Best practices on the implementation of sustainability in leading Dutch industries.

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Best practices on the implementation of sustainability in

leading Dutch industries.

- Development of a case study based framework -

Master thesis

MSc Technology and Operations Management

University of Groningen, Faculty of Economics and Business

Kristien Hesse

k.h.hesse@student.rug.nl

S2387980

Supervisor: J.A.C. Bokhorst

Co-assessor: E. Ursavas

Company supervisor: E. Sloot

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Abstract

The main objective of this research is to identify the elements, retrieved from literature and from practical case studies that are required and are helpful with the implementation of sustainability. In order to get insight in which elements are of importance for the implementation of sustainability an initial model is developed. This initial model is formulated after an extensive literature review and the input of the focal case company, Philips Drachten. The findings that formed this initial model consist of four categories (Performance measurement, sustainability strategy, people and circular economy). These four categories and their subheadings were the basis of the interview questions in order to formulate the final framework.

The final framework is developed after conducting the interviews at four additional case companies; their input combined with the initial framework formed a set of elements that are of importance. Because of the differences among the different case companies, eight categories are derived from the formulated framework to make performance assessment and comparison possible. These categories represent a maturity model, indicating different phases of maturity an organization can be present in. The initial formulated perception on the performance of the organizations is then validated by the answers on the questionnaires, this in order to compare the companies’ own perception with the established perception during the interviews. After the validation of the maturity model, it became apparent that the elements can best be considered while applying a certain sequence. The elements and their maturity levels represented choices an organization can make, and influence the degree to which sustainability is implemented in practice. Therefore, a hierarchical model is developed considering the elements and phases of the maturity model. The best practices that were found during the interviews guide organizations through the hierarchal model at the different steps. Together, the performance assessment model and the sequence combined with the best practices formed a practical implementation guide for organizations.

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Preface

This thesis is the final work for my Master degree Technology and Operations Management at the University of Groningen. Writing this thesis was a great opportunity to get insight in the various challenges that come with the implementation of sustainability in practice. The opportunity to do research at different organizations at once provided me with fresh, new ideas and made the project pleasant, educational and interesting at once.

Using this opportunity, I would like to thank the following persons:

First I would like to thank Jos Bokhorst, my tutor from the University of Groningen. Being a sparring partner for the structure of this research and providing new insights on different approaches. The critical feedback I received helped me to finish my thesis.

Second, I would like to thank Eric Sloot, my company supervisor. Eric was able to keep the overall view, without losing sight for details. Besides the almost weekly sessions, Eric was the right person to ask questions and helped me finding my way and catching up with the right persons for my research. Third, I would like to thank all participants of this case study. Without their help it was impossible to acquire insight in which challenges are faced by organizations and how to overcome these while being on their sustainability journey. And last but not least, I would like to thank my colleagues at Philips for supporting me and giving me new insights.

I hope that this report contributes to the overall understanding on sustainability, and hopefully, that you will enjoy reading it.

Groningen, 20th of June 2014.

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1 Introduction

Sustainability concerns safeguarding natural resources, and a sustainable supply chain would not harm the natural or social systems while still producing a profit over an extended period of time, both ensuring that the truly sustainable supply chain could continue to do business forever (Gunasekaran & Spalanzani, 2012; Pagell & Shevchenko, 2009). Sustainability has received increased attention over the last years; and as Kumar, Teichman, & Timpernagel (2012) state: “Despite the fact that there is overwhelming evidence that the current rate of consumption will lead to a business environment where resources will be scarce and therefore far more expensive to obtain, companies are not changing their operations.” This statement is in line with the current business model which relies on the principles of a linear economy, a traditional open-ended economy that was developed with no built-in tendency to recycle, which was reflected by treating the environment as a waste reservoir (Pearce, D.W., Turner, 1990). Relying on the safeguarding of natural resources and an increased attention for scarcity of resources and hazardous influences on the environment, the principles of a circular economy were developed. These principles were first initiated in 1965 by Kenneth Boulding, where he expresses his concern over the use of the limited resources available (Boulding, 1965). Taking care of the complete system, rather than optimizing components of it, is key in these principles.

One model which is developed in accordance with this circular economy is that manufacturers or retailers increasingly retain the ownership of their products, and where possible, act as service providers. (Ellen MacArthur Foundation, 2013). The Ellen MacArthur Foundation, launched in 2010, tries to incorporate the principles of a circular economy in practice. They defined a circular economy as an industrial economy that is restorative by intention; it aims to rely on renewable energy, minimizes tracks and hopefully eliminates the use of toxic chemicals; and eradicates waste through careful design. (Ellen MacArthur Foundation, 2013)

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2 that demand from emerging economies increases exponentially, in the face of unprecedented resource demands; radical resource efficiency will no longer suffice (Ellen MacArthur Foundation & McKinsey, 2013).

The circular economy changes the current business model in such that a truly sustainable supply chain can be in place, a schematic overview of a circular economy can be found in appendix 1. Although a circular economy sounds reasonable, combined with the increased pressure and scarcity of resources, it appears that the implementation of a circular economy is hard (Su, Heshmati, Geng, & Yu, 2013; Yap, 2007). Most organizations have to change their current business model and literature on the circular economy is undeveloped. Pagell & Shevchenko (2009) state that although the field on sustainability evolved in a fast manner, current literature is mainly focused on how to make supply chains more sustainable by implementing partial improvements, instead of making them truly sustainable and considering an integral approach (applying a circular economy approach) (Pagell & Shevchenko, 2009). To date, there is no explicit framework or model available to inform the implementation of sustainability in practice (Ashby, Leat, & Hudson-Smith, 2012; Sarkis, Zhu, & Lai, 2011; Srivastava, 2007).

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3 This research provides a multiple-case study analysis in order to provide insight in what should be in place to improve the implementation of sustainability within organizations. This research helps to provide insight in which practices are required to head towards a more truly sustainable organization. In practice, implementing sustainability appeared to be difficult for organizations. Therefore, it is important to develop a practical framework that adds to the current literature on sustainability having practical implications.

