You might be wondering just what in the world a “BHAG” is—never fear. Al Halvorsen, Senior Director of Sustainability at Frito-Lay North America is just the guy to tell you all about them. Accomplishing BHAGS—or “big, hairy, audacious goals”—is Al and his team’s specialty. In just over a decade they’ve fundamentally changed the way Frito-Lay does business by integrating sustainable best practices into the corporate culture and operations. In this Green Line Series Interview, Al tells us how they turned their BHAGs into reality and saved the company millions in the process.
GoGreen Conference: When did sustainability and efficient energy use hit Frito-Lay’s radar and what was the initial motivation for the company to get started in this? Did it come from the employees at the grassroots level or was it something the leadership embarked on from the top?
Al Halvorsen: We started with a program back in 1993 when we created green teams in all of our facilities. The primary responsibility of those green teams was to ensure the environmental compliance position of our manufacturing facilities was met. But out of that initiative came a focus on resource conservation as well as environmental compliance.
Officially, Frito-Lay created our own department of energy in 1999. At the time, we were focusing mostly on energy efficiency and water efficiency—plus helping to drive costs out of the system and improve the bottom line results of our manufacturing operations. We set some pretty aggressive goals in ’99 to shoot for drastic energy reductions and we put a team in place alongside our global productivity initiatives.
GG: You’ve achieved those original goals for the most part. Have your sustainability initiatives been profitable as well as socially responsible? Do you find that sustainability and profitability can be uttered in the same sentence?
AH: Yes, absolutely. So your first question was about profitability— and I would say that our sustainability initiatives have been very profitable. Back in ’99 we set targets to reduce our water usage by 50 percent per pound of product produced; our natural gas use by 30 percent; and our electricity use by 25 percent. Right now, we have achieved a 45 percent reduction in water, 33 percent reduction in natural gas and about a 25 percent reduction in electricity. This goes along with our initiative to drive efficiencies in our motor fuel usage, which we started a few years later. Overall, if you combine all of those reductions, Frito-Lay, as a company, would have spent about 80 million dollars more on those commodities to run our business and operations if we had not put those sustainability measures in place. When you look at profitability, these sustainability initiatives are delivering daily to the bottom line.
Then when you look them at from the standpoint of combining performance with purpose—this is really where the results take on significant meaning. We are constantly driving higher performance. In that alone our program is sustainable because we are delivering to the bottom line and responsibly managing resources. But there’s also a purpose behind it. The purpose behind our efforts is to reduce our overall environmental footprint. So, by reducing water, we’re not only reducing what we pay to bring water in and to take water out of our systems and plants, but also saving that water for future generations. By burning less natural gas, using less electricity, we are not only reducing costs but also lowering our CO2 emissions.
GG: So you’ve set these big goals for yourselves. Why do you go with the “Go Gig or Go Home” approach? Many times we hear it’s best to take sustainability in small steps, but Frito-Lay seems to be more comfortable setting aggressive and challenging goals.
AH: I was in the field at the time we set goals in 1999, but I heard many times from my co-worker who started our official resource conservation initiatives that he got push-back when he initially proposed a set of typical reduction goals and reduction strategies. The company said that two percent here and three percent there were not the kind of goals they we were looking for.
At the time there was a book just out by Jim Collins called Built to Last that talked about, what he called, “Big, Hairy, Audacious Goals.” We took that as our rallying cry and said, “Look. We’re not just going to shoot for a 10 or a 12 percent reduction. We’re going to set some really big goals.” As Jim Collins describes in the book, the BHAGs should be the type of goals that make you uncomfortable and make you sit up in your chair a little bit. They’re the kind of goals that have the tendency to make you first think that you’ll never be able to get them, so why even bother?
But setting those big goals fundamentally changed our vision. In the first round —when we were looking at these lower goals—the vision was to just improve the steam systems and the compressed air systems. But in order to get a 50 percent reduction in water, we had to fundamentally look differently at how we do business, how we make our products and cross some boundaries. We had to start looking at our products and start asking questions about how and why production standards got set and how we could cut them in half.
We challenged our R&D department to join the energy team and identify opportunities to change some of these standards in order to achieve our BHAGs. That collaboration really helped open up a whole host of productivity initiatives and resource conservation solutions. That’s what setting the BHAGs did for us—it got us out of our comfort zone and into an area of strategic problem solving. It’s a difference of philosophy. Do you set shorter, smaller goals and maybe put a time limit on them? Or do you make the decision to put an aggressive goal out there and worry less about timelines?
