Research Publications Directory-Environmental Technologies and Competitive Advantage

7/29/2019 Research Publications Directory-Environmental Technologies and Competitive Advantage

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Strategic Management Journal, V ol . 16, 183-200 (1995)

ENVIRONMENTAL TECHNOLOGIES ANDCOMPETlTlVE ADVANTAGEP AUL SHRIVASTAVADepar tment of Management, Bucknel l Univers i ty , Lewisburg, Pennsy lvania, U.S.A.c-7In this decade and the coming century, the natural environment will be an important arenaf o r econom ic, competition. Ecological issues regarding energy, natural resources, pollutio n,and waste offer both competitive opportunities and constraints, and are changing thecompetitive landscape in many industries. Corporations can gain competitive advantage bymanaging ecological variables. This paper explains the concept of environmental technologiesas a competitive forc e and a tool for competitive advantage. Environmental technologiesoffer a new substantive orientation and a management process for minimizing ecologicalimpacts of econom ic produc tion while enhancing Competitiveness of firms. The practicalapplication of environmental technologies is illustrated using a mini case example of 3 MCorporation. Strategic implications of environmental technologies for competitiveness areexplored.

THE NATURAL ENVIRONMENT: ANEW COMPETITIVE ARENAIndustrial activities of the past half century havecreated serious ecological problems. The listincludes global warming, ozone depletion, lossof biodiversity, natural resource scarcity, airpollution, acid rain, toxic wastes, and industrialaccidents (Brown et al.,1991, 1992, 1993). Th eseproblems are expected to worsen in the next 50years when the world population will double to11 billion. To provide basic amenities to thispopulation using current technologies, worldeconomic production will need to increase bymore than five times todays level. This can onlyworsen o ur environ mental problems (Daly andCob b, 1989; Com mon er, 1990).Th ere is little consensus on the scale, severity,and human consequences of ecological degra-

Key words: environmental technology; environmen-tal management; competitiveness

datio n. The re are some who claim that ecosystemsare basically healthy, and laissez-fairecapitalismis ecologically sustainable worldwide (Taylor,1994). There are others who believe that whilethere are some serious problems, new technol-ogies will prevent catastrophic ecological degra-dation, and ensure continued economic growth(Bernstam, 1991; Cole et al., 1973; Lecomber,1975). But there is now an emerging agreementthat a better balance between economic andecological variables is desirable, and that thetime frame for achieving it is the next threedecades (Gore, 1992).There are many philosophies of environmen-talism that advocate different solutions to theseecological problems. They include conservationmovements that seek to conserve nature andwilderness, reform environmentalism that seeksto change industry incrementally to improve itsenvironmental p erformance, and radical environ-mentalism which rejects industrialism and seeksan alternative ecotopian society. One solutionthat has received positive support from many

CCC 0143-2095/95/060183-18@ 1995 by John Wiley & Sons, Ltd.


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184 P . Shrivastavaenvironmental cam ps is the concept of sustainabledevelopment (SD) (World Commission onEnvironment and Development, 1987).Sustainable development involves control overpopulation growth, providing worldwide foodsecurity, preserving ecosystem resources, and reori-enting energy use and industry to ecologicallysustainable directions. Sustainability m eans m eetingour current needs without jeopardizing the ability offuture generations to meet theirs. It involves pacingthe use of resources so that they can be renewedand maintained within a natural equilibrium(Costanza, 1992; Daly and Cobb, 19S9).For the global economy to become ecologicallysustaina ble, it will be necessary to o rganiz e businessand industry along ecologically sound principles.This will require transformation of corporations,their products, production systems. and manage-me nt practices. If the world econ om y shifts tow ardsan ecological orientation, it will change thecompetitive landscape of industries in terms ofconsumer preferences and demands, industrialregulations, and competitive opportunities.While it is too early to forecast definite trends,some signs of these chan ges are starting to em ergein opinion polls and market research studies.Consumers are becoming more environmentallyconscious. A majority of people say they arewilling to sacrifice some economic growth forenvironmental protection. Consumers say theyprefer environment-friendly products and packag-ing and are willing to pay more for them. Nearly20 percent of adults in the United States andCanada belong to environmental consumer segmentsof True Blue and Greenback greens (GallupInternational, 1992; Stisser, 1994). A green marketsegment consisting of consum ers who prefer ecologi-cally sound products is emerging in a wide rangeof industries (Ottm an, 1992). T he dem and forenvironment-related products is estimated to be

I This is based on Gallup Internationals EnvironmentalOpinion Survey. The survey asked people if they would bewilling to protect the environment over economic growth.The percentage of respondents saying yes was 59 percent inthe United States, 73 percent in Germany, 68 percent inCanada, 56 percent in the United Kingdom, and 58 percentin Japan. Even in low-income developing countries morethan 50 percent of people said yes, except for India andTurkey (both 43%) (Gallup International. 1992). In Nordiccountries the Business Environmental Barometer surveyconducted by the Go thenbu rg Research Inst itute, Gothen-burg, Sweden confirms these opinions among corporateexecutives.

$120 bdlion per year currently, and expected to growto about $200 billion per year by the end of thisdecade (EPA, 1990).2 Th e Japanese government(Ministry of International Trade and Industry-MITI) expects that nearly 40 percent of worldeconomic production by the middle of the twenty-first century will come from energy- and environm ent-related products and technologies. It has targetedthese technologies for commercial development(Gross, 1992; Miller and Moore, 1994; Ministry ofInternational Trade and Industry, 1988).T he com petitive landscape is also being shap edby num erous environ men tal regulations an dstandards that affect the cost of doing business.These regulatory impacts are readily apparentin natural resource- and energy-intensive, andpollution-prone companies, although they affectothe r companies as well (S mart , 1992). Th e 1992Earth Summit produced several internationalenvironmental treaties . These treaties are nowbeing converted in to national laws and regulationsthat will further sh arpen global In

The data o n environmental product markets are scarce andimprecise. Much depen ds on w hat is included in the definitionof energy- and environment-related products. There is noSIC code for the environmental products industry. Theindustries that can be meaningfully included in this groupare diverse. They include produc ts and services such as wastemanagement. environmental consulting, energy productionand exploration, materials recycling, and pollution controlequ ipm ent. In addition, many industries have an environmen-tal segment, of environmentally sound products. Examplesof these segments include recycled paper packaging in thepacka ging industry , organic foods in the agriculture indu stry,or energy-efficient appliances in th e appliances industry.Since there are no firm standards of definition for datacollection, the figures quoted here must be interpreted withcaution. Moreover , it should be noted that a significant partof this market is driven by regulatory requirements.International treaties are converted into national laws.These laws open up new market oppor tunities , create demandfor new investments, and constrain certain production,product design, and trade practices, all of which affectcompetitiveness of com panies. For example, the InternationalTreaty on Ozone Depleting Substances (popularly called theMontreal Protocol) changed the fundamental competitivecharacteristics of the chlorofluorocarbons (CFCs) industry,which in the late 1980s was a $700 million business. Thetreaty was followed up by creation of national laws insignatory countries, which established a schedule for time-phased reduction in the demand for CFCs, eliminating it by2010. These laws created demand for CFC substitutes,changed the practice of cleaning printed circuit boards in theelectronics industry, changed the design of aerosol packaging,and changed the uses of Styrofoam. Th e Global Warm ingTreaty calls for basic changes in power production technol-ogies. The national laws that it is spawning have wide-ranging competitive effects, on the costs of power production,pollution control investments, subsidies for energy conser-vation, location of power plants, and energy trading.