With this research a framework is developed that facilitates organizations on the implementation of sustainability. The proposed framework is based on an extensive literature study, complemented with elements found during the investigation of organizations during the multiple case study. During the case study the performance of other leading organizations is assessed, and gives guidance on which best practices are required to improve the sustainability implementation. The validation of this framework is performed at Philips, where it will be assessed whether the formulated best practices can give guidance on the improvement of sustainability practices.

The practical relevance of this research is that the development of a general applicable framework will help organizations to get insight in what they can do to improve the incorporation of sustainability in their organization. The different elements in the framework give directions on what should be in place and which best practices can help implementing this. Besides this, the development of this framework adds to the request of Ashby et al. (2012) and Srivastava (2007). They suggested performing a case study in order to clarify the best practices and formulate a general framework for this problem, the theoretical relevance of this research.

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2 Methodology

The aim of this research is to provide organizations insight in what should be in place for organizations to incorporate sustainability throughout their organization. As mentioned earlier, a practical applicable framework for the implementation of sustainability is currently lacking in the literature, while organizations currently seem to face difficulties while implementing sustainability. In order to formulate an applicable framework, a multiple case study approach is taken to facilitate an explorative research. In this chapter, we start with an elaboration on the research design. The research follows the steps of the regulative cycle and is discussed in the following section.

2.1 Regulative cycle

The regulative cycle is a general structure of a rational problem solving process (Wieringa, 2009) and starts with an investigation of a practical problem, itself the outcome of solving earlier practical problems; then specifies solution designs, validates these and implements a selected design (Strien, 1997; Wieringa, 2009). After selecting a design it can be validated and implemented, and after implementation it can be evaluated which can be the start of a new regulative cycle. The regulative cycle is used as the conceptual framework for the logic of practical problem solving.

The regulative cycle consists of 5 phases (Wieringa, 2009): 1) Problem investigation

2) Solution design 3) Design validation

4) Solution implementation 5) Implementation evaluation

The first three phases of the regulative cycle are applied in this research; the actual implementation of the framework within the assessed organizations is out of the scope of this research. Figure 2-1 displays a schematic overview of the research, indicating the different activities in the different phases.

Problem investigation

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5 for improvement, without knowing what to do. The initial assessment at Philips forms the basis to recognize possible challenges and difficulties in the implementation process.

Solution design

The solution design phase is the second phase in the regulative cycle. This step contains the assessment of other organizations by performing a multiple-case study. This assessment is based on the initial formulated framework, based on the input from assessed performance at Philips and the findings in literature. The findings that formulated the initial framework are discussed in the next chapter.

A definitive and a more generic framework of elements that should receive attention for the implementation of sustainability are developed. The performance of the assessed organizations can be displayed in figures in order to compare organizations. By completing the framework, the phase that considers the design validation can take place.

Design validation

The design validation phase provides insight if the framework has practical relevance, and takes place at Philips. It provides insight in which elements are less developed within Philips, giving hindsight in which best practices of other organizations can be useful to improve the performance of Philips on the different identified facets.

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2.2 Case study

In order to assess the performance of the other organizations in the solution design phase, a multi-site multiple-case study is proposed. Eisenhardt (1989) states that if case studies are used for theory building it has some advantages: it attempts to reconcile evidence across cases, types of data and different investigators, and between cases and literature increases the likelihood of creative reframing into a new theoretical vision (Eisenhardt, 1989). A second defined strength from this is that the emergent theory is likely to be testable with constructs that can be readily measured, because during the theory building the constructs are already measured (Eisenhardt, 1989). Besides this, a multiple case study can lead to analytic conclusions that arise independently from several cases, what will be more powerful than those coming from a single case alone (Yin, 2014)

Organization selection

For the multiple-case study different organizations are selected. For the selection of the organizations different criteria were applied. To get a good understanding of the different practices in organizations a distinction between two types of organizations is made. The first group has proven to have a certain performance on the implementation of sustainability; they appear in rankings or are apparent in renowned surveys (Interface and Akzo Nobel). The second group consists of large organizations that are approached using the existing network of Philips (Scania and Van der Lande industries). The organizations that were approached using the existing network of Philips were considered to be interesting because of their sustainability approach. The criterion for all organizations is that they are located in the Netherlands.

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7 Philips Drachten is included in this research. Overall, Philips scored a 90/100 – ‘Best in Class’ score for Environmental Dimensions on the DJSI. (Philips, 2013). Interface, a global manufacturer of carpet tiles which strives to achieve the ‘Mission Zero’ and is included for several years in the top 3 of the sustainability research of GlobeScan (GlobeScan & SustainAbility, 2013). The contacted facility is situated in Scherpenzeel.

Akzo Nobel, located in Arnhem, is a Dutch multinational that produces paintings, coatings and specialty chemicals (AkzoNobel, 2014)). Akzo Nobel scored the title ‘Industry Sector Leader’ in the sector ‘Materials’, meaning that their performance was best according to the DJSI.

Van der Lande Industries, a global Dutch manufacturer of warehouse automation, parcel, postal and luggage handling (Van der Lande, 2014). Van der Lande industries is located in Veghel, the Netherlands.

Scania is from origin a Swedish manufacturer of buses, trucks and coaches (Scania, 2014). The contacted facility of Scania is located in Zwolle, the Netherlands.

Data collection

Different methods and sources are used for the data collection, this to increase the reliability of the research. The methods applied consist of in-depth interviews, conducted in a semi-structured way. This means that for the interviews an interview protocol is applied, with the possibility to ask in depth-questions. The interview protocol ensures comparability between the different interviews conducted. Besides this, all interviews are, with permission, recorded and the interviews are worked out immediately, ensuring that comments and problems arising during each stage will guide further research (Karlsson, 2009).

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2.3 Analysis and validation

The data analysis is done in various stages, after formulating the initial framework; the interview questions were developed to assess the selected organizations (See appendix 2.1 for the interview questions). The interviews of these organizations lead to the crucial elements of importance on the implementation of sustainability within organizations. The identified elements were transformed into a maturity model, making comparison possible.

