Seeing Ecology

8/7/2019 Seeing Ecology

1/18

JOCM11,2

94

Seeing ecology and greeninnovations as a source of

changeGiovanni Azzone and Giuliano Noci

Department of Economics and Production, Politecnico di Milano, Italy

Managerial complexity and competitive opportunities of

environmental entrepreneurship

Over recent years, a growing number of corporate executives declared

themselves committed environmentalists and integrated environmental issues

in their corporate st rategies (Adams, 1992; Bloom and Scott Morton, 1991;

Hutchinson, 1996; Porter and van der Linde, 1995; Shrivastava, 1995; Walley

and Whitehead, 1994; Welford, 1995). Several factors explain such concern for

green issues; among the others: the dramatic negative environmental impacts

of the companies operations and products; the growing interest of public

opinion, pressure groups and governmental institutions for the quality of the

eco-system; and the executives appreciation of the (competitive and economic)

benefits derived from the adoption of environmentally conscious programmes.

Faced with these changes in the competitive scenario, executives adopted awide set of strategic options (Azzone et al., forthcoming; Royal SwedishAcademy, 1995) which differ in the complexity of the adopted environmental

programmes (from compliance to existing regulations to the anticipation of

future evolution of market expectations). Most initiatives have a great impact

on the companys economics, the corporate management system and the overall

structure of the industrial system (Sheng et al., 1995; Steger, 1996). Indeed, theimprovement of environmental performance often requires executives to

commit significant financial resources in new cleaner technologies (financial

implications) and to redesign business processes and the corporate

organisation (managerial and organisational implications). In particular, the

effectiveness of environmental programmes greatly depends on the executives

capacity to:

manage environmental innovations jointly with the other competitive

factors (time, quality, flexibility, cost, etc.), since the green issues are

only one of the major challenges faced by companies;

integrate the actions taken by different corporate departments, since

environmental programmes have an inter-functional nature, thus

requiring the involvement of organisational units characterised by

different competencies;

Journal of Organizational Change

Management , Vol. 11 No. 2, 1998,

pp. 94-111, MCB Universit y

Press , 0953-4814


2/18

Seeing ecologyinnovations as asource of change

95

develop new relationships with other firms aimed, for instance, atsolving environmental problems that can not be managed by a singlefirm, because of its lack in competencies;

co-operate with public institutions: experiences carried out in differentcount ries (Denmark, Germany, Sweden) highlight t hat innovativeenvironmental policies often require their support.

In the light of these issues and starting from the consideration that the best waytowards environmental management does not exist, the paper has three mainobjectives. First, it aims at identifying main patterns of environmentalbehaviour adopted by firms. In this respect, the results of an empirical

investigation will be presented. Second, it describes main changes that allowmanagers to deal effectively with the environmental dimension; in particular,major implications on the corporate management system and on theorganisat ion of supply value chain will be analysed. Third, it attempts topresent t he bas ic triggers which may foster the int roduction of effectiveenvironmental entrepreneurship.

The paper is divided into five major sections. The first section clarifies theresearch methodology; the second section describes, in the light of the empiricalinvestigation, how different firms are managing green issues from a strategicviewpoint. The third section suggests an integrated framework highlightingwhy the environment might be seen as a significant change driver. The fourthsection tries to identify the key triggers of environmental entrepreneurship. The

final section discusses the expected evolution of environmental management.

The research methodologyThe identification of the companies basic patterns of environmental behaviourand of major implications resulting from their implementation have been basedon sta te-of-the-art literature and on an empirical investigation carr ied outwithin 15 (small and large) corporations (see Table I).

The development of an intensive analysis on a small sample follows from theneed to deal with the complexity of the ecological variable. In this perspective,we designed a semi-structured questionnaire (see Table II) addressed to themanager in charge of the environmental department; it has been sent via mail toallow managers to understand the required information and represented the

basis of the in-depth case study.The questionnaire aims at identifying:

the adopted environmental programmes, to check whether they areconsistent with the intended environmental strategy; in this perspective,initiatives carried out both in the primary and support activities of thevalue chain have been considered;

the changes in the activities of the corporate value chain and in thesupply value chain following from the adopted pattern of environmentalbehaviour;


3/18

JOCM11,2

96

the key drivers which induced firms to adopt an environmentally

conscious str ategic at titude. In th is respect, we considered socialpressures resulting from public opinion and public institutions; the

evolution of environmental regulations; competitive factors related to thepossibility of differentiating the product in an ecological sense and/orsaving production costs, because of the growing costs associated to the

use of natural resources.

Accordingly, each firm has been visited twice: in the first meeting, we analysed

the corporate environmental management practices; in the second, we checkedthe reliability of the reported information.

The adopted patterns of environmental behaviour: the res ults of

an empirical investigation

Previously, almost all corporations considered ecological issues as a threat , thusintroducing only the initiatives required by environmental regulations (Azzone

et al., forthcoming; Hoffman and Kellog, 1996; Smart, 1992). In this respect, arecent survey in 85 US companies showed that 50 per cent of the interviewedfirms were focusing nar rowly on compliance (Azzone and Noci, 1996). Such a

business stance towards environmental management can be explained in thelight of the urgent need to respond to other competitive challenges such as

time and flexibility and the possibility of using natural resources withoutspecific limitations.