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Environmental Technologies and Competitive Advantage 185addition, quality managem ent stand ards rec-ommended in I S 0 9000 (Interna tiona l Organiza-tion for Standards) a re being expan ded to includenew environmental standards (Smith, 1992).There are conflicting opinions on the competi-tive impacts of environmental regulations. Porter(1991, 1994) suggests that strict environmentalregulations do not inevitably hinder competi-tiveness against foreign rivals. They may evenenhance competitiveness. Higher environmentalstandards can trigger innovation and upgradingof technologies, m aking comp anies mo re efficient.For example, in response to the energy crisis ofthe early 1970s, Japan enacted tough energymanagement regulations that prompted compa-nies to innovate highly energy-efficient systems(Watanabe, 1992). Moreover, improvements inenvironmental and public health are shown tolead to more vigorous industrial development(Marshall, 1993).Opp onents argu e that environmental protectionhurts the world economy and slows downeconomic growth. They cite the recessions andeconomic slowdowns in industrialized countriesduring the past two decades as evidence(Osterfeld, 1992; The Economist , 1994).Regardless of whether environmental regu-lations hurt or help industry, they influencecompetitive b ehavior of firms and the competitivedynamics of industries by imposing new costs,investment demands, and opportunities forimproving production and energy efficiency.Environmental regulations and costs are alreadyshaping strategic decisions about sourcing rawmate rials, locating production facilities, managingenergy and wastes, in environmentally sensitiveindustries, such as chemicals, oil, forest products,metals, and mining (Smart, 1992). All thesewide-ranging changes promise to m ake th e 1990sa period of changing competitive opportunitiesfor business (Hitt, Hoskisson, and Harrison,1991).One strategic variable that fundamentallychanges environmental impacts, risks, and costsof companies is the choice of technologies(Kotha and Or ne, 1989). Product and productiontechnologies determine the basic parameters ofcosts and ecological impacts. They de term ine thetype of raw materials that can be used, productionefficiencies, pollution emitted from productionprocesses, worke r health a nd safety, public safety,and management of wastes (Sarkis, 1995).

This paper introduces the concept of environ-me ntal technologies and argues tha t they can beused to gain competitive advantage. The firstsection defines and describes environmentaltechnologies. The next section discusses a frame-work for understanding environmental technol-ogies as a strategic asset for gaining competitiveadvantage. The third section illustrates thisframework by describing how 3M Corporationhas adopted environmental technology orien-tation. The final section concludes with benefitsof and barriers to implementing environmentaltechnologies, and some implications for strategicmanagement.

ENVIRONMENTAL TECHNOLOGIESEnvironmental technologies are defined here asproduction equipm ent, methods and procedures,produ ct designs, and produ ct delivery mechanismsthat conserve energy and natural resources,minimize environmental load of human activities,and protect the natural environment. Theyinclude both hardware, such as pollution controlequipment, ecological measurement instrumen-tation , and cleaner production technologies. Theyalso include operating methods, such as wastemanagement practices (materials recycling, wasteexchange), and conservation-oriented workarran gem ents (car pooling, flextime), used toconserve and enhance nature.Environmental technologies are evolving bothas a set of techniques ( technologies, eq uipm ent,operating procedures) and as a managementorientation. As techniques they are used forpollution abatem ent, waste m anagem ent, energy,water and material conservation, and for improv-ing technological efficiency of production.As a management orientation, environmental

technologies have spawned environmentallyresponsible approaches towards product design,manufacturing, environmental management,technology choice, and design of industrialsystems. It is this management orientation thatis most relevant to strategic management and ofcentral interest to this paper.Environmental technologies incorporateenvironmental considerations into many aspectsof business operations, and thereby affect thecompetitive landscape in most sectors of theeconomy. As a source of new product ideas


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186 P. Shrivastavaand materiayenergy conservation, such as solarheaters and electric cars, they can create andexpand market dem and . As a source of productionprocess improvements, such as cleaner technol-ogies and pollution control, they can changethe production cost function within firms andindustries. By making products and packagingmore environmental friendly such as all-naturalsoaps or CFC-free air conditioners, they canenh anc e product quality an d attractiveness. Andby reducing waste, pollution, and hazards theycan make firms mor e attractive to co mm unities.The environmental problems addressed bythese technologies are widespread; consequentlythese technologies have wide applicability acrossindustries. Since enviro nm enta l problems a relikely to last a long time, en viron me ntal technol-ogies will have sustained impacts. In the comingyears we will see th ese technologies affecting th ecompetitiveness of many indu stries and countries.In recognition of this important role of environ-mental technologies, countr ies such as Japan,Germany, Sweden, and Denmark are target ingthem for rapid development.Environmental technologies are discussedbelow in terms of f ive themes. These them es areconstructed to capture broad approaches tomanaging environmental problems. They areconstituted of mo re specif ic en vironm ental man-agement techniques, such as product design,cleaner production, environmental auditing, cost-ing, and impact assessment. My criteria forcreating the b road them es were that they should(1) dea l with several key organizational e lem entssimultaneously, (2) be recognized in practice asviable approaches, and (3) have a technologicalorientation to dealing with environm ental prob-lems. Collectively the themes address bothinternal organizational elements and externalinterorganizational relations. The five environ-mental technology themes include:Design for disassembly;Manufacturing for the environment;Total quality en vironm ental man agem ent;Industrial ecosystems;Technology assessment.Organizations are groups of people pursuing avision (V) by managing systems of inputs ( I ) ,throughputs (T) and outputs (0). hese VITOelements are nothing but the well-known systemsview of organizations. In th e systems approach,organizations are represented by

Inputs+ hroughputs+Ou tputs , in interactionwith their environments (Churchman, 1963; Katzand Kahn , 1968). I have added Vis ion to thisscheme to reflect the values and goals oforganizations, which are critical to strategicmanagement .In the strategic management l i terature theseVITO elements roughly cor respond to Por ter svalue chain elements of inbound logistics, oper-ations, and outbound logistics (Porter, 1985).T h e systems view of organiz ations is also reflectedin other established management approachessuch as activity-based accounting and projectmanagement .The environmental technology themes relatethese VITO organizational elements and inter-organizational relations to the natural environ-

men t. Together th e them es cover all key aspectsof organizational operations. While each themehas a u nique focus, they are n ot strictly mutuallyexclusive. They overlap each other, reflectingnatural l inkages between inputs, throughputs,and outputs .Design for disassembly seeks to create environ-ment-friendly products by relating outputs(wastes, discarded products) to inputs (rawmaterial) via produ ct design processes. M anufac-turing-for-the-environment seeks to eliminatewastes, emissions, and pollution, and improvethe efficiency of production processes (throughputsystems). Total quality environmental manage-me nt simultaneously focuses o n all organizationalinputs, throughputs, and outputs, to improvetheir env ironm enta l performance using qualitycon trol principles. T he industrial ecosystem con -cept aims to red uce th e collective environm entalload of a group of production units throughinterorganizational cooperation. Technologyassessment aims at minimizing the spread ofenvironmentally harmful technologies.Design for disassemblyIncreasing waste, depletion of natural resources,and limited landfill spaces are an importantecological problem. Waste also increases cost ofproduction. In some p roducts, such as used tires,95 percent of what is discarded as waste is usableenergy. Similarly, discarded automobiles havemany reusable components and materials . Butthey are simply scrapped because currently it istoo expensive to recover them.