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3 Framework development

This section discusses the development of the framework for the implementation of sustainability within organizations. As depicted in figure 2-1, an initial framework is developed based on the in-depth interviews and data collection at Philips together with a literature study. The following section discusses the ‘Problem investigation’ cycle from the regulative cycle, highlighting the findings at Philips and from the literature. After that, we move on to the ‘Solution design’ phase, representing the findings from the assessed organizations and iterations in the literature search.

3.1 Problem investigation – Literature search

The initial literature search provided the first elements for the in-depth interviews performed at Philips. This section discusses the search for literature, and the most important findings. Journal articles (peer-reviewed) were searched in Business Source Premier, ScienceDirect, Taylor & Francis and Emerald using sustainability related terms in any part of the article. The terms are displayed in table 3-1.

TABLE 3-1 SEARCH TERMS TABLE 3-2 SELECTED JOURNALS

From this search several initial articles were selected, based on their ranking in journals. For the selected journals a selection criterion is set that all journals should at least have a 1.5 journal impact factor. This first criterion resulted in a total of 13 articles that seemed relevant for the formulation of elements in the initial framework, see table 3-2. Among these articles several literature reviews and overviews were included, providing a good oversight in the conducted research. After this initial search, some back and forward search within the initial selected articles is performed. In the paragraphs below several elements found in the literature are discussed.

JOURNAL JOURNAL IMPACT FACTOR # OF ARTICLES

Journal of Supply Chain Management 3.320 3

Journal of Cleaner Production 3.398 3

Journal of World Business 2.617 1

International Journal of Production Economics 2.081 3 Supply Chain Management: An International Journal 1.684 3 SEARCH TERMS

Sustainable supply chain Green supply chain Sustainability Literature review /

meta-analysis sustainability Sustainable practices Lean AND sustainability Reverse logistics

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3.2 Problem investigation – Literature findings

This section elaborates on the main findings in literature on important elements required for the implementation of sustainability. As an overall conclusion it can be stated that there is much information available on sustainability, but as Pagell & Shevchenko (2009) state, there is a limited scope, resulting in the fact that there are a lot of articles all discussing different important elements.

3.2.1 Sustainability drivers

The reason why firms implement sustainability practices differs for each firm. The research of Schrettle, Hinz, Scherrer -Rathje, & Friedli (2014) identified drivers that were found after an extensive literature search. They identified two types of drivers: exogenous (external) drivers consisting of environmental regulations, societal values, norms and market drivers. The second category of drivers is the endogenous (internal) drivers containing cultural elements, strategy and resources. These drivers are used in the framework to detect the driving forces for implementing sustainability.

However, before sustainability is embedded in most organizations, some alignment between the economic and noneconomic elements is required (Pagell, 2009). Pagell (2009) found that environmental and/or social activities of the organization had to complement the economic activities of the organization, not recognizing that achieving noneconomic sustainability goals generally helped achieving economic goals. Pagell (2009) also states that sustainability should not be treated as an occasional topic; it should become part of the daily conservation. Making decisions should automatically include discussions of social and environmental impacts, and sustainability is not an add-on, it is part of what every employee does on a daily basis (Pagell, 2009).

3.2.2 Supply chain focus

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3.2.3 Life cycle assessment

Life cycle assessment (LCA) is a method to provide insight in the environmental impact of a production process. LCA encompasses life cycle thinking, which entails considering not only the emissions and resource usage of the production processes of companies, but also the environmental consequences of all processes related to a product’s life cycle (Löfgren, Tillman, & Rinde, 2011). See figure 3-1 for a schematic overview of the LCA process. Löfgren et al., (2011) state that with the introduction

of life cycle thinking the scope of environmental management has broadened; in the beginning organizations only considered their own facilities, it now encompasses the ‘cradle-to-grave’ environmental consequences of manufactured products. Although this method is certainly a good start with the increase of the awareness and responsibility in the product chain, there are some drawbacks concerning this method. Jeswani, Azapagic, Schepelmann, & Ritthoff (2010) state that the LCA method is not completely integrated within the existing methods applied in organizations. For decision-makers, the information provided by the LCA alone is insufficient, and in practice it is often hard to ensure that all information is available in the LCA, and to truly gain from LCA strong supply chain partnerships are needed (Ashby et al., 2012). This is confirmed by the research of Alblas, Peters, & Wortmann (2014) where the results show that deploying sustainability methods, tools and metrics such as LCA or Design for Environment (DfE) are insufficient to achieve full sustainability involving these tools with the development of new products.

3.2.4 Organizational change and culture

In literature it is argued that if an organization will fully respond to environmental and social challenges, organizations will have to undergo significant cultural change when moving towards corporate sustainability and that a sustainability-oriented culture needs to be developed to implement sustainability (Linnenluecke & Griffiths, 2010; Post & Altman, 1994; Stead & Stead, 1995). It is also suggested that a radical change is required to change business models from a linear, cradle-to-grave operational models towards a more integrative, eco-effective model (Borland, 2009; Stoughton and

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12 Ludema, 2012). With this change in culture, it is suggested that different functional groups in organizations have different attitudes towards sustainability leading to different subcultures within organizations (Linnenluecke & Griffiths, 2010). This view supports the finding of Stoughton and Ludema (2012), they state that there are many different cultures present within an organization at any given time and that these different perspectives influence each other. Three functional perspectives are identified in the research of Stoughton & Ludema (2012) and are displayed in the figure 3-2 below.

FIGURE 3-2 FUNCTIONAL PERSPECTIVES - (STOUGHTON AND LUDEMA, 2012)

The research of Stoughton and Ludema (2012) concluded that sustainability is in most cases initiated in mid-level managerial groups, but senior leadership was required to deploy sustainability throughout the whole organization. Despite the fact that mid-level managerial groups initiate sustainability, Stoughton and Ludema (2012) conclude that in all different groups different cultures are present, and all can be integrated, differentiated or fragmented. Their research is of value because it gives direction on where sustainability can be initiated and which interactions can be possible.

