Green Business Strategy

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TextbookChapters4-6.pdf

101

Part Two Strategies for Building Eco-Advantage

How do companies create an Eco-Advantage? To answer this question, we first had to ask a more basic one: How do com- panies create competitive advantage in general? In his semi- nal works on strategy, Harvard Business School’s Michael Porter describes two basic categories of competitive advan- tage. A company can:

• Lower its costs compared with the competition. • Differentiate its product on quality, features, or service.

Porter’s work on competitiveness proved a useful starting point for analyzing the Eco-Advantage strategies we saw WaveRiders using.

Some costs are obvious and relatively short-term: inputs used, energy consumed, time and money spent on meeting regulatory requirements. More fundamentally, a great deal of pollution is waste and a function of outmoded production processes or poor product design. So improving the resource productivity of a business—the amount of material or energy

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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102 Strategies for Building Eco-Advantage

needed per unit of output—goes straight to the bottom line. Simi- larly, eliminating regulatory burdens by avoiding products, chemi- cals, or processes that require special care and documentation lowers overhead.

Companies that successfully manage environmental risks lower op- erating costs, reduce the cost of capital, drive up stock market val- uations, and keep insurance premiums reasonable. They also avoid the indirect costs of business interruption and lost good will.

On the revenue side, the benefits of differentiation through good environmental stewardship are sometimes concrete—like command- ing a price premium or just selling more—but are largely intangible: strengthened relationships with customers, employees, and other

Strategy Framework

Less Certain / Long Term

COSTS

INTANGIBLES

RISKS

REVENUES

More Certain / Short Term

U p

s id

e D

o w

n s

id e

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Strategies for Building Eco-Advantage 103

stakeholders. Some say that these intangibles are too vague to be measured, but they’re wrong. How much does it cost to acquire a new customer to replace a lost one? That’s the rough value of increas- ing loyalty. How about employee churn? If improving morale and employee engagement in the company’s mission lowers turnover, how much would that save? And what about community support? What does it cost Intel in carrying costs, for example, if it can’t build the next billion-dollar chip plant for twelve months because of commu- nity unease about how much water the company uses? These measur- able gains make investments in intangible values more concrete.

To help us think through the environmental strategies companies use, or fail to use, we added one more dimension to the analysis. We asked ourselves whether a strategy was fairly certain or less certain to generate value. To oversimplify, we say that “certain” is roughly equivalent to the short-term and “less certain” to the long-term.

Take cost control versus risk management as an example. If you decrease waste in your system, you can be pretty sure how much you’ll save. And you’ll have an easier time selling the project inter- nally. But what will it save the company to substitute a less toxic substance that costs more upfront? The risk is lower, but what is that worth? When does the benefit come? These questions are harder to answer, so risk control is less certain, although it often pays off more in the long run. The same holds true for the upside: It’s easier (though not easy) to drive revenues than to increase brand value.

The Eco-Advantage Playbook

Through our interviews and research, we saw WaveRiders using eight fundamental strategies that accomplish one of the four overarching strategic tasks:

1. WaveRiders cut operational costs and reduce environmental ex- penses—like waste handling and regulatory burdens—throughout the value chain.

2. They identify and reduce environmental and regulatory risks in their operations, especially in their supply chains, to avoid costs and increase speed to market.

3. They find ways to drive revenues by designing and marketing

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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104 Strategies for Building Eco-Advantage

products that are environmentally superior and meet customer de- sires.

4. A few companies, most famously BP and GE, create intangible brand value by marketing their overall corporate greenness.

The full set of strategies, our Green-to-Gold Plays, defines the Eco- Advantage playbook. Smart companies use these strategies to convert environmental and sustainability thinking into profit.

In Chapter 5, we’ll look at upside plays. But first, in Chapter 4, we focus on lowering both costs and risks, allowing for a much smoother ride on the Green Wave.

THE GREEN-TO-GOLD PLAYS

Managing the Downside (Chapter 4)

Cost

1. Eco-efficiency: Improve resource productivity. 2. Eco-expense reduction: Cut environmental costs and regulatory

burden. 3. Value chain eco-efficiency: Lower costs upstream and

downstream.

Risk

4. Eco-risk control: Manage environmentally driven business risk.

Building the Upside (Chapter 5)

Revenues

5. Eco-design: Meet customer environmental needs. 6. Eco-sales and marketing: Build product position and customer

loyalty on green attributes. 7. Eco-defined new market space: Promote value innovation and

develop breakthrough products.

Intangibles

8. Intangible value: Build corporate reputation and trusted brands.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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105

Chapter 4 Managing the Downside

GREEN-TO-GOLD PLAY 1: ECO-EFFICIENCY— IMPROVE RESOURCE PRODUCTIVITY

Over the last fifteen years, chemical giant DuPont has cut its contribution to global warming by an astounding 72 percent. Half of the cuts came from changing only one process: the production of adipic acid. This modification eliminated emis- sions of nitrous oxide, a potent greenhouse gas that causes far more warming than carbon dioxide. The company also vowed to hold flat its energy use—the primary source of its greenhouse gas emissions—no matter how fast the company’s top line grew. Through constant vigilance and innovation, the company found a hundred ways to get leaner and meet its energy targets. Over the past decade, this strategy has saved DuPont $2 billion.

That kind of dogged determination is typical of the smart firms we studied. WaveRiders get the same output with lower inputs. In improving resource productivity, their actions

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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106 Strategies for Building Eco-Advantage

stand out as the classic win-win environmental strategy. Examples are plentiful:

• Water: Chipmaker AMD modified a “wet processing” tool to use fewer chemicals and, ironically, less water to clean silicon wafers. The process once used eighteen gallons of water per minute, and now it’s fewer than six.

• Material: Timberland redesigned its shoe boxes to eliminate 15 percent of the material (which adds up when you ship over 25 million pairs per year).

• Energy: IBM recently overshot its five-year greenhouse gas reduc- tion target, saving $115 million through energy-efficiency initia- tives such as redesigning heating and cooling systems.

In our research, we’ve uncovered thousands of ways companies have reduced waste, saving both money and resources. Sometimes it’s big initiatives like Dow Chemical’s twenty-year-old Waste Reduction Always Pays (WRAP). Or it can be small changes like the comput- erized sprinkler system at the headquarters of software company Adobe Systems that checks the weather forecast before deciding to water the grass. Big or small, eco-efficiency has become a baseline element of smart business. But all movements begin somewhere. In this case, the idea of large-scale “pollution prevention” got its start in Minneapolis, Minnesota, with industrial giant 3M.

Pollution Prevention Pays

In 1975, Joe Ling, 3M’s executive in charge of all things environ- mental, was busy complying with the relatively new laws of the land. His company was placing scrubbers on smokestacks to eliminate con- taminants, treating effluents before releasing wastewater, and segre- gating solid waste so that some could be incinerated rather than just dumped. But wouldn’t it be far easier, Joe thought, to eliminate the pollution before it happens? So he started a program that survives to this day, dubbed Pollution Prevention Pays (or 3P).

From the beginning, the program was unapologetic about one thing: Any idea that could reduce pollution should also save money. Executives today tell us that all 3P projects still live up to that ideal. “Anything not in a product is considered a cost. . . . it’s a sign of poor

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 107

quality,” says Kathy Reed, 3M’s top environmental executive. As 3M execs see it, everything coming out of a plant is either product, by- product (which can be reused or sold), or waste. Why, they ask, should there be any waste? And for thirty years, 3M management has been convinced that anything that increases its footprint—emis- sions, solid waste, energy or water use—is a sign of inefficiency.

3P is their answer. It’s a program entrenched in the company’s culture that encourages employees at all levels to rethink products and processes, no matter how small. Initially, Ling and his team were proud of the twenty waste-cutting, money-saving ideas their employ- ees came up with. They saved many tons of pollutants and $11 mil- lion. 3P has since grown beyond even the most optimistic projections. Today the program claims a cumulative total of almost 5,000 pro- jects and environmental savings of 2.2 billion pounds of pollutants. Emissions of volatile organic compounds alone have dropped from 70,000 tons in 1988 to fewer than 6,000 tons today.

The financial impact has been remarkable. 3M calculates that the company has achieved about $1 billion in first-year project savings. This is worth repeating—3M calculates only the first year of pro- jected or actual savings from an eco-efficiency project. This overly conservative assumption keeps 3M honest and forces everyone in the company to look for ideas that have immediate benefits. And while understating the impact of the program, it shows how dramatic the gains from eco-efficiency can be.