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Environmental Technologies and Com petitive Adva ntage 187Driven by these concerns, product designers

have developed a new design philosophy popu-larly labeled design for disassembly. Thisapproach seeks to build products that have amaximum useful life, and that are easy todisassemble and recycle. The objective is tomaximize the use of materials in the form ofproducts and recycled materials. This designphilosophy is in stark contrast to past designapproaches that sought planned obsolescence ofproducts, functional redundancy, and overdesign-ing for aesthetic and product differentiation(Buttner, 1993).Designers are using design for disassembly todevelop many products, including automobiles,computers, home appliances, furniture, consumerelectronics, and even prefab homes. XeroxCorporation pioneered in developing modulardisassemblable products (copying machines).Since it leases (rather than sells) and takes backmost of its products after customers have usedthem, efficient disassembly and refurbishmentmethods provide a source of cost reduction andcompetitive advantage to Xerox. BMW hasinnovated a fully recyclable automobile. It joinedhands with major auto scrapyards in Germanyto establish a comprehensive program for autorecycling and material recovery. With this signifi-cant competitive advantage, it is now lobbyingthe government to make auto recycling mandatoryfor all auto manufacturers (Babyak, 1991; Matys-iak, 1993).

Manufacturing for the environmentAn important focus of environmental technologiesis to improve the ecological performance ofmanufacturing processes. This is achieved byredesigning production systems to reduce environ-mental impacts, using cleaner technologies, usinghigher-efficiency production techniques, minimiz-ing waste at source, and maximizing fuel andenergy efficiency (Frosch and Gallopoulos, 1989;Imai, 1986). In addition, regular preventivemaintenance, industrial hygiene, and safe workingconditions enhance ecological and health con-ditions within organizations (United NationsEnvironment Program, 1993; UNESCO, 1992).

The potential for designing manufacturingsystems that are environmentally sound is itlus-trated by Ecover, a Belgian detergent manufac-turer. Ecover has created what it calls the

ecological factory. The entire factory is madefrom materials with low energy content whichcan be separated for recycling when the factoryis dismantled. The factory uses alternative energysources and practices strict energy conservation.It is energy self-supporting. It uses a closed watercycle operating on solar energy, without eithera chimney or a waste water discharge pipe(Develter, 1993).

The opportunity for making such dramaticimprovements comes only with new buildingsand facilities. Converting old facilities to makethem environmentally sound is the more common-place and also the more difficult and costlyproblem, and a significant focus of the manufac-turing-for-the-environment approach (Klassen,1993; Weissman and Sekutowski, 1991).Total quality environmental managementTotal quality environmental management(TQEM) combines and extends the above twoideas of environmentally oriented product designand manufacturing. TQEM applies a total systemsperspective and quality managem ent principles toenvironmental problems. It seeks to simul-taneously green the VITO elements and continu-ously enhance ecological performance of firms(Shrivastava, 1995a).4

Environmentally responsible vision includesecocentric values and culture that seek harmoni-ous organization-nature relations. In such avision nature is not simply a source of expendableresources to be exploited. Instead, nature andorganizations are part of a web of mutuallyinterdependent entities. The health and long-term welfare of each depends on the other.Environmental vision is operationalized throughconcrete environmental missions, objectives, andpolicy statements (Starik and Carroll, 1991;Throop, Starik, and Rands, 1993).Organizational inputs include energy, rawmaterials, labor, and capital. TQEM seeks tomanage all these inputs in an ecologically soundmanner. It strives for energy conservation, use

Greening here refers to making organizations responsiveto ecological and health concerns. It includes environmentalmanagement programs, environmental preservation andenhancement, and environmentally friendly products andtechnologies. Greening seeks to minimize the adverseenvironmental impacts of organizational activities and aimsto create ecologically sustainable organizations.


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188 P . Shrivastavaof renewable energy and materials, and renewalof natural resources. It establishes health- andsafety-conscious human resource practices. Itseeks ecologically sensible use of capital . Comp a-nies implement environm entally responsible inputmanagement through energy conservation pro-grams, and waste reuse and recycling programs.They may switch to environmentally safermaterials , and inventory m anagem ent that avoidslarge quan tities of hazardous materials.Throughputs include the production, s torage,and transportation of goods and services. T QE Mseeks ecologically efficient throughput systems.This is achieved by using cleaner productiontechnologies, pollution prevention, effluent con-trol , and en vironm ental r isk m anagement(Kolluru, 1994).

Organizational outputs include prod ucts , pack-ages, and wastes . TQEM seeks to developenvironment-friendly products and packages, andminimize waste by reducing total life cycle costsof products from cradle to grave. This involvesnew productlpackage designs, and integratedwaste management using recycling, incineration,and land filling (Presidents Council o n E nviron-mental Quality, 1992).TQEM emphasizes a total systems approachto managing the VITO elements . This ensuresthat companies are not simply adopting end-of-the-pipe pollution control measures. It alsoprevents shifting environmental effects from oneeleme nt to an othe r. In l ine with the total quali tymanagem ent philosophy it encourages continuousimprovement (Willig, 1994).Industrial ecosystemsIndustrial ecosystems are a new innovationin designing interorganizational linkages. Theyconsist of a network of organizations linkedto each other through an ecological logic.Organizations within the network use each otherswastes, byproducts, and outputs, to reduce thetotal use of energy and natural resources, andreduce the total waste and pollution from thesystem. Through interorganizational cooperationthey collectively minimize their impacts on theenvironment. The idea is to mimic naturalecosystems in which several organisms live inmutual interdependence to crea te stable and life-sustaining ecosystems (A llenb y, 1993; Ay res andSimonis, 1992).