Not all literature is in favor of a radical change. An example gives the research of Harris and Crane (2002). Their results claim that the ‘greening’ organizations is a complex process, mainly because a green culture manifests on a variety of different levels (individual, managerial, corporate), with on all different levels resistance to cope with. They suggest that cultural change has been largely limited to modest behavioral change and, at best, the incorporation of environmental responsibility into existing cultural certainties (Harris & Crane, 2002)

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13 Top down approach

The first identified approach is the top-down approach. This means that if top management promotes and commits to sustainability values and principles, lower levels of the organization will follow (Harris & Crane, 2002). This means in practice that changes in the values of top management will translate into changes in actual practice throughout the organization (Linnenluecke & Griffiths, 2010). Linennluecke & Griffiths (2010) suggest that in order to integrate sustainability values in an organization changes should be made on a surface level. For example through the publication of corporate sustainability reports, the integration of sustainability measures in employee performance evaluation can provide a conducive context for changes in employees’ values and beliefs or even in core assumptions (Linnenluecke & Griffiths, 2010). No guidance was found in literature on how to incorporate sustainability with a top-down approach, and involve employees to ensure that sustainability becomes part of doing business. Catalytic approach

The second identified approach is the catalytic approach. Instead of a top-down directed change throughout the organization, the catalytic approach is based on an introduction and implementation of initiatives by middle managers (Mirvis & Manga, 2010). Middle managers operate in different functional areas (subcultures) of the organization and develop their own values and beliefs towards sustainability based on their education and enculturation into their subculture (Linnenluecke & Griffiths, 2010; Stoughton & Ludema, 2012). So, instead of a top-down approach, it is within this approach more likely that sustainability practices are suggested and firstly initiated by middle managers within certain subcultures. As is with normal culture, it is to be expected that managers within the same culture, will have the same attitude and values towards sustainability (Stoughton & Ludema, 2012).

3.2.5 Performance

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14 This method ensures comparability between different organizations on their performance of sustainability, and is been used by many different (larger) organizations.

Other assessment methods are also proposed, one of the proposed methods is the use of a balanced scorecard. Epstein and Wisner (2001) state that a balanced scorecard cannot only help with implementing corporate strategy, it can also be used for the implementation of a sustainability strategy and link the corporate sustainability objectives with appropriate corporate actions and performance outcomes (Epstein & Wisner, 2001). The largest drawback of the suggested assessment methods is that they all focus on different elements, without having consistency between the different methods and elements. This inconsistency assures that comparison between different organizations is hardly possible. The research of Green, Kenneth W. Zelbst et al. (2012) confirm the statement of the Global Reporting Initiative. Their research confirmed that organizations that adopted Green Supply Chain Management (GSCM) practices improved their capabilities to sustain the environment and to strengthen the organization’s economic viability which leads to increased operational and organizational performance.

3.3 Problem investigation – Assessment of Philips

This section discusses the current situation of Philips Drachten on their interpretation of sustainability and the challenges that Philips Drachten faces. Started is with a description of the current situation. As a general introduction, the Director Sustainability of Consumer Lifestyle mentioned that there are several facets of sustainability present within Philips. Sustainability can be interpreted in various ways, but there are three main categories: Social component, Development component and a Production component.

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15 Sustainability drivers

Philips has a pro-active attitude towards sustainability, resulting in an additional set of regulations on top of the multiyear agreements with the Dutch Government. This set is formulated as the EcoVision policy, in which Philips can be ahead of the forced regulations. The driver behind this is the awareness that a big multinational can make a difference on influencing the environment by setting regulations on sustainability related issues.

Performance measurement – Targets & KPI’s

Incorporating the additional regulations on sustainability is done by setting targets for the different production sites, which appeared to be difficult. The targets were set in accordance with the volumes that were produced (It was allowed to compensate for negative effects in the performance indicators if production increased). Because of this relation, the targets became a moving target, and difficult to achieve and control. For example the targets for energy reduction on site level were set in accordance with the site managers, but were not a real fixed target (for example a mission zero). Although a corporate target of for example an energy reduction was set on to average 50%, which means that some sites got a higher target than others, averaging till 50%.

The production KPI’s that receive attention within Philips are energy usage, emissions, waste that requires recycling, water usage, toxic emissions, loss working days (safety). Each site has these KPI’s and the responsibility was set at site level. Among the employees, the translation of sustainability into the targets is unclear. Employees have no idea on what is measured, how it is measured and how to improve or comply with the targets. The Senior Architect for production systems, the production architect, mentioned that steering on sustainability targets is difficult; because it is not always clear what is meant with the targets, it is difficult to adjust your actions towards it. (He mentioned that it was unclear what the environmental impact of processing copper was. He stated that if he would know such information, it becomes easier to steer towards certain targets.)

Performance measurement - Tools

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16 becomes better manageable and more transparent. The goal of EcoChain is that Philips has knowledge of all processes and knows where the biggest impact is within their supply chain.

The use of the Life Cycle Assessment (LCA), which was already introduced in 2000, made it possible to analyze the impact of the products on the environment. In line with the use of LCA, targets were specified on energy efficiency, material usage, packaging, hazardous substances, weight, recycling and disposal, lifetime reliability. These pillars made it possible to develop ‘green’ products that had less impact on the environment than the ‘conventional’ products. Additional KPI’s were formulated to ensure that sustainability was embedded in the design of products. These KPI’s steered for example on the elimination of PVC and bromine, and a fixed percentage of recycled plastics in products. The usage of EcoChain makes it possible to provide LCA’s in a more structured and detailed manner.

Employee involvement

Green Site Drachten is an initiative to make the site more sustainable and greener. It organizes activities to create environmental awareness among the employees. To enlarge the involvement of the employees, several themes were launched with different campaigns. The campaigns were: Energy (Gas, Electricity, and Water), separation of waste, efficient IT, social/community/voluntary actions, and eco-sustainable choices (Taking sustainability into account in personal choices).

Green Site Drachten is a good initiative to add to the environmental awareness among employees, but as the Director Sustainability for Consumer Lifestyle stated, Philips always faced difficulties in involving employees with strategy and their mission and vision. An example is the circular economy vision within Philips. This is quite well-communicated in the top of the organization, but on site level no translation has taken place.