Major changes in the competitive arena are par tially modifying suchmanagers strategic att itude towards green issues: our empirical investigation

Number of

Company Industry employees Sales 1994a

ABB Italy Electromechanical 13,312 2,941

Air Liquide Chemicals 2,000 800

BICC Ceat Cavi Tyres 1,303 458

Ciba Italy Chemicals 2,800 1,300

Dow Chemical Italy Chemicals and plastics 550 800

Fiat Auto Automotive 120,000 33,000

IBM Semea Electronics 10,500 8,845

Lampia Plastics 112 28

Lares Cozzi Mechanics 267 70Metalli Preziosi Chemicals 300 260

Pirelli SpA Tyres 10,000 2,500

SGS-Thomson Micro-electronics 13,312 1,231

Solvay SA Italy Chemicals and plastics 2,900 819

Tecnomec Metal and mechanical 100 27

Zinco Celere Metal and mechanical 600 140

Note: aData are expressed in billions of Italian lire

Table I.The sample firms


4/18


97

and state-of-the-art literature highlight that a minority of firms now considerthe improvement of the environmental performance as a source of competitiveadvantage (Hutchinson, 1996; Illinitch and Schaltegger, 1995). Such a situationis, in our opinion, the result of three main factors:

(1) the growing market demand for a lower impact of the industrial system;in Scandinavia, for instance green customers represent a significant

market share and look for products characterised by a limited impact onthe eco-system (Royal Swedish Academy, 1995);

(2) the introduction in many countries of binding green regulationsleading firms with low (product and/or process) environmentalperformance to bear high taxation costs; a recent German law whichforces firms to pay one deutschmark (DM) for each kg of (non-hazardous) material sent for disposal represents a meaningful example;

(3) the design of green products represents, in some industries, the onlyway to develop differentiation-based business strategies. Bicc Ceat Cavi,

General informationName of company

Turnover

Number of employees

Number of sites

The intended strategyWho are the most environmentally aware stakeholders?

What are the companys objectives in environmental management?

Achieve a competitive advantage

Avoid losing market share

Create new needs

Is the ecological dimension more important than the other competitive factors (cost, quality,time, etc.)?

Major implications of the adopted strategyWhere did you introduce the major changes to implement the intended strategy?

Primary activities

Support activities

Key management processes (planning and control, logistics and product development)

Have you modified your relationships with suppliers and/or customers?

Higher integration

Reduction of the number of suppliers (and/or customers)

Why have you modified your relationships with suppliers and/or customers?

Need to develop new green products (with regard to suppliers)

Need to facilitate the take-back process (with regard to customers)

Future programmesWhat are the companys future objectives in the environmental field?

Increase the effort

Reduce the effort

Lobby stakeholders (regulators and/or customers)

Table II.The structure of the

questionnaire


5/18

JOCM11,2

98

for instance, a company producing cables, is trying to eliminateantimony from its products, since executives believe that this is the onlysolution to differentiate itself from competitors.

However, even faced with these clear changes in the competitive scenarioimplying significant opportunit ies for the industrial system, corporationsadopted very different patterns of environmental behaviour depending on theavailable (financial, technological and infrastructural) resources and greencompetencies. In particular, according to our empirical investigat ion, we canidentify three distinct environmental strategies.

A significant number of sample firms (Lares Cozzi, Lampia, Metalli Preziosi,

Tecnomec and Zinco Celere) still adopt a re-active environmental str ategy,mainly involving reactions to external stimuli emerging from greenmovements, governments, regulators or other firms. In part icular, within oursample, such pattern of environmental behaviour has been privileged by smallfirms operating in the industrial market which receive only weak signals on theexpected environmental requirements of the end market; in this perspective anempirical investigation carried out in northern Italy shows that firms find itmore difficult to understand whether and how final customers are including theecological variable in their purchasing decisions (Noci and Verganti, 1997).Furthermore, the introduction of a re-active strategy also represents a feasibleenvironmental management solution in indust ries where the environmentalimpact of the operations and/or products is low and, hence, the evolution of thestakeholders environmental requirements is still limited. It is not surprisingthat no chemical company of the sample decided to implement a re-activegreen strategy; indeed, owing to the complexity of the programmes that arenecessary to respond to environmental regulations, the adoption of a re-activeapproach may lead the firm t o face significant economic and competitiveproblems.