In the United S tates several experimen ts areunderway to create waste exchanges amongregional firms. A more e labora te form ofindustrial ecosystem is a group of companies inKalundborg, Denmark. The coal-fired Asnaespower plant is the heart of the system. It isl inked t o an enzyme plant, a refinery, a chemicalplant, a wallboard plant, a fishery, and somelocal farms. These plants use one anotherswastes and byproducts as raw materials.The power plant sells i ts used s team to theenzyme plant, the refinery, the fishery, and thecity, instead of condensing and dumping it. Thepower plant sells its fly ash to a cement company,and its high-sulfur gas emissions to the chemicalplant for making sulfuric acid. It removespollutants from its smokestacks and sells thelimestone-rich ash to the wallboard plant andcem ent plant , reducing the use of virgin gypsum.The refinery in turn supplies Asnaes withtreated waste water for cooling and desulfurizednatural gas for fuel, saving 30,000 tons of coal ayear. Local farms use wastes from the fisheryand from the en zym e plant as fert il izer.This industrial ecosystem saves money for allits participants. It cuts the imports of minedgypsum, and conserves water which is pumpedfrom Lake Tisso 7 miles away. It reduces theamoun t of energy consumed for heating and th enee d for inorganic fertilizers on farms. It reducessulfur pollution from the power plant andminimizes cement waste sent to landfills.This industrial ecosystem is an experimentalpro totyp e. It was costly to set up and need ed newinstitutional mechanisms for interorganizationalcoordination (provided by the city ofKalun dborg ). A t this early s tage these consider-ations act as barriers for many companies to cr eatesuch ecosystems and embrace environmentaltechnologies m ore enthusiastically. Bu t as experi-ence of industrial ecosystems accumulates (severalare currently being dev eloped), they are expectedto become more cost effective and competitive.They will then change the competitive dynamicsof industries within bioregions by leveragingecological efficiencies for network firms (Allenby,1993).Technology assessmentA significant elem ent of technology managementis the selection of new technologies, and transfer


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Environm ental Tech nologies and C om petitive Adva ntage 189of technologies across organizational divisions,across organizations, and across nations. Inchoosing and transferring technologies manage-men t is increasingly faced with issues of environ-mental appropriateness of technologies in theirnew locations. Environmental risks emanatingfrom a technology are a function of bothattributes of the technology and attributes of it slocation.Technology assessment is an analytical toolused to understand the likely impact of the useof a new technology by an industry, region,country, o r society. It examines costs and benefitsof the technology, its environmental impacts, itseffects on institutions, and its social and politicalimpacts. With respect to the environment itassesses environmental and health risks, impactsof specific projects and facilities, potential foreffluents, releases and hazardous wastes, andproduct life cycle costs (Sucre, 1993). Total lifecycle costing helps t o include hidden environmen-tal costs and future costs or liabilities.Technology assessment originated as a policytool to aid governmental decision making, withregard to technology tran sfer, technology importpolicy, industrial licensing, environmental regu-lations and monitoring, and environmental stan-dards (Coates, 1993; H op pe an d G rin, 1995). I thas now exp and ed into a valuable tool for makingbusiness portfolio decisions. In making strategicbusiness portfolio choices companies have tra-ditionally used m arke t share and industry growthrate as key parameters (Boston ConsultingGro up, 1970; Hofer and Schendel, 1978). Tech-nology assessment expands the selection criteriato include environmental impacts and liabilitiesassociated with business (Ilinitch and Sch altegger,1993; Kolluru, 1994; Shrivastava and H ar t, 1994).British Petroleum, for example, does tech-nology assessment using futures-sce nario analysistechnique, to forecast which fuel/energy technol-ogies will be used in coming years. They use thisassessment to develop their product plans andinvestment programs. General Electric doestechnology assessment in specific countries tojudge the market potential for its technologies.By the end of this decade it expects 50 percentof its revenu es to come from developing co untries(particularly Mexico, China, and India). Thesecountries are a t different stages of development ,and need different types of technologies. Thesetechnology and ma rket assessments provide com-

petitive advantage through bette r product choices,R&D investments, plant location decisions, andcorp orate strategies for gaining access t o m arkets.

ENVIRONMENTAL TECHNOLOGYSTRATEGIES AND COMPETITIVEADVANTAGEEnvironmental Technologies cover many salientconcerns of traditional strategic management.Strategic management is concerned with aligningorganizations with their environments (Schendeland Hofer, 1979). Environmental technologiesseek alignment of corporate technologies andbusinesses with the natural environment. Figure1depicts the relationships between environmentaltechnologies and strategic management concerns.In th e figure, organizations are represented asa set of visions, inputs, throughputs, and outputs(VIT O). Organizations function within a physical(natu ral) environment, and social environmentcharacterized by economic, social, political, andcultural influences. Environmental technologiesare depicted in terms of the five the m es discussedabove and the arrows depict their multipleinfluences on the VITO elements.The resource-based view of the firm arguesthat companies are a bundle of strategic andoperating resources. Companies that can parlaynew and unique resources can establish co mpeti-tive advantage (Barney, 1992; Mahon ey andPandian, 1992; Prahalad and Hamel, 1990).

Economic, Social, Political, CulturalENVIRONMENT1

r 'IIIIIIIi I Ecology Environment Dis-assemply II

Figure 1 . Strategic management and environmentaltechnologies


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190 P . ShrivastavaEnvironmental technologies are a potential stra-tegic resource because they affect th e value chainat multiple points. They a re capable of providingfirms with unique and inimitable advantages ateach stage of the value chain.In the input system, competitive advantageaccrues from materials, labo r, and energy conser-vation. TQEM provides a base for revisioningthe organizations role vis-h-vis its customers,society, and the natural environment. It allowsfirms to create new goals, and reshuffle prioritiesin favor of preserving ecological value withlegitimacy. It systematically conserves inputs tominimize costs.In the throughput system, manufacturing forthe environm ent improves production efficienciesand minimizes waste and pollution. It makesproduction lean and green. It is a particularlypoten t source of improved ecological performancein pollution-intensive, energy-intensive, and natu-ral resource-intensive industries. In these indus-tries ecological performance is important both forcompany image and to minimize environmentalliabilities, Lower environmental liabilities makecompanies a b ette r credit risk a nd less vulnerableto litigation. both of which can be importantsources of competitive advantage.In the output system or the outbound logistics,environmental technologies create competitiveadvantage through better product designs andbusiness portfolios, an d throu gh savings from b ettermanagement of wastes. Technology assessmentallows firms to incorporate environm ental consider-ations into portfolio analysis, resulting in morerobust portfolios. It guides the sharin g of productiontechnologies across plants, divisions, and c ountries.It thus shapes the firms technological capacity.Technology assessment highlights ecologicalimpacts and risks and can thereb y minimize firmsrisk exposure and liabilities.

Design for disassembly influences choice ofproduct features and specification. It can createnew products of special value to green con sum ersegments of the industry. It also minimizespackaging, thereby reducing costs and environ-mental impacts.Industrial ecosystems provide an ecologicalmethod for building interorganizational relationsamong firms. They involve cooperative strategiesfor reducing costs by minimizing waste andmaximizing resource utilization in a network offirms. In an extension of this idea, companies

may form strategic alliances with private andpublic organizations to d eal with competitive an denvironmental issues common to their industryand bioregion. For example, the electronicsindustry developed a cooperative consortium toshare the circuit boards cleaning technology, toeliminate the use of chlorofluorocarbons inelectronics manufacturing. Merck Inc. , he phar -maceutical m ake r, created an innovative partner-ship with the government of Costa Rica toconserve that countrys rain-forest in exchangefor rights to do biogenetic prospecting anddevelop drugs from rain-forest products. Withunique access to these biogenetic materials Merckstands to gain competitive advantage over itsrivals.Companies can creatively combine these fiveenvironm ental technologies to formulate corporate-and business-level strategies. At th e corp orate levelthis results in domain choice of products andtechnologies that a re ecologically sustainable. A tthe business unit level it results in exploitation ofecological efficiencies and use of ecological variablesfor building competitive adva ntage (Buzzelli, 1991;Room e, 1992; Stead and Stead, 1992).Environm ental technologies also have com peti-tive significance at the industry level. Justas other encompassing technologies, such asinformation processing and com mun ications, havewide influences on many industries (financialservices, transportation. etc .), so too environmen-tal technologies widely influence all environmen-tally sensitive sectors of the economy. If usedstrategically throughout the industry, they mayreduce the need for environmental regulationsin the industry.Finally, environmental technologies have com-petitive potential at the international level. Incoming years economic development will besubject to ecological limits. Transfer of productsand production systems across national bound-aries will require environmental impact assess-ments. Environmental technologies can givenations unique competitive advantages in globaltrade and transfer of technologies (Goodland.Daly, and El-Serafy, 1992).