Organizational change

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17 In order to link the current situation of Philips to the research of Stoughton and Ludema (2012) we can state that sustainability is initiated on organizational level, but Green Site evolved on a middle management level initiated by a catalytic approach. Especially for Drachten, we noticed that there is a high level of fragmentation instead of an integrated approach on sustainability. As is defined in the research of Stoughton and Ludema (2012), fragmentation is considered to occur when a group of people “share a common orientation and overarching purpose, face similar problems, and have comparable experiences, yet lack consensus on solutions to the problems and meanings of the experiences.”

Embedded in processes

In theory, sustainability is quite well embedded in the processes; Philips developed the following 5 steps to facilitate the transition from targets towards operationalized actions.

1. Formulate targets and goals

2. Translate targets into the organization 3. Appoint owners

4. Ensure good measurements

5. Periodic review to assess performance

However, in practice sustainability is not completely embedded in the processes. Sustainability issues are not really considered while purchasing new equipment. Economic influences are leading in decision-making processes. There is a lack of information about sustainability impacts or influences, in the process of procurement; sustainability is not embedded as a fixed requirement. A practical example is that if energy savings can be realized with new equipment, then sustainability is considered as a beneficial side effect. At that moment, it can be used to convince management to buy new equipment rather than revise the old equipment.

Circular economy

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18 Summary

The following challenges are currently faced at Philips Drachten. These challenges support the request for a comprehensive and integral approach on implementing sustainability.

- Motivation and involvement of employees

- Translate targets from corporate level towards integrated practices, with a better understanding on the meaning of these targets

- Measuring current performance: targets are now mainly based on elements that are hard to measure.

3.4 Initial framework

The initial framework is based on the literature study and the findings during the interviews at Philips. The following table gives direction to the content of the interview questions at the assessment of the other selected organizations. In the table the elements are grouped in four different categories, namely performance measurement, sustainability strategy, people and circular economy. As we can see in figure 3-3, not all elements operate on the same level, for example performance measurement is a collection of different elements. The elements that are displayed in bold are found in literature, the rest is complemented by the input of Philips.

FIGURE 3-3 INITIAL MODEL

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3.5 Solution design – Assessment organizations

The elaboration of the initial framework is done in this section. Based on the identified initial elements interview questions are developed. By applying a semi-structured interview, it was possible to get insight in the different, additional elements that helped organizations in order to implement sustainability.

The interview questions posed during the interviews can be found in appendix 2, as well as the names of the interviewees. The following sections follow the structure of the interview questions, mentioning the additional influences that were discovered during the interviews. Ultimately, all found influences are aggregated into one final overview. In order to find the origin of the elements in this overview, all influences found during the interviews received numbers that correspond to the numbers in figure 3-4. An additional list of all the elements can be found in appendix 3. At the description of the interviews, most headings correspond to the categories in the interview questions; however, new categories and elements are added during the interviews.

3.5.1 Akzo Nobel – Arnhem

The approach of Akzo Nobel seems to work out. Akzo Nobel has a notation in the Dow Jones Sustainability Index and is able to improve every year. Akzo Nobel formed an Operational Eco Efficiency (OEE) team which is responsible for decreasing the footprint of Akzo Nobel. Akzo Nobel has done a great job in making everything visible and measurable, which leads to specific actions towards different sites. In the following sections highlights of Akzo Nobel are given.

Sustainability drivers

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20 Sustainability strategy

The strategy of Akzo Nobel is somewhat different, this because they formulated a team of five employees that form the OEE team9. They have the full time responsibility to decrease the footprint of Akzo Nobel by 30%7. The OEE team is a separate unit, and reports directly to the board of Akzo Nobel, which also funds the team. These five employees visit sites all around the world and help sites with improving their on-site performance. This team is seen as an opportunity to improve the performance of the site. Because of the fact that this team is separated from the regular auditing functions, the OEE team is not seen as a threat for the sites, and gets full cooperation if they are on-site9.

The approach of the OEE team is as follows: because everything is measured within Akzo Nobel, the OEE team exactly knows which sites to visit and how to improve to decrease the footprint in the best way. They know where to look for and offer tools and solutions for common problems. The awareness on the different sites13 is achieved by frequent site visits, and talking to the dedicated employees.

The OEE team also combines the challenges of different sites; they group sites together and offer webinars and workshops to deal with ‘common themes’. For example, installing LED-lighting is the same everywhere, and sites can learn and help each other. The general idea of the OEE team is that each site is the same (If the sites are in the same sector; there is a difference in a chemical plant and a paint plant for example), which means that general solutions can help different sites at the same time14.

Performance measurement

Akzo Nobel has measurable KPI’s at all sites2 (Waste, Energy, Fresh water, COD, Air emissions (Direct CO2, Indirect CO2, VOC, Nox, Sox) and all details of all sites are represented in a large database1,2. For the visibility of the performance of the sites, a world-map is displayed on the intranet with the different performances of the different sites1. The ‘owners’ of the specific sites can exactly see how they score on the different KPI’s, colored in red, green, grey, indicating their performance7. Their performance is visible for others, besides this contact information is displayed; contacting the ‘owner’ of the KPI becomes possible11,12. (Which implies helping others or asking questions about approaches becomes possible) Competition among the different sites occurs in order to improve the performance.

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21 Digital platform

Seeing what others do can help performance, but Akzo Nobel also found a way to share existing knowledge and pose questions. They have a digital platform where sites can share their best practices and get insight in how other sites coped with certain challenges1. At this moment, thousands of best practices are already filed on this platform. The Global Procurement Manager Operational Eco Efficiency mentioned that they have to put a lot of effort in this platform that all best practices are uploaded. Unfortunately, this system does not work alone and without attention13.

The following sections give direction on how the principles of a circular economy are embedded in the daily practices of Akzo Nobel.

Packaging material21

Akzo Nobel uses an enormous amount of raw materials for their production processes. A part of these raw materials are fossil fuels. Akzo Nobel makes the transition towards bulk packaging; eliminating the paper bags and the oil drums and replacing them by tanks and IBC (Intermediate Bulk Container) containers that can be reused for several times. Akzo Nobel strives to use the biggest possible packaging material available.