After thirty years, 3M’s 3P initiative is still generating new gains every year. 3M executives have set aggressive goals for the number of new 3P projects they’d like to see, but they haven’t set monetary or even environmental goals. Just encourage people to look for new ideas and innovate, they think, and both the environmental benefits and the money will follow. Their experience bears this out.

Jim Omland runs five 3M plants that make medical tapes and in- dustrial minerals. When he asked his employees to find three new 3P projects, he got some push-back. “They told me, ‘But we’ve gotten all the savings we can here,’ ” Omland says, “and yet, when natural gas prices shot up and my business took a $10-million hit, suddenly my people found new ways to reduce natural gas use.”

Over and over again, WaveRiders find that asking people to look at their work through an environmental lens leads to innovation

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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108 Strategies for Building Eco-Advantage

WHAT’S WRONG WITH ABATEMENT

Scrubbers on smokestacks are one symbol of a “we can fix it on the back end” attitude. But as 3M understands, scrubbers and similar technologies just shift problems from one place to another. The pollutants that scrub- bers capture become sludge that still must be disposed of carefully or it creates water pollution. Or the sludge is incinerated, creating air pollu- tion after all. As former 3M manager Thomas Zosel said, “All we’re really doing is moving pollutants around in a circle.”

3M’s Pollution Prevention Pays program works so well because it asks people to stop problems before they start. Many WaveRiders told us that some of their biggest environmental slip-ups came from new abatement technologies that cost too much, didn’t work as planned, or created more problems. Redesigning process and product to eliminate waste, rather than improving clean-up strategies, is as a central element of Eco- Advantage.

around waste reduction and resource productivity, which translates directly into Eco-Advantage.

Some companies are going beyond waste reduction and efficiency gains—and actually finding markets for their industrial by-products that would otherwise have been disposed of as waste. Rhone-Poulenc broke new ground in the 1990s when it found a market for the di- acids that are a by-product of its nylon production. Today, many companies have adopted this spirit of “industrial ecology,” where one firm’s byproducts are another’s inputs, and found ways to recap- ture and sell part of their waste stream.

Low-Hanging Fruit: Retrofits and Automation

In Chapters 7, 8, and 9, we will highlight a number of tools that companies use to find eco-efficiency. Life Cycle Assessments and De- sign for the Environment, for example, bring environmental thinking into practice. But sophisticated tools aren’t the only way to foster eco-efficiencies. WaveRiders with a retail presence or large facilities often discover that the payback for installing new “green” lighting or other energy saving devices can have a high return on investment and pay back in months.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 109

INFORMATION AGE ECO-EFFICIENCY

Opportunities for improved efficiency are much easier to find in today’s digital world. Computers and information management systems make resource use and productivity easy to track and benchmark across facil- ities, products, and production lines. Comparative analysis of raw ma- terials consumed, energy required, and waste generated simplifies the process of spotting best practices and capturing potential efficiency gains. E-mail and the Internet facilitate spreading these best practices across a company, speeding up feedback loops, and enhancing perfor- mance.

Digital technologies also create new eco-efficiency opportunities be- yond the “factory gates.” By bringing buyers and sellers together online, the Internet lowers search costs and makes markets possible that might never have existed. A growing number of waste exchange websites help companies “close loops” and find customers for their industrial by- products.

At a micro-level, Dow Chemical set employees’ computers to shut down when not in use. At the macro-level, Staples saved $6 million in two years with centralized controls for lighting, heat, and cooling at its 1,500 stores. And FedEx Kinko’s retrofitted over 95 percent of its 1,000 branches with new energy-efficient overhead lighting and motion sensors to shut off lights when nobody was around. The com- pany spent $3,000 to $10,000 per “center” and earned that back in energy savings in only twelve to eighteen months.

FedEx Kinko’s Environmental Affairs Director, Larry Rogero, downplays his company’s efficiency efforts. “Everyone does it, so it’s not that innovative,” he says. We disagree. Not every company looks for these simple energy-saving techniques, and very few retrofit 1,000 locations. FedEx Kinko’s got down in the trenches and made real changes for a significant improvement in environmental impact and bottom line savings.

How Important Are These Cost Savings?

When we met with 3M executives, one thing was bothering us. 3M’s net and operating margins are roughly the same as thirty years ago.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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110 Strategies for Building Eco-Advantage

HARD TRADE-OFFS

Sometimes eco-efficiency comes at a price. Reducing waste along one environmental dimension can create problems elsewhere. A small Swiss manufacturer, Rohner Textil, designed a closed-loop water system to re- cycle this ever-more precious resource. Given water prices in Switzerland, the plan was projected to save a bundle. But the company soon realized that its new system significantly increased energy use, eliminating any savings, and CEO Albin Kaelin scrapped the program.

Environmental issues sometimes come into conflict with social consid- erations. Coca-Cola has faced significant public outcry in India over the discovery of trace pesticide residues in its products. After careful analysis, Coca-Cola discovered that the residues came from the sugar the com- pany bought locally. One solution was to source sugar solely from out- side India, but that would mean taking money and jobs away from In- dian sugar cane farmers. In the end, Coca-Cola kept sourcing from Indian farmers and took on the cost of additional purification.

The moral: Before launching an eco-efficiency initiative, or acting quickly to reduce an environmental impact, look for unintended negative consequences.

So why don’t we see the billion or so in eco-efficiency savings re- flected in the company’s margins over time? Their answer demon- strates just how important the 3P program has been to the company. 3M operates in many highly competitive businesses with eroding margins. Consistently finding ways to reduce costs has, in Kathy Reed’s words, “kept us competitive and allowed us to stay in indus- trial businesses.”

Others who have jumped on the environmental and cost efficiency bandwagon are even more direct. Ray Anderson, Interface’s founder and chairman, told us that the company’s $300 million in cost re- ductions from waste management and eco-efficiency saved the com- pany. During the recession of the early 2000s, sales in Interface’s primary market, the office flooring business, dropped by more than a third. “We wouldn’t have made it” without those cost reductions, Anderson observed. Let’s face it, efficiency is hard to make sexy, but higher margins make every CFO’s and CEO’s ears perk up. Business survival is pretty uplifting too.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 111

GREEN-TO-GOLD PLAY 2: ECO-EXPENSE REDUCTION— CUT ENVIRONMENTAL COSTS AND REGULATORY BURDEN

The late 1980s were a wake-up call for DuPont. Public disclosure of environmental information was on the rise, particularly through the Toxics Release Inventory. The company discovered that it was one of the world’s largest polluters, even though it was spending over $1 billion annually on waste treatment and pollution control. Manage- ment was shocked to discover how much money the chemicals going up the stack were costing them.

CEO Ed Woolard demanded that the company slash both emis- sions and costs. He set bold waste targets. “The goal is zero” became a DuPont mantra. When Woolard felt the company wasn’t moving fast enough, he told executives, “If I have to shut a plant down to show how serious I am, I will.”

They got the message. Today, DuPont’s waste treatment and pol- lution control expenses are down to $400 million. Paul Tebo, former VP for Safety, Health, and Environment, estimates that those ex- penses otherwise would have grown to over $2 billion. That’s a swing of $1.6 billion in annual costs for a company netting about $1.8 billion a year. Throw in the few hundred million per year on energy savings, and DuPont would roughly break even without its environ- mental efforts.

As with DuPont, so with every other business, particularly those that already spend millions on pollution control equipment. The scale can be daunting. Alcan’s Dan Gagnier estimates that up to 20 percent of the $3 billion spent on a new aluminum smelter goes toward en- vironmental equipment.

The first Green-to-Gold Play was about cutting costs by not wast- ing resources. This second one centers on the time and money con- sumed by pollution control and environmental management. In ad- dition to millions of dollars or euros spent on waste disposal and pollution control equipment, we include the managerial time and money spent filling out forms, the sometimes crippling cost of fines for mismanaging environmental issues, and the general business slow-down caused by jumping regulatory hurdles.

Companies that tackle these expenses directly save hard cash. Fif- teen years ago, furniture maker Herman Miller sent 41 million

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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112 Strategies for Building Eco-Advantage

pounds of waste to landfills. Today, it’s only 5 million pounds. Ag- gressive recycling and waste reduction efforts have saved the com- pany over $1 million each year.

Anything a company can do to avoid regulations will lower op- erational costs and increase speed to market. Building a new facility, for example, requires countless permits. Using certain chemicals or going above an emissions threshold can trigger additional require- ments. WaveRiders watch these levels closely and do everything they can to stay below the regulatory limits. If necessary, they redesign processes and products to get there. Seeing the business through the lens of environmental expenses can help companies find new, lower- cost, and faster ways of doing business.