ILLUSTRATIVE CASE STU DYThe environmental technologies or ienta t ion isbeing implemented in corporations in selective


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Environmental Technologies and Competitive Advantage 191ways. It may not be called by that name, orinclude all the five elements discussed above,but many companies are significantly improvingtheir environmental and competitive perform-ance using environmental technologies(Callenbach et al ., 1993; Schmidheiny, 1992;Smart, 1992; Roddick, 1991). Below I describe3M Corporations approach to environmentaltechnologies as an illustration of how theseconcepts are implemented. The sources ofinformation for this case are company annualreports and documents, and published descrip-tions of its environmental programs (Bringerand Benforado, 1994; Shrivastava, 1995b).

It should be noted that despite the ratherpositive description of 3M that follows, thecompany is by no means perfect on all environ-mental issues. By the very nature of its products,technologies, and size of operations, it createsa major environmental burden. Moreover,much of what is known about the companysenvironmental programs is provided by thecompany, and there is no independent outsideevaluation of its programs available. Finally,the drive for environmental improvements at3M is closely tied to regulatory compliance andeconomic opportunities. Yet, the company isclearly a leader in environmental management,and has successfully parlayed this effort intofinancial and competitive gains.

3M Corporation3M is a global, diversified, industrial andconsumer products company. In the past 5years it has been financially successful andregularly featured in Fortune magazines list ofAmericas most admired companies. In 1992it had revenues of $13.8 billion, and employednearly 90,000 people in 52 countries.3Ms strategic objectives include moderategrowth in sales of 5-7 percent per year. Itseeks to improve earnings by cost reductionand productivity improvements. Over 1990-95it aims to reduce its unit cost-in real inflation-adjusted terms-by 10percent. This will involvereducing manufacturing cycle time by 37 per-cent, waste by 35 percent, and energy use by20 percent per unit of production. Table 1shows a 5-year summary of financial data.

Table 1. 3Ms 5-year financial performanceYear Sales Net income EPS1992 13.88 1.23 5.631991 13.34 1.15 5.261990 13.02 1.30 5.911989 11.99 1.24 5.601988 11.32 1.15 5.09growth5-year 5.2% 1.6% 2.5%Sales and net income in billions of dollars.EPS = earnings per share in dollars.

Organizational antecedents of environmentaltechnologies

The environmental technologies approach appar-ent at 3M is best understood in the context ofthree organizational features: the diversity andchanging nature of its products and technologies,heavy emphasis on the productivity of labor,capital and resources, and the availability ofenvironmental champions.3M has a wide product range consisting ofspecialty chemicals, polymers, and consumer andindustrial goods. It invests heavily in R&D andnew product development. R&D expenditures in1992 were over $1 billion (or 7% of sales), andover the past 5 years were $4.3 billion (7% of5-year sales). Such high R&D expenditure madethe company a research leader among broadlydiversified firms. It generates at least 25 percentof its sales from products introduced within thepast 5 years. From 1993 onwards, it raised thisgoal to 30 percent of all sales from productsintroduced in the last 4 years. Due to thiscontinuous stream of new products, its environ-mental problems are diverse and keep changing.Inherent in this situation of product diversityand change is the continual development andadoption of new technologies. Creating newtechnologies from scratch provides an opportunityfor incorporating design for disassembly andmanufacturing for the environment. It alsoallows periodic and systematic replacement ofenvironmentally harmful technologies withenvironmentally benign ones. It mitigates primarybarriers to change, which are the sunk costs andorganizational inertia of existing technologies.3M places special emphasis on productivity oflabor, capital, and resources. Over the past


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192 P. Shrivastava5 years its sales grew from $11.3 billion to$13.8 billion. Its ne t earnin gs w ent up fr om$1.15 billion to $1.23 billion. sales er employeewent up from $117,000 to $160,000-well abo ve

Table 2 . 3 4 s environm ental policy3M has and will continue to recognize and exerciseits responsibility to:

the industry par.This emphasis on productivity makes costsavings a central value in the company. Environ-mental programs that allow cost savings fi t wellwith this productivity logic and are easy tojustify.Finally, the tradition of innovation at 3M haslegitimized the role of internal product andtechnology champions. Product champions havehad a significant influence on the companysinvestment policies. In the mid-l970s, whenenvironmental issues became salient for theindustry, the Production Engineering and ControlDepartment championed environmental technol-ogies . The motivation then was to reduce costs ,to comply with increasing regulations, and topostpone some regulatory costs.Since then , the company has deve loped manynew technologies to minimize use of natura lresources, reduce pollution, minimize and recy-cle wastes , prevent accidents , and makeenvironment-f r iendly products and packaging.Every environmental project is designed tosave money. In fac t , for a pro jec t to beunder taken i t must show environmenta limprovemen t and economic savings. In 1993,it relaxed this savings criterion for highlyinnovative environmental technologies .Environmental technologies at 3 M3Ms environmental focus reflects some degreeof attention to al l the four elements of Vision,Inputs , Throughputs and Outputs , discussedearlier. Its environmental vision is codified inthe environmental policy adopted in 1975, shownin Table 2.Technology is 3Ms strong suit. The companysuccessfully leverages this strength to improveecological performance of its input resourceusage, manufacturing operations, products , andwaste management. I t has expanded i ts systemfor product innovation to include environmentalinnovation. Environmental projects are an inte-gral part of normal o pera ting processes th atencourage innovation. Special emphasis is placedon manufacturing technologies, product andpackaging design, and waste management.