Some large corporations (ABB-Italy, Air Liquide, Bicc Ceat Cavi, Ciba-Italyand Pirelli) characterised by a significant availability of financial resourcesand good green competencies adopted anticipatory green strategies,usually implying that the timing of environmental initiatives is considered aprimary source of future competitive advantage; in th is persp ective, theimplemented programmes anticipate a likely evolution of the stakeholdersecological requirements. Such a st rategy tends to be introduced when early

acquisition and/or development of new green technologies or the modificationof existing products in an environmental sense are thought to offer competitiveadvantage deriving from savings in terms of previous costs and benefits ofearly movers. This result is also confirmed by other empirical investigations: forinstance, Du Pont developed an environmental policy based on the anticipationof the expected evolution of the external context, by means of a 60 per centreduction in the emission of toxic gas by 1994; a 90 per cent reduction incarcinogenic substances by 2000; and the elimination of solid wastes sent fordisposal (Porter and van der Linde, 1995).


6/18


99

Finally, some multi-national corporat ions (Dow Chemicals, Fiat , IBM,SGS-Thomson and Solvay-Italy) adopted an innovation-based green strategy,whereby the environmental variable is seen as the most important competitivepriority and innovation-based solutions are sought involving the introduction ofnew technologies that radically improve the environmental performance ofcurrent technologies or the creation of new market needs as a consequence ofgreen products. It must be noted that, owing to the complexity of (productand/or process) environmental innovations (see the following section), the multi-national nature of the company represents nowadays an important determinantof the feasibility of innovation-based patt erns of environmental behaviour;however, it is not only the quality of the available resources which explained

their at tention for green innovations, but also the possibility to discernsignals i.e. the behaviour of leading actors, the evolution of ecologicalprescriptions, etc.) from the most environmentally aware markets that areweak for national companies.

These strategies differ in the type of programmes following their adoption. Itmust be noted that the deployment of a reactive strategy does not entail amanagers entrepreneurial att itude towards environmental management.Within an anticipatory strategy, executives try to exploit resources to achieve acompetitive advantage, even if they limit the corporate risk since they actaccording to a clear but not certain framework on the expected evolution ofthe stakeholders green requirements. In contrast, the pursuit of aninnovation-based s tra tegy depends on the executives creativity and their

capacity to identify the opportunity resulting from the growing importance ofthe ecological variable.

Strategic implications of the ecological dimens ion: shifting fromthe corporate value chain to a fuzzy supply value chainThe previous empirical evidence highlights that the possibility that thedevelopment of re-active green strategies may not represent a sustainablebusiness policy for environmental management in the long run. In particular,two main elements explain, in our opinion, the failure of such strategic option.

First, stakeholders environmental requirements have turned greening intoa moving target what was green two years ago may not be green now andwhat is green now may not be green in the future. As a consequence, firms arerequired to define a continuous process of improving environmentalperformance, but such a process cannot be developed only by means ofcontinuous incremental changes, since it may lead a company to designtechnological and management systems which are not feasible in the long run.Indeed, in many cases, owing to design constraints resulting from thecharacteristics of the existing system, the introduction of marginalmodifications may hinder the firms possibility t o break through cur rentenvironmental performance.

Second, the growing complexity of the regulators ecological formularequires both a significant reduction of the companies impact on the


7/18

JOCM11,2

100

eco-system and the introduction of networks among firms aimed at recyclingproduct packaging (this is the case, for instance, in Germany) and such aregulative trend is expected to become stronger in the short term. In thisperspective, firms are and/or will be forced to introduce new greentechnologies and to build recycling capacity; in both cases, the resultingprogrammes take a long time to be implemented and are often underestimatedby firms. Consequently, a sufficiently long schedule has to be allowed for thedevelopment of integrated technologies and, this, in turn, requires developmentwork to star t at an early stage, i.e. when a significant number of weak signals(leading customers decide to include the environmental variable in theirpurchasing decisions) appears and not simply when the relevant legislation hasbeen passed (Steger, 1996).

In the light of these issues, it is the authors opinion that a growing numberof firms will consider the need and/or the opportunity to modify their businesspolicies for environmental management and, specifically, to introduceanticipatory or innovation-based green strategies. Starting from thisconsideration, in the following, our analysis will focus on discussing majorchanges of such a renewal of environmental management. In particular, we willdiscuss the key implications of an innovation-based green strategy, since itentails the introduction of an entrepreneurial approach and, hence, presentsmore significant effects on the corporate system than the anticipatory patternof environmental behaviour.

More precisely, it requires executives to introduce systemic changes, in order

to redesign the corporate system at its roots. Specifically, it requires them tothink in terms of an extended product life cycle concept i.e. a cradle to cradleapproach to exploit feasible solutions for re-using, recycling or regeneratingend of life materials/products (Dewhurst, 1989; Linnanen, 1995; Sheng et al.,1995); and to manage the key processes according to an extended value chainlogic. Indeed, most environmental innovations can only be performed to alimited degree within the corporate value chain, while requiring intensive linkswith external stakeholders (Crame and Schot, 1993; Starik and Rands, 1995).

Accordingly, three major classes of changes are necessary for thedevelopment of innovative environmental programmes:

(1) changes in the activities of the corporate value chain;

(2) changes in the management processes, i.e. the level of integration ofdifferent internal activities;

(3) modification of a companys relationships with its s takeholders(suppliers, customers, public institutions), to achieve a higherintegration.