GREEN-TO-GOLD PLAY 3: VALUE CHAIN ECO-EFFICIENCY— LOWER COSTS UPSTREAM AND DOWNSTREAM

Making shoes is a surprisingly toxic business. Aside from the mate- rials themselves, the adhesives that connect them are made from chemicals that are known dangers to the cardiac, respiratory, and nervous systems. One pair of running shoes isn’t going to land you in the hospital, but workers in the industry face real risks.

Convinced that it needed to rethink the traditional industry reli- ance on toxic chemicals, Timberland became the first footwear com- pany to test new water-based adhesives on non-athletic shoes (Nike and others had already made some strides in the “white shoe,” or athletic, side of the industry). Making the change required the com- pany to work closely with Asian suppliers.

Common sense would seem to suggest that Timberland’s detoxi- fication initiative would cost its suppliers a bundle. And during the test phase it has been more expensive—the new adhesives cost more since economies of scale haven’t kicked in yet. But over time, Tim- berland fully expects the process to be at least cost neutral for its business and a money saver for the full value chain. Here’s why: Water-based adhesives eliminate almost entirely the supplier’s ex- pense for handling hazardous materials, including waste disposal, in- surance, and training. Manufacturing expenses already dropped during testing since the water-based adhesives go on with one coat

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 113

instead of two, and the application equipment requires much less cleaning. The suppliers can run longer without interruption. The change saved both labor cost and time. But will Timberland be able to capture these supplier savings down the road? That’s the challenge of Green-to-Gold Play 3.

Clearly, it’s not easy. If Timberland finds it difficult to ask suppliers to share the savings, imagine asking customers to do the same. Take an example from DuPont’s innovative work on automotive paints. The company’s SuperSolids technology, which DaimlerChrysler is currently testing, reduces some hazardous emissions from the coating process by up to 80 percent. DuPont estimates that the technology can save the auto companies $20 million per plant in emissions con- trol equipment and operational expense. So can DuPont expect a piece of these savings? Perhaps not, but over time, this strategy helps DuPont win market share, driving new revenues.

Many companies have found ways to lower value chain costs by cutting the environmental and financial expenses of product distri- bution. Anyone who has bought an assemble-it-yourself product from IKEA knows how much stuff IKEA fits into a box. The com- pany is justifiably proud of what it calls its “flat packaging.” These efforts to squeeze millimeters out of every box have allowed IKEA to pack its trucks and trains much tighter. In some cases, the com- pany has achieved a 50 percent increase in fill rate. That kind of smart packing saves up to 15 percent on fuel per item—a striking Eco-Advantage—and it inspires workers to stretch the envelope even

FILLING THE TRUCKS

It’s a shockingly simple value chain efficiency play: Fill your trucks as full as possible. For example, Dell has upped its average truck load from 18,000 to 22,000 pounds and worked with UPS to optimize delivery strategies. And one of 3M’s recent 3P award winners was an innovative system developed by a French employee to install adjustable decks in trucks. Placing pallets on two levels allowed just one 3M facility to reduce the number of daily truckloads by 40 percent and save $110,000 per year.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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114 Strategies for Building Eco-Advantage

more. IKEA employee Erik Andersson noticed that the company’s 88- centimeter KLIPPAN sofa was being shipped in a 91-centimeter box. Redesigning the packaging to cut out just one of those centimeters allowed IKEA to fit four more sofas on each trailer.

GREEN-TO-GOLD PLAY 4: ECO-RISK CONTROL— MANAGE ENVIRONMENTALLY DRIVEN BUSINESS RISK

For many years, kids have been happy to find prizes or toys in cereal boxes. In the summer of 2004, a seemingly routine cross-promotion with the new blockbuster movie Spider-Man 2 turned ugly fast for Kellogg Company, maker of Rice Krispies and Pop-Tarts. As the As- sociated Press put it cheekily, Kellogg was “caught in a web of crit- icism” over the new Spidey Signals toy found in boxes all over the country. Apparently each electronic toy had a surprise of its own: the small battery that gave it power contained toxic mercury.

Such “button” batteries are quite common, but a few states have banned mercury-powered toys. Kellogg suddenly found itself under public attack for putting mercury near kids’ food. After hearing from state attorneys general from New York, Connecticut, and New Hampshire, the company offered to send a prepaid return envelope to each of the 17 million customers who had received the toy. And Kellogg committed to never again using the offending batteries.

Meanwhile, at the Illinois headquarters of another food giant that often plays with toys, executives were breathing a huge sigh of relief. McDonald’s had dodged this same bullet, but not by accident. A few years before Kellogg’s PR problems, McDonald’s had identified but- ton batteries as a growing risk and eliminated mercury entirely from all Happy Meal toys.

We interviewed McDonald’s executives just days after the Kellogg incident. The company’s executives, we discovered, have developed a strategic approach to identifying and reducing risks to the brand, by far the company’s most valuable asset. As guardians of a mega- brand with intangible value in the tens of billions of dollars, they work hard to reduce surprises and enterprise risk, including environ- mental risk. After years of facing pressure over everything from litter and packaging to mad cow disease, McDonald’s decided get ahead of the curve.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 115

Through a process of “anticipatory issues management,” the com- pany studies environmental and social trends to identify potential dangers to its business. Early on, one of the emerging threats they focused on was the then-obscure issue of mercury in batteries. McDonald’s calculated the downside to be high and the corrective cost low, so a few years before Kellogg had its Spidey surprise, McDonald’s used its market clout to pressure suppliers to find dif- ferent options. By the time states started to regulate mercury in toys that come near food, McDonald’s was long gone. The batteries never became a costly, brand-damaging problem because the company sys- tematically identified the risk and then avoided it.

Problems that don’t arise are a strange kind of success. Bob Lan- gert, McDonald’s Director for Social Responsibility, told us, “I’m proud of what we’ve done, but nobody knows about it.” In this case, we’re sure that’s exactly how shareholders would want it.

BUILDING A TRUST BANK

For Bob Langert and the McDonald’s team, risk management is about more than controlling the downside. “Sure, the risk comes if you’re not doing the right thing,” Langert said, “but the upside is building a ‘trust bank’ with customers. It’s very hard to gain, but easy to lose. . . . The more you build it, the more you build loyalty to the brand. I’m convinced there’s a real opportunity here.”

Finding the Risk Before It Finds You

Oprah Winfrey has serious market power. She can pluck a book from obscurity and make it a best seller. On her recommendation, millions of people change their buying patterns. In 1996, Oprah interviewed a vegetarian activist on her show and declared that what she heard “just stopped me cold from eating another burger.” Beef prices dropped over 10 percent the next day.

Business risk comes in the strangest forms. For beef producers and burger sellers like McDonald’s, the Oprah incident must have seemed like a freak accident—a meteor shower from out of the blue. But was

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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116 Strategies for Building Eco-Advantage

WHAT IS BUSINESS RISK?

It’s easy to say that every company should reduce environmental risk. But what exactly should managers be looking for? We think of business or enterprise risk as the chance that something will change “business as usual” into something quite different. The experts at the Institute of Risk Management in the United Kingdom lay out four broad categories:

• Financial: interest and exchange rates, liquidity and cash flow • Strategic: competitors, industry dynamics, customer changes • Operational: supply chain, regulatory • Hazard: a wild card of natural events, environment, employees, and

so on.

Environmental risk plugs into all these categories: Liabilities for spills or other incidents affect the financial prospects, customer needs shift the strategic landscape rapidly (better gas mileage in cars for example), and the specter of tighter regulations or supply chain problems is an opera- tional risk.

it unpredictable? Not really. The vectors were all in place. Oprah just put them together for her viewing public.

Smart companies use many methods to identify risks, even hard- to-spot ones. Shell uses scenario planning to paint pictures of possible futures. IKEA does exhaustive supply chain auditing. McDonald’s draws top managers in to regular risk reviews.

Looking for environmental risks requires going far beyond the tra- ditional company boundaries. Risks may arise upstream (with sup- pliers) or downstream (with customers).

Imagine that a big-box retailer has an Asian supplier of leather coats that’s dumping hazardous waste from its tanning operation into a local river. An enterprising NGO has taken pictures of this illegal dumping and posted them on the web. The story begins to draw attention in the U.S. and European press. Customers won’t remember the name of the small tannery, just the big-brand retailer which will take the hit for being an environmental bad guy. Scrambling to ad- dress this problem after the story has broken leaves the company in a Humpty-Dumpty situation: A reputation, once shattered, can’t eas- ily be put back together.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 117

So WaveRiders find issues before the problems find them. And they examine not only the supply chain, but the entire value chain. We suggest a few big-picture questions that can help companies get a handle on environmental impacts (see table).

