Sustainable Development, Vol. 4, 12-18 (1996)

GREENING OF BUSINESS MANAGEMENT TRAINING IN GERMANY: TOWARDS SUSTAINABILITY? Walter Douglas, Graduate School of Environmental Studies, University of Strathclyde, Glasgow, UK

Germany provides a dynamic environmental policy context based on a comprehensive network of regulation and increasing use of market-based instruments. It is widely recognized in Germany that the ability of companies to respond positively to the business oppor- tunities afforded by this depends to a large extent on the knowledge, under- standing and skills of their management personnel. This has been identified as a major professional challenge by the providers of business management train- ing in Germany. Evidence is presented for an effective process of liaison and co- operation between academic institutions, industrial companies and environmental policy-makers. The educational output of this process is described in terms of an integrated environmental business management curriculum model which is firmly embedded in current industrial and policy-making practice. This curriculum model is evaluated in terms of its ability to promote the German national economic interest and also in terms of its likely contribution to sustainable develop- ment in the German economy.

CCC 0968-0802/96/010012-07 0 1996 by John Wiley & Sons, Ltd. and ERP Environment

INTRODUCTION

his paper analyses recent educational initia- tives to develop innovative approaches to the T integration of environmental considerations

into business management training curricula in Germany. This analysis is placed firmly in the context of the European Commission’s Fifth Environmental Action Programme and recent domestic environmental policy developments in Germany, including econcmic instruments, environmental liability reform, life cycle analysis and take-back initiatives.

Data are presented from in-depth interviews with senior academic staff, industrialists and environ- mental policy-makers in Germany. The study has revealed a striking awareness among these groups of the likely market effects of environmental policy. There is a widespread perception that the agenda of the Commission’s Fifth Environmental Action Programme (Commission of the European Com- munities, 1993), combined with the increased environmental law-making power contained in the Single European Act, will inevitably lead to the competitive dynamics of the European market place being profoundly and inescapably influenced by environmental considerations. It is widely recognized that this is likely to involve the wide- spread internalization of external environmental costs, which in turn will bring about fundamental structural change in patterns of production and consumption, presenting a major competitive threat to all industrial companies operating in the Single Market. It is perceived that, due to the general intensification of competition brought about by the formation of the Single Market, only those com- panies which adapt quickly and successfully will survive. However, there is a prevalent view that for those that do adapt successfully to the imminent

SUSTAINABLE DEVELOPMENT

structural change, the rewards are potentially very large indeed, in terms of valuable new markets and substantial profit opportunities. It is generally apprehended that the magnitude of this com- petitive threat is such that it is likely to affect not only the profitability of individual companies, but also the long-term success of the national macro-economies of the European Member States themselves.

It is also widely recognized that the ability of companies to respond positively to the business opportunities of developing environmental policy depends to a large extent on the knowledge, understanding and skills of their management personnel. This has been identified as a major professional challenge by providers of pre- and in- service business management training in Germany.

Evidence is presented for an effective process of liaison and co-operation between academic institu- tions, industrial companies and environmental policy-makers to facilitate a process of learning and transformation in organizations which will be required to achieve re-orientation of products and production systems towards sustainability. The paper goes on to exemplify these points by means of a case study of a specific German business management education provider: the Institute of Environmental Management at the European Business School.

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W. DOUGLAS

incentives for pollution control by effectively placing a market value on clean air.

Pollution levies

The Waste Water Levy introduced in 1986 is another example of an economic instrument being used to provide positive incentives to reduce pollution. Direct dischargers are charged 40 DM per cubic metre of waste water. However, this levy is waived if dischargers succeed in reducing pollution levels below pre-set standards.

Environmental Liability Law 1990

This new law was passed with a view to compen- sating for environmental damage in a fairer way. It introduces strict, no-fault liability for all environ- mental damage. It has also eased the burden of proof by introducing a crucial new assumption in favour of causality if the activities of a plant can be shown to have possibly given rise to the damage. This will fundamentally change the risk versus cost considerations of companies and so represents a good example of the radical German precautionary principle in practice.

A DYNAMIC DOMESTIC POLICY CONTEXT

Germany is well known for operating a com- prehensive network of 'command and control' environmental regulation. However, a wide range of market-based policy instruments is also in place in accordance with the principles outlined in the Fifth Environmental Action Programme. These serve to promote internalization of external environmental costs to the decision-making frames of producers and consumers. These market-based instruments include the following.

