Impact Assessmenr and Prolccr
Appmisnl, volume 17, number 2, June 1999. papzs 141
145. Beech .Tree Publishing, IO Watford (‘lose, Guildford, Surrey GUI ZEP, UK.
Corporate strategy Integrating environmental consequences and impact assessment into design processes and corporate strategy Thomas W Mason, A Thomas Roper and Alan Porter
As we enter the 21st century, it is clear that products and processes must be designed to contribute to sustainable development. This paper shows that there are forces that make integration of environmental consequences in design processes a profitable part of corporate strategy. Businesses should be considering impacts not only because it is bestfor our world, but also because there is increasing evidence that it may be the most profitable approach as well.
Keywords: impact asscssmcnt; cnvn-onmental assessment; corporate strategy
R
APID CHANGES IN TECHNOLOGY have often been blamed for the unanticipated imacts that affect the environment and society in which they are implemented. Measures to ameliorate the negative effects have been implemented over the years, but traditionally it has been after the new technologies and their benefits have been embraced. In addition, the historical approach to restraining the effects of technology has been to look at the bad effects one at a time to try to figure out constraints that might eliminate or at least reduce them. This usually only happens after political struggles over regulations, and the enforcement of the resulting policies is often difficult because the businesses based on the technologies are the only parties with long-term sustainable interest. During the 70s the technology assessment (TA) movement attempted to establish mechanisms for looking at impacts well before negative consequences were encountered. While the seeds of environmental management and control that were sown in that era have brought forth changes in levels of harmful emissions, the broader issues associated with technological development were not pursued with the same success.
Thomas W Mason and A Thomas Roper arc at the Rose-Hulman Institute of Technology, Tcrrc Hautc, IN 47803, USA; E-mall:
[email protected] a n d Alan.Ropcr@RoscHulmanxdu. Alan f’ortcr IS in Industrial and Systems Engmecring, Georgia Institute of Technology, Atlanta, GA 30332, USA; E-mail: Alan.Portcr(cclSYE.GATECH.edu.
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Increasing awareness of the need for ecological system concern, rather than just modifying specific sources of emissions, seems to present an opportunity to once again take an holistic view of production and consumption and their effects. Alan Porter (1997) has pointed out that there are lessons from technology assessment for advocates of strategic environmental
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The motivations are coming from the realizations that: resource-prudent processes can reduce costs; significant portions of the market respond to socalled ‘green marketing;’ long-term liability exposure exists for products and by-products of production; and practices bringing favorable results yield sustainable competitive advantages.
Reducing costs by ‘green’ behavior ‘K, ol~puhlubm
authored
,n Inducm
Figure 1. Number of articles in seven related research areas against percentage authorised by industry Note:
Popp = percentage of companies’ papers in all papers of a domain
assessment (SEA). Moreover, the tools of impact assessment (IA), which evolved from TA are essential to the achievement of sustainable development. It may be that businesses, especially those based on technology, are now more receptive to systemic thinking about strategy. Historically, technological changes were viewed by business as perhaps fortuitous, but probably unpredictable, phenomena that might be increased by expenditure on R&D. The connection between discovery of new knowledge and product or process change was not well understood and was assumed to be a very long-term matter. At a time when business focus was clearly short-term, long-term consequences seemed safe to ignore. - The realities of the 1990’s globally competitive world have changed these perceptions. Research on “sustainable technology” is increasing (Porter, 1998). Furthermore, industry is an active participant. Figure 1 shows the number of articles on each of seven related research areas (tallied from EI Cornpendex over the past decade) plotted against the percentage authored by industry. Now, businesses view technological change as an integrated component in their overall competitive strategy. Hence, the direction of technology improvement must be influenced by cross-functional processes aimed at overall corporate success. The old phase-dominant practices of throwing research output over the transom to development people, who worked on it and threw it over the transom to manufacturing, who worked on it and threw it over the transom to marketing, who then tried to figure out who might be persuaded to buy the product, are replaced by concurrent engineering and total quality management (TQM) practices that design in the characteristics needed for success in the market place. Will the various forces on design and production of products include effective direction toward the goals of sustainable development? There is increasing evidence that the potential exists now to get businesses to incorporate requirements for the environment and society into their internal processes. 142
Engineering for sustainability can reduce costs in a number of ways. Repetto (1997) has argued that pollution laws have boosted productivity, which will lower costs. A University of Michigan study revealed that companies saw operating performance improvements and higher returns after pollution prevention programs were implemented (Wasik, 1996, page 3). The TQM approach is geared to doing things right the first time and minimizing waste and rejects. This means less demand for materials and less waste to be either processed or absorbed by the environment. The continuous improvement management approach associated with the quality movement and the needs to increase competitiveness together can compel continuing efforts to cut costs, which can, in turn, mean less demand for resource extraction. In the steel, paper, aluminum and other industries there have been technological advances that have increased the amount of recycled materials that can be used as inputs. For example, paper mills operate with almost 100% recycling of key chemicals and water, thereby easing siting, community relatrons and water problems. This recycling is not done because of the social conscience of the firms in these industries; it is done because it is good business. Ray Anderson (1998) has embarked Interface, a carpet company, on a mission to become a fully sustainable corporation, demonstrating increasing revenues and profits in the process. Such demonstrations will lead other firms to strive for sustainability as well. ‘Green marketing’ as a source of profit from environmentally responsible behavior is even more apparent. Menon and Menon (1997) concluded that there is an “emerging consensus” that goals such as
