Accelerating DEI agenda for companies, their reporting and KPIs
5.9.2024
Masterminds
Both researchers and industry experts concur that workplaces with diverse and inclusive environments make positive impacts on organizations. They point out that having diversity, equity, and inclusion (hence DEI) initiatives at work improves corporate culture, client relations, enables the organization to move into new markets and even positively affects profitability. The three essential components – diversity, equity, and inclusion are interlinked and, when combined with business strategies, can help organizations thrive amid societal changes. (Ely and Thomas 2020.)
These topics inspired me during my MBA studies and I chose them as a topic for my Master’s thesis. In my thesis, I collaborated with a company in Finland that has a nascent DEI strategy and was interested to develop a roadmap to amplify the benefits of having DEI in the workplace to the company’s leadership.
Why the need to place a focus on DEI?
Diversity, Equity, and Inclusion (DEI), as a social pillar of sustainability policies, is part of the global goals in order to make a positive difference in own industry, as well as generate impact on society. DEI topics, as non-financial indicators, may be difficult to measure, unless they are conceptualized and well aligned to the strategy. This may pose a challenge to smaller companies, new to this area, and therefore the experience and developments in big companies deserve attention and dissemination.
Especially the appropriate selection of DEI indicators is the necessary step for any organization in the new era of CSRD. For organizations, key performance indicators (KPIs) are the essential managerial tools to determine whether the company is headed into the right direction. Metrics are vitally important, as evidenced by the proverbs "if you can't measure it, you can't manage it" and "what gets measured gets done" (Marr 2022). The DEI KPIs are important not only for reporting, but for implementing and truly “living” the strategy of the organization. They are indicative tools that will shed light on performance and point out the areas that require special care.
A look at EU’s Corporate Sustainability Reporting Directive (CSRD)
For the last two decades, the EU has been a champion in promoting DEI. The latest CSRD regulation (adopted since 5th January 2023) and its newly adopted EU standards (ESRS) include not only sustainability, but also - profoundly - social issues reporting, including DEI (see ESRS S1). As communicated in the EU Commission’s website on Corporate sustainability reporting:
“Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). The standards were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives.”
This latest EU CSRD legislation requires that all large companies disclose the information on the opportunities and risks they perceive as emerging from social and environmental issues, as well as their effects of their actions on the environment and human population (EU Commission, Press Corner, Q&A, 2023). At the European Commission's request, EFRAG (European Financial Reporting Advisory Group) drafted the standards to enforce the proposed CSRD, that focus on appropriate due process, transparency, and the knowledge of pertinent stakeholders. The 12 new standards (ESRS) cover the full range of sustainability issues and include the four significant “must-do” reports under the social facet, namely:
ESRS S1: Own workforce
ESRS S2: Workers in the value chain
ESRS S3: Affected communities, and
ESRS S4: Consumers and end-users.
The ESRS standards point to a range of recommended metrics for disclosures under the social pillar, namely in “ESRS S1: Own workforce” (such as the characteristics of the undertaking’s employees to collective bargaining and social dialogue). Figure 1 shows the range of KPIs in the newly adopted CSRD and ERSRS recommended for corporate reporting.
Figure 1. Metrics recommended by EFRAG for ESRS S1: Own workforce” (EFRAG 2022. Educational session on the first set of draft ESRS).
In addition, the newly adopted CSRD and ESRS give room for flexibility to organizations which specific aspects of DEI they can select for reporting on their DEI related topics. Especially the gender diversity policies are seen as the most common focus in workplaces and reporting practices. By having a gender-balanced workforce, companies can demonstrate their commitment to having an inclusive and equitable work environment.
This condition gives a unique chance to the front-running companies to excel and stand out among competitors by demonstrating their leadership via adopting not just mandatory, but wider reporting practices, beyond the required minimum.