At the nuts-and-bolts level, identifying enterprise risk means un- derstanding exactly how a company affects the environment and how the constraints of nature affect the company. Our AUDIO scan (from Chapter 2) can help a company identify where environmental issues touch the business along the value chain. In Chapter 7, we’ll discuss

Identifying Environmental Risk

Value Chain Phase Sample Questions to Help Identify Environmental Risk

Company Operations

— How big is our environmental footprint? — What resources are we most dependent on (energy,

water, materials), and how much do we use? — What emissions do we release into the air or

water? — How do we dispose of waste? — How up-to-date is our environmental management

system? — What are our chances of a spill, leak, or release of

hazardous materials? — Have others in our industry had problems? — What local, state, federal, or international

regulations apply to our business? Are we in full compliance? Are these requirements getting tighter?

Upstream — What resources are our suppliers most dependent on? Are they abundant or constrained, now and in the near future?

— Do our suppliers pollute? Do they meet all applicable laws? Will legal requirements get tighter for them?

— What substances go into the products suppliers sell to us? Are they toxic?

Downstream — How much energy (or water or other resources) does our product require customers to use?

— Are there hazardous substances in our products? — What do customers do with our products when

they are done with them? What would happen if we were required to take the products back?

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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118 Strategies for Building Eco-Advantage

other tools that help companies spot risks, even those that may be over the horizon.

Thinking Ahead: Go Beyond Compliance for Competitive Advantage

By the late 1990s, the McDonald’s team in Hungary could see the future of recycling regulation. Western European countries already had highly developed waste-handling systems. With Hungary pre- paring to join the European Union, more stringent rules were on the way. Rather than wait for a government mandate, McDonald’s Hun- gary management decided to build a country-wide, custom waste- handling system.

When the national recycling legislation passed, companies were “asked” to join and foot the bill for the new system. High fees and low initial service levels weren’t much of a draw, but most companies had no real choice. McDonald’s, however, had options. “McDonald’s Hungary used its own system,” EU Environmental Manager Else Krueck told us. “It was less expensive than the national one and tailored to the restaurants’ waste stream.” So the home-grown system was better and cheaper.

WaveRiders realize that getting ahead of regulations can save money and time, as well as reduce hassles. Privately held SC Johnson has quietly reformulated market-leading products such as Windex, Drano, Pledge, and Ziploc to reduce the use of some chemicals, in particular eliminating, “persistent, bioaccumulative, and toxic” sub- stances sometimes called PBTs.

All SC Johnson products are subjected to an internal process called Greenlist that gives every ingredient a score based on environmental attributes such as toxicity and biodegradability. SC Johnson has eval- uated over 3,000 raw materials—far more than the federal govern- ment has rated under its toxics laws. Similarly, Nokia has reviewed 30,000 components and removed some materials from its products.

Dave Long, the SC Johnson executive who manages the Greenlist program, says the upshot is that the company is affected much less by new regulations than its competitors. “There’s lots of scrambling within the industry when new regulations come down,” he says. “When a new detergent regulation was passed in the European

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 119

Union, because of Greenlist we had already reformulated our prod- ucts to use surfactants that complied with the law. So the impact of the law was minimal.”

Remember REACH, the onerous EU regulation that the chemical industry says will cost billions and destroy companies? Long is un- fazed. “We’re in good shape with REACH because several of the criteria are around toxics that we’ve already eliminated from our raw materials.” Regulations are not so scary when they don’t apply to you anymore.

Indeed, stronger regulations are welcomed by companies that are already beyond compliance. Stricter laws impose costs on the less- prepared competitors and potentially could keep them out of a mar- ket space for years on end.

In 1999, Swedish appliance manufacturer Electrolux announced a partnership with Toshiba to “develop energy-saving technology to prepare for the expected introduction of stricter global environmental regulations.” That’s looking ahead, but even smaller-scale local and

GETTING READY FOR THE BIG ONE: CLIMATE CHANGE REGULATIONS

With climate change regulations emerging all over the world, smart com- panies are preparing for this future now, even in places such as the United States where mandates are not yet in place.

Getting a clear read on emissions at the facility level is a good place to start. Chipmaker AMD released its first Global Climate Protection Plan in 2001. This annual report describes the company’s emissions by site and provides examples of projects in the works to reduce the total. Such a corporate climate strategy might have seemed odd a few years back, but today it’s becoming both normal and expected.

As we mentioned in Chapter 3, the Carbon Disclosure Project, backed by some of the world’s largest institutional investors, is asking companies a simple question: “What’s your climate change plan?” What they really mean is, “What are you going to do if and when tighter regulations come down the pike?” Saying “I don’t know” is no longer an option.

“We are in a carbon-constrained world now,” GE’s CEO Jeff Immelt has observed, “Tomorrow is today.”

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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national regulations can change marketplaces. Japan’s “Top Runner” product labeling program shows customers the “total cost” of an appliance—the list price plus ten years of electricity to power the device. Since Electrolux makes some of the world’s most efficient appliances, the company is clearly well-positioned for a world where Japan’s eco-labeling regulations are the norm.

BP also started getting ready early. BP discovered $1.5 billion in efficiency savings by internally trading greenhouse gas emissions be- tween business units (more on this later). The company’s experience helped it shape the United Kingdom’s emissions trading system, and then the European Union’s. As BP’s CEO Lord John Browne said, getting ahead of the curve means the company “gains a seat at the table and a chance to influence future rules.”

Similarly, Nokia found it very useful to prepare its business for coming laws like the regulation on hazardous substances and, in par- ticular, take-back laws that make manufacturers deal with their prod- ucts when customers are done with them. Moving quickly, well ahead of regulations, allowed Nokia to pilot ideas and work out the kinks in its system. Like BP, it also gave the company a role with authorities in helping to shape the coming laws.

SEEKING ENVIRONMENT-BASED COMPETITIVE ADVANTAGE IS OK

Not infrequently we hear executives worrying that competing on envi- ronmental factors will be considered unseemly. We understand the sen- timent, but executives needn’t be shy about profiting from doing the right thing. If an electronics producer finds a way to make its products without heavy metals, why share that with the competition? Why not use the Eco-Advantage to stick it to competitors? If there are stakeholders that object, we’re not sure who they are. NGOs are happy to see the cleaner companies gain the upper hand over the dirtier ones, which moves an industry toward greener solutions as surely as protests and regulations. And employees and shareholders certainly won’t mind if en- vironmental strategy translates into higher profits.

120 Strategies for Building Eco-Advantage

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Managing the Downside 121

Advanced Strategy: Lobby for Stricter Regulations for Competitive Advantage

The fact that companies can influence the course of government pol- icy is widely understood. Many companies invest vast sums in lob- byists, industry associations, and campaign contributions, all to wield influence over the political process. What is curious is that almost all lobbying efforts are aimed at stopping new regulations. Yet new reg- ulations create winners as well as losers. Those best positioned to respond to new rules will be relatively advantaged by a changed play- ing field.

Far more often than they currently do, companies should ask for stricter regulations. Sure, it can be risky, but in the right circum- stances, it’s a powerful play that can yield significant advantage. Champion Paper thrived, for example, when its competitors faced new restrictions on timber cutting due to concern about endangered spotted owls in northwestern forests. DuPont gained market share (and profits) when the Montreal Protocol phased out production of ozone-depleting chlorofluorocarbons (CFCs). With $500 million in CFC-based revenues, DuPont initially fought the phase-out until it realized that it would make even more money in the CFC-substitute market.

THE ECO-ADVANTAGE BOTTOM LINE

Look to reduce costs by:

• Eliminating waste and promoting eco-efficiency • Cutting disposal costs and regulatory compliance expenses • Capturing the value of reduced environmental burdens up and

down the value chain

Control environmental risk by:

• Anticipating environmental issues and addressing them • Staying ahead of new regulatory requirements • Managing government mandates to gain a relative advantage in the

marketplace

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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122

Chapter 5 Building the Upside

“When I was made CEO, I never imagined I’d be talking about the environment,” GE’s Jeff Immelt said during the launch of the company’s ecomagination initiative. Talk about an understatement! The previous CEO, Jack Welch, had a fiery relationship with regulators and NGOs. Welch battled the government for years over GE’s responsibility for toxic PCBs found in the Hudson and Housatonic rivers. Yet just a few years later, his hand-picked successor declared that en- vironmental goods and services would be a centerpiece of GE’s business strategy.