Paper mills operate with almost 100O/~ recycling of key chemicals and water, thereby easing siting, community relations and water problems: this is done not because of social conscience, but because it is good business
Impact Assessment and Project Appraisal Jrtrrc 1999
Impact assessment in corporate strategy
A _ _____ ___ .___ __ _ _. __ __
G’s unit cost curve A’s untt cost curve
A
G Outputs
Figure 2. Output scale cost advantage
sustainable development and business success are interwoven. Honda is spending million of dollars of its United States advertising budget to make sure that consumers there know that one of the engine options for its Accord significantly exceeds government emission requirements. Ben and Jerry’s ice cream has promoted its earth-friendly image since it began as a company. Such examples show that there are significant market niches in goods, which at least claim to respect the long-term needs of the planet. There are enough environmentally conscious consumers to make some firms specialize in using corporate resources to cater to their values. Other firms in the same business may be forced also to accommodate the environmental and sustained development wishes of customers or lose substantial portions of the market. If the industry is one with scale economies, this sacrifice of a part of the market can also lead to higher costs per unit of production. Figure 2 shows the per unit costs of production for two firms in an industry. Firm A is minimally committed to sustainable production and protection of the environment, while Firm G is making ‘green’ production and marketing an important part of its strategy. Suppose that two-thirds of the market does not care about the ‘green’ aspects of products. There is no reason to expect that they will not buy a product that has less impact unless its price is higher. The other third of the consumers prefer more socially desirable products. If there are only two firms, we can assume that at equal prices the firm selling the less ‘green’ product (Firm A) will get half the two-thirds of consumers
When environmental preservation and sustainable production methods are part of the competitive market, firms have incentives both to support public authorities in their efforts and to monitor one another
Impact Assessment and Project Appraisal hre lYYY
who do not care and none of the consumers who are concerned about sustainability. Firm G will get half the conslrmers who do not care and all tho’se who are socially conscious of the effects of their consumption on the earth. Note that Firm G will have a cost advantage in this market because of its higher level of output, even though the cost curve is higher. In fact, its cost curve may not be higher. The point here is that the benefits of higher sales can include lower cost per unit of production, and ‘green’ operations can have higher sales. This advantage may lead to price advantages and/or higher levels of profitability. The preceding discussion does not capture all the dimensions of Firm G’s advantages from ‘green’ behavior. Business strategists emphasize that competitive advantages can be short-lived. Firm A could realize that its market opportunities were limited and adopt similar ‘green’ product approaches. However, it is unlikely to be that easy. Processes which result in products, projects and services that are consistent with sustainable development often benefit from systematic design for sustainability (for instance, interlinked choices of materials based on life-cycle considerations). They may also have secret or ambiguous underlying technologies that can provide a proprietary edge to some firms over others. Patents and trade secrets protection provides legal barriers to copying successful approaches. While it may seem that sharing these innovations would have benefits to society, the competitive advantages they provide are powerful incentives to develop and refine sustainable approaches. Chynoweth and Kirschner (1993) have pointed out that environmental standards are a source of competitive advantage in the chemical business. Other investigations have found that companies may even try to get environmental standards strengthened to enhance their position. For example, Whirlpool Corporation reportedly tried to raise environmental requirements on washing machines in the United States to counter the entry of a new product from its competitor GE (Menon and Menon, 1997, page 59). The transformation from prescribed ‘end of pipe’ environmental constraints to sustainable production techniques as a competitive asset also implies opportunities for the continuous monitoring that has always been stressed in theory, though not always practiced. Public pressure is often successful in getting regulations imposed on business in eras of high public,, interest. Then the public moves on to other issues, and monitoring to assure goals are attained is not vigorously pursued because nobody seems to have a direct interest. When environmental preservation and sustainable production methods are part of the competitive market, firms have incentives both to support public authorities in their efforts and to monitor one another. The possibility of long-term monitoring is particularly important in a society in which class action suits’ 143
II Research -
Technological organ,zaf~on Capital Psrsonnal Natural rRsO”lCRI KNOWLEDGE
Figure 3. Core competencies in the technology delivery system
can threaten the existence of even very large corporations. Product and environmental liability can result in multi-billion dollar lawsuits decades after decisions are made - yet another motivation to consider the long-term effects of actions.