Different waste outlets & loops19,22

For the residual streams that are produced during production Akzo Nobel tries to find other waste-outlets. The by-products that are useless for Akzo Nobel, and have to be paid for in order to discard them, can be of use for other production companies, who are also willing to pay for it.

An example of a different usage of a byproduct is AIOx (Aluminiumoxide), a byproduct of H2O2. This

product was discarded, but is now used as a raw material in a cement production facility. Waste is therefore reduced, a raw material is used in a different industry and less transport is required by selling it locally. Another example is that the slag from the local woodchip boiler was sent to a municipal repository; nowadays Rockwool is able to use the slag as a raw material to produce stone wool insulation material.

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Renewable energy20 & saving energy17

Akzo Nobel installs wind mills on site and has a 6% share in these wind mills. The site receives proportionally green, renewable energy. Besides this they installed solar panels to reduce the usage of conventional energy. At this moment, Akzo Nobel develops a new site in Ashington, England, that has to be zero-waste and should use a full 100% renewable energy. The energy requirements are fulfilled by using solar energy and biomass energy with a biomass installation on site.

Another way to save gas and energy usage is the exchange of steam with a nearby waste incinerator. The waste incinerator produces steam as a by-product, which is required to evaporate water to gain salts. Previously Akzo Nobel produced their own steam, now they can benefit from the by-product of the waste incinerator nearby.

Besides saving their own energy, Akzo Nobel tries to develop new products that have less impact during their functional life. An example is a paint that is developed for boats, reducing the resistance and thereby the required fuel without having hazardous substances that might impact the environment. Organizational change and culture

As a concluding remark concerning the organizational change and culture, I think the approach of Akzo Nobel is a good one. Helping instead of accusing sites of their performance is a very good one14. By repeatedly visiting the sites, awareness is created and the employees are able to think about sustainability15. Although, the group lead of the OEE team mentioned that despite of this proactive attitude, sites face difficulties with permeating the middle-management in order to improve their sustainability performance. The group lead mentioned that with permeating this layer, further work is required11,12_{. Applying the categorization of Stoughton and Ludema (2012) to the situation at Akzo}

Nobel, we see that the categorization is not straightforward. Because of the fact that the OEE team is initiated top-down, but because of their facilitating role it can also be considered as a catalytic approach.

Summary

- Measurability, all sites are transparent, their performance is known. Because of the measurability KPI’s can be achieved in a very specific and targeted way.

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23 - Their digital platform, webinars and the development of common themes is an example of knowledge sharing by good usage of tools and applications1. Besides knowledge sharing, the applications ensure increased communication on sustainability11,13.

- Searching for new waste outlets, introducing loops in material flows and saving energy and applying renewable energy adds to the principles of a circular economy17,19,20. Akzo Nobel switched towards different packaging materials in order to decrease the environmental impact21.

- The OEE team has as task to reduce the footprint by 30%, which is part of their strategy with a very specific approach11.

3.5.2 Van der Lande industries – Veghel

The first impression of the sustainability approach of Van der Lande industries is that a clear approach is set out on paper, but the actual activities resulting from this, are partly lacking or unstructured. Van der Lande comes up with new technologies, borrowing certain technologies from other sectors with different applications18. Besides this they put effort in the re-use of spare parts and materials, but this can also be seen as regular business-opportunity17. Van der Lande has difficulties with measuring and targets, no KPI’s or measurements are in place2,3,4, and reporting sustainability is unstructured5. The following sections elaborate on these findings.

Sustainability drivers

Sustainability is mainly driven by the demands of customers and the regulations set by the government6. It appears that the current improvements in products are mainly due to the requests by customers. Besides this, the internal drivers can be identified as interest coming from the director, leading to the involvement of other employees, thereafter sustainability is initiated in some functional groups. Global awareness on sustainability among the employees is still not in place11,12, but by giving presentations and providing information about the necessity of sustainability and the effects of scarce materials van der Lande hopes to increase general awareness among their employees.

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24 do not apply materials that are hazardous for the environment. Van der Lande formulated a set of four steps to make the transition towards a circular economy:

1. Adapt product design17 (Ensuring products and parts can be separated and reassembled easily) 2. Create a network (Collaborate with a recycler, when ordering, take the origin of the materials

into account and ensure suppliers to employ recycled materials) 3. Process the flow of used equipment (Invest in recycling methodologies)

4. Promote the circular economic brand (Use modular design, make agreements with the customers of the system after usage)

KPI’s and measurements

Although van der Lande seems to have their strategy and approach quite well defined, some things are apparently missing. At this moment, they do not have KPI’s or measurements. The demand of the customer and the regulations from government(s) are binding and ensure the change within van der Lande. They stated that although they do not have KPI’s in place, sustainability is combined with Lean manufacturing; zero defects, no waste etc. They do not have a clear overview of what leaves their facility, and what happens to their residual materials3,4. (This ‘waste’ is only a small percentage in relation to the millions of euros that are normally processed in their factory)

New technologies

Van der Lande developed a new conveyor, for the transportation of luggage at airports, with a belt that consists out of one single material. This singularity ensures that the belt of the conveyor can be recycled, and does not contain PVC as the regular conveyor belts17. This conveyor originates from the food industry, where no hazardous materials are allowed due to strict health regulations18_{. The conveyor is}

better recyclable, is lighter and consumes less energy. This new conveyor is a good example of borrowing existing technologies with other applications to improve products.

Sustainability embedded in processes

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25 Reuse of parts & spare parts

At this moment van der Lande stores an amount of spare parts to deliver more quickly in case of a breakdown. Besides the storage of new parts, parts of dismantled systems are partly stored and refurbished for quick replacements17,19. It is debatable whether this is a sustainability-driven opportunity, rather than a regular business opportunity. Although, extending lifetime and performance (preventive and predictive maintenance, upgrading of systems and modifications to meet changed operational requirements) will help to maintain equipment for a longer period of time.

Summary – found elements

- Van der Lande applies existing technologies from different sectors to improve their own products and processes18.

- The drivers for implementing sustainability practices are because of the requests of the customers, and applying to the regulations set by the government6.