The jury is still out on the long-run effectiveness of GE’s ecomagination campaign, but the thinking and strategy be- hind it perfectly demonstrate the upside set of Green-to-Gold Plays. Ecomagination is a multipronged initiative, part image advertising, part straight-up product marketing, and part product innovation. At the core—and Immelt has made this very clear—it’s about top-line growth. Early results are very promising: GE booked a $4 billion increase in sales of envi- ronmental products in the first year of the program.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 123

Environmental strategy has been on a long march for the past forty years, from a tactical focus on compliance, to an additional—but still tactical—emphasis on costs and efficiency, to a more strategic view centered on growth opportunities. More and more companies now see the top-line potential from artfully managing the pressures of the Green Wave.

The four Green-to-Gold Plays set forth in this chapter are about growth—of sales, of brand value, and of stakeholders’ trust. The strategies in this chapter focus on developing new products based on meeting customer needs, marketing the environmental aspects of those products, creating a new market space (or “value innovation”), and building corporate image around a company’s commitment to being green.

GREEN-TO-GOLD PLAY 5: ECO-DESIGN— MEET CUSTOMER ENVIRONMENTAL NEEDS

Remember electric cars? Or the first wave of energy-saving light bulbs? These green products were brought to market by smart, suc- cessful companies like GM, Ford, Philips, and GE to satisfy environ- mentally driven customers. Who could blame them? For thirty years, surveys have shown that customers care about environmental issues. Yet despite what customers say in theory, when faced with an actual product with a higher price tag, they often don’t buy (as all the com- panies above quickly discovered).

Some of these products failed because they didn’t really meet a customer need at the right price, others failed because of ineffective positioning or marketing. Identifying customer needs or desires and designing a product to meet them is never easy. With growing envi- ronmental consciousness, the opportunities to seize Eco-Advantage through green marketing are expanding.

Lowering Their Burden: Make Your Customers’ Environmental Problems Your Own

What exactly does it mean to say a product or service was eco- designed? The short answer is that the item was developed in a way that reduces environmental impacts for someone somewhere in its

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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124 Strategies for Building Eco-Advantage

life-cycle journey from supplier inputs to product to end-of-life dis- posal. Often “Design for the Environment” helps customers lower their footprint and related costs—benefits that can justify price pre- miums, drive increased market share, and strengthen customer loy- alty. At the heart of this Green-to-Gold Play are efforts to lower energy use, eliminate waste, or reduce product toxicity.

There are countless ways to help customers improve their eco- efficiency. Because creativity is the key to finding ways to cut waste or improve resource productivity, small and nimble businesses with an entrepreneurial spirit can often profit. IdleAire Technologies, for example, developed a service at truck stops that pumps electric power, heat, air conditioning, cable television, and high-speed Inter- net into the parked vehicles. This external supply allows the truckers to shut off their engines rather than keeping them idling all night. The service saves fuel, reduces engine wear and tear, and costs the truckers much less than the fuel needed to idle. And if implemented broadly, IdleAire’s efficiency innovation could eliminate 34 million tons of greenhouse gases per year.

Small businesses are also helping the largest buyers of all, govern- ments, to reduce their environmental impacts. Tiny Seahorse Power Company in Massachusetts makes a new kind of trash can called BigBelly. This solar-powered hi-tech container automatically com- presses the garbage, reducing the number of trips trucks have to make for pick up. Customers like New York City and the U.S. Forest Ser- vice can send out fewer trucks and burn less gas.

Large technology companies are getting into the act as well. With much fanfare, Sun Microsystems launched a “green server” on a chip which reduces power consumption and cooling requirements. As CEO Scott McNealy said in his pitch to the computing world, “Sus- tainable growth strategies can help companies dramatically cut costs. . . . Sun is addressing energy and resource efficiency, power con- sumption and waste management, as we help businesses and our em- ployees meet the challenges created by the evolving role of technology in our everyday lives.”

An equally big opportunity waits at the back end of the technology life cycle: helping customers deal with product disposal. Dell’s Asset Recovery System offers a valuable example of this play in action. Since computers turn over quickly, companies face real challenges

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 125

over environmental and data liabilities as they look to dispose of obsolete equipment. Dell has stepped in to help customers deal with both the software and environmental clean-up they need. And it’s making money doing it.

For roughly $25 per piece of equipment, Dell will come to your office and take used computers away. Dell first performs a “destruc- tive data overwrite” to eliminate all digital information on the com- puter, then dismantles the machine. Dell refurbishes and reuses some parts, and recycles the plastics. In the end, just one percent of the old computer’s volume goes to the landfill.

This multifaceted service improves the customer relationship and can drive sales. As Dell discovered, the take-back role comes, con- veniently, when Dell is delivering the next generation of equipment. Company execs would be happy if this service were merely breaking even, but Dell is making money on it. They seem a bit sheepish about doing so. We see no need for apologies.

Three Lessons Learned on Driving Revenues with Eco-Design

Eco-design can be tricky. Companies have failed more than they’ve succeeded with this Green-to-Gold Play. Our research shows that companies can avoid the worst stumbles by following a few simple lessons.

meet a need that actually exists

In the 1990s, DuPont’s engineers were trying to “close the loop” in their polyester businesses. They invented a new technique for recy- cling polyester, dubbed Petra Tech, which “unzipped” the molecule and created new polyester from old materials. In theory, taking old product off customers’ hands added value and lowered their costs. But unlike the challenges carpet companies or printers faced with toxic dyes and solvents, polyester disposal was not a big problem for customers. The recycled polyester actually cost more than virgin pol- yester, which was fairly cheap. In short, there was no compelling customer value proposition.

An innovative, environmentally sound process or product can be exciting for an organization. But what if the problem it solves is not one that any customer has? The lessons: Don’t get caught up in the

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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126 Strategies for Building Eco-Advantage

technology and forget to make the business case. And don’t suppose that what is good for your company will necessarily be valuable to the customer.

don’t ignore other needs of the customer

It’s very easy to get over-excited about a hot solution to an environ- mental problem and forget that the product still needs to do what it’s supposed to do. Early in their quest to eliminate the use of sol- vents (and the nasty volatile organic compounds they produce), 3M scientists found a way to make magnetic audio tapes using water- based coatings. Unfortunately, the newly formulated product, which they could pitch as VOC-free, had a serious problem. The tempera- ture range for the new tape was not as wide as the traditional prod- uct. In fact, the VOC-free tapes often melted under normal use. Oops.

Sometimes a product’s functionality lies in the service it provides. McDonald’s experimented with serving coffee in reusable mugs instead of disposable cups. But customers wanted to walk out the door with their coffee, not wait around to drink it so they could return the mug. They were paying for mobility as much as coffee.

pay attention to your own costs

Even if a company identifies a need, filling it may be too expensive. When a nurse asked 3M why the packaging for one of its medical products was not recyclable, product managers took the request se- riously. But changing packaging for a medical product, they realized, is a big deal, requiring lots of testing with many regulatory hurdles. The cost was just too great for the potentially modest environmental benefit.

The oil giants are facing this dilemma with new fuels. The extra refining to produce cleaner-burning fuels costs more and increases refinery emissions. While satisfying a customer’s environmental needs can be very valuable, companies need to look first for unexpected costs and unintended consequences.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 127

GREEN-TO-GOLD PLAY 6: ECO-SALES AND MARKETING— BUILD PRODUCT POSITION AND CUSTOMER LOYALTY ON GREEN ATTRIBUTES

Not every customer wants eco-friendly goods. But some do. And every day more consumers are including environmental factors in their buying equation. In parallel, companies are finding that there is money to be made from meeting the growing demand for green products. We’ve seen many examples at the leading edge of this trend:

• Melitta sells brown (unbleached) coffee filters alongside its tradi- tional white ones. A certain percent of the coffee-brewing public wants to avoid the trace chemicals that might otherwise leach into their morning cup of joe.

• Whole Foods and other chains that focus on organic food are ex- panding rapidly, and Stop & Shop’s Nature’s Promise line of or- ganic products is booming. Many such products now sell at sub- stantial premiums. For example, organic milk often fetches more than double the price of regular milk and demand continues to grow.

• After some lean years, The Body Shop has begun to profit from the fact that green is increasingly cool. Other personal care com- panies have learned from The Body Shop’s ups and downs and many are capitalizing on the growth of this market niche. Bath and Body Works’ eco-friendly Pure Simplicity product line, for exam- ple, has seen a surge in demand.