Market creation strategies

The Compensation Rule introduced in the Federal Emission Control Act 1985 and accommodated in the TA Luft 1986 enables companies who can control emissions below the prescribed limits for one plant to accumulate pollution credits. These can be used to offset additional pollution else- where either from a new plant within the company or indeed sold to another company which is experiencing greater difficulty in controlling emissions. This provides positive market-based

The Waste Packaging Ordinance 1991

This provision requires that manufacturers and retailers accept for recycling and disposal all used packaging material returned by the con- sumer. To conform, manufacturers and retailers have collaborated to create the Dual System Organization. This is a limited company respon- sible for organizing a waste collection system independent of the municipal collection system and financed jointly by manufacturers and retailers on a pro-rata calculation of their packaging input.

The Blue Angel Scheme

This German national eco-labelling scheme was launched in 1978. It currently covers more than 4000 products and is therefore much better established than its EU counterpart. The organizers claim the label is recognized in 80% of German households and is extensively used as a purchasing criterion in large sectors of the German economy.

Take-back pilot schemes

Proposals are currently being piloted for cars, washing machines and computers which will place a duty on manufacturers to 'take-back' these goods at the end of their useful life for recycling and disposal. This will mean that disposal liabilities and

SUSTAINABLE DEVELOPMENT 13

GREENING OF BUSINESS MANAGEMENT TRAINING IN GERMANY ..’

costs are internalized to the producers commercial decision-making processes. This measure is there- fore likely to provide effective pressure for the assessment of environmental impacts of products from across their entire life cycle, including particu- larly product design and component purchasing.

ACCEPTANCE OF THE TRAINING CHALLENGE

Interviews with academics, industrialists and reg- ulators have revealed widespread understanding that this dynamic policy context offers substantial business opportunities. This goes hand in hand with a perception that the ability of companies to respond positively to these opportunities depends to a large extent on the knowledge, understanding and skills of their management personnel. This in turn has been identified as a major professional challenge by providers of pre- and in-service business management training.

There is also much evidence of effective liaison and co-operation between academic institutions, industrial companies and government policy- makers to facilitate a process of learning and transformation in organizations, which it is recog- nized will be required to achieve re-orientation of products and production systems towards sustain- ability. This can be exemplified by means of the following case study of a specific German business management education provider, the Institute of Environmental Management at the European Business School (EBS).

The Institute of Environmental Management was founded in 1986 and now has a tripartite structure. Firstly, the Chair of Environmental Management and Business Administration at the EBS, which is a private, self-financing university. The Chair is dedicated to the teaching of environmental man- agement at the EBS and the development of a curriculum integrating environmental considera- tions into business management education and training. Secondly, the Institute of Environmental Management and Business Administration, which is a self-supporting research institute and carries out long-term projects on basic environmental economic research. These projects are mainly financed by government research grants and foundations. The formal legal structure of the Institute is known in Germany as a registered association. Thirdly, the Institute for Environmental Management GmbH, which is mainly active in the field of consultancy. Its legal form is equivalent to a private limited company in the UK. It is financially self-supporting on earnings from commercial consultancy work for a wide range of private and

public sector clients. The three components are referred to collectively in this paper as the Institute.

A brief analysis of the recent research and consultancy activities of the Institute clearly demonstrates that it has built a thoroughly credible support base of hands-on experience with real organizations tackling real problems. This embraces vitally important experience working with com- panies which are currently grappling with the strategic and competitive implications of the most recent and anticipated environmental policy changes highlighted here.

Examples of this include work with the Volkswa- gen Audi Group in the formulation of strategic responses to take-back proposals for motor vehi- cles, work with chemical industry clients in formulating strategic responses to the increased use of economic instruments and also work with credit institution clients in devising a lending policy for dealing with clients who face the risk of strict liability for environmental damage.

It is also sigruficant that the Institute has been combining this experience with research and consultancy projects for the environmental policy- making bodies themselves. This includes an empiri- cal study of the potential for voluntary agreements to be used as market-oriented environmental policy instruments carried out for the German Federal Environment Ministry and a study of the effects of environmental liability reform on damages for payments for multi-causal environmental harm conducted on behalf of the European Commission. It is most noteworthy from the perspective of this current analysis that the Institute has also conducted a three-year research project on the development and testing of a curriculum to integrate environ- mental factors into business management training on behalf of the German Federal Education Ministry.

This experience enables the Institute to justifiably claim that it is not only involved in the strategic interpretation of policy, but also in influencing the direction of future policy-making itself. This provides the Institute with a synergy of credibility in different spheres of operation that has enabled it to develop into a highly influential ‘de facto’ liaison forum for industrialists, policy-makers and academics. The educational output of this process is an integrated environmental business management curriculum model which is firmly embedded in current industrial and policy-making practice.