Nordic companies are at the forefront in DEI reporting
Companies, especially the larger ones, have undergone digital and other transformations in the past decades. These changes were also closely related to sustainability and diversity issues. The organizations that successfully embraced these efforts as part of their business strategy were immediately spotted by other industry players, to a big extent, due to their excellence in reporting. These companies have managed to set examples of reporting that other organizations - as well as students in DEI topics - can learn from. The widely acknowledge examples of DEI leadership from Nordics include, for example, the following front-running companies. AFRY can be considered as an inspiring example of a leading international engineering, design, and advisory company when it comes to sustainability reporting. AFRY´s Annual and Sustainability Report 2023 (published in March 2024) measures and follows us on sustainability commitments through targets that encompasses its solutions, operations, and people. It also monitors its progress on a wide range of KPIs in DEI area (which is especially obvious when comparing to reports on DEI topics published in 2020 or earlier). Also, CGI make an interesting example among the largest IT companies in Finland that emphasizes in its DE&I governance. DEI is endorsed by the CEO and the executive committee, and that accountability for DE&I is a shared responsibility. DEI topics are embedded in the annual business plans for each Strategic Business Unit (for example, in CGI 2022 ESG report, p.45). The company clearly indicates its DEI targets and KPI also in its 2023 Sustainability report (published in 2024) and sets the targets, for example, to achieve the same level of gender diversity representation in leadership positions as is present across the entire company by 2025. (CGI 2023 ESG report, p.21).
These Nordic examples demonstrate that, by understanding and selecting measurable DEI targets and KPIs, the companies can create and follow more professional development plans, identify the multitude of domains where DEI can bring benefits to an organization, and thus point to a measurable impact of DEI on the overall performance. It makes this topic worth studying, also by the students at universities of applied sciences.
About the author:
Joan Mhyles Cruz is an MBA graduate in Business Informatics. In her student times, Joan was a student ambassador of Metropolia UAS and an advocate of DEI. She made this topic into her Master´s thesis done for one of the front-runners of DEI in Finland.
References:
AFRY (2022). Annual and Sustainability Report 2022. Retrieved on 30.10.2023. https://afry.com/sites/default/files/2023-04/annual-and-sustainability-report-2022.pdf
CGI (2022). Environmental, Social and Governance Report. Retrieved on 20.11.2023. https://www.cgi.com/sites/default/files/2023-03/cgi-2022-esg-report.pdf
CGI (2023). Environmental, Social and Governance Report. Retrieved on 20.04.2023.
https://www.cgi.com/sites/default/files/2024-05/cgi-2023-esg-report-en.pdf
Cruz, Joan Mhyles (2024). A DEI Roadmap for an Organization and Its Sustainability Reporting:Master´s Thesis. Metropolia UAS. https://urn.fi/URN:NBN:fi:amk-2024053018232
EFRAG (2022). Educational Session on Draft ESRS S1 Own workforce. Educational videos on the first set of draft ESRS (downloaded). Retrieved 30.11.2023. https://efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FFINAL_26.01_Long_S1_SR%2520PPT%25201%2520vers230126%2520%281%29.pdf
EFRAG (2022). European Sustainability Reporting Standards (Draft). ESRS S1 Own workforce. EFRAG November 2022. Retrieved on 20.11.2023. https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2F13%2520Draft%2520ESRS%2520S1%2520Own%2520workforce%2520November%25202022.pdf
Ely, Robin J. and Thomas, David A. (2020). Getting Serious About Diversity: Enough Already with the Business Case. Harvard Business Review, Nov-Dec 2020. https://hbr.org/2020/11/getting-serious-about-diversity-enough-already-with-the-business-case
EU Commission. Corporate Sustainability Reporting. EU rules require large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment. (online).
Retrieved on 01.02.2024.
https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
EU Commission (2023). People first – Diversity and inclusion. Fostering a diverse and inclusive workplace. Retrieved on 5.12.2023. https://commission.europa.eu/about-european-commission/organisational-structure/people-first-modernising-european-commission/people-first-diversity-and-inclusion_en#fostering-a-diverse-and-inclusive-workplace
EU Press Corner (2023). Questions and Answers on the Adoption of European Sustainability Reporting Standards. 31.07.2023 (Brussels). (online). Retrieved 20.11.2023. https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043
EUROPA. EUR-Lex. Directive - 2022/2464. Official Journal of the European Union. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance). 16.12.2022 (online). Retrieved on 10.12.2023. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG&toc=OJ%3AL%3A2022%3A322%3ATOC
Marr, Bernard (2012). Key Performance Indicators: The 75 measures every manager needs to know. Introduction. KPIs are vital management tools (xxv). Pearson Education Limited.