When and Where Green Marketing Works

For a primer on green marketing, it’s hard to top Shell Oil’s experi- ence marketing a new, cleaner-burning gasoline in two very different countries. Mark Weintraub, Shell’s Director of Sustainable Develop- ment Strategy, told us that the company used a “sustainable devel- opment lens” to identify a need for cleaner fuels in Thailand. As in much of the rest of Asia, the combination of dense cities and high traffic volume was wreaking havoc on air quality in Bangkok and elsewhere. A fuel that would burn cleaner, producing less sulfur and other harmful emissions, might serve a real need.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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128 Strategies for Building Eco-Advantage

ANOTHER DOOR TO SALES

In a world of tougher competition, any additional connection to custom- ers can help to cement relationships. GE once asked 3M to share some of its thinking on “green chemistry” and the unique environmental chal- lenges some products present. By sharing its world-class environmental thinking, 3M increased a connection with a major customer. As 3M’s Kathy Reed told us, “Our environmental, health, and safety knowledge is another door to sales.” Similarly, customers of Latin American con- glomerate GrupoNueva often ask the company for help with their own environmental practices. In sharing this information, GrupoNueva solid- ifies its role as a business partner.

In an example of good eco-design, Shell developed just such a fuel by converting natural gas to a zero-sulfur liquid and then mixing it with regular diesel. Today, the company sells the blend in Thailand under the brand name Pura. It’s marketed as a way to reduce pol- lution and help engines run cleaner and last longer. Even though Shell charges a premium, Pura has grabbed market share and sales have been strong. The launch, in short, was a complete success.

Logically, Shell thought it could roll Pura out with the same pitch in other regions, but the launch back home in the Netherlands fell flat. Why? Shell later realized that stressing how cleaner burning fuel protects a car’s engine was not resonating in Holland. That was far more important in Thailand where people worry more about gasoline quality and the effect of impurities on engine performance and life.

The green pitch never really resonated in Holland either even though the country is chock full of consumers who say they’ll buy green. The need to clean the local city air is just less pressing than it is in Asia. In the end, Shell re-launched Pura at home under the name V-Power and marketed it by stressing enhanced engine power.

Shell’s experience is not unusual. The green pitch is complicated. In just a few markets, the public instantly understands the environ- mental benefits and pays more for it. When that happens, green really is gold. Witness the incredible growth of the organic foods market. One WaveRider, Clif Bar, has latched on to this trend, moving all its core products, such as energy bars, toward organic ingredients.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 129

Three Lessons Learned on Selling Environmental Virtue

green attributes cannot stand alone

Selling a product on its environmental qualities alone is a recipe for trouble. If you have a new product that’s cleaner and greener, mar- keting these advantages can make sense. But be careful. Customers need other reasons to buy. Price, quality, and service will remain core concerns for most of them.

A small niche in any market will want to hear the green pitch. But, as Shell’s Mark Weintraub puts it, “A lot more consumers . . . are interested in the green attribute if it’s the second or third ‘button’ you push—tell them this is higher quality product that will protect your engine and oh, by the way, it’s better for the environment. That ‘by the way’ helps.”

THE THIRD BUTTON

Marketing the green aspects of a product can be a tough proposition. Most successful green marketing starts with the traditional selling points—price, quality, or performance—and only then mentions envi- ronmental attributes. Almost always, green should not be the first button to push.

One way to signal that a product has environmental advantages without turning to green marketing is through certification and eco- labels (see figure). In a number of countries, labels that certify the green credentials can do the talking for you. Scandinavia permits environmentally superior products to be marked with the Nordic Swan logo, and Germany has its Blue Angel. In the United States, organic foods benefit from the USDA organic stamp. Antron, a maker of carpet fibers, saw a $4-million bump in sales when it be- came the first product in the commercial interiors industry to be cer- tified by Scientific Certification Systems as an “Environmentally Pref- erable Product.”

In some industries, expensive certifications can become the ante to play the game. A company like Chiquita really had no choice. Part- nering with the Rainforest Alliance and radically changing the way

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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130 Strategies for Building Eco-Advantage

Eco-Labeling around the World

it grows bananas became essential for the company to serve the needs of customers, particularly in Europe. And increasingly, American electronics and appliance buyers look for the U.S. government’s En- ergy Star label as a quick way to be sure they are getting an energy- efficient product.

As consumers demand more information on the products they buy, many companies have set up websites with facts, figures, and analysis concerning the environmental attributes of their goods. Others are starting to provide detailed eco-labels. Timberland, for example, is rolling out a new design element on its shoe boxes: a table that looks like the nutritional content label you find on food. The label tells customers, among other things, how much energy was used to pro- duce the shoe.

Who does the certification and labeling, and on what basis, can be contentious. In some cases, governments set the standards. Other eco- claims are self-awarded. Still others are established by private entities such as the sustainable fish label issued by the Marine Stewardship Council or the sustainable wood certification offered by the Forest Stewardship Council. To achieve the environmental advances re- quired for certification, companies often find collaboration with a third party helpful. Chiquita’s work with Rainforest Alliance on ba- nana farms shows how these partnerships can work.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 131

GREEN PROTECTIONISM

Eco-labels can provide legitimate environmental information to a de- manding public. But they also can be used as a trade barrier, disadvan- taging competitors in the marketplace. For example, in the European beef market, local producers have tried to seize market share by seeking to have U.S. beef imports labeled as “hormone-treated.”

Green protectionism can take other forms as well. Ontario at one time required that all beer be sold in returnable glass bottles. It sounds eco- friendly, but this recycling mandate offered a market advantage to Mol- sen and other Canadian brewers who used glass bottles as a matter of course. U.S. beer companies, who mostly sold their product in easier-to- recycle aluminum cans, got the short end of the deal.

The bottom line: Watch out for trade barriers and market-entry obsta- cles in the guise of environmental standards.

talk to different niches differently

Market segmentation is nothing new. But with environmental issues, the differences in attitudes can be profound. Monsanto ran smack into a wall when it tried to bring biotechnology to Europe. United States customers didn’t seem to flinch at the idea of food based on genetically modified organisms, but EU customers reacted so badly it nearly sank the company.

To get green consumers to buy, you’ve got to speak their language. WaveRiders recognize the need for tailored pitches. Office Depot de- veloped a catalog dedicated to green products, including all the re- cycled paper and remanufactured toner cartridges a budding office environmentalist could ask for.

In the business-to-business market, the key is not just to talk to the right customers, but also to talk in the right way. A sales force that’s not trained on why the environmental product is better can stop any launch in its tracks. Greener products often cost more up front, for instance, but end up saving the customer money down the road. Sales people need to understand this positioning. When we asked the head of sales at one of our WaveRiders if customers “got it,” he laughed, saying, “You could ask if my sales guys even get it.”

Sometimes, less is more. While Interface Flooring was going through its decade-long transformation to a sustainability focused

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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132 Strategies for Building Eco-Advantage

company, chairman Ray Anderson worried about pitching the change before the company was clear on the message. “We forbade the sales force from talking about our green efforts for nine years,” Anderson told us. “It’s the kiss of death when words get ahead of deeds because customers see through this.”

don’t expect a price premium

Corporate strategy 101 tells us that a company can drive revenues by increasing price or volume. With green products, volume is a much safer route. Price premiums are rare. And they are likely pos- sible only for truly innovative products that redefine the market space in some fundamental way—like the Toyota Prius, which we’ll get to in a moment.

In any market, some customers will pay more for the green option. Shell’s Weintraub suggests that this segment is about 5 percent of customers, while another WaveRider executive more pessimistically pegged the figure closer to 1 percent. Polls suggest that the figure can go as high as 10 to 20 percent in some markets, but don’t bank on a big price premium unless you’ve got a very special product.

What do all these lessons on pitching green products have in com- mon? They basically say the same thing: You can’t ignore the core business issues that accompany any product development and launch. For eco-design and green marketing, as for other business initiatives, success stems from expertly handling all the regular blocking and tackling—identify a customer need, keep costs down, and meet per- formance and price expectations.

Every company offering a green product is also fighting a legacy issue: Some customers think “green” means poor quality or less func- tionality. This concern is not baseless. Electric cars didn’t go very far or very fast, and compact fluorescent light bulbs created a harsh white light. In both cases, newer versions of the product have solved the problems. But the damage has already been done.

Even products that are environmentally leaps and bounds beyond what’s out there need to get the basics right. And they must have other selling points as well.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 133

GREEN-TO-GOLD PLAY 7: ECO-DEFINED NEW MARKET SPACE— PROMOTE VALUE INNOVATION AND DEVELOP BREAKTHROUGH PRODUCTS

In 1993, Toyota set out to design the “21st century car.” During internal brainstorming sessions on what the next century held, en- gineers hit on two phrases: “natural resources” and “environment.” They made environmental performance the focus of the new car, instead of traditional selling points like size or speed. Over the next decade, as oil prices rose fast, the logic of an energy-efficient car seemed obvious. But at the time, Toyota’s strategy was very risky and the targets seemingly impossible.

