I am often asked about the most significant challenge GPM faces when explaining the value of sustainable project management. This question frequently comes from CFOs who have yet to embrace the benefits of sustainable practices beyond mere compliance with regulatory or stakeholder demands.
In this post, I aim at a favorite antagonist from a bygone era, Milton Friedman.
Who was Milton Friedman?
Milton Friedman (1912-2006) was an economist and Nobel laureate who was a leading proponent of free-market capitalism. He strongly advocated for minimal government intervention in the economy, positing that a corporation’s primary responsibility is to its shareholders, a principle famously outlined in his doctrine of shareholder primacy. This perspective, which prioritized profit maximization and efficiency, significantly influenced global economic policies and business practices for decades.
Side Note: These issues are some of the root causes of why the SDGs were developed and also why they are struggling to be achieved as corporations need to shift their thinking. At present, we are on track to achieve only 15% of the SDGs by 2030.
Milton Friedman’s Mindset: Quantifiable Value through Shareholder Returns
Friedman’s doctrine, based on classical economics, argues that a business’s primary responsibility is to maximize shareholder value. This viewpoint emphasizes efficiency, profitability, and market dominance. For example, a company like Phillip Morris, which for decades focused on maximizing profits and shareholder returns, prioritized tobacco sales without any regard for the social impact. Success here is measured by tangible metrics such as stock prices, quarterly earnings, and return on investment. While this approach has driven significant economic growth, it often overlooks broader social and environmental consequences.
For-Purpose Mindset: A Broader Spectrum of Value
In contrast, ‘for purpose’ organizations adopt a more holistic view of value. While valuing financial health, these entities prioritize their social and environmental impact. Patagonia, an outdoor clothing company, exemplifies this by using sustainable materials and donating some of its profits to environmental causes. Their success is not just measured in dollars and cents but in the positive changes they effect, such as improving social welfare, reducing environmental footprints, and engaging communities. This approach recognizes that long-term sustainability and profitability are intertwined with the well-being of the community and the planet.
The Intersection and the Dichotomy
The critical question arises: Can these two mindsets coexist, or are they fundamentally at odds? Some argue that Friedman’s profit-focused approach, as seen in many traditional manufacturing industries, inevitably leads to short-termism and neglect of broader societal needs. Conversely, ‘for purpose’ organizations might risk financial viability for altruistic goals, potentially leading to inefficiency and eventual failure.
How do we explain quantifiable value from a sustainability context?
Quantifiable value in a sustainability context refers to the measurable benefits that sustainable practices bring to an organization, society, and the environment. Using the GPM P5 Standard for Sustainability in Project Management, quantifiable value can be derived from integrating sustainability into project management.
Here are six examples from the P5 Standard:
1. Economic Value (Prosperity)
The P5 Standard emphasizes the importance of economic prosperity, which includes direct financial benefits that can be quantified. For instance, sustainability initiatives often lead to cost savings through increased efficiency and reduced resource consumption. Metrics such as Return on Investment (ROI), Internal Rate of Return (IRR), and Benefit-Cost Ratio (BCR) can be used to quantify these financial benefits.
2. Environmental Value (Planet)
Environmental value is quantified by measuring the positive impacts of sustainability on the planet. This includes reductions in greenhouse gas emissions, waste, and water usage. Metrics such as carbon footprint, waste diversion rates, and water efficiency can be used to quantify these environmental benefits. The P5 Standard encourages projects to consider their environmental impacts and align with the UN Sustainable Development Goals (SDGs), which provide a framework for measuring progress towards environmental sustainability.
3. Social Value (People)
Social value refers to the benefits that sustainable practices bring to people, both within the organization and in the broader community. This can include improved labor practices, community engagement, and contributions to public health and safety. Quantifiable metrics here might include the number of jobs created, training hours provided, and improvements in employee satisfaction and safety. The P5 Standard includes elements such as labor practices and decent work, society and customers, and human rights, which guide project managers in creating social value.
4. Product Value
Sustainable products often provide quantifiable value through their entire lifecycle, from design to disposal. The P5 Standard encourages the consideration of product lifespan and servicing, which can lead to quantifiable benefits such as longer product life, reduced maintenance costs, and higher resale value.
5. Process Value
Sustainable processes are those that are efficient, effective, and fair. Quantifiable value from processes can be measured in terms of increased productivity, improved quality, and fair trade practices. Metrics might include time savings, error rate reductions, and compliance with fair labor standards.
6. Reporting and Disclosure
The P5 Standard also discusses the use of sustainability reporting as a means to communicate quantifiable value to stakeholders. By conducting a P5 Impact Analysis and including the outcomes in a Sustainability Management Plan, organizations can disclose their sustainability performance, which can lead to enhanced reputation, customer loyalty, and potentially, investment.
Striking a Balance for Future Sustainability
The future of business and societal value might lie in finding a balance between these two perspectives. Integrating the efficiency and market acumen of Friedman’s approach, as demonstrated by tech giants like Apple, with the ethical and long-term focus of ‘for purpose’ organizations, such as Ben & Jerry’s commitment to social and environmental responsibility, could lead to a more sustainable and inclusive economic model. This balance could be the key to addressing our time’s complex challenges, aligning economic prosperity with societal well-being.