Week 2 Assignment – Eco-Plays Framework
PLEASE DO NOT SUBMIT A BID FOR THIS ASSIGNMENT IF YOU DO NOT HAVE EXPERIENCE WITH GRADUATE LEVEL WRITING TERMS AND CONCEPTS. ALL DIRECTIONS MUST BE FOLLOWED AND NO PLAGIARISM. MY SCHOOL USES SOFTWARE TO DETECT COPIED MATERIAL.
Locate the
Eco-plays framework
– information attached as a separate document.
Imagine that the company that is the focus of your AUDIO analysis in Week One can make one strategic move (a “green-to-gold play”) in the immediate future to build an eco-advantage. Prepare a two-page paper (excluding title, reference page, and appendix), that discusses the following:
Briefly identify and describe the company or business that was the topic of your Week One paper and attach the AUDIO analysis of that company as an Appendix, just as you did for the Week One paper. Do NOT attach your entire Week One paper. Simply attach the AUDIO analysis as an appendix to your Week Two assignment, which follows.
Identify and describe what that strategic move should be and identify where that move falls on the eco-strategy framework. (Be specific about what the strategic move should be; do not simply identify the name of the play).
Then, identify two green-to-gold plays that you did NOT choose and discuss why the identified strategic move is more important to undertake before the others, given the AUDIO analysis that you completed. (You may update the
AUDIO analysis for the assignment, but you are not required to do so) – PLEASE UPDATE
In addition to the requirements above, your paper:
· Must be double-spaced and 12-point font.
· Must be formatted according to APA style.
· Must reference two scholarly resources in addition to the textbook.
· Must include a reference page written in APA format.
Week 2 Assignment – Eco-Plays Framework
PLEASE DO NOT SUBMIT A BID FOR THIS ASSIGNMENT IF YOU DO NOT HAVE EXPERIENCE WITH GRADUATE LEVEL WRITING TERMS AND CONCEPTS. ALL DIRECTIONS MUST BE FOLLOWED AND NO PLAGIARISM. MY SCHOOL USES SOFTWARE TO DETECT COPIED MATERIAL.
Locate the
Eco-plays framework
– information attached as a separate document.
Imagine that the company that is the focus of your AUDIO analysis in Week One can make one strategic move (a “green-to-gold play”) in the immediate future to build an eco-advantage. Prepare a two-page paper (excluding title, reference page, and appendix), that discusses the following:
Briefly identify and describe the company or business that was the topic of your Week One paper and attach the AUDIO analysis of that company as an Appendix, just as you did for the Week One paper. Do NOT attach your entire Week One paper. Simply attach the AUDIO analysis as an appendix to your Week Two assignment, which follows.
Identify and describe what that strategic move should be and identify where that move falls on the eco-strategy framework. (Be specific about what the strategic move should be; do not simply identify the name of the play).
Then, identify two green-to-gold plays that you did NOT choose and discuss why the identified strategic move is more important to undertake before the others, given the AUDIO analysis that you completed. (You may update the AUDIO analysis for the assignment, but you are not required to do so) – PLEASE UPDATE
In addition to the requirements above, your paper:
· Must be double-spaced and 12-point font.
· Must be formatted according to APA style.
· Must reference two scholarly resources in addition to the textbook.
· Must include a reference page written in APA format.
ECO-PLAYS FRAMEWORK
Harvard Business School’s Michael Porter describes two basic categories of competitive advantage: lowering costs
or differentiating a product on quality, features, or service. We tweaked this model a bit to describe the world of
environmental plays. We see four fundamental ways to create value for your company: lower costs, reduce risk, increase
revenues, and enhance brand value.
The eight plays, shown below on our grid, are the playbook for a new green strategy. The Toolkit we focus on in this site
contains the concrete actions companies take to build the infrastructure for executing these plays. We describe the plays
in full in Green to Gold.