Effects on the activities of the value chainModifications that must be introduced at this level relate to both primary andsupport activities of a companys value chain.


8/18


101

Regarding primary activities, major changes concern:

Operations management: in operating terms, the introduction of simpleoperating principles, highlighting the need to minimise energyconsumption and wastes under a continuous improvement perspective isrequired (Gupta, 1995). In this respect, it must be noted that conflicts ofobjective between lean manufacturing and green manufacturingmay ar ise, for example, when outsourcing creates more traffic andtherefore more pollution; hence, it is critical for firms to define a newlean concept which establishes a sa tisfactory mix between newproduction requirements and environmental protection.

Marketing: more precisely, two change trajectories can be identified inmarketing management in the light of environmental entrepreneurship:first, its instruments should be applied to the environmental question tocommunicate to the market the products environmental characterist icsand/or the low impact on the eco-system resulting from the companysproduction process. Second, the marketing managers role is important ineducating customers on green issues.

In relation to support activities, the adoption of innovation-basedenvironmental programmes entails:

Different logic of human resource management. In this respect, theintroduction of training courses aimed at increasing the employeesenvironmental awareness and programmes specifically addressed to the

development of new technical and management competencies has abasic importance for fostering environmental innovations (Hart, 1995).

A change in the information system, in order to integrate environmentaldata in the overall process of data collection. This represents a crucialstep for the introduction of effective pro-active environmentalmanagement practices: indeed, the managerial complexity of innovation-based environmental programmes make the evaluat ion of differentalternat ives and t he control of results critical for a companyscompetitiveness (Azzone and Noci, 1996).

The integration of ecological issues in the procurement activity, sinceenvironmental performance of the supplied components/materials havea significant impor tance in determining a products environmentalcharacteristics (Crame and Schot, 1993; Noci, forthcoming). This is amajor problem for both small and large firms apart from the level ofinternationalisation of their activities. Our empirical investigationhighlights that only three sample firms (ABB, Ciba-Italy and IBM) havesystematically included in their vendor rating systems theenvironmental dimension; nevertheless, the interviewed managers aim atmodifying them in th e short t erm and assigning to the suppliersenvironmental performance a significant importance: for instance, thecorporate environmental manager of SGS-Thomson plans to assign to


9/18

JOCM11,2

102

green issues a 30 per cent weight of the suppliers total score, i.e. that isa significant relevance with respect to variables such quality, time andcosts of the purchased raw materials/components.

Specific characteristics of a companys overall organisation. In thisperspective, our empirical investigation highlights the importance of thedesign of an organisational structure allowing learning processes to takeplace: indeed, the novelty of the environmental variable also requiresfirms to develop environment-related competencies by means of newprogrammes. In particular, flat hierarchies, decentralised decisionmaking and open communication structures are important

preconditions for such learning processes to occur.

The redesign of the basic management processes according to anenvironmentally conscious perspectiveThe development of progra mmes aimed at modifying the integ rat ion ofdifferent functional activities allows firms to achieve radical improvements oftheir environmental performance and, hence, to exploit the economical andcompetitive oppor tunities resulting from the g rowing importance of theenvironmental challenge. However, the success of such progr ammes alsorequires major changes in the product development process, the planning andcontrol process and the logistic process.

The product development process. Integrating environmental criteria into theproduct development process requires managerial, technical and operatingchanges for organising a green product design (Kruwet et al., 1995).

In management terms, two main elements have a basic importance totransform the ecological challenge into a competitive dimension:

(1) the involvement of suppliers into product design. According to theinnovative sample firms experience (ABB-Italy, Ciba-Italy, DowChemical, Fiat, IBM, SGS), the introduction of co-design relationshipswith suppliers allows companies to anticipate constraints and to identifya wider set of options at the design phase. Indeed, the productenvironmental characteristics are often greatly influenced by the mix ofraw materials apart from their quality; for instance, product recycling isimpossible if one material is not compatible with the others (Noci, 1995).

(2) A deeper consideration of complementar y products which generateenvironmental consequences. For instance, in the case of a washingmachine manufacturer, the company should see itself not just as amanufacturer and supplier of machines, but rather accept that washingmachines are part of a process which enables people to have cleanclothes.

From a technical viewpoint, executives should encourage product managers toconsider environmentally friendly design techniques as strategic tools in thedevelopment of new products (Azzone and Noci, forthcoming; Dewhurst, 1989).


10/18


103

Indeed, sta rt ing from consideration that green issues may represent asignificant driver of product differentiation, the introduction and/or a higherattention towards the implementation of design for recycling, design fordismant ling and design for disass embling t echniques allow the productmanager to identify the best trade-off between a products eco-compatibility andits contribution to profitability.

As regards operating criteria to be considered in the definition of the productspecifications, product managers need to introduce significant changes in thedesign logic. Specifically, such guidelines can be grouped into four classes(Kruwet et al., 1995):

(1) Product structure. In this perspective, it is necessary to: minimise thevariety of materials; reduce the number of items in the bill of materials;and make valuable and hazardous materials easily accessible.