0 Prevent pollution at source wherever andwhenever possible0 Develop products that will have a minimum effecton the environmentSolve its own environmental pollution andconservation problems0 Conserve natural resources through reclamation,resource renewal, and other appropriate methods0 Assure that its facilities and products meet andsustain t h e regulations of al l federal, state, andlocal environm ental agenciesAssist, whenever possible, governmental agenciesand other official organizations engaged inenvironmental activities

Th e u l t ima te a im of the com pany is to achievezero pol lu t ion . This goa l may be unrea l is t icgiven the products and technologies in i tsportfolio. Yet, 3M strives towards i t withits environmental policies and with detailedstandards and guidelines in a l l environmenta la reas . Th e companys manu al of env i ronmen ta lpolicies contains hundreds of specific policies,s tandards , and implementa t ion guide l ines ontopics such as pol lu t ion contro l equipment ,environmenta l permits , above-ground tankinspections, office paper recycling, etc .3M views environmental technologies as thevehicle for minimizing the environmental harmcaused by existing technologies. The operationalcenterpiece of its env iron me ntal technology policyis the Pollution Prevention Pays Program o r t h e3P Program. This program addresses manyaspects of environmentally harmful inputs,throughputs , and outputs of the company. Themain thrust , however, remains on the throughpu tsystem or manufacturing, which is the majorsource of pollution emissions.3M seeks to prevent pollution at source ratherthan removing it after it has been created.This is done by product reformulation, processmodification, equipment redesign, and recycling/reuse of waste materials.The 3P Program is structured in terms ofprojects . Ea ch project must m eet four cri teria toreceive formal recognition and funding. It must:

benefit the environment through reduced0 eliminate or reduce a pollutant;


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Environmental Technologies and Competitive Advantage 193energy use or more efficient use ofmanufacturing materials and resources;demonstrate technological innovation;save money through avoidance or deferralof pollution control equipment costs ,reduced operating and material expenses,or increased sales of an existing or newproduct .All employees are encouraged to participate inthe program. A 3P Coordinating Committeeadministers th e prog ram . The comm ittee consistsof members from 3Ms engineering, manufactur-ing, and laboratory organizations, the corporateEnvironmental Engineering and Pollution Con-trol Department, and the Industr ial HygieneGroup .In 1988, 3M extended the program by adding a

new $150 million investment in to pollution co ntroldevices. The objective of this 3P Plus programwas to reduce all hazardous and nonhazardousreleases to air, land, and water by 50 percent(from 1987 levels) by the year 2000. The companywill return to g overnment authorities the pollutioncredits that accrue to it.In its first 15 years, 1975-89, the 3P Programcompleted ov er 2500 pollution prevention projects.The program resulted in reducing 3M pollutionper unit of production in half. It prevented morethan 500,000 tons of pollutants, which included123,000 tons of air po llutants, 16,400 ton s of waterpollutants, 409,000 tons of solid waste, and1.6 billion gallons of waste water. As a result thecompany saved more than $500 million in costs.These costs savings are a vital element of competi-tiveness, because 3Ms strategy is to improveprofitability by cost cutting in an environment ofonly modest revenue growth.Environmentally conscious products, packaging,and manufacturingUnder the broad umbrella of environmentaltechnologies, 3M improves its product designsand the manufacturing systems, to be moreecologically efficient. This is done by adoptingprinciples of design for disassembly an d m anufac-turing for the environment, although thesephrases are not used within the company todescribe their appro ach. T he objective is to reducethe use of virgin materials and environmentallyhazard ous substan ces, increase the use of recycledmaterials, improve energy and production

efficiencies, and minimize polluting emissionsand wastes.Th e following examples illustrate how manufac-turing processes are being transformed. Riker is3Ms pharmaceutical unit. It makes a variety ofmedicine tablets coated with solvent solutioncoating. Use of solvents created pollution andwas expensive. Riker developed a water-basedcoating for tablets as a substitute for solventsolution coating. This change eliminated theneed to spend $180,000 for pollution controlequipment, saved $15,000 per year in materialscost, and prevented 24 tons of air pollution ayear. T he change ove r cost the company $60,000.This change produced a better-quality and saferproduct, in addition to reducing costs andminimizing the use of hazardous chemicals in itsproduction.Another 3P project that conserved inputresources focused on improving the efficiency ofresin spraying. A resin spray booth was producing500,000 pounds of overspray annually. Theoverspray represented waste of resin. The resinwaste had to be collected, transported, andincinerated. The spray booth was redesigned andnew spray equipment installed to eliminateexcessive spray. The new design cost $45,000 innew investments, but saved the com pany $125,000a year. This project enhanced competitivenessof the company by minimizing waste and cuttingoperating costs.Another element of 3Ms manufacturing forthe environment program is accelerating researchon eliminating pollution from m anufacturing, andboosting recovery and recycling of wastes. Thecompany eliminated the use of ozone-depletingsubstances by 1993, well before the deadlinesspecified by the US Environmental ProtectionAgency and the Montreal Protocol.3Ms product design philosophy stronglyemphasizes minimization of wastes in discardedproducts and in packaging. Systematic analysisof product features and specifications is under-taken to identify opportunities for waste minimi-zation.For example, the Aycliffe plant in Englandmakes face masks and respirators for industrialuse. Old mask designs involved discarding wastesfrom the masks into landfills. After its usefullife, the mask was also sent t o landfills. R edesignof th ese masks has led to creation of m aintenance-free face masks and respirators. T he new designs


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194 P . Shrivastavaeliminate waste, and allow recycling of the m askparts. T he new m asks are also more com petitiveas products because customers find them easierto use an d maintain.This plant also designed a waste-head boilerthat absorbs heat from an on-site incinerator.Th e steam so produced is used to h eat the plant.The boiler cost $290,000, but makes annualsavings of $170,000. The incinerator prevents250 tons of solid waste from e nte rin g landfills eachyear. Th e plants competitiveness is enhanced bylowering its overall operating cost.3Ms packaging philosophy is to minimizematerials, cost, and the time for assembly anddisassembly of all packages. Engineers arecontinually developing new eco-friendly packag-ing to increase reuse and recycling. They havealso decided to eliminate chrome and leadpigments, chlorofluorocarbons (CFCs), and poly-vinyl chloride (PVC) from all packaging specifi-cations.3M laboratories and marketing division hasestablished an Environmental Leadership Pro-gram that assesses environmental impacts oftechnologies and products, and develops moreenvironment friendly products. By appealing toconsumers preference for ecological features,the program enh ances th e competitiveness of 3Mproducts.In assessing the usefulness of technologies, thecompany uses life cycle analysis (LCA) tominimize total life cycle costs. This approachconsiders all costs associated with products fromcradle to grave. These include costs of initialR&D, design, prototyping, m anufacturing, recyc-ling, recovery, and disposal. LCA allows thecompany to anticipate hidden future costs ofproduct and environmental liability, and wastedisposal. It enhances the companys ability tocontain costs and avoid negative surprises.Other conservation programsIn addition t o the pollution prevention p rograms,3M has several programs aimed at energy andresource conservation. Its 20-year-old Commute-a-Van program uses over 120 vans for employeeride sharing. This program has saved over50 million passenger miles and over 3 milliongallons of gasoline, thereby preventing 1100 ton sof auto exhaust pollution. Over the yearsthousands of employees have benefited from this

program. T he com petitive benefit of this prog ramlies in improving employee m orale an d conservingenergy.3M does periodic energy audits in all itsoperations. Energy conservation efforts cutenergy use in half between 1973 an d 1988,while production increased each year. Setbackthermostats are installed to control temperatu reduring unoccupied hours. Manufacturing plantsreuse hot exhaust from combustion for productdryers and to m ake stea m. Th e company partici-pates in EPAs Green Lights program, and hasadopted high-efficiency lighting fixtures andfacility designs. Th ese ene rgy C onservation effortsimproved the operating efficiency of companyfacilities, and lowered its energy costs.In 1972, 3M decided to incinerate liquidhazardous wastes. It established the ChemoliteCenter incinerator. This incinerator reduces thevolume of hazardous wastes by 95 per cent, andthe toxicity by more th an 99per cent. Incinerationtechnology is continually upgraded. Heat isrecovered from the combustion for use inproduction facilities.Together these environmental technologies(see Table 3 for a summary) have shaped theTable 3. Summary of 3M greeningVITOelements 3M attributesVision

