Tuesday, March 3, 2009

Sustainability and Sigmoid Functions, Good Times!

Last month, I was fortunate enough to attend the ignite Columbus event (if your city does not have an ignite, I would highly suggest organizing one or just use whatever you have laying around the house). The networking event centers around individuals giving 5 minute speeches accompanied by 20 slides on a topic of their choice. The most interesting presentation of the night discussed sigmoid functions (or s-curves for all you math gurus) and how they function in decision making. The presentation got me thinking as to how a sigmoid function could be applied to the "greening" of an organization.

The sigmoid function above represents how a company may invest in sustainability initiatives over time and what benefit may be received from those investments. I used cost on the y-axis, but this could just as easily have been time, but since time is money, I went with cost. Benefit encompasses any value that flows to the organization, its customers, or society. This particular sigmoid curve is applicable to a company that is fully committed to a designated level of sustainability and is not relevant to those that simply change a few light bulbs, recycle some paper, and call it a day.

As with any learning curve, there is a large amount of investment during the initial stage. This is especially true with the “greening” of an organization as there are high upfront costs in both knowledge and equipment in the initial stages. Once a well planned sustainability initiative is put into action, benefits are typically seen in the short term and accelerate as additional actions are taken. However, the marginal benefit of each sustainability investment begins to decline. Organizations will either run out of ways to be more sustainable or the cost of the initiative will be greater than the benefit (to either the organization or its customer base) derived from that action. As a wise woman once taught me in Economics 101, organizations should invest in sustainability initiatives until the marginal cost equals the marginal benefit.

Each of the three horizontal lines represents a threshold that an organization can either decide to invest up to or move beyond to obtain additional benefit. It is important to reiterate that the additional benefit does not necessarily mean additional revenue to the organization, at least in the short-run. There will be industries in which some of the thresholds do not exist (e.g. no external regulations, no set industry practices, etc.). In addition, the threshold levels may be in constant flux especially in emerging or newly regulated industries. There also may be occurrences when the Industry Standard Threshold will be below the Regulatory Threshold, however, once government regulation is created, those two lines will converge as the regulations will quickly become the "industry standard.” In fact, the ideal industry will be one in which all three thresholds converge to form one thresholds (like Voltron, who knew Optimus Prime did the introduction?).

Clearly, this graph is a simplification of the progression from a toxic waste spewing heathen to a glorious green company. However, the graph will serve organizations well in mapping out a sustainability plan and determining whether they want to take their relationship with Mother Earth to the next level.

1 comment:

jquaglia said...

Sweet post.

Getting up the slope should offer a reward greater than the cost of getting there...where marginal benefit is greater than marginal cost. Rock on.