substantial
impact on poverty reduction. We have a genuine
interest in contributing – it’s central to our vision as the prime driver in an all-communicating world."

3. TECHNOLOGY: "Technology is triggering change towards a more sustainable world. Telecommunication can remove obstacles in the path of sustainability
and create a smarter, more
resource-efficient society. It can enhance
the delivery of education, health care, and
government services and raise quality of life.
Ericsson’s combined mobile and fixed broadband
capabilities are providing the platform
to deliver these services."

4. ENERGY AND ENVIRONMENT: "With climate change high on the global agenda, our contribution to a less carbon-intensive society is a key focal
point. Ericsson is demonstrating that wise use of energy is core to our business. Since our greatest environmental impact occurs when our products are in operation, continuous improvements in product energy efficiency play
an essential role. Actions and innovation as well as leadership and vision are needed to tackle the environmental challenges of the future."

5. PEOPLE: "How well we inspire, motivate and guide a diverse workforce is a litmus test of corporate responsibility. Attracting and developing talented people and building
our knowledge base are prerequisites for navigating technology shifts as well as the challenges and opportunities of globalization."

6. COMMUNITY: "Community-level contributions to social and environmental responsibility are an
important way to interact with society and demonstrate commitment. Local initiatives
inspire employees to engage and instil a sense of pride in the benefits that
telecommunications bring to communities. Through Ericsson Response, we rapidly provide disaster-hit areas with telecommunications infrastructure and expertise.

Joshua Wong said...

A very thorough response. Each of those headings would warrant its own field of study let alone blog post :)

Tammy said...

Steve. Your post reminds me of a TED talks on youtube that I caught a while back. It was about re-growing Rainforests in Borneo. In order to make it succeed, they offered a plan to help the locals take ownership of the rainforest and sustain their livilihoods off of it. Great talk and i would attach the link, but China hates youTube right now. but it's TED Talks and it's something about re-growing the rainforest in Borneo. Check it out!