A GREEN BUSINESS MANAGEMENT CURRICULUM

The EBS offers a four-year business management degree, the Diplom Betriebswirt. Demand for this

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course is extremely high, with approximately 2000 applications received each year. From this the school selects an annual intake of 100 students, who are mainly funded by company scholarships. The companies themselves are closely involved in the selection and guidance of students.

Environmental management is one of 10 options from which students must choose two for study in semesters 6,7 and 8. In recent years approximately 30% of students have chosen the environmental management option. The curriculum for the environmental management option is summarized below.

(i) Semester 6. Introduction: environmental eco- nomics; economic formulation of environ- mental problems; and externality. Policy instruments for internalization of external environmental effects: interpretation of exter- nal environmental effects; strategic directions in environmental management; environmental protection in marketing environmental pro- tection in management accountancy; and implementation of environmental corporate strategy.

(ii) Semester 7. Environmental management: prod- uct-oriented environmental protection; green consumerism; biological aspects of environ- mental problems; engineering aspects of environmental problems; legal background of environmental problems.

(iii) Semester 8. Environmental management: integrated problem-solving in environmental

PRODUCTION

management; waste management and prevent- ing environmental damage.

(iv) Research project: application of environmental management principles to a real organization.

The overarching philosophy of the environ- mental management option is that effective environmental management in a business context requires a range of knowledge-based skills for the integration of environmental protection into all the activities of the company. These knowledge-based skills should address three key processes in the organization: strategic management; innovation- oriented research; and learning in and development of the organization.

To bring this process of integration into focus in a realistic corporate context, the Institute has adapted the model of a corporate value chain devised and made famous by the American management guru, Michael Porter (Porter, 1985). The Porter model views the firm as a collection of activities that are performed to design, produce, market, deliver and support its products. A schematic representation of the Porter model adapted for environmental factors is shown in Figure 1. It can be seen that value activities are divided into two broad types, primary and support activities. Primary activities are listed along the bottom of the figure and represent the activities involved in the physical creation of the product, its sale and transfer to the buyer, as well as after sales service. Support activities underpin the primary activities and each other by providing human resource and technology inputs as well as

MARKETING

\\ HUMAN RESOURCE MANAGEMENT. Training, informing and motivating for improved environmental performance. Development of two-way communication processes for environmental information. Review of organisational structures. I RESEARCH AND DEVELOPMENT. Redesign of products and production processes to reduce the environmental impact across the entire life cycle including procurement, production, use and disposal.

SUPPORT

MANAGEMENT SYSTEMS. Integration of environmental factors into management systems including those relating to information and to quality

PROCUREMENT

Substitution of hazardous materials.

Cooperation with suppliers.

Environmental optimisation of transport e.g. using returnable containers.

Waste minimisation.

Source-directed pollution control.

internal recycling.

Minimisation of resource and energy inputs.

Use of clean production technologies.

Fundamental review of marketing strategies and marketing mix to capture and address the overall product life cycle.

Develop an environmentaiiy- oriented corporate image.

I

CUSTOMER SERVICE

Increase environmental functionality by improving customer support activities.

Increase added value services based on dual environmental and economic benefits.

Extension of repair and replacement parts service.

DISPOSAL/ TAKE BACK

[ntegrate disposal criteria into procurement, production and marketing decisions.

Cooperation with competitors on disposal.

Offer to take back products for reprocessing.

\ 7

PRIMARY ACTIVITIES

Figure 1. Environmental value chain over the complete product life cycle

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various company-wide management inputs. It is clear therefore that the value activities shown are the discrete building blocks of competitive advantage.

The great strength of the value chain concept is that it is useful not only as a teaching tool, but also as a working framework for practising managers to integrate environmental factors into strategic processes. It highlights practical opportunities for commercial added value from the environmental dimension at each stage of the product's life cycle. As such it offers crucially practical guidance for increased competitive advantage in the context of the increasingly environmentally oriented Single European Market.

THE ADVOCACY OF THE GERMAN INSTITUTE OF ENVIRONMENTAL MANAGERS

The Institute is critical of traditional 'command and control' environmental regulation, characterizing it as a 'black box' instrument which ignores the complexity of company processes. Furthermore, the adversarial process between industrialists and regulators which currently determines 'best avail- able technology' is held to obscure rather than promote the true potential of the innovative process. This leads to technological inertia and continued reliance on end of pipe rather than more sustainable source-directed pollution control stra- tegies.

The Institute therefore advocates a more compe- titive model of environmental protection based on market-creation strategies to harness the price mechanism to lend least-cost efficiency. It also advocates extension of no-fault liability for environ- mental damage with a crucial assumption in favour of causality, stressing that this will encourage the internalization of risk and drive technology.