Wishful thinking? All this discussion could be interpreted as wishful thinking, except that there is evidence to support the hypothesis that business is concerned about these issues. For example, a McKinsey and Company survey of chief executives and board members had a 92% response indicating that the environment is one of the top three management priorities for the decade of the 90s (Walley and Whitehead, 1994). Perhaps even more convincing is the evidence that environmentally responsible tirrns have superior stock market performance (Klassen and McLaughlin, 1996). This suggests that investors are calculating the present value of the future superior profits or avoidance of losses that environmentally sound production can help to bring about. The realities of the changes in business strategy and shifts toward sustainable development suggest that there are opportunities to use business motivations to accomplish social objectives in sustainable development. The basic argument for using the market mechanism rather than government planning is that it is more effective. There is a need for a conceptual model that can support practical approaches to making businesses’ technological decisions consistent with the earth’s long-term needs. Impact assessment offers the outer shell of that model, and modem strategy for managing technology within the firm will provide the core. Figure 3 shows a modified version of the Technology Delivery System originally suggested by Wenk and Kuehn ( 1977, reproduced in Porter et al, 199 1). The technology delivery enterprise (organization) mediates between the technology coming forth from R&D and the delivered product, process, service and 144
other outcomes. Those outcomes (intended and unintended) affect the technology users and indirectly affect many others. This technology delivery system interacts with its socioeconomic and natural environments. Developing a technology delivery system model for a specific technology helps map the important players and their effects. One addition in this version of the model is a line showing that norms and values have a direct effect on management choices, as well as indirect effects through political demands and government action. The success of ‘green marketing’ shows that the technological organization must consider consequences because its customers will include them in their decisions to buy. This is independent of government policy. Another modification is to replace the technoHlogical organization block with a variation based on Prahalad and Hamel’s (1990) vrew of core competenties as the roots of a business. This explicit focus on competencies is consistent with the shift toward knowledge as the basis of wealth in the 2 1 st century. Natural resources, capital and labor are still important inputs to production, but it is the generation and use of knowledge that will determine financial success. The core competencies in this use of the diagram are responsible for all the end products of the business, including negative ones. These determine the direct and indirect outcomes that bring both benefits and problems to the world of today and the future. Historically, impact assessment methods were viewed as being most useful in the policy realm. This figure shows that impact assessment can shape the core competencies to make sustainable methods an effective part of the business’s competitive strategy. Such an approach can assist the technological business leaders in efforts to “manage from the future” (see Porter et al, 1991).
Responsible stewardship All over the world, businesses are changing their processes to optimize design and production to meet or exceed customer expectations (see, for example, Kolarrk, 1995). Methods of quality function deployment (QFD) are offered as ways to ensure that the requirements of the marketplace are translated into product specifications and improvements in the competencies that are at their roots. Sustainable development implies that the process of functionally integrating requirements should include responsible stewardship in the use of resources and the management of by-products over the products’ entire life cycle. This will require applications of the tools of impact assessment as part of the design process. In fact, assessing and interpreting well can be critically important core competencies of the firm. The United States Office of Technology Assessment produced a report entitled Grcer~ Products b-y Desigfr (US Congress, 1992). More recently, Graedel Impact Assessment and Project Appraisal ./WW /YYY
Documents, guidelines and discussions will fall short as long as they are viewed as primaarily interesting to environmental professionals: the object of sustainable development must be viewed as an integral part of the entire business and Allenby (1995) have published a textbook on Industrial L:c,ology that discusses engineering design
in the context of materials and energy use and environmental impacts. Emphases on processes arc also a strength of the IS014000 guidelines, which are the international certification standards for environmental quality. However, to a large degree, all these documents, guidelines and discussions will fall short as long as they are viewed as primarily interesting to environmental engineers and other environmental professionals. The object of sustainable development must be viewed within the organization as an integral part of the entire business, just as customer requirements have become.
Opportunities for IA professionals What are the implications for this evolving business model for impact assessment professionals? There arc opportunrtics h&c. Informing consumers about the direct and indirect consequences of business activity can help them be better consumers, as well as voters. We can also push for educators to incorporate impact assessment methods in the preparation of a wide range of professionals, not just those destmcd for traditional impact assessment careers. However, there are more proactive possibilities. Clearly, the methods of impact assessment can be viewed as valuable tools in the corporate collection of core competencies. Businesses may very well be receptive to strategic relationships with organizations such as IAIA. McDonalds, for example, has for many years had a joint program with The Environmental Defense Fund (Achrol et al, 1983). To some extent, such alliances may just be ‘image polishing’ or efforts to get a ‘seal of approval.’ Nevertheless, this paper has shown that there are very real business advantages to being better than competrtors at protecting and sustaining the world. Therefore, there may be a growing market for the tools of impact
Impact Assessment and Project Appraisal hrw I999
assessment in large parts of the global business community. Years ago, Melvyn Kranzberg stated Kranzberg’s Law. “Technology 1s neither good nor bad, nor is it neutral.” There is a wide array of opportunities for technology to contribute to a better and more sustainable world. The tools of impact assessment should be used to assist business in exploiting them. The challcnge to us is to find more ways to facilitate the integration of impact assessment into regular business processes.
Note 1.
Class action IS a legal action undertaken by one or more plaintiffs on behalf of themselves and all other persons having an identical interest in the alleged wrong
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