Profit for Your Business and the Environment
Pamela Gordon (Author)
Publication date: 09/01/2001
The Myth That Environmental Practices Are Bad for Business
We compare our environmental expenses to the estimated savings that result from the company’s pursuit of environmental leadership. The savings have offset the expenses by approximately two to one.
—Diana Lyon, program director,
Corporate Environmental Affairs, IBM
THE saddest myth in 20th-century business circles was that protecting the environment was the enemy of profitability. Lean and Green dispels this myth by presenting evidence gathered from organizations around the world that profitable business and environmental protection go together. Had we upended this myth sooner, companies would have enjoyed greater efficiencies, consumers lower prices, and the planet healthier conditions than when the century began. But we can still achieve all the benefits of being Lean and Green in the 21st century.
The Myth That Inspired a Book
As a successful business owner and consultant to high-tech industry executives, I’ve witnessed the cost of the myth that lean business practices and environmental measures are mutually exclusive. We cannot bring back the companies that have failed owing to needless expenditures on wasted materials and inefficient production. It’s too late to save the jobs of people whose companies could no longer afford to keep them because the companies had to spend millions of dollars on fines and cleanup after spilling hazardous materials. And thanks to action or inaction that resulted in polluted air and water, gone are countless species of animals and plants as well as billions of trees that a balanced planet needs. Our landfills are bulging with slow-to-decompose materials and our air contains 30 percent more carbon dioxide compared to early last century—even in areas as remote as the North Pole.
Yet in recent years I’ve met dozens of people in organizations who have challenged the myth that they can be either lean or green. Some have been motivated primarily to decrease expenditures and increase revenue—the two building blocks of profit—and the environment was a secondary beneficiary. Others primarily have wanted to do the right thing for the environment, and grew successful in their organizations by finding many ways to do so while maximizing profit. Impressed with what I had learned about improving profit and the environment, I decided to write a book about how people at any level of an organization can make their workplaces Lean and Green.
I realized that to convince you and other readers of the promise that workplaces and the environment can profit together, I would need to write for the skeptic. So I interviewed management and employees at organizations you know, compiling evidence of expenses saved or revenue generated by their environmental initiatives, as well as the costs of those programs. Here I present enough technical and business facts to dispel the skeptic’s concern that, in business, green is a whitewash. The 20 organizations whose Lean and Green successes and mistakes I’ve included in this book have, at this writing, these three characteristics:
- They are well known and economically successful (most are leaders in their fields).
- In the past five years, they have committed no major infractions of environmental laws or regulations.
- They have measurably increased their revenue and/or decreased their expenses through steps that benefit the environment.
Many of these organizations are particularly good examples because they have made environmental errors in the past and have learned from their mistakes. I chose organizations whose geographies and industries are diverse, as Table 1 illustrates. The table summarizes some of my favorite Lean and Green efforts—those that are particularly clever, that include all employees, or that dispel the myth that benefiting the planet and making a profit are incompatible goals.
In this book you will meet dozens of visionary leaders from these organizations and hear their stories about successes and mistakes in finding the intersection of profit and the environment. You also will meet many of these organizations’ individual employees who—when they saw waste and missed opportunities—said to their managers, “We can do this a better way.”
Totaling Monetary Benefit from Lean and Green Steps
As I prepared to visit the 20 organizations, I hoped I would find enough empirical evidence of the Lean and Green promise to convince even the skeptics that what benefits the environment can also provide monetary benefits. In visit after visit, my findings exceeded even my own expectations. Here are just a few:
Table 1 The 20 Lean and Green Organizations with Stories in This Book
- Texas Instruments’ reduction of hazardous waste by 44 percent has an enormous impact on profitability and productivity. The company recycles 81 percent of nonhazardous solid waste in its U.S. operations (and 75 percent worldwide), which saves $23 million worth of water and energy not to mention saving trees and reducing landfill. TI spends $160 million on manufacturing resources each quarter; the environmental programs are designed to optimize the company’s resources by at least 10 percent—to save at least $16 million each quarter. Actually TI’s environmental achievement at this writing has exceeded the 10 percent target.
- LSI Logic’s environmental programs have saved the company more than $2 million. LSI has significantly reduced its use of hazardous manufacturing chemicals such as sulfuric acid, photoresist, and phosphoric acid, saving the company $1.2 million alone. The company has reduced its total volume of hazardous waste by 88 percent since 1987.
- NEC Semiconductor’s environmental protection plan generates 0.2 percent of its total semiconductor sales in cost savings and recycling revenues.
