Q&A: Warren Wilson, Ovum

As sustainability moves higher up the social and political agenda globally, its importance within the corporate sphere increases correspondingly. Companies looking to comply with new environmentally focused legislation (and to satisfy the growing demand among consumers for verifiably green products) are beginning to address the need to demonstrate sustainable practices throughout their supply chain - including activities well beyond their own hands-on involvement.

Industry analysis firm Ovum recently released a report entitled Green Supply Chains: A Large but Daunting Opportunity, looking at how the increased attention paid to sustainable issues will create significant potential for firms able to provide suitable software solutions which give companies accurate and deep data on the environmental impact of their supply chains. SSON spoke with Ovum research director Warren Wilson about the issue in question, asking what exactly are the drivers behind this "daunting opportunity" - and which firms stand to profit from the situation…

SSON: Warren, why is supply-chain management becoming an increasingly key area for organizations with regards to their environmental and sustainability policies?

Warren Wilson: Supply-chain management is becoming important to sustainability because, one, organizations face increasing pressure (from consumers, regulators, even investors) for environmental accountability; and two, accountability requires the collection and aggregation of consistent, reliable data at all steps in the product life cycle, from cradle to grave – i.e. the supply (and distribution) chain. Software can help to automate that process and make it practical.

SSON: At present, how developed is the market for software which can help companies meet their responsibilities in the areas of sustainability and the environment?

WW: Today the market is highly immature and fragmented. There are many custom solutions, but for the most part, the vendors that could deliver these capabilities at scale – the major enterprise application vendors – are just beginning to factor sustainability into their product plans.

SSON: And how do you see this market developing over the next five or so years - and why?

WW: I think the next three to five years will see market and regulatory pressure continue to grow; a lot of new software products introduced; significant progress on standardizing definitions and methodologies. But mature solutions will take longer – there are too many cats to herd.

SSON: How likely is it that we’ll see firm and globally accepted international standards for environmental data of the type under discussion put in place within the next decade? And how reliable can this data ever be?

WW: I’m optimistic that well-defined standards will emerge in much less than a decade. There are at least a half-dozen initiatives under way, and some have already made great progress, so I think we’ll see significant progress as soon as one or two years from now, though it will probably take longer for the field to be winnowed down to a workable number and for the industry to coalesce around those. As for reliability, I think we’ll also see the emergence third-party verification/certification organizations and processes, similar to LEED [Leadership in Energy and Environmental Design] in the building industry.

SSON: You’ve written that delivering software solutions of this type "poses complex challenges" - what are the most prominent of these challenges, and why the complexity?

WW: In the case of supply chain management the "what" and the "why" are almost the same – it’s the fact that you have to consider the entire life cycle, all way back to source materials (iron ore for the steel that goes into the auto chassis; oil that goes into the plastic bag – and the energy used to mine/product/process/transport those things, etc.) and all the way forward to disposal/recycling/reprocessing. It’s a challenging problem even for seemingly simple products; for highly complex ones it becomes orders of magnitude more challenging. But it’s that complexity that creates the software opportunity – effective solutions will require automation that only software can provide.

SSON: In the absence of robust legislation requiring firms to quantify fully the environmental impact of their supply chains what are the incentives for them to do so (thus justifying the investment in new appropriate software)?

WW: Regulatory pressure will be very important, but so will consumer demand. Already, consumers are showing a preference for "green" products and in some cases a willingness to pay a bit more for them. At some point the question changes from "Is this product ‘green’?" to "How can I trust that it’s ‘green’?" Answering that question will drive market creation/adoption of standards and verification processes. Investors also have an interest – for example, as consumers begin to favor companies with better environmental track records, and as carbon becomes a tradable commodity.

SSON: What will be the cost implications of new software of this type? Can’t - won’t - major companies that do wish to quantify this impact develop in-house solutions?

WW: As always, costs will be high initially, so early adoption will be limited to organizations with pressing needs. As the need become more widespread (as regulations proliferate and consumer demand increases, for example), software vendors will have increasing incentives to scale up these capabilities and bring costs down. Some companies will build in-house solutions, but they’ll be reinventing the wheel. Environmental monitoring will essentially become another stream of data, similar to those already managed by enterprise applications like ERP, SCM, BI; why not leverage those investments?

SSON: Who do you see as being the leaders in this new market (and why) - or is it too early to tell?

WW: It’s too soon to tell, but the big vendors certainly have important advantages in scale, installed base, etc. In their existing solutions, they already have much of the horizontal capability needed to address sustainability; they’re starting to acquire and/or partner for the domain expertise required to tailor these products for specific industries and markets.

SSON: What steps can and should organizations be taking right now to prepare for the developments you're predicting for the years to come?

WW: If ever there was a process worth the clichê "it’s a journey, not a destination," it is environmental management. You don’t put sustainability processes and tools in place and forget them; you have to monitor them consistently, sometimes in a fairly fine-grained way – and software has a key role to play in accomplishing that. Companies have to understand the requirements they will face over the next several years, and start factoring that reality into their IT strategies. Then they have to assess whether their software vendor can address their needs, not just today but several years out.