How to Navigate the Complex Landscape of Software and Technology Export Controls
14.6.2024
Masterminds
The early 2020s were marked by turbulence, and the resulting economic sanctions have profoundly impacted exporting companies around the world. At the same time, groundbreaking advancements in digital infrastructure, such as generative AI and intelligent automation, have sparked debates about regulations governing software and technology export controls in leading nations. These discussions aim to protect competitive advantages and shield nations from emerging threats such as advanced cybercrime and electronic surveillance by foreign entities. As a result, export control restrictions are becoming increasingly complex. I have taken up this topic to help the company that I work for to make sense of these complex regulatory issues.
Challenge: Understanding the Regulatory Framework
Given the lack of maturity in multilateral processes and national regulations, companies in the software and technology sectors must proactively prepare for new restrictions and controls. Non-compliance with foreign trade laws can lead to legal, financial, and reputational risks. Moreover, macroeconomic trends, including the global economic shift and rising protectionism, will continue to impact organizations involved in export activities. Ignoring exports, that are intangible in nature, is no longer an option. What the technology industry should have learned from the unprecedented economic sanctions of 2022 and the uncertainties surrounding global treaties is that proactive trade compliance is essential.
Master´s Thesis Offers an Approach
My Master’s thesis offers a thorough review of existing knowledge on software technology export controls, regulatory frameworks, and best practices in both the United States (US) and the European Union (EU). This information has been synthesized into a conceptual framework to help co-create an export compliance framework tailored to software offerings. The goal is to mitigate the risk of non-compliance within the sponsor organization and to clarify the roles and responsibilities of stakeholders in the export compliance process. This process involves business conduct due diligence and adherence to export control regulations, which typically cover four main categories: product controls, end-user controls, export destination controls and controls on the actual end-use.
The Wassenaar Arrangement serves as the umbrella for export control regulations. It is a multilateral, non-binding international forum that facilitates the exchange of views and information on international trade in conventional arms and dual-use goods and technologies. The EU and the US have integrated the Wassenaar Arrangement control lists into their legislative frameworks and operational practices. The US has more comprehensive legislation regarding software product-related controls, while the EU has delegated most software-specific regulations to its member states.
Key Considerations in Software Technology
When it comes to software technology classification, important aspects include encryption features and the functionality of software embedded in dual-use classified end products. The US also monitors the re-export of US-made technology in exports outside its borders. Therefore, all software product development should consider both US and EU legislation when working in international markets. A common element across the Wassenaar Arrangement, the US, and the EU concerning software and technology is the inclusion of information security within their respective national regulations.
Solution: A Tool for Export Compliance
Drawing from the information security domain, a tool for further content analysis was selected; the People, Process, and Technology framework introduced by Information Security and Privacy expert Bruce Schneier in 1999. This framework became a foundational concept in cybersecurity, emphasizing that when one element changes, the other two must also adapt to maintain a balanced and effective response to change. Schneier (2013) stressed that security should not solely rely on technology but should also incorporate people and processes into a comprehensive security system. The same principle applies to the export compliance landscape.
To prevent confusion regarding Technology terminology in export control regulations, the Technology element was modified in the thesis to represent the actual end product, transforming the framework into the People, Process, and Product (PPP) matrix. During the co-creation process with stakeholders, the PPP elements were evaluated through the four categories of export control. Identified findings and related regulatory aspects were consolidated into a matrix, with each cell color-coded to identify the responsible entity. This matrix was designed as a tool to assist in risk mitigation within the export compliance process for software offerings at the sponsor organization. It aims to verify and monitor software exports and clarify the roles and responsibilities of different stakeholders.
Preparing for the Future
To thrive, businesses must accelerate innovation, enhance risk management, and meet increasingly demanding expectations. Effectively designing and managing their people, processes, and product controls during times of change can provide the necessary insight and understanding to achieve these goals. Consequently, companies engaged in the software and technology business should proactively prepare to adopt new restrictions and controls as they are introduced. By doing so, they can navigate the complex landscape of export controls and ensure compliance in an ever-evolving global market.