EVALUATION: TOWARDS SUSTAINABILITY?

It is possible to evaluate the work of the Institute on greening business management education on two distinct, but ultimately related, criteria. Firstly, to what extent does it serve to promote the German national economic interest and, secondly, what is its likely contribution to the wider and more signifi- cant criterion of greater sustainability in the German economy?

On the first criterion of economic interest there is a clear perception among German policy-makers, industrialists and business management trainers

that a good strategic fit exists between certain competitive advantage factors inherent in the German economy and the environmentally driven structural change which is imminent in the Single European Market.

These strategic competitive advantage factors include the observation that important differences exist between the business management cultures of different nation states which influence the willing- ness and ability to integrate environmental con- siderations into strategic management. For example, there is a view that because of the dominance of stock market finance, Anglo- American business processes are characterized by short-term financial objectives and 'hard marketing strategies which hinder the integration of environmental protection. In contrast, German business is primarily financed by long-term equity relationships with commercial banks. This enables German business managers to adopt a more multi-dimensional objective function, with longer pay-back periods and greater orienta- tion towards quality. Customer-supplier relation- ships also tend to be longer lasting in Germany, which itself offers opportunities for developing environmental protection for long-term mutual benefit.

It is also held to be a significant competitive advantage factor that 70% of industrial managers in Germany have degrees in science or engineering a much higher proportion than in America or the LJK, where financial training predominates. This makes German corporate culture more technically oriented as opposed to financially oriented. This in turn offers a more supportive climate for the development of innovation, which is likely to be a decisive success factor in the face of environ- mentally driven structural change.

A diagrammatic representation of the potential contribution of green business management train- ing to increased sustainability is shown in Figure 2. The three overlapping circles at the centre of the diagram represent the environmental, economic and social domains of sustainability. In terms of this model, greater sustainability is achieved by increas- ing the overlap of these domains. The diagram shows how the forces created by an effective integrated environmental business management curriculum are likely to make these circles more concentric. It can be seen that these include continuous improvement in regulation, economic instruments and environmental liability provisions. The curriculum will also help in the identification of environmental market opportunities for commer- cial companies and thereby promote the elevation of environmental management to a strategic func- tion in company boardrooms. The development of leadership in innovation research, improved life

~~

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Improved economic lmrxoved regulation- instruments

\ / A Envirc

Innovation research Inmental liability

reform

Identification of market

Organisational learning and development

Figure 2. Diagrammatic representation of the contribution of green business management training to sustainable development. Progress is indicated by the increased congruence of the environmental, economic and social dimensions of sustainability

cycle assessments and risk management are all helpful, particularly in the context of the develop- ment of organizational learning processes.

CONCLUSIONS Perception of market opportunities

i" It is clear from this analysis that Germany provides a dynamic environmental policy context which is driving the continuing process of integrating environmental factors into business processes.

The case study of the German Institute of Business Management at the EBS shows clear evidence of a successful process of co-operation

structural changetowards sustainability

Less negative lobbying

1 More industry - regulator collaboratiori

2 J and liaison between acadhmics, industrialists and government policy-makers to produce an effective green business management training curriculum which is relevant to the needs of commercial companies.

It has been shown that together these processes have a real potential to bring about change in the German economy. This is summarized as a Virtuous cycle in Figure 3. It can be seen that more efficient

Improved regulation and market-based instruments

Figure 3. A virtuous cycle resulting management training

effective green

SUSTAINABLE DEVELOPMENT 17

regulation is likely to produce incremental struc- tural change towards sustainability, which will result in a greater perception of market oppor- tunities. This in turn is likely to produce less negative lobbying and greater incentives for industry-regulator co-operation, which completes the virtuous cycle by leading to still further improvements in the quality of regulation and continued development of market-based instru- ments. The fact that this virtuous cycle clearly has the potential to produce greater sustainability in the German economy, while simultaneously promoting the German national economic interest, bodes well for its ultimate success.

REFERENCES

Commission of the European Communities (CEC) (1993) The Fifth Environmental Action Programme, The Oficial Journal of the European Communities, C138, 36, 17 May.

Porter, M.E. (1985) Competitive Advantage, Creating and Sustaining Superior Performance, Collier Macmillan, London.

BIOGRAPHY

Walter Douglas is a Lecturer in Environmental Studies at the Graduate School of Environmental Studies at the University of Strathclyde. He originally trained as an ecologist and then in business management. He has worked in the marketing and strategic planning functions of major American and UK companies.

Walter Douglas Graduate School of Environmental Studies University of Strathclyde 50 Richmond Street Glasgow G1 IXN, UK Tel. 0141 552 4400. Fax. 0141 552 5498

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