First, top management set a goal that the new car would double the fuel efficiency of Toyota’s smaller cars. The only way to get there was to use a battery, but pure electric vehicles had proven imprac- tical. The hybrid gas–electric engine was born. The battery in these vehicles does not need to be plugged in—it gets its power from the energy normally wasted during braking. The result of this decade- long push for new technology, the Toyota Prius, has been a giant success.

Customers not only pay a price premium for the Prius, they wait months to buy it. The Prius represents what business school profes- sors Chan Kim and Renée Mauborgne call value innovation: where a product is so new, different, and unique that customers believe there is no substitute. For many Prius buyers, a Chevy Malibu or Honda Accord just won’t do, even though they can it drive it off the lot. The Prius has, as Kim and Mauborgne might say, made the com- petition irrelevant. In effect, “hybrid” is a new category of personal transport separate from “car.”

But the Prius has done far more for Toyota than create a small niche phenomenon. The company has used what it learned from the ten-year journey to increase its speed to market on new models and improve production processes—an amazing feat for what’s widely considered the world’s leanest manufacturer. More than that, the Prius has created a halo around Toyota, making its vehicles hot across the board. While Detroit flounders, Toyota is making money hand over fist.

Toyota has risen fast to become the world’s number two car man-

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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134 Strategies for Building Eco-Advantage

ufacturer, and for good reason. The company exudes excellence from every pore. But a central part of the story turns on environmental innovation driving the company’s vision of the marketplace. Toyota saw the Green Wave coming and responded. The company promoted value innovation and ended up with a breakthrough product that enhanced profits and sustained shareholder value. That’s what Eco- Advantage is all about.

“Servicizing”

Energy guru Amory Lovins likes to say that people want cold beer and hot showers, but they don’t really care how the refrigerator works or what makes the water hot. Understand this customer re- ality, and you open up one interesting path to Eco-Advantage.

By offering a service instead of a product, a company profits by reducing its use of materials and energy, and providing that service at the lowest cost possible. Lovins argues, for instance, that air con- ditioner manufacturers should offer cooling as a service—not AC units as a product—so they’d have an incentive to make the systems highly energy efficient. In some green business circles, the idea of a recasting a product as a service, often called “servicizing,” is the holy grail of environmental innovation.

Some path-breaking companies are stepping up to the challenge and serving ultimate customer needs without regard to traditional product definitions. Connecticut-based chemical distributor Hubbard Hall faced a serious “disintermediation” challenge as the Internet made it easier for its customers to buy chemicals directly from the manufacturers. So the company servicized its product, offering to track chemical inventories for its customers, handle regulatory paper work, resupply them as needed, and take away empty containers. This new business model saved customers money by reducing their management time and compliance costs. It also preserved Hubbard Hall’s place in the market and allowed the company to raise margins.

Trouble is, servicizing doesn’t always work. Interface Flooring’s attempt to lease carpet under the Evergreen brand fell flat. The busi- ness model seemed attractive. Interface would provide and maintain a company’s flooring, replacing (and recycling) old carpet tiles as needed. The potential environmental gain was clear. Interface would

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 135

have an incentive to make its carpet as durable as possible and get an opportunity to recycle its own product, saving energy and natural resources.

But as Chairman Ray Anderson told us, things didn’t work out as planned. Tax and accounting rules, it turns out, favor sales over leases. Moreover, in most companies, a carpet purchase comes out of the capital budget, while a lease comes from the operating budget. And different people generally manage these two budgets. In short, moving expenses from the balance sheet to the income sheet is not something companies want to do.

So servicizing may not always pay off. But contemplating how to servicize a product with an eye toward reducing environmental im- pacts can be an illuminating exercise. What does the consumer really want from the item you sell? Here again, all the regular business cautions apply: Is there a market? How will customers react? Do they want to own the product for a good reason? Can we persuade them otherwise? Will it really lower our costs or our footprint?

GREEN-TO-GOLD PLAY 8: INTANGIBLE VALUE— BUILD CORPORATE REPUTATION AND TRUSTED BRANDS

In our celebrity-oriented world, brands matter. As the Information Age overloads customers with product options and configurations, brands provide a short-cut for customers to identify their favorite products—and for talented workers to pick employers. The better a company does at protecting its reputation and building brand trust, the more successful it will be at gaining and maintaining competitive differentiation.

Moving “Beyond Petroleum”

In 2000, British oil giant BP embarked on a massive rebranding cam- paign at a reported cost of $200 million. Out with the old shield logo and in with a softer sunburst dubbed “helios.” A critical part of the message was a bold statement that put BP far out in front of its competitors on environmental issues. In TV and print advertisements no one could miss, the company declared itself to be “Beyond Petro- leum.”

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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136 Strategies for Building Eco-Advantage

Not everyone took this pitch well. The company faced harsh crit- icism from some environmentalists and even some fairly humorous ripostes. An NGO report, Don’t Be Fooled 2005, lists top ten “green- washing” ad campaigns, with BP taking the number two spot behind Ford. Another group declared the campaign “Beyond Preposter- ous”—as well as Beyond Pompous, Beyond Pretension, Beyond Pos- turing, Beyond Presumptuous, and Beyond Propaganda. Greenpeace even gave CEO Lord John Browne an “award” for “Best Impression of an Environmentalist.”

Were these criticisms justified? Yes and no. BP has achieved ad- mirable reductions in its own greenhouse gas emissions. It’s one of the world’s largest providers of renewable energy products such as solar panels. But even if BP’s solar business reaches its target of $1 billion in sales by 2008, at least 98 percent of the company’s roughly $300 billion annual revenue stream will come from oil and gas. Bot- tom line: BP hasn’t moved beyond petroleum just yet.

What was a stodgy old oil company trying to accomplish with these ads, anyway? Did they enter into this campaign lightly? “The brand was very, very carefully positioned,” said Chris Mottershead, Senior Advisor and a key player in crafting the speeches that Browne gives to declare major policy shifts. “It took a long time and lots of resources to get to the helios design and overall positioning. . . . these were deeply conscious thoughts and it was a profound, long, painful process,” he added. The point of the campaign was to say something revealing about what BP was all about and to communicate to all stakeholders the new general direction of the company.

Mottershead put it in context:

You’re telling people what you think the future will be and your role in that future. Why do people pull into a BP station versus an Exxon one? Because it’s saying something about their aspirations and expectations for the future. It’s not that the fuel that they’re buying is any better. . . . it’s not like Coke and Pepsi where there’s actually a difference in flavor. This has to do with a statement that tells everyone—employees, government, civil society, and some consumers—what you stand for.

In the short run, BP took more than a few hits. Wisely, the com- pany pulled a number of advertisements and dialed back its rheto-

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 137

TRUTH MATTERS

Positioning a brand as environmentally friendly only works if it’s true. Some companies miss this simple point: Before trying to position your products as green, make sure you have your ducks in a row. The 1980s and 1990s saw a flurry of bogus green claims. Some were just plain laughable. Hefty’s highly touted biodegradable garbage bag broke down in sunlight, but not in the landfills where they would actually end up. Not good.

ric. The tagline was refocused on the much more defensible phrase, “It’s a start.” But in the longer run, BP accomplished all it could have wished for and more. Despite being in a business with large environ- mental impacts, the company is now seen as green. Indeed, BP comes out at the very top of our WaveRiders ranking, and Lord Browne has been on Management Today’s list of most admired CEOs for five years running.

Here’s the real proof, though. BP’s brand value, as measured by experts in measuring intangibles, has jumped significantly. A recent study of brand strength highlighted ten products with the greatest increases in brand value in recent years. Sorted by total brand value added, they are: Google, BP, Subway, iPod, DeWalt, Sony Cyber- Shot, LeapFrog, Gerber, Sierra Mist, and Eggo. BP is second only to Google, a once-in-a-generation success, and ahead of iPod, one of the greatest consumer product launches in history. BP, the study said, gained over $3 billion in brand value.

In another measure of the campaign’s success, BP has found that it has become a more attractive employer for graduating engineers. Measuring the benefit exactly is impossible—the evidence is all an- ecdotal—but as Mottershead put it, “We don’t have the recruitment problems we had ten years ago. And when I spoke to a hundred new hires, none of them worked in renewables, but every question was about green and sustainability.”