- Sustainability is embedded by using checklists in order to comply with the set regulations and specifications8.

3.5.3 Scania – Zwolle

The approach of Scania Zwolle is mainly focused on reducing energy and reducing operational waste and its separation. Energy reduction is partly arranged by applying multiyear agreements with the Dutch Government (these agreements are mainly focused on the reduction of CO2, but energy reduction is a

way to realize this) and targets that are in place on site level. This target is to reduce energy usage by 50% on site level by January 20202,3,4,7. For reaching this target, the initial measurement is done in January 2010. Whether this target will be achieved is unclear, the manager Plant Engineering was very skeptical about this target.

Employee engagement and involvement

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26 example a bicycle to generate energy to enlighten some LED versus conventional light-bulbs, to see the difference in energy usage) Ideas and possible improvements that arise from these theme meetings are then incorporated in the multiyear agreements and site policy.

Residual materials / Waste handling

Besides the KPI on energy usage, one is in place on operational waste2,3. Scania has outsourced the operational waste handling to SITA, a waste contractor. Scania separates their waste now for 12 years19,22, and it required much effort to get the employees willing to separate their waste. At this moment, employees address each other if they notice undesirable behavior, but this attitude required much attention and time11,12. The reason Scania outsourced their left-over material handling is due to the fact that they only wanted to focus on their core business, rather on material handling without adding any additional value to the produced trucks.

Scania recognizes that materials become scarce, and that efficient consumption is required. Scania tries to incorporate the (beginning) principles of a circular economy in their products and their production processes. By means of reducing fuel consumption, recycling of the components of the trucks and adjusting the design in such a way that the impact is less17. Although, it could be argued that these changes are caused by external drivers, the customer requires it. For their processes, Scania makes progress on reducing energy and separating waste that occurs during the production processes8. As already described, the waste contractor takes care of the waste, and Scania does not really know what they do with the materials.

Communication of targets

The incorporation of targets set in the top of Scania is not well-communicated2,11,12,13. An example was the goal that Scania strives to have a closed loop production process, but during the interview it appeared that this goal is not translated on site level, the manager Plant Engineering could not tell the actual interpretation on site level2.

Achievements and future opportunities

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27 they would like to arrange the exchange of a cooling/heating system with the neighbor; Scania can help to heat the offices of the neighbor, and receive cool air for the factory to reduce the temperature20,22. Summary – found elements

- Scania outsourced its waste, and in doing so, separating waste streams result in a higher recycling potential19,22.

- Energy reduction is the start for Scania to decrease their footprint, after reducing energy usage CO2 can be considered2,3,4,17.

3.5.4 Interface – Scherpenzeel

Interface has a fixed target, they strive to reach mission Zero by 20207. This mission is ambitious, but they are doing a good job until now. Because of their long experience (about 20 years), they have a well-developed sustainability program and know how to involve the employees on this sustainability journey. During these 20 years of experience, they formulated a set of 8 lessons learned10, and these can be found in appendix 4.

Interface identified 7 key areas where progress was needed and with them in mind developed a sustainability strategy2,4. These areas are based on the principles of The Natural Step (A network that helps organizations and individuals understand and make meaningful progress toward sustainability - (The Natural Step, 2014) and Biomimicry (The design and production of materials, structures, and systems that are modelled on biological entities and processes. (Oxford, 2014)). Interface applies the ABCD-model developed by The Natural Step. This model contains different phases which are repeated to progress towards sustainability. A schematic overview of this model can be found in appendix 5.

For the development of their products, they search for alternatives and think ‘outside’ the box in acquiring new raw materials17. They change the current business model from a linear economy towards a circular economy. In the following sections the practices of Interface are highlighted.

Sustainability drivers6

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28 Realizing that the current way of doing business could not continue forever, set Ray Anderson to change the complete organization and setting the target of ‘Mission 2020’.

Sustainability strategy

In 2002/2003 Interface started with the journey on achieving mission Zero by 2020. This means that Interface would like to have no negative impact on the environment anymore by 2020. And if possible, favorably have a restorative effect on the environment7. This restorative effect can mean that the carpets filter the air and collect particulates or at the moment that the carpets are discarded, they can be used as a fertilizer for the soil. The practical implication of this mission zero is that Interface established a baseline measurement in 19963,4, and per year the sites receive targets to reach mission zero in 2020. If the decrease is not as much as hoped for in one year, the target is being corrected in the next year, ensuring that the end target is reached2,3,4. There are no penalties on not reaching the target; you have to perform better next year.

Employee involvement

Interface launched their fast forward 2020 program in 2002/2003, which is one way of equipping the workforce with sustainability knowledge11,12,13,16. This program fits the mission zero for 2020. The fast forward to 2020 training program consists of 3 levels:

Level 1: Is mandatory for all employees and each employee gains a basic understanding among all about mission zero, what the main sustainability areas are and what Interface does. This training ensures that across Europe a basic understanding arises, with sustainability as an important component in it. (This level consists of a training that has duration of half a day)

Level 2: Is mandatory for all employees, in this level employees get insight in what sustainability means both generally and in peoples own job role and local context. This specific program is chosen because how to deal with sustainability is different for each employee and is different in different countries. The purpose is to establish a wider base of people within the organization who understand and can actively contribute to the integration of sustainability into specific business areas. (The duration of this training is 1 day) Within Interface they arranged a session for employees involved in the production area, and they during this session the employees suggested 200 new ideas to improve their activities.

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29 around it. The CEO of Interface signs a certificate if the employee wrote a good paper and passed this level to become an ambassador. The sessions for level 3 are always international, and in the session (once or twice a year) employees receive help on which theme to choose for their paper.