(2) Individual components. To avoid materials that are incompatible withstandard recycling processes.

(3) Disassembly operations. Specifically, product designers are required to:use joining elements that can be easily disassembled; reduce the numberof fasteners; and reduce the need for destructive disassembly techniques.

(4) Logistics issues. In particular, the design team must consider thepossibility of marking the material with a number indicating its natureand wh ether it can be recycled; it might provide all the necessar yinformation to make the recycling process easier; and it should design

the product on the assumption that it could be transported after usage.

The planning and control process. The growing importance of the ecologicalquestion leads planners to modify partially the process of strategy formationand capital budgeting activities.

In general terms, the integration of the ecological dimension in the process ofstr ategy formation often forces executives to rethink the overall businessstrategies and, in par ticular, to:

Modify its cost-based strategies, since the reduction of the companysenvironmental performance usually requires the acquisition and/orinternal development of new technologies, thus affecting the corporateeconomic results in terms of cash outlays for new investments.

Change its differentiation-based strategies. In part icular, the opportunityto achieve a good market share or to enter into new market niches couldfavour the re-definition of the product design specifications in favour ofa higher p roduct eco-compatibility, whereas in t he past the mainelements of differentiation were mainly related to quality or time.

Modify its policies of upstream or downstream integration. Programmesaimed at improving the key-product environmental performance couldinduce managers to modify their choices of upstream integration: withregard to recycling-based programmes, product design and engineering


11/18

JOCM11,2

104

might oblige the company to realise internally components that werepreviously provided by external suppliers. Conversely, the growingconcern to reduce the quantity of waste sent for disposal should inducemanagers to re-examine past choices of downstream integration. In thisrespect, some firms include the distribution channels within thecorporate value chain to facilitate the take back of end of life products.Such programmes of downstream integration have assumed a crucialrole for German companies that are forced by the Tepfer law to recoverproduct packages at the end of their life.

In terms of capital budgeting, it must be noted that the feasibility of innovation-based green strategies strongly depends on the adopted decision-making tool.In particular, consideration of the specific effects resulting from theimplementation of the available environmental initiatives has a fundamentalimportance, since they are not considered, for instance, by the t radit ionaldiscounted cash flow approaches (net present value). In this respect, ourinvestigation reveals that the less complex solution concerns the introduction ofthe model of the environmental costs (Azzone and Manzini, 1994) which hasbeen specifically designed for the assessment of green initiatives. It classifiesa companys economical efforts in the environmental field into five classes:

(1) prevention;

(2) environmental sales;

(3) operating environmental costs;

(4) external costs for product disposal and related to extended producerliability;

(5) conversion costs following from the adaptat ion of the plants to morelimiting standards.

In operating terms, within this framework, the available alternat ives can becompared by means of modified DCF techniques, whereby net cash flows ofeach period are calculated according to the change in environmental costsresulting from each option.

T he logisti cs process. In the light of the growing importance of theenvironmental dimension, the complexity of logistics is further increased. Inparticular, the shift from a traditional view of the product life cycle to a cradle

to grave approach requires the introduction of an integrated eco-logisticsconcept.

According to this paradigm, two classes of changes seem to be necessary forthe successful implementation of anticipatory or innovation-basedenvironmental strategies:

(1) the integration of the logistics team at the product development phase.Indeed, the feasibility of most product innovations greatly depends onthe possibility to manage effectively the physical flows of goods (Starikand Rands, 1995; Steger, 1996). In this perspective, people in charge of


12/18


105

the logistics process can evaluate, for instance, whether the designedgreen product can be easily recovered to be used in other industries;

(2) the adoption of a circular value chain concept, whereby the logisticsteam aims at minimising the material input, sustaining the desiredperformance and reducing the output from the system. Our empiricalinvestigation highlights that great at tention must be paid to the take-back system, thus integrating inbound and outbound logistics; indeed,owing to the need to reduce material consumption, it is expected in theshort term a wider diffusion of product recycling pr actices forcingcompanies to recover part or all the end of life components (Noci, 1995).In this respect, the process is simpler when the products must be re-usedin the same or similar processes such re-use systems are emergingtoday in the area of auxiliary and factory operating supplies (Gupta,1995) since the company only needs to organise the take-back processto ensure a continuous flow of material into its plants. In contrast, whenend-of-life products have to be sent to other industries, the logisticsprocess is more complex, since managers often need to define newrelationships with firms operating in other fields that were seldomestablished before. Among the sample firms, the experience of the Fiatgroup well describes such complexity. Indeed, product managers and thelogistics team once decided to launch a new model of car to be recycledas a whole; had to organise the take-back of end-of-life products; definepossible second usage of reclining seats and glas ses of cars ; and

establish effective relationships with companies operating in theidentified fields. More precisely, Fiats executives defined a networkinvolving a great part of Italian shredders, in order to make the collectionof end-of-life cars easier and established co-operative relationships withfirms producing coloured bottles and furniture.