Inputs

Throughputs

outputs

Acknowledges its environmentalresponsibilities, believes in natureconservation, responsive toregulations, believes pollutionprevention pays, total systemsapproach to environmentalmanagementEnergy conservation, materialsrecycling, reduce the use of hazardousand virgin materials, eliminated theuse of CFCsImprovement in production efficiency,production process changes forenvironmental benefits, zero pollutiongoal, invests in pollution prevention,life cycle analysis to guide costreductionsEnviron ment-friendly product designs,and packaging, reuse and recycling ofwastes, incineration of chemicalwastes


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Environmental Technologies and Competitive Advantage 195competitiveness of 3Ms operations. They havereduced the use of natural resources and energy,reduced pollution and emissions from manufactur-ing, and minimized waste. The company hasthus achieved a competitive cost structure.Environmental technologies have also enhancedproduct appeal through design of environment-friendly products and packaging, and reducedproduct and environmental liability. Finally, thecompany has gained competitive advantage viaimproved public image. In addition, these prac-tices set new standards of environmental perform-ance for the businesses in which the companyoperates. Thus, they influence competitivedynamics of their respective industries.

IMPLICATIONS FOR STRATEGICMANAGEMENTThe experiences of 3M and other companiessuggest that integrating environmental technol-ogies into strategic management offers manycompetitive advantages, but also faces manybarriers. The advantages include the following.

Cost reductionEnvironmental technologies offer the opportunityto drive down operating costs by exploitingecological efficiencies. By reducing waste, con-serving energy, reusing materials, and addressinglife cycle costs, companies can make largefinancial gains.

Revenue enhancementEnvironmental technologies create possibilitiesfor revenue enhancement in two ways. First,they allow entry into the growing market forenvironmental products and technologies(estimated at $200 billion per year by the end ofthis decade). Second, there is a large and growingsegment of consumers who want eco-friendlyproducts and packaging in most industries.These green products require environmentaltechnology designs and production systems.Supplier tiesBoth manufacturing for the environment anddesign for disassembly actively involve suppliers

in corporate decision making. They strengthensupplier ties. Stronger ties help in ensuring higherquality of incoming supplies. Companies caninfluence suppliers to change the design specifi-cation of supplies, to reduce costs, and facilitatemanufacturing.Quality improvementEnvironmental technologies reinforce the totalquality management philosophy. TQEM supportstotal quality programs and extends them toenvironmental issues. Technology assessmentallows quality concerns to be incorporated in thevery early stages of choosing product andproduction technologies.

Competitive edgeCompetitive advantage accrues directly fromcost reductions and revenue improvementsprompted by environmental technologies.Environmental technologies also offer compa-nies the potential for creating unique andinimitable strategies. Companies can distinguishthemselves through these strategies and becomeenvironmental leaders. While environmentaltechnology orientation is feasible in all sorts ofcompanies, that does not mean that all compa-nies can become genuinely green with the samelevel of ease. The Body Shop has created asuccessful, genuinely green business in anindustry (cosmetics and personal care products)dominated by chemical concoctions. Othercosmetics companies in this industry couldtheoretically also adopt environmental tech-nology orientation. But for some at least, suchas Revlon, that would be impractical becausethey are based on very different marketassumptions, mass production and distributioninvestments, and management values andvision.

Reduction of liabilitiesEnvironmental technologies are sensitive tolong-term risks of resource depletion, fluctuat-ing energy costs, product liabilities, and pol-lution and waste. By introducing environmentaltechnologies that systematically address theselong-term issues early, companies can becomeaware of and manage these environmental risks.


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196 P. ShrivastavaSocial and health benefitsEnvironmental technologies benefit the ecosys-tem, and the environment of communities inwhich compan ies op era te. They result in reducedcommunity expenses on health impacts of indus-trial pollution.Public imageEnvironmental technologies are also good forpublic relations and corporate image. They helpcompanies to establish a social presence in theirmarkets, and gain social legitimacy.Ahead of regulatory curveEnvironm ental technology solutions allow com pa-nies to get ahead of environmental regulationsand establish a firmer footing with respect toenvironmental and product liabilities. They mayallow industry to pree mp t som e regulations. Theyalso allow some leading companies to shapeenvironmental regulations consistent with theirown internal policies. Th ese com pan ies stand togain competitive advantage over rivals.With all these potential benefits one wonderswhy more com panies do not ado pt environmentaltechnologies faster. There are several barriers totheir adoption, including the following:1. Costs of developing solutions. Technologicalsolutions for many environmental problemsare expensive to develop. They require newresearch, new technological information, neworganizational arrangements , and sometimesnew infrastructural services. Environmentaltechnologies may increase up-front costs dueto the need for new designs, new setu p costs,changeover costs from existing procedures,

and personnel training costs. But they canalso reduce costs of operation s, raw materialsand energy, maintenance, waste disposal,pollution control, and environmental liabili-t ies. Perhap s the net result is that env ironm en-tal technology investments have longer pay-back periods than conventional investments(i.e., business investments that the companywould normally make in doing business, suchas investment into plant and equ ipme nt,working capital , R&D, and marketdevelopment). To just ify environ men tal tech-

nology investments managers cannot dependon purely economickost benefits . They mustinclude long-term ecological and social bene-fits. This discourages managers who areworking on short performance evaluation andcareer time horizons in highly competitivefinancially oriented performance review sys-tems.

2 . Lack of know-how and environmental infor-mation. In some environmental areas techno-logical solutions are simply not available atthis t ime. For example, consider the globalwarming problem caused by excessive carbondioxide in the a tmosphere . There a re nofinancially feasible and politically acceptablesolutions currently available. Every proposedsolution has som e uninten ded negative effects.In such situations managers prefer to take await-and-see attitude.3 . Ano ther barr ie r to implementing environmen-tal technologies is organizational inertia.Organizations are accustomed to doing thingsin certain set ways. They have stable andlongstanding decision routines, standard pro-cedures, and cultural habits for doing things.The re is resistance to changing historicalpatterns of procedures and systems.4 . Finally, multiple and sometimes contradictoryregulation of envir onm enta l issues sometim esacts as a barrier to action. Managers tend tobe confused about what is expected of t hem,and prefer inaction. A recent survey conductedby the American Lawyer, a legal professionweekly newspaper, found that nearly 70percent of the surveyed corporate environmen-tal counsels were confused about environmen-tal laws and believed that their companieswere breaking at least some laws (they werenot sure which).