About the author
Aino Herranen is a graduate of Master´s degree program in Business Informatics. Aino has a keen interest in technologies and export compliance, and has selected this area for doing her Master´s thesis.
References:
Herranen, Aino. 2024. Building an Export Compliance Framework: Intangible Technology Transfer – Software offerings. Metropolia University of Applied Sciences. Master’s Thesis.
https://www.theseus.fi/handle/10024/856483
Schneier, Bruce. 2013. "People, Process, and Technology". Blog. Pulished 30/01/2013.
https://www.schneier.com/blog/archives/2013/01/people_process.html
This document benefited from the use of OpenAI's ChatGPT for grammar and style checks.
How Machine Learning Can Be Applied in Demand Forecasting and Supply Planning
7.6.2024
Masterminds
Demand forecasting is known to be challenging due to phenomena such as the Bullwhip Effect (Lee et al., 1997a). Having worked in supply chain management for many years, I observed that the Bullwhip Effect is a universal issue across all industries. Companies, regardless of size, struggle with the amplification and distortion of demand information.
My master’s thesis focused on leveraging AI, specifically machine learning, to enhance demand forecasting and optimize supply chains for the case company, a producer of durable IT devices. This thesis aimed to bridge two hot topics in the digital era — machine learning and demand forecasting — by providing a practical solution within a real business context.
Effective demand forecasting and supply planning are crucial components of supply chain management. Inaccurate demand information often leads to suboptimal decisions, causing inventory imbalances and customer dissatisfaction. Many organizations struggle with business challenges due to inaccurate demand forecasts, resulting in inefficiencies, financial losses, and unhappy customers.
Recent advancements in machine learning (ML) algorithms offer new tools to improve forecasting accuracy and maintain excellent performance for industrial demand. Since 2018, Machine Learning algorithms have consistently won competitions focused on retail demand forecasting.
In my study, I employed an applied action research approach to diagnose the case company's challenges and offer viable solutions. Data collection primarily involved qualitative methods such as interviews, meetings, and internal document analysis, supplemented by quantitative data for model development. Four algorithms were used to build Machine Learning models using data extracted from the company's weekly demand reports: Linear Regression, Decision Tree, Recurrent Neural Network, and Support Vector Machine (as recommended by: Vandeput, 2023). After processing the data, performing feature engineering, and conducting training, testing, and validation, Linear Regression emerged as the most suitable algorithm based on both Machine Learning metrics and internal evaluations. Based on the thesis results, this approach was recommended for integration into the case company's existing demand forecasting and supply planning processes to support better decision-making. The steps in the approach are shown in Figure 1 below.
Figure 1. Demand Forecasting Process by Utilizing Machine Learning Model (Zhang 2024).
By leveraging AI technology, particularly machine learning, in demand forecasting and supply planning, organizations can vastly improve supply chain management. Enhanced forecast accuracy and optimized inventory levels lead to reduced inefficiencies, minimized financial losses, and heightened customer satisfaction.
My academic journey in Metropolia University of Applied Sciences has equipped me with invaluable expertise in digitalization and data analytics. Notably, Power BI and Machine Learning provided direct insights for visualizing data, aiding in the selection of the most suitable machine learning model in my thesis.
About the author
Yi Zhang is a graduate of Master´s degree program in Business Informatics. Yi is keen on new technologies and has set her personal goal to master Machine Learning for advancing in her professional area.
References
Lee, H.L., Padmanabhan, V. & Whang, S. (1997 a). The Bullwhip Effect in Supply Chains. Sloan Management Review/Spring.
Vandeput, N. (2023). Demand forecasting best practices. Manning Publications. Available from: https://learning.oreilly.com/library/view/demand-forecasting-best/9781633438095/?sso_link=yes&sso_link_from=metropolia-university
Zhang, Y. (2024). Machine Learning Applied in Demand Forecasting and Supply Planning. Metropolia UAS, Master´s thesis, 99 pages. Available from: https://www.theseus.fi/handle/10024/857760
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