- Thomson Multimedia’s worldwide environmental projects yield the company $12.5 million each year through cost avoidance, cost savings, and revenue generation. Waste reclamation and glass recycling (from TV CRTs) contribute the most toward the $12.5 million. By reducing electricity, fuel, and gas in Europe alone the company saves $2.8 million.
- Sony’s U.S. operations generated $1.8 million by reducing industrial waste (36,000 tons of industrial waste, including printed-circuit boards and office paper) and reduced electricity use by $1.3 million.
- Polaroid in Scotland saves £3.8 million (nearly $6 million) per year by creatively reusing (and eventually recycling) suppliers’ shipping boxes.
- Philips has saved more than 1 billion Dutch guilders (more than $400 million) per year by reducing waste 28 percent, energy use 23 percent, and water use 34 percent. Philips saved 17 percent more than it had originally projected.
- ITT Cannon: Cost savings from replacing ozone-depleting chlorofluorocarbon (CFC) solvents with water-soluble solutions are close to $1 million each year.
- The city of Santa Monica, in addition to its white-top street success above, is saving $50,000 a year by using an innovative application of small paving materials for sidewalk repairs. Street maintenance employees developed this idea, which saves time, labor, and materials and reduces waste.
- British Aerospace: Samlesbury shop-floor employees’ efforts to find environmentally friendly improvements that make their processes leaner yielded £480,000 (more than $700,000) savings per year.
And what about revenue gain? Some of the best-selling products of Lean and Green organizations, such as Horizon Organic Dairy and Louisiana-Pacific, were created to minimize waste, chemicals, and unnecessary transportation. Yes, green products designed to meet customer needs do sell well.
Another critical type of monetary benefit of Lean and Green thinking is protecting an organization’s good reputation. Fear of violating environmental regulations motivated executives at chip maker LSI Logic to insist on a strong environmental department. Wilfred Corrigan, LSI Logic’s chief executive officer, was one of the presidents of Fairchild, an early semiconductor company that generated significant environmental problems. During LSI’s formative years in the early 1980s, the semiconductor industry was prominent on lists of polluting companies. Linda Gee, environmental health and safety director at LSI, told me, “I still have the memo Joe Zelayeta, executive vice president of worldwide operations, sent me when I started with LSI. It was a list of non-compliant companies that had discharged wastewater to the City of San Jose Sewer Plant. Joe wrote, ‘Congratulations, this is a great list not to be a part of. I know you seldom get any notoriety except when you have a problem, so I think you should get credit for avoiding the dishonor roll in the San Jose Mercury News. Thanks!’” Linda has kept LSI off the lists and in the black through her dogged attention to waste reduction and reuse of materials.
But How Much Is Spent on Environment Steps?
According to the lean or green myth, environmental concerns take resources away from business, and time and funds diverted from narrow-enough profit margins will take business off course. Actually, the reverse is true: IBM, for example, estimates that for every dollar spent on environmental benefit or pollution prevention, two dollars are added to the bottom line.
Intel participates in a benchmarking study with PricewaterhouseCoopers to determine the cost to organizations of their environment, health, and safety (EHS) organization—the number of EHS employees per billion dollars of revenue. Intel’s cost is among the lowest in the sample, and the by-product of its environmental programs is reduced operational costs and getting new products to the market faster by fulfilling and going beyond environmental-permit standards.
Linda Gee at LSI Logic says that many environmental program expenditures—such as for on-site recycling equipment through which used chemicals are passed, then used again—make money for the company in less than one year.
Polaroid’s savings of £3.8 million (nearly $6 million) from its reusable-box program does require paying four times more per box for the reusable shipping boxes (£4) than it paid for cardboard boxes (£1). The original plan was that after reusing the same box for four trips, Polaroid would break even. Polaroid stopped counting the return trips after the boxes exceeded 64 trips, and the company estimates that many boxes have made more than 500 trips before being recycled. Even including the cost of shipping flats of the reusable boxes back to suppliers in Mexico and Malaysia, savings exceed ship-back costs hundreds of times.
Four Lean and Green Steps for the Biggest Impact
I want to make it as easy as possible for you to make quick, effective changes in your workplace for the improvement of our natural environment while strengthening your organization. So, I am giving you the four fastest steps to Lean and Green (listed in sidebar). I synthesized these four steps after witnessing results at the Lean and Green organizations and asking the Lean and Green champions I visited around the world which techniques had produced the most cost savings or revenue and benefited the environment.