We went for the latter. We never said we’re going to hit these goals within a fixed time frame just that we are shooting for a 50 percent reduction. Then the question and the challenge was centered not on would we get there, but how fast can we make it happen? It kept us looking for the next generation of projects in order to consistently drive performance.
GG: How is your team held accountable to achieving those “BHAGs,” as you put it?
AH: It’s a unique process here at Frito-Lay. We are definitely in this together. We have a team at Headquarters focused on developing projects and executing audits/interfaces with the plants. But we also see real value in having interactions between the two parties and striving for continuous improvement at our manufacturing facilities. Our technology managers and facility engineers are responsible for the energy program in their facility and they are challenged every year to reduce their costs. So for us to continue to deliver, we set overall productivity targets and allocate these targets out to the field managers.
Our annual reviews are based on how well our entire team delivers on those productivity targets and how well we perform to our plan. Our sites and site managers’ performance reviews are measured based on those same metrics but theirs are plant specific.
We are now starting our annual operating plan for 2012, so I have recently given the manufacturing plants their first round of productivity targets for next year. We work together to reach those targets. I need their buy-in. My team can’t be at every plant, every shift, on every line in order to turn off those conveyers, tune those burners or boilers. We need the entire 50,000 employees we have at Frito-Lay engaged in this process as well. There has to be a good partnership between Headquarters operations and our field operations to keep delivering these results.
GG: This planning process, how intensive is it? What are some of those key steps in the planning of every initiative, such as assessment?
AH: Our planning process is pretty intensive. We do an energy audit on every facility on an annual basis. During our audits, we look at energy from a commodity-use standpoint—so we’re looking at how much energy each plant used to make their assigned products. We also do a lot of score carding, rating plants on their performance and tracking their performance from year-to-year. We also compare plants to other locations using our own internal metrics on water efficiency and thermal efficiency.
Through this modeling, we compare performance based on the technology at a given facility. We set performance standards based on the products they produce, because making a pound of potato chips uses dramatically more energy than it does to make a pound of Cheetos. So we adjust their goals and levels of resources they should be using to a unique thermal efficiency target for that location. We even utilize heating degree days to offset the difference between our northern plants and southern plants. Because if northern plants are trying to keep their buildings at 60 degrees in the winter and it’s minus 20 degrees out there, of course they are going to use a lot more energy to accomplish that.
That modeling is also the foundation for identifying plants that may have greater opportunities. When we are allocating productivity targets out to the field locations, we’re able to adjust productivity targets to certain locations to account for more opportunity. For instance, if a plant has done everything they can in terms of running what they have efficiently, we’ll give them a much smaller amount of the productivity bucket and we’ll also challenge the other plants—that may not have been focusing as hard on these resource conservation issues—a bigger target.
GG: You mentioned some of your past and current priorities were water reduction, energy reduction, and fuel efficiency. What are your top priorities now, looking into the future?
AH: In PepsiCo’s 2009 Annual Report, we published 47 commitments we made in our Promise of PepsiCo. We have 15 environmental sustainability goals, and those are our priorities. It is our mission at Frito-Lay to help deliver those goals. Our performance dramatically effects how PepsiCo is performing as a whole. We’ve set a new baseline—and some new BHAGs— based off of 2006 data to reduce water use by an additional 20 percent, natural gas use by 25 percent, and electricity use by 20 percent. All of those goals, plus several others are highlighted in the Promise of PepsiCo document.
GG: What do you think that business professionals attending a conference, specifically GoGreen ’11 Phoenix, receive as a key benefit of coming together to share ideas and creating a dialogue around sustainability?
AH: I feel one of the key benefits of coming together is simply to have an open dialogue about Environmental Sustainability.
We at PepsiCo and Frito-Lay have been very successful in the past at reducing our energy and water use, but we don’t have all the answers. For us to continue being successful, we need to talk with other companies and share sustainability best practices.
We make potato chips, but could we learn from other companies such as Intel? I bet we could. They make computer chips and they use very different water systems, but I bet there are common challenges we both face. Just because we are in different industries doesn’t mean we can’t cross-pollinate and share sustainability best practices that worked and lessons learned on things that didn’t.
Al Halvorsen is the Senior Director of Sustainability at Frito-Lay North America. Learn more from Al at GoGreen ’11 Phoenix, where he will give keynote remarks, November 15th. For more information on GoGreen ’11 Phoenix or to register, please visit: phoenix.gogreenconference.net. Get the latest GoGreen ’11 and sustainability news from our Twitter feed (@GoGreenConf) and Facebook Page (facebook.com/gogreenconference).