External changesThe impossibility of having a direct control over the whole product life cycleand the multi-dimensional nature of the green competencies induce aninnovative firm to define co-operative relationships with external stakeholdersand consider communications a basic element for the amplification of theachieved environmental results.

From an operating viewpoint, executives should be engaged with theintroduction of vertical co-operation along the supply value chain (suppliersand customers). Specifically, in the case of suppliers, it is often a matter of:

exchanging information frequently with them to better evaluate theenvironmental properties of the supplied materials and to identify howthey affect the overall environmental performance of the end product. Inthe light of this issue, it is clear that a significant change in the suppliersatt itude towards customers is required, since they must be available,with the aim to achieve a supply value chain advantage, to disclose all


13/18

JOCM11,2

106

the necessary information, even if it may imply some disadvantages inthe short term;

Providing them with a significant support for the improvement of theirenvironmental management system. In this respect, within our empiricalinvestigation, a significant share of the (large) sample firms (ABB-Italy,Ciba-Italy, Dow Chemical, Fiat, IBM, SGS) declared themselvescommitted in the development of new management solutions specificallyaddressed towards suppliers who do not have enough competencies andresources to organise effectively their environmental managementsystem.

Regarding customers, two basic elements must be carefully considered for thesuccessful implementation of innovative environmental programmes. It isimportant to identify the innovation-oriented and trend-setting customers withwhom new solutions to the problem of environmental protection can be tested;they usually represent the major source of weak signals which have ledcorporate managers to develop the green innovation. Second, companies needto define, with customers, new relationships aimed at taking back end-of-lifeproducts, thus facilitating the development of recycling-based initiatives. Sucha change in the customer-supplier relationships has a basic importance, since itis expected that in few years new regulations, forcing the industrial system totake back their goods, will be introduced; the Tepfer German law is ameaningful example: when it was promulgated, in 1993, it had dramaticimplications on those firms that did not modify their management systems andrelationships with supply value chain partners to recover their productpackaging.

Again, in terms of co-operative relationships, it must be noted that t hecomplexity of the green challenge (impact on a wide set of technologies andradical modification/s of the corporate management processes) often requiresexecutives to introduce and/or modify their relationships with non-traditionalstakeholders, i.e. competitors and research centres involved in theenvironmental field. Specifically, horizontal co-operat ion with competitorsbecomes important when environmental protection cannot be viewed as amarket advantage, but when a uniform course of action is required to avoidcompetitive disadvantages, resulting, for instance, from the perceivedenvironmental risk associated to the operations of firms operating in a specific

field this is the case in the Responsible Care, an industry-wide programme-.However, joint projects with external research institute/s (private and publicresearch centres which have accumulated knowledge in relation to specificenvironmental problems) are fundamental to deal with the development of:

new green products. Indeed, it is very unlikely, even in large and multi-national firms, that all the competencies to launch a product innovationare available in a single company. Within our empirical investigation, forinstance, the Fiat group t he biggest Italian car manufacturer developed a research project, jointly with external research centres, to


14/18


107

eliminate polyurethane from car bumpers, thus making the recyclingprocess feasible;

new cleaner technologies, permitting a significant breakthrough in thecompanys impact on the eco-system. Within our sample firms, SGS-Thomson invested significant financial resources to develop a researchproject jointly with an Italian university and aimed at r educing thequantity of PFCs emitted from its sites.

Regarding communications, two types of changes appear important for thesuccessful implementation of innovation-based environmental strategies. Theiradoption requires corporations first to view some stakeholders from a new

perspective; specifically, in determining which environmental themes achievepolitical relevance, the media are important amplifiers, not selectors. Hence,they are simultaneously a major instrument of, and a target group for,environment-related communication activities: compan ies operat ing inindustries characterised by a high environmental risk of their operations (forexample, chemicals) experimented with pro-active media str ategies in acontinuous manner with some success, thus reducing conflicts with localcommunities and public institutions.

Second, executives need to modify the tools they adopt to communicate toexternal stakeholders the achieved environmental results and the intendedgreen strategies. In this respect, the environmental reporting practice mustchange, ensuring a complete disclosure of information, as well as better

reliability of the collected data. Indeed, one of the major problems which did notallow companies to establish an effective dialogue with external stakeholders(governments, regulators, local and financial communities) was theimpossibility for the reader to understa nd precisely how a companysoperations and products affected the state of natural resources and to trust thereported information. Many studies have been suggested to support executiveswith new frameworks for external communication on environmental issues(Adams, 1992; Forum of Environmental Reporting, 1995; Gray and Stone, 1994);most of them highlight the importance of introducing both:

(1) qualitat ive information characterising the adopted environmentalpolicies and the developed environmental management system; and

(2) quantitat ive data describing specific impacts on the eco-system resulting

from the corporate activities.In light of the above issues, it is clear that t he traditional boundaries ofcorporations no longer apply, since product stewardship requires a view of andcontrol over the whole life cycle of the product. In particular, it is the authorsopinion that the g rowing importance of the ecological dimension, both incompetitive and economic terms, implies a change from a companys valuechain concept to a fuzzy supply value chain logic. This means that the successof an innovation-based green strategy does not only depend on theexecutives capacity to manage the corporate activities, but also on their ability


15/18

JOCM11,2

108

to integrate the companys value chain with activities of the other supply valuechain partners (Steger, 1996). Hence, within this view, all activities along thefiliremust represent the reference system for managers who aim atintroducing successful environmental (product and process) innovations; thus,the boundaries of the corporate value chain become fuzzy.