If imitation is the sincerest form of flattery, BP is also doing well. Shell has a long-running ad campaign touting its green bona fides. Now, some oil and gas laggards have jumped on the ad train. Chev- ron launched blunt print ads warning that “the era of easy oil is

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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138 Strategies for Building Eco-Advantage

over” and touting its commitment to green practices. Even ExxonMobil is talking green and investing money in renewables re- search.

Ecomagination

More recently, GE launched its “ecomagination” campaign with an impressive list of public commitments: a doubling of investment in R&D for environmental technologies to $1.5 billion, an increase in sales of environmental products from $10 billion to $20 billion in five years, a reduction in company greenhouse gas emissions of 1 percent, while the business grows substantially. In shaping the cam- paign, CEO Jeff Immelt did not shy away from rigorous goals. Lor- raine Bolsinger, GE’s new Corporate VP dedicated solely to managing ecomagination, says, “There were five proposals for greenhouse gas emission goals—Jeff picked the toughest.”

So what exactly does an ecomagination product look like? Out of the thousands of goods GE sells, just seventeen were initially selected because they improve customer operating and environmental perfor- mance. Some are inherently greener than the alternatives, like wind turbines and solar panels. The rest of the favored seventeen include regular products that improve on what’s in the marketplace. For ex- ample, the GEnx jet engine, which will fly on new Boeing and Airbus jets, will burn 15 percent less fuel, run 30 percent quieter, emit 30 percent less nitrous oxide, and cost less to operate. Again, GE wants all ecomagination products to deliver both environmental and eco- nomic benefits to customers.

The print and TV ads for these products, and for ecomagination in general, started appearing everywhere in mid-2005. Supermodels in a coal mine pushing “cleaner coal” and dancing elephants touting “technology that’s right in step with nature” helped to reposition GE as a green company.

As Bolsinger notes, “Ecomagination is carefully crafted—the ‘eco’ is obvious, and ‘imagination’ connects to our tagline ‘imagination at work,’ which we did immense research to get to.” To those who felt the ads were over the top, Bolsinger says, “Look, part of initiative is to shine a bright light on this topic—it’s purposely bold.”

The company is creating intangible value by building trust in GE’s

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 139

brands. Along the way, it has done its homework. The company carefully vetted its marketing claims by developing “scorecards” that assessed the environmental strengths and weaknesses of the seventeen products to be promoted under the ecomagination banner. Having the data to back up the claims was a smart move and one that, so far, has saved GE from some of the complaints BP received about overreaching.

With the focus on specific products, arguably, ecomagination is as much a product play as a committed effort to go green: GE wants to sell those jet engines, not just have environmentalists admire them. But note how the campaign is being waged. To reach a jet engine buyer, you develop relationships with only two companies, Boeing and Airbus. You don’t need to run ads in national magazines. Clearly ecomagination is much more than a product play. It’s also an image advertising campaign meant to reposition GE as a company that pro- vides solutions to society’s environmental problems.

UNILEVER’S “VITALITY” POSITIONING

The line between green image marketing and green product marketing can be blurry. Unilever, for example, has made one of its new major strategic thrusts a focus on what it’s calling “vitality.” It’s a broad idea encompassing freshness and a healthy lifestyle. A major part of the effort is traditional product marketing. The pitch is that frozen foods are cap- tured when they are very fresh and highly nutritious. Through a multi- media approach, including expansive websites (in many languages), Un- ilever is connecting the vitality idea to its extensive work on sustainable agriculture, sustainable fisheries, and even recycling and other green op- erational efforts. It’s a corporate-level green branding play, but a subtle one.

Is It All Worth It?

Many companies, even those with a lot to crow about, prefer to keep a low profile about their green initiatives. Stick your head up and you might get slapped for not really doing enough.

Sustainable business expert Joel Makower tells a story about dis- covering that Levi’s was buying 2 percent of its cotton from organic

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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140 Strategies for Building Eco-Advantage

farmers. When he asked the company to tell its story, executives were wary. They were concerned, and rightly so, that they would face tough questions about the other 98 percent of their cotton and why Levi’s would make products with dangerous pesticides. As Makower says, many companies share this concern, not wanting to “draw un- wanted attention to the unaddressed environmental challenges that pretty much all companies have.”

Dangers run the gamut from tough questions to anti-image cam- paigns run by activists, as Bill Ford discovered a few years ago. Ford had promised to improve SUV fuel economy by 25 percent over five years. But after a few years, the company was forced to announce that it would not make that goal. Bill Ford’s commitment to the environmental cause can’t be questioned. He’s been out in front on a number of issues and is trying to help Ford find the gold in green. But having taken a high-profile stand on the need for greater cor- porate environmental stewardship, and then missing the targets he set for the company that bears his name, Ford ended up scorned by many in the environmental community.

The Bluewater Network, an environmental NGO, ran full page ads in the New York Times comparing Ford to Pinocchio and declaring, “Don’t buy Bill Ford’s environmental promises. Don’t buy his cars.” Surprisingly, in late 2005, Ford went back to the green well with a new set of ads touting the environment and innovation and starring . . . Bill Ford. In this latest image campaign, he makes a new set of commitments—such as selling 250,000 hybrids per year by 2010. NGOs will be watching to see if he delivers this time.

Let’s face it: Tying a brand to environmental virtue can be dan- gerous. The further a company is from really being green, the larger the effort required and the greater the risk entailed. But if the cam- paign is done right, the payoff can be substantial. A strong brand with a full “trust bank” is a valuable asset.

A deserved reputation for environmental care “inoculates” a com- pany when bad things happen. BP’s reputation, for example, could have been badly hurt by several recent incidents, including multiple explosions (and fatalities) at a Texas refinery and a 267,000 gallon oil spill in Alaska. It wasn’t, though. Thanks to its positive eco- reputation, the company was given extra leeway. As one knowledge-

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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Building the Upside 141

DAMAGING A TRUST BANK: THE DOWNSIDE IN PUMPING UP THE UPSIDE

Companies that seek Eco-Advantage through enhanced intangible value simultaneously create exposure. They must live their values every day. If the facts don’t square with green claims, charges of greenwashing are sure to follow. Sometimes violations of trust may be unintentional. The Body Shop had to retract its claim that its ingredients were free of animal testing after learning that some of its suppliers bought materials from companies that didn’t meet the standard. A legitimate—even innocent— mistake on the part of The Body Shop, but it shows the importance of digging into the full value chain to find hidden issues. Intentional or not, trust is built up slowly, but can be lost quickly.

able observer noted, “It was fascinating how much slack the envi- ronmental community cut BP. Their investment in being seen as good guys paid off handsomely. If ExxonMobil had done the same thing, there would have been hell to pay.”

And of course the upside can be highly profitable. Companies with higher brand values have market power. They command higher prices, sell more, and develop closer relationships with customers and employees.

MAKING THE UPSIDE A CORE FOCUS: DUPONT’S SUSTAINABLE GROWTH

Cutting costs is about making business more efficient. In contrast, increasing revenue is about growth. Both sets of Green-to-Gold Plays are valuable, but a cost focus is mainly tactical. A revenue focus is often on the bigger picture and more about vision.

After more than a decade of pollution control, DuPont wanted to move the internal discussion away from only cost cutting. The com- pany has always found it helpful to set visionary goals and make grand statements, if only to inspire employees to reach further. So the heads of the business units got together to talk about sustaina- bility and how DuPont could play in this arena, and ended up with

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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142 Strategies for Building Eco-Advantage

a new focus for the company: Sustainable Growth. With this new vision, employees would look for opportunities to drive topline growth through sustainability, with new products or a new take on old ones. The point was to add a new visionary goal to the company’s lexicon and spur innovative thinking.

THE ECO-ADVANTAGE BOTTOM LINE

Driving new revenues by using an environmental focus to add value to your products, reach out to green consumers, and create new market space can produce big payoffs. Finding ways to reposition a company in the marketplace and to move the top line with environmental strategy is the cutting edge of Eco-Advantage. But keep in mind six lessons:

• Meet customer needs that actually exist. • Don’t ignore the customer’s nonenvironmental needs. • Control costs. • Remember that green attributes rarely can stand alone: the

environmental story is the second or third “button.” • Market to different niches differently. • Don’t expect a price premium.

Marketing a company’s overall greenness only works well if the com- pany has the substance to back up its green image campaign. But the intangible value generated can be substantial.

Esty, Daniel C., and Andrew S. Winston. Green to Gold : How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, Yale University Press, 2006. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=3420338. Created from ashford-ebooks on 2020-05-19 12:27:21.

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