Competitive landscapeDespite these and other more specific barriersin individual compan ies, en viro nm enta l technol-ogies are being ado pted widely and ar e collectivelyaffecting the competitive landscape. They permitfirms to remain competitive in global markets,reduce costs and production times, and enhancestrategic flexibility. For example, the rules ofcompetition in the global battery industry arechanging with increasing regulation of hazardous


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E n v i ro n m e n ta l T e c h n ol o g ie s a n d C o m p e t i t i v e A d v a n t a g e 197waste disposal. Lead acid batteries are simplybecoming uncompetitive in countries with strin-gent disposal laws. Environmental technologiesas a source of new acid-free batteries and batterydisposal systems are allowing some firms, suchas Toshiba and Hitachi, to remain globallycompetitive.In some cases environmental technologies arethe source of cost reduction. A case in point isrecycled toner cartridges used in printers andphotocopying machines. Canon established thefirst worldwide system for recycling and refur-bishing cartridges with a plant in Dalian, China.Used cartridges can be converted for reuse at afraction of the cost of a new cartridge. Inaddition, recycling saves the cost of disposing ofempty cartridges.

An example of industry-wide cost reduction,coupled with shorter production time by environ-mental technologies, is the substitution of CFCsfor cleaning printed circuit boards in the elec-tronics industry. AT &T , N orthern Telecom, andother companies have innovated new detergentsand changes in production processes that elimi-nate the use of CFC s. Th e manufacturing processis redesigned to reduce the need for cleaning,and the little cleaning that is required is donewith water-soluble d eterg ents and orange rind.This saves millions of dollars and reduces theoverall production time.As companies build up a reperto ire of environ-mental technologies, they enhance their strategicflexibility to deal with increasingly burdensomeenvironmental problems. Firms in the chemicalindustry provide an example of this enhancedflexibility. Realizing that this industry is proneto environmental hazards, leading chemical com-panies such as Dow Chemicals, and D u Pon t, andthe chemical industry (Chemical ManufacturersAssociation), have d eveloped a strong capabilityin environmental technologies, including pol-lution control, waste water treatment, productintegrity systems, recycling, storage of hazardousmaterials, emergency management, and spillmanagement. This technological capability givesthe com panies and th e industry a unique capabilityto respond to environmental incidents, and to d oproactive risk management, risk communication,and liability management (Buzzelli, 1991).In some industries energy conservation andmaterials substitution offer competitive potential.The electric utilities industry in the United States

is discovering that the cost of conserving akilowatt hour of energy is, in many situations,significantly lower than the cost of generating it.Sou thern California Edison plans to m eet its next5 years dema nd for energy through conservationmeas ures avoiding adding new gen erating capacityto its system.Environmental technology orientation at thenational economic policy level is another sourceof changing competitive landscape. By targetingenvironmental technologies for development andseeding R&D in these technologies some coun-tr ies, including Japan, Germany, Sweden, andDenmark, are seeking to establish nationalcompetitive advantage for their firms. They arealso investing in the creation of infrastructurefor environmentally preferable industries, in theform of mar ke ts for recycled products, regulationsencouraging adoption of environmentally cleantechnologies, and taxes and subsidies to shapeinvestment in certain environmental and renew-able energy sectors.The use of technology to create competitiveadvantage is not a new idea. In the 1950s,Schump eter (1950) argued t hat technology is theessence of competition. Since then economistsand strategists have studied how technologyshapes competitive dynamics, particularly innew emerging technological areas (Jelinek andSchoonhoven, 1993; Williams, 1983). Franko(1989) demonstrated that R&D expenditures arean important determinant of corporate strategicperformance and global competitive success.Technology is a source of new products and newproduction methods that can both cut costs andenhance revenues (Tushman and Anderson,1986).This paper makes a contribution by reinforcingand extending the argument abo ut the importanceof technology for strategic success. It provides afresh perspective on technology. It focuses onenvironmental technologies which can produceecological efficiencies. Environmental technol-ogies, with their focus on design and manufactur-ing for the enviro nm ent, influence all key strategicvariables. They provide a useful frameworkfor formulating and implementing strategies,particularly in natural resource-based andenvironmentally sensitive industries, such asagriproducts, automobiles, forest products, min-erals and mining, oil and petrochemicals, powergen eratio n, and transportation. Many of these


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198 P . Shrivastavaindustr ies are old and mature. They consumescarce resources and are highly polluting. Theyare ecologically unsustainable and need basicreformation through technological innovation.Environmental technologies offer possibilities fors u c h i n n ~ v a t i o n . ~

Research implicationsThe implications of environmental technologiesfor strategic management theory are also farreaching. Two important implications at theindustry level and firm level are discussed here.At the industry level, environm ental technologiesprovide a way of fundamentally altering theprofitability dynamics of industries. They affectbasic cost parameters of resource use, energyuse, manufacturing efficiency, waste disposal,and pollution abatement. In an era of increasingenvironmental awareness and regulations, thesecosts can be a significant proportion of the totalcosts.Th e impact of environm ental technologies onproduction costs varies fro m indu stry to industry.It also varies by age of facilities, nature oftechnologies in use, regulations, and cost ofliability protection. Natural resource, energy,pollution and w aste-intensive industries ar e mostamenable to restructuring using enviromentaltechnologies.In the past, models of industry profitabilityhave focused more on the demand and revenue-related variables. Industry dynamics is oftenmeasured by sales volatility, advertising expendi-tures, market shares, and demand fluctuations,

Interestingly, in some m atur e industries such as automo biles,companies are starting to build competitiveness throughenvironmental technologies. This is an old and matureindustry that makes products that consume a nonrenewableresource-petroleum. Au tos are an important source ofurban pollution. In th e 197Os, prompted by regulations andpublic pressures, auto makers improved fuel efficiency andinnovated catalytic converters for pollution control. Now, inth e 1990s, some car makers (BMW, Volvo, and Mazda) areaggressively pursuing environmental technologies. B MW isinnovating the fully recyclable car. Volvo has designed amultifuel vehicle: the Environmental Concept Cur. Mazdaand other car makers are working on lean-burn technologyfor achieving higher fuel efficiency. General Motors hasdesigned an electric car fo r passenger use. It is truethat most of these innovations are at different stages ofdevelopment and have not been fully implemented. Yet,their competitive potential is keenly appreciated by thecompanies.

among others. While costs are acknowledgedas important they are presumed to changeincrementally and uniformly across the industry.Environmental technologies make rapid, quan-tum, and nonuniform changes in costs possible.This calls fo r augmen ting industry analysis mode lsused in strategy research, to accommodateenvironmental-related cost elements.At the individual firm level, environmentaltechnologies affect bo th corporate d omain choiceand comp etitive postu re. They provide new basesfor creating competitive advantage. They enablecompanies to create new product markets, andalter consumer demand in existing markets.Consequent ly , they are a tool for affecting mark etshares. By catering to ecological concerns ofgreen consumers, companies can attract newcustomers, improve customer loyalty, an d expandthe total demand for products.Environmental technologies also affect manystrategic variables, such as economies of scale,energy intensity of production, productionefficiency, firm legitimacy, and public image.Strategy theories need to recognize the strategicpotential of environm ental technologies. Futu reresearch should incorpo rate environme ntal tech-nologies into strategy formulation an d implemen-tation frameworks.

ACKNOWLEDGEMENTSI thank B rian Cham bers, Wayne State University,and Luis Martins of New York University, fortheir help in prepa ring this paper . I also want toacknowledge the patience and support extendedby Michael A. Hitt and Richard Bettis , SpecialIssue Editors, and three anonymous reviewersof the Strategic Management Journal during therevisions to this paper .

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Research Publications Directory-Environmental Technologies and Competitive Advantage

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