Sustainability: Economy, then Environment

Yossi SheffiThe director of MIT's Engineering Systems Division and Center for Transportation and Logistics explores how the economic crisis pushes back matters of environmental sustainability — and how it doesn't.

An interview with Yossi Sheffi

This article is adapted from “Sustainability: Economy, then Environment” an interview published by MIT Sloan Management Review in May 2009. The complete interview is available here. © Massachusetts Institute of Technology, 2009. All rights reserved.]

Dr. Yossi Sheffi is a professor at the Massachusetts Institute of Technology, where he serves as Director of MIT's Engineering Systems Division and the MIT Center for Transportation and Logistics. He is an expert in systems optimization, risk analysis and supply chain management, which are the subjects he researches and teaches at MIT, both at the MIT School of Engineering and at the Sloan School of Management. He is the author of dozens of scientific publications and two books.

We started this interview series in late 2008, and I wonder if the people we've already spoken to would say different things today, because economic sustainability is such a dominant concern at the moment — even more than just a month or two ago.

Today, I think there's a chance of a decade-long change in consumer behavior, because I think It's going to be a deep “L shape” recession. That essentially puts sustainability conversations on hold. I think in the short term there's no question that environmental sustainability will take a back seat as people worry more about having the energy — whether It's polluting or not — because they don't want to freeze in the winter and they want it to be cheap.

Some argue that down times are perhaps the more opportune moment to remake yourself in a more sustainable way.

It's absolutely correct. Take the auto industry. Classic example. It was going down, and it would have gone out of business regardless of the financial crisis. But the crisis gives it new opportunities. First of all, the government gets involved to manage the bankruptcy. Then there's an opportunity to get these three companies together and rewrite the labor agreements. Instead of 30, 40, 50 auto plants in the U.S., maybe we'll end up with 20. Maybe we'll see a combining of some or all of the three U.S. automobile companies.

I completely agree that adversity is also an opportunity to create long-term sustainable enterprises. Furthermore, strong players in every industry will benefit from weaker players falling.

Companies who want to survive have to restructure and use the opportunity to restructure even towards environmental sustainability, but only in cases where it goes hand in hand with economic sustainability. Managing through this requires foresight and leadership and strength of purpose.

Many people make the argument that much of what companies can do toward being more sustainable will also save money, make them more efficient, and provide part of an answer to the economic sustainability problem.

It's very hard to think about investment in sustainability that will help in the current economic climate. Investing in brand is not a short-term investment, It's a long-term investment. But when you have the burning platform, you have short-term fear.

To get inventory and transport aligned smartly you have to redesign your networks. That's not a short-term thing. You can do some on-the-margin short-term stuff, but you have to redesign the distribution network to get long-term benefits.

So the less that hard decisions have been made in the past, the larger the opportunity when the organization is under duress?

Exactly. Maybe the opportunity was always there, but now because of the financial crisis there's more chance that some of it will actually happen. There's impetus to making this happen. As an aside, note that the same logic applies to MIT and other universities who were loath to make tough decisions due to faculty pressures.

If I'm a manager, now I get to do what I intended to do all along?

Not really. Because to balance this, you have fewer resources to invest. So, yes, you want to do things, but the crisis makes you sharper because you have to do more with less, and you have to live in a large company like you are in a startup. Startup managers know they have to do everything and work hard. Some of this mindset will have to seep in to larger organizations.

The underlying business of customer service is fulfilling and even exceeding customer expectations. The hurdle is that customer expectations are a moving target. Furthermore, companies are moving those expectations without realizing it.