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Pipe Dreams

Pipe Dreams

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Published by IFC Sustainability
Case Study excerpted from IFC's Market Movers publication.
Case Study excerpted from IFC's Market Movers publication.

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Published by: IFC Sustainability on Jun 29, 2011
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02/01/2013

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Mrket Movers
14
CASE: AMANCO
PIPE DREAMS
amnco hs grown to beltin americ’s edingmnufcturer of pstic pipesnd fittings with  strtegytht hs buit-in sustinbiity.
The Sao Paulo-based company wasbought for $500 million in February2007 by Mexichem, a Mexicanchemicals manufacturer that isquoted on the Mexican stock market.Mexichem was one of at least nineorganisations interested in purchasingAmanco at the time of its sale,attracted, according to CEO RobertoSalas, due to Amanco’s leadingposition in Latin America, its proventrack record of profit growth and itssustainability commitment.Sustainability – or the triple bottomline (TBL) approach, as it is calledinternally – first became part of thecompany’s competitive strategyunder previous owner, GrupoNueva,as Amanco searched for the bestway to attain price premiumsnotes Andreas Eggenberg, a formersenior executive. Amanco is in amarket that is highly commoditised.A pipe is a pipe is a pipe. Differen-
Twenty-first century companies need to integrate themselves much more closely with what is happening in society in general. Those that don’t will be relegated to Jurassic Park.” 
Julio Moura, president andCEO of GrupoNueva
tiation through innovation is theonly way to escape from that typeof low-margin ‘commodity hell’.But the benefits of many forms ofinnovation in the industry oftenprove short-lived; new productssometimes have a competitiveadvantage for just a matter ofmonths.So the company has differentiateditself by developing a brand thatis associated with sustainability inall the countries in which it oper-ates. This is partly reinforced by itsnew products, which systematicallytake account of environmental andsocial impact. For example, the com-pany has taken the precautionaryapproach in identifying a substitute,calcium zinc, which can be used toreplace lead-containing compoundsin its PVC piping at an extra costof only 3.5%. Then it developed anew plastic technology for sewagepiping that is more water-tight thanany comparable material, and alsocheaper to install.The company has a wide range ofclients and it develops productsand services specifically for differ-ent groups. It has, for instance,been developing a scheme basedon the base of the pyramid (BoP)concept, identifying products andservices designed to improve socialconditions for low-income custom-ers while creating value for thebusiness. The company invited itsemployees to come up with busi-ness plans for the scheme and itreceived 250 proposals, some ofwhich are now up and running.The initial BoP project was a$100,000 investment in Guatemala.Small farmers there do not haveaccess to reasonably priced financeto buy the agricultural irrigationkits that Amanco was proposingto sell, so the company found part-ners who could help with trainingand financing – including the Inter-American Development Bank andthe NGO Opcn. There were soundbusiness reasons for choosing Gua-temala – it had some 300,000 smallfarmers who could be potentialcustomers. Despite their limitedresources these farmers haveproved to be a good credit risk.The gradual build-up of the com-pany’s reputation for innovationand sustainability through thedevelopment of this sort of newproduct and service has beenbacked by a concerted attempt tolead discussions across the regionon the sustainable use of waterresources and on transparency.Amanco was a leading supporterof the Fourth World Water Forum,held in Mexico City in March 2006,and it has signed agreements withother firms in the sector to increasetransparency and hence to reducethe opportunities for corruption.The company’s financial performancehas been uneven across the conti-nent. Although it is the leader inits Spanish-speaking markets, it hasa much less dominant position inBrazil, even though Brazil accountsfor over a quarter of the company’stotal sales and is its biggest singlemarket. Nevertheless, Amanco’sefforts to strengthen reputationand brand have been working – and the company has gone frombeing relatively unknown in Brazilto being widely recognised andhighly trusted in only a few years.
 
Market Movers
17
 
Sustainability performance
What you measure is what you get
Amanco has been a pioneer inmeasuring the impact of its TBLstrategy, building on the ideas ofRobert Kaplan, a Harvard profes-sor of accounting who in the 1990sdeveloped a method of extendinga company’s measure of its perfor-mance beyond the financial. Onthe understanding that what youmeasure is what you get, he set outa concept he called the ‘BalancedScorecard’.
10
This added otheryardsticks of company performance,such as customer satisfaction andlevels of innovation, to the classicprofit and loss account. The ideaaroused widespread interest.Amanco has extended the idea ofthe Balanced Scorecard to embraceboth social and environmentaldimensions. It has begun to producewhat it calls a ‘Sustainability Score-card’ (see Figure 6 on page 41), andits efforts stimulated Kaplan himselfto co-author a Harvard BusinessSchool case study entitled ‘Amanco:Developing the SustainabilityScorecard’.
11
It is a constant chal-lenge for companies to measure theimpact of the sustainability elementof their strategies, and Amanco hasgone as far down this road as any.Amanco first introduced its Sus-tainability Scorecard in 2003 andit has been continuously refinedever since. Initially it focused on thesocial impact on employees and thecommunities around its factories.But it has since been expanded toinclude business with low-incomecustomers, fighting corruption inthe sector, and indicators on acci-dent prevention and eco-efficiency.It is difficult to measure the impactof every aspect of Amanco’s sustain-ability strategy. The specific benefitof efforts to lead the debate onwater resources and transparency,for instance, cannot be quantified.But Jorge Ramirez, the company’sfinancial director, is convinced thatthe extensive media coverage thatthese initiatives receive has a posi-tive effect on consumers’ awarenessand attitude towards the company.There is less doubt about the ben-efits of the company’s efforts toreduce waste and to lower accidentrates. These are all measured andmanaged, and have a positive impacton costs.The BoP segment, although still small,already generates over $4 million inrevenues and the company believesthe BoP idea has high growth poten-tial, projecting that income from itwill double year-on-year. Since theinitial project in Guatemala, thecompany has developed new ideasincluding a pilot financial servicesprogram for the residential buildingand installation segment in Brazil,launched in 2005. The programprovides credit cards to low-incomecustomers who lack access to thebanking system enabling themto purchase building materials.Amanco has also set up a pro-gramme to train plumbers fromlow-income groups, certifyingthose who successfully completethe programme as ‘Doctores deConstrução’, a brand which addsvalue for the plumbers. For Amanco,this is also part of developing thecompany as an alternative to themarket incumbents in Brazil, whowere already working with thewell-established plumbers. “Theonly way to success is with surprise – doing something differently,”says Salas.To some extent Amanco’s distinc-tive culture is self-sustaining. Thecompany attracts the sort of em-ployees that want to make it work,and who gain satisfaction from theidea. Amanco has frequently beennamed as a Top 100 employer inBrazil, and in 2007 Amanco Ecuadorwas cited as the fifth best employerin all Latin America.
12
Market Movers
15
   C  o  u  r   t  e  s  y  o   f   A  m  a  n  c  o
10
 
RS Kaplan and DP Norton, ‘The balanced scorecard: measures that drive performance’,
Harvard Business Review,
Jan–Feb 2002.
11
 
Ricardo Reisen de Pinho and Robert Steven Kaplan, ‘Amanco: Developing the Sustainability Scorecard’, Harvard Business School Case 9-107-038, January 2007.
12
 
Citations by the Great Place to Work Institute, www.greatplacetowork.com/ (27 August 2007).

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