Four Steps to Lean and Green
- Question wasteful practices, and design Lean and Green steps to benefit profit and planet. Get people in your organization to think creatively in order to arrive at Lean and Green solutions; for the most dramatic benefits, encourage them to think about steps that can be taken before waste is created.
- Gain endorsement for Lean and Green ideas using business language. Lead your environmental points with profit in mind—starting with strategies that yield the highest rewards to profit and planet.
- Collaborate throughout the organization to meet Lean and Green goals. If you can, start at the top of the organization to obtain buyin there, then adopt the Lean and Green practices elsewhere in the organization.
- Measure your organization’s Lean and Green progress, and strive continuously to improve. Make sure that the Lean and Green steps your organization is taking are truly healthful both for planet and for profit, and keep raising the bar.
Chapters 1 through 4 guide you through these four steps. Then, the rest of this book’s chapters present real-life stories that provide inspiration for making the four steps work at your organization. They include practical suggestions for what you can do in this century to help produce a win-win outcome: successful business practices and a healthy planet.
Competition Is Doing Its Job
Leaders who think that what is good for the environment is bad for business are at a competitive disadvantage. Their profit margins are several points lower because they purchase and dispose of excess materials and pay for waste that needn’t have been created in the first place. They forgo revenue from recycling (such as Apple’s gain of $1 million) and from marketing “green” products (such as Philips’s popular GreenChipTM). They take unnecessary processing steps and pay sick leave and health care costs when employees are exposed to ill-chosen chemicals. Some of these leaders’ organizations have leaked toxins into the groundwater and polluted the air—resulting in millions of dollars in fines and cleanup costs. Had these inefficiencies been avoided and accidents been prevented by sound environmental policies, their earnings would have been much higher.
By taking environmental steps, many of the Lean and Green organizations are shaving 1 to 15 percent and more off costs. These savings can allow them to reduce prices—a move that usually increases market share—or earn higher profits if prices are held steady.
As Lean and Green organizations outperform those that are buying too much, wasting what they buy, and missing green revenue opportunities, more stakeholders will insist on changes. Note how my Lean and Green contacts achieve competitive advances by making environmental improvements in their organizations.
- Danny Martland is environmental advisor at British Aerospace’s Samlesbury facility. He observes that his site “is renowned for lean manufacturing to survive in the world market. We’ve already looked with a fine-tooth comb to make machines more efficient and cut out waste. Then in only 12 months of getting people interested in making environmental improvements, we achieved nearly an additional £500,000 of efficiency.”
- David Lear, environmental program manager at Compaq, says, “It’s hard to put a price on avoiding liability, but I try to do so by looking at financial and environmental reports for what our competitors have spent to correct environmental mistakes: some electronics companies have spent upwards of $150 million in one year. Think of the number of computers they’d have to sell to earn back that money in profits! We also look at other companies’ employee count and departments assigned to clean up environmental mistakes. Our group is lean because we’ve not had environmental mistakes to clean up.”
- Walt Rosenberg is director of corporate environmental affairs at Compaq, where, on a per-product basis in the competitive personal computer market, he says, “even 1 percent cost savings is motivational. We’re fighting on pennies on some components—because pennies count when multiplied by millions of units. The mindset is ‘every single cent.’ A reusable transport pallet saves $5 per unit—this becomes a fundamental business benefit.”
- Bob Barrett, an environmental and material engineer at ITT Gilfillan, notes that the radar market is very competitive right now. “When we improve radar design so they are smaller, lighter, more efficient, and more reliable, and use fewer materials, less coolant, less power, and less space, and use fewer chemicals with associated complications, we get a competitive edge.”
- Frank O’Rourke is the EHS manager at Celestica. He looks for every possible way to save money because, in Celestica’s industry—electronics manufacturing services—profit margins are small. The main reason name-brand companies outsource manufacturing to companies like his is to reduce costs.
Becoming Lean and Green Table 3 provides a few typical “before and after” stories about Lean and Green organizations. You can help create an “after” picture for the organizations you know.
Table 3 Company Practices Before and After Lean and Green
You Can Transform Your Organization
In this book, I introduce you to clerks, farmers, lumber mill workers, engineers, city employees, chemists, managers, and executives. They work for 20 successful organizations all over the world. You will read about their successes and mistakes as they strived to make their organizations healthier financially and more productive for employees, the community, and the planet. All of them have made a discovery: Lean and Green can coexist because what’s good for business—less waste and fewer production steps—is good for the environment too.
I invite you to be receptive to the idea that it’s possible for you to make the organizations you touch Lean and Green.
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