Triggers and obstacles for the introduction of environmental

entrepreneurship

As with every complex innovation, the introduction of environment-relatedchanges may result in objective and subjective resistance within the corporatesystem. This requires the commitment of top management in such a change

process (Post and Altman, 1994); indeed, it is the authors opinion that thesyst emic impact of the green variable can be managed effectively only ifemployees look at CEOs and other executives as the main drivers of the overallprocess.

Nevertheless, the managers involvement is not enough to ensure the successof innovation-based green strategies, indeed, it is also important to identifythe other factors which may foster the introduction of pro-active patterns ofenvironmental behaviour and allow executives to design the best policy whichexceeds the corporate inertia.

In this respect, our empirical investigation indicates that there are bothinternal and external t riggers. Specifically, in relation to major problemsassociated with the corporate management system, two aspects have a

fundamental importance:

(1) decisional processes which support managers in the identification of thereal benefits and disadvantages associated with the implementation ofradical green innovations. It is the authors opinion that the executivesdecision to privileged re-active environmental management practices isin many cases the result of an incorrect identification of the effectsfollowing from their adoption. As discussed above, it is in fact necessaryfor the development of new investment appraisal methods which allowdecision makers to take into account both traditional financial andintangible effects resulting from an innovation-based environmentalprogramme;

(2) employees environmental culture. In this respect, it must be noted that acomplex change process, such as the introduction of new environmentalmanagement practices, often triggers a s truggle between reformersand safeguarders; hence, it is important that top managers encouragelearning processes which take place starting from the recognition of thegrowing stakeholders demand for the environmental performance of theindustrial system.

In terms of the new characteristics of the external context leading corporationsto privilege the introduction of innovative solutions in the ecological field, three


16/18


109

drivers may represent the key triggers of a significant strategic change within

firms. We refer to:

(1) The role of governments.In particular, public institutions are required todevelop new campaigns aimed at increasing the level of the market

environmental awareness. Indeed, the significant financial efforts needed

to develop and implement innovative environmental solutions can be

justified only if new environmentally aware market segments arise.

(2) Regulations. More precisely, a significant modification is necessary of thecurrent regulators actions that are characterised by a considerable level

of uncertainty and numerous delays, owing to the divergent nat ional

interests (for instance within the European Union (EU)) and ponderousdecision making processes. In this respect, it must be noted that an

effective regulat ive process, fostering firms to adopt innovation-based

patterns of environmental behaviour, must (Porter and van der Linde,

1995):

use market incentives, to draw the managers attention towards

resource inefficiencies;

require industry participation in setting standards, thus creating a

climate of trust between regulators and corporation;

minimise the uncertainty concerning the time necessary for the

introduction of new environmental standards; and

focus on outcomes, since most US regulations which addressed the

companies efforts towards the introduction of sp ecific clean

technologies proved to be unsuccessful, discouraging innovation.

(3) T he most recent schemes leading f irms to adopt environmentalcertification practices. ISO 14001, for instance, requires firms whichdecide to comply with this scheme to focus on prevention, thus

representing an impor tant trigger for the introduction of pro-active

environmental management practices.

Conclusions

The growing impor tance of the ecological var iable requires executives to

modify their business strategies. The above discussion highlighted that over the

last few years three opt ions were available to mana gers (a re-active, ananticipatory and an innovation-based pattern of environmental behaviour) to

deal with green issues; but, it also demonstrated the importance for firms to

anticipate the expected evolution of the exter nal context, because of the

continual renewal of the stakeholders environment related requirements.

Unfortunately, only a limited number of firms consider the environment as

an important factor of strategic change; hence, the question is: what is the

future of the ecological dimension?. In this respect, two different scenarios can

be identified:


17/18

JOCM11,2

110

(1) Ecology is one of the announced revolutions. Like quality, time, flexibility,with the risk that employees are not motivated to change their mind-set.The case of ABB, within our sample, effectively clarifies such a situation:when different Italian sites achieved environmental certificationaccording to the EMAS scheme, employees did not any pay attention togreen issues, thus overlooking the certification itself.

(2) The need to improve a companys environmental performance is seen asa major source of change, leading significant modifications of the rewardsystems and of the corporate relationships with external stakeholders.This is the case in the Fiat group which, to introduce a recyclable car,

modified its relationships with supply value chain partners (suppliersand shredders) to make t he retur n and t he recycling of end-of-lifecomponents possible.

