Enterprise Resource Planning (ERP) is an impressive concept. It covers everything from business operations to corporate governance. It includes streamlining and automating corporations; making all business processes highly efficient, cost-effective and fully automated; all resource use fully planned, controlled and understood. ERP today provides an integrated view of core business processes across various departments, ranging from sourcing, manufacturing and sales to accounting and payroll. ERP systems represent the nerve center and system of record of the world economy — from managing panda bears and making Cirque du Soleil dance to optimizing the biggest corporations in the world.
ERP systems will never cease to exist and evolve as long as the technology continues to develop. Mobile technology has expanded the input and output access for ERP data. Big Data and in-memory computing have improved methods of storing and managing ERP data. In addition, the cloud provides alternative deployment models for ERP.
But there is a flaw in today’s ERP systems when it comes to addressing big challenges such as resource scarcity and volatility, climate change, emissions, water shortage, loss of biodiversity and social aspects.
As Brian Sommer bluntly pointed out: “ERP vendors don’t get sustainability. They think it's about collecting all of a user's electric and gas bills to determine their carbon footprint. They think it's a reporting exercise.”
I don’t necessarily agree that ERP vendors don’t get it, but he has a point. ERP systems today do not account for externalities the same way they manage and optimize ‘traditional’ enterprise resources. Externalities are impacts, negative and positive, that we have on the world and for which “we don’t pay or receive money” (Andrew Winston, The Big Pivot, 2014) — and therefore we often do not account for them.
Rainforest Alliance CEO Tensie Whelan hit the nail on the head in a recent post, when she described “the trend toward businesses reexamining and accounting for ‘natural capital’ — the idea that natural resources, ecosystems, climate, etc. are not just ‘externalities’ separate from capital, but a crucial asset that businesses depend on. A common understanding of natural capital and its value should take full account of the social and environmental dimensions of economic activity …”
In other words, a next-generation ERP system not only needs to streamline and automate business processes, it also needs to account for all resources — including externalities deeply embedded into the business’ standardized resource planning and optimization processes.
But be careful: Profits in some high-impact sectors would be wiped out entirely if the costs of environmental damages and unsustainable uses were factored in. In any case, failing ecosystems and disappearing supplies of natural resources will lead to consequences sooner or later. So why not make the necessary transition now, rather than insulating the company and the shareholders from the ‘shock of instant internalization’ through either regulations or disasters (e.g. droughts, floods, social unrest)?
It certainly creates a stronger relevance for transparency around social and environmental impacts, and “combined with shifting consumer profiles, rising global population and demand, and growing environmental and social impacts is bringing about a sea-change in how we perceive and create value in the 21st century” (Peter Bakker, World Economic Forum).
Will it provide a reliable, scalable method for natural and social capital accounting, and in the process help companies and society to become more sustainable? Is there a risk in putting a price on a forest and the panda bears living in it?
We learned 2 things from recent publications:
- “The primary production and primary processing sectors analyzed in this study are estimated to have unpriced natural capital costs totaling US$7.3 trillion, which equates to 13% of global economic output in 2009” (Trucost, Natural Capital at Risk, April 2013).
- “Integrating sustainability into the core of the business remains the most significant leadership facing challenge today” (BSR, State of Sustainable Business Survey, October 2014).
Including natural and social capital accounting and optimization in our mainstream business processes could help business go beyond just monitoring negative impacts in separate satellite systems, and start making informed, data-driven decisions about how to achieve positive ones.
Putting sustainability into ERP solutions will be intrusive, disruptive and expensive, if it is done correctly. But it’s the necessary step towards a new reality where a sustainable corporate strategy is of the essence. Or do we have a choice?
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Published Jan 16, 2015 6pm EST / 3pm PST / 11pm GMT / 12am CET