The good thing about this training is that all employees know what the values of the organization are, and the employees are being challenged to improve and change their daily activities in achieving the mission of Interface8. Ambassadors are being asked to give presentations or speeches at events or at schools, which is an honor. Practice showed that the ambassadors are willing and love to do this. The best performing site receives the ‘EcoSense’ award, which is an honor to receive and is a confirmation of the performance of that year; this award strengthens the competition between the different sites11,12,13. Circular economy - Redesign products

To decrease the impact of their products, Interface is redesigning its products17. They approach this redesign from different angles, from reducing up to 50% of the yarn with the use of a different technology till making yarn from a bio-based raw material, the castor bean. This castor bean eliminates the usage of fossil fuels, and can be harvested twice a year and prevents soil erosion. Although bio-based alternatives might be a good solution for the scarce fossil fuels, it should be examined whether growing such a bean is good for the environment as well. It should not influence the food supply for local citizens for example. Interface tries to mix different solutions to decrease possible negative impacts of alternative solutions. Besides this, a technology is borrowed from NASA to cut the tiles in pieces, resulting in less waste because of its high accuracy and efficiency18.

Besides the redesign of new products, customers are informed about maintaining their current flooring. By applying regular maintenance, the floor can be maintained for a longer period of time. At the moment customers want to replace their floor, Interface points out the advantages of their modular concept. Single pieces can be replaced to give a new look to the ‘old’ floor.

Circular purchasing approach - Net-Works

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30 Measurability & Supply chain approach

For assessing the products and processes of Interface, LCA’s and EPD’s (Environmental Product Declarations) are used1,4. In the EPD’s all raw materials are listed, throughout the complete supply chain. LCA’s are also used internally to align the different departments and Interface cooperates with their complete supply chain (even cross-sectorial) to find the best sustainable solutions.

Digital platform

Knowledge sharing is done by using a digital platform1. Employees can exchange best practices and ideas, or ask questions for challenges they face. A challenge was organized to get new ideas that contributed to the mission statement of Interface. Employees were asked to post new ideas / improvements and ask their colleagues to like their contribution. The idea with the most likes won the challenge, and other ideas were also considered to improve the situation at Interface.

Summary – found elements

- Interface has a clear mission and vision7, resulting in the strategy to achieve mission zero by 2020. The driver6 for this shift is the awareness that a linear economy cannot continue forever, a circular economy is required to continue doing business.

- KPI’s are formulated2, considering a baseline measurement3 in order to know exactly the current position4 and translating the targets in operationalized actions. Not achieving the target for one year is not an issue; the target for next year is reconsidered to achieve the final set goal in 2020. - The circular economy is implemented as a business model and is incorporated by sourcing different raw materials, decreasing the impact by using bio-based materials, recyclable contents and optimizing the processes and products8,11,12,17,19_{. Using renewable energy and of course}

reducing energy decreases the total impact of Interface17,20.

- Measuring impacts is done by applying tools such as LCA, EPD and knowledge sharing is done by using a social network (platform) to share ideas and solutions1,4.

- Employees are involved by giving them a mandatory training in level 1 and 2, whereby the employees are asked to implement sustainability in their own functional area. Being an ambassador is incorporated in level 3, which is voluntary11,12,16.

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3.6 Model formulation

This section describes the formulation of the framework that is developed after conducting all the interviews. In figure 3-4 an overview is given of the elements that were added to the initial framework after conducting the interviews.

FIGURE 3-4 OVERIVEW MODEL AFTER INTERVIEWS

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32 Within the eight categories different levels of maturity are established, making a comparison between the organizations possible. The maturity levels represent different phases that ultimately lead to a sustainable organization; supported by the findings of the interviews, where it was found that organizations followed comparable steps in their attempt to become a sustainable organization.

The formulated maturity levels support the assessment of their performance on sustainability and make comparison between the different organizations possible.

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4 Framework validation

This section elaborates in more detail on the established model in the last section, the model with the maturity phases. The results of the interviews were transformed and categorized to the different phases in the maturity model. In order to validate the established perception, questionnaires were sent to the assessed organizations.

The questionnaires considered the same categories with its maturity levels as in the previous section, only one category was added. This question was about the motivation of the organizations; how do they consider their performance on sustainability in 5 years? The outcomes of the questionnaires and the earlier established perception of the performance during the interviews are combined into one figure. This figure displays the performance on the different elements among the different organizations. An overview of this model is given in appendix 6. The answers on the open questions of the questionnaire can be found in appendix 7.

FIGURE 4-1 SUSTAINABILITY PERFORMANCE

The maturity model is translated into scores; green dots represent 1 point and mean that the subject is implemented on that level. The orange dot represents work in progress and represents a score of 0.5. At the moment the organization is implementing the element on different levels, it can be the case that there are two or three subsequent orange dots. The scores of these dots are as follows: the second orange dot receives 0.25 and the third one 0.125 (The score of each additional orange dot is halved). The total score that can be reached for each element is 4. The overall score is then established by

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34 summing all values of 1 respondent (either from the interviews or from the questionnaires) and then averaged by dividing the summed scores by the amount of respondents. These averages are displayed in the radar diagram (figure 4-1). There was one big difference present in the results. The results of Scania from the questionnaire and the established view based on the interviews were very different. Probably this bias is present because of the scope; during the interviews the scope was set on site-level, whereas the questionnaire considers more or less a corporate scope. The values for this calculation are explained in more detail in appendix 6.

4.1 Hierarchy among the elements

During the interviews and the validation of the elements it became clear that among the different identified elements a hierarchy is present. It is noticed that sustainability is implemented with a certain sequence. As depicted in the following figure, the elements of the earlier defined model are now indicating the sequence of the elements that require consideration while implementing sustainability in practice.

FIGURE 4-2 HIERARCHY ELEMENTS

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35 help with formulating goals, measuring current performance, and indicating the right actions in order to improve the situation. In fact, it is stated that if an organization is able to measure all impacts and processes, it is more likely that sustainability is also incorporated in their processes. The other component that should receive attention is the social component. Communication is of great importance in implementing sustainability. This component is separated into two parts; internal communication and external communication. Internal communication deals with the involvement of employees, so that they know what sustainability means for their organization, as well as how they can incorporate sustainability in their functions. Besides this, the permeation of communication is an important one, permeating the whole organization with the sustainability goals are required to get involvement and get things done. For the external communication, the supply chain orientation is part of this. Involving upstream and downstream tiers is important to change the whole supply chain. Besides this, reporting and communication the world of your performance on sustainability helps also.

Best practices on the implementation of sustainability in leading Dutch industries.