Of course, the latter business s tance towards environmental management ispreferable for two main reasons:

(1) in ecological terms, because of the growing scarcity of natural resources;and

(2) in competitive terms, since the speed of change in the stakeholdersenvironmental requirements will be so high in the short term that onlythose firms which have implemented early programmes will becompetitive in the long run.

References

Adams, R. (1992), The growing influence of the consumer, in Owen, D. (Ed.), Green Reporting,Chapman and Hall.

Azzone, G. and Manzini. R. (1994), Measuring strategic environmental performance, BusinessStrategy and the Environment, Vol. 3, pp. 1-15.

Azzone, G. and Noci, G. (1996), Measuring the environmental performance of new products: an

integrated approach, International Journal of Production Research, Vol. 34 No. 11.

Azzone, G. and Noci, G., Introducing effective environmetrics for supporting green product

design, Engineering Design and Automation, forthcoming.

Azzone, G., Bertel, U. an d Noci, G., Developing b usiness policies for environmenta l

management, Long Range Planning, forthcoming.

Bloom, G.S. and Scott Morton, M.S. (1991), Hazardous waste is every managers problem, SloanManagement Review, Summer.

Crame, J. and Schot, J. (1993), Environmental co-makership among firms as a cornerstone in the

str iving for sust ainable development, in Fischer, K. and Schot, J. (Eds), EnvironmentalStrategies for Industry: International Perspectives on Research Needs and Policy Implications,Island Press, Washington, DC.

Dewhurst , P. (1989), Product design for manufacture: design for d isassembly, IndustrialEngineering, pp. 26-8.

Forum Environmental Reporting (1995), Company environmental repor ts guidelines for

preparation, Fondazione ENI Enrico Mattei, FEEM Newsletter, No. 1, April.

Gray, R. and Stone, D. (1994), Environmental accounting and auditing in Europe,The EuropeanAccounting Review, Vol. 3 No. 3.


18/18


111

Gupta, M.C. (1995), Environmental management and its impact on the operations function,International Journal of Operations & Production Management, Vol. 15 No. 8, pp. 34-51.

Hart, S.L. (1995), A natural-resource-based view of the firm, Academy of Management Review,Vol. 20 No. 4, pp. 986-1014.

Hoffman, A. and Kellog, J.L. (1996), Technology strategy in a regulation-driven market: lessonsfrom the US Superfund program, Business Strategy and the Environment, Vol. 5, pp. 1-11.

Hutchinson, C. (1996), Integrating environmental policy with business strategy, Long RangePlanning, Vol. 29 No. 1, pp. 1-10.

Illinitch, A.Y. and Schaltegger, S.C. (1995), Developing a green business portfolio, Long RangePlanning, No. 2, pp. 29-38.

Kruwet, A., Zussman, E. and Seliger, G. (1995), Systematic integration of design for recyclinginto product design, International Journal of Production Economics, Vol. 38, pp. 15-22.

Linnanen, L. (1995), Life cycle management: integrated approach towards corporateenvironmental issues, Business Strategy and the Environment, Vol. 4, pp. 117-27.

Noci, G. (1995), Supporting decision making on recycling based investments, Business Strategyand the Environment, Vol. 4 No. 2, pp. 69-81.

Noci, G., Designing green vendor rating systems for the assessment of the suppliersenvironmental performance, European Journal of Purchasing and Supply Management,forthcoming.

Noci, G. and Verganti, R. (1997), Managing green product innovations in small firms,Proceedings of The R&D Management Conference, Manchester, 14-16 July.

Porter, M. and van der Linde, C. (1995), Green and competitive: ending the stalemate,HarvardBusiness Review, September-October, Vol. 73 No. 5, pp. 120-34.

Post, J. and Alt man, B. (1994), Manag ing th e environmental change process: barriers andopportunities, Journal of Organizational Change Management, Vol. 7 No. 4, pp. 64-81.

Royal Swedish Academy of Engineering Sciences (1995), Environmental Management: FromRegulatory Demands to Strategic Opportunities, IVA, Stockholm.

Sheng, P.S., Dornfeld, D.A. and Worhach, P. (1995), Integration issues in green design andmanufacturing,Manufactur ing Review, Vol. 8 No. 2, pp. 95-105.

Shrivastava, P. (1995), The role of corporations in achieving ecological sustainability, Academyof Management Review, Vol. 20 No. 4, pp. 936-60.

Smart, B. (1992), Beyond Compliance, World Resources Ins titute, Washington, DC.

Starik, M. and Rands, G. (1995), Weaving an integrated web: multilevel and multisystemperspectives of ecologically sustainable organisations, Academy of Management Review,Vol. 20 No. 4, pp. 908-35.

Steger, U. (1996), Managerial issues in closing the loop, Business Strategy and the Environment,Vol. 5, pp. 252-68.

Walley, N. and Whitehead, B. (1994), Its not easy being green, Har vard Business Review,Vol. 72 No. 3, May-June.

Welford, R. (1995), Environmental Strategy and Sustainable Development, Routledge, London.

Seeing Ecology

Documents

Transcript of Seeing Ecology