Getting It Done
The strategy and transformation plan need to be translated into concrete targets for management

Target Setting

What gets measured, gets managed. The first step towards resource effectiveness is to translate the strategy and transformation plan into concrete targets for management, by following the four-step process described below.

Setting targets for resource effectiveness

Target Type
Resource effectiveness targets usually include a reduction of a company´s environmental impact, e.g. emissions of greenhouse gases and pollutants, and improved resource efficiency, e.g. energy and water consumption, the amount of packaging used, waste sent to landfill, etc. These metrics are increasingly connected to financial performance, e.g. through Return on Resources: profits divided by the cost of resources used. Some companies also set commercial targets, e.g. a certain share of the product portfolio that has to be 'green' by a certain year.

For environmental performance, an important choice is whether to set an absolute target, e.g. reducing total CO2 emissions to a certain amount, or a relative target, e.g. a certain amount of CO2 per unit or per € of revenues. Setting an absolute target can be tricky if future revenues are unpredictable.

To select the right KPI, companies need to make sure that it meets the following criteria:

  • Reflects all improvement measures. E.g. for a transport company, setting a target on CO2 per kilometer would stimulate the use of alternative fuels, but it would not reflect a reduction of the kilometers driven. CO2 per parcel would be a better indicator.
  • Comparable in time, i.e. not distorted by external developments, and comparable with other companies, i.e. suitable for benchmarking
  • In line with business strategy and meaningful for managers. Managers need to understand why the KPI is important, and how it contributes to business success.

Furthermore, it is essential to define additional KPIs to monitor and explain the performance, and to set additional targets for lower management.

Target Boundaries
For many companies, the majority of their environmental impact resides in the supply chain rather than in their own operations. Examples include companies like Unilever and Nike, which have relatively little direct influence on the operations of agricultural raw material suppliers. In these cases, companies usually set hard targets on their own activities, and more aspirational or qualitative targets to influence the environmental performance of third parties.

Target Horizon
To drive better performance, the target horizon should not be longer than three to five years. These medium term objectives should then be translated into annual targets, to be included in the regular annual budgeting process, which is in place in most companies.

Target Level
Targets need to be challenging but achievable. To be able to set appropriate target levels, companies need to understand what the improvement potential is. In some cases, this can be challenging, e.g. due to uncertainties around the pace of development of new technologies, such as second generation biofuels or electric vehicles. In these instances, internal and external experts can be consulted. Another important source of input are targets set by the competition.