Less Certain / Long Term
Eco Plays Framework
REVENUES
• Eco-design
• Green product
iiimarketing
• Eco-defined
iiinew market space U
ps
id
e
D
ow
nside
INTANGIBLES
• Protecting and
iiipromoting
iiiintangible value
COSTS
• Eco-efficiency
• Eco-expense
iiireduction
• Value chain
iiiefficiency
RISKS
• Eco-risk control
More Certain / Short Term
Green to Gold, Esty/Winston, 2006 www.eco-advantage.com
Design
for Sustainability Program
Delft University of Technology
THE DESIGN OF ECO-EFFICIENT SERVICES
Method, tools and review of the case study based ‘Designing Eco-efficien
t
Services’ project
June, 2001
J.C. Brezet
A.S. Bijma
J. Ehrenfeld, Massachusetts Institute of Technology – MIT
S. Silvester
2
Note:
This report is among those documents and activitie
s
marking the beginning of a new era. An era in which a
new vision dawns of customer demand controlling the
development of customised Eco-efficient Services with a
maximum added value and a minimum environmental
load.
This report should be regarded as one of the first
careful steps on this new road of challenges and
possibilities; steps that will be followed by many more.
Contact address:
Design for Sustainability Program
Faculty OCP
Delft University of Technology
Jaffalaan
9
2628 BX Delft
The Netherlands
Tel. + 31 15 2782738/3719
Fax + 31 15 2782956
e-mail: j.c.brezet@io.tudelft.nl
www.io.tudelft.nl/research/dfs
3
Executive Summary
This report presents a methodology for the design of eco-efficient services. The methodology has two
parts. The first is an extension of the familiar five-step product development process to which a preliminary
exploration step has been added. This part is a novel approach to help conceptualize the system to be
designed. It focuses the design team’s attention on three aspects: the device, the institutional or
infrastructural context, and on user practices. These three aspects of eco-efficient service are displayed in
a Sustainable Systems Triangle to facilitate the conceptualization process. The second part of the
methodology is designed to assist the design team during the exploration, policy formulation, and idea
finding steps along the overall development pathway. The new methodology is illustrated by a series of
cases.
The design of eco-efficient services requires an expended methodology because all three of the sides
of the triangle must be involved in all but the simplest cases. It will be a rare event when a single company
can bring together all of the parties that must ultimately be involved in the design and realisation process.
Much of the expansion of the traditional five-step model results from the need to build diverse teams from
the very beginning. In the most ambitious and promising systems, no single firm is likely to have the all the
requisite experience and capabilities. This model assumes a more entrepreneurial attitude. The addition of
the initial exploration step is designed to assure that all the parties are assembled at an early stage.
The triangular depiction of eco-efficient services is derived from recent research at TUDelft which has
looked beyond the traditional staged model of eco-improvement innovations and more clearly delineates
what must be considered in the design of innovative systems, the last stage in the older model. It is
improvements in each aspect that lead to potential eco-efficiencies. Systems innovations are most
attractive as potential contributors to sustainability because improvements related to all three aspects can
be combined synergetically.
After an introduction and description of the research project on which this report is based, Chapter 3
presents the case for the development of eco-efficient services, based on an analysis of recent trends. The
next chapters present the overall design methodology and a number of illustrative cases, followed by a
presentation of the new Sustainable Systems triangle. The last chapter is a short summary and set of
recommendations. The appendices contain two sets of cases, one related to the overall methodology and
the other to the systems design conceptualization, an overview of barriers and three specific tools.
4
CONTENTS
Part
I
DES project, method and tools
1 Introduction
6
2 Project set up
7
2.1 Goal of the research 7
2.2 Lay out of the research 7
3 Results from the theoretical research
3.1 Products and Services
8
3.2 Towards a service economy 9
3.3 How to measure environmental impact of Services?
10
3.4 Function and system innovation
11
3.5 Methodological basics 11
4 Developing An Overall Development Process
4.1 DES methodology
13
5 Results from the Cases
18
5.1 Development Process 18
5.2 Business coalitions
19
5.3 Barriers
20
5.4 Opportunities besides environmental ones
21
5.5 Environmental gain 21
5.6 Use of tools
22
Part II Review and Future
6 The Sustainable Systems Triangle
24
7 The Future of ES Design
30
8 Literature
31
9 Appendices
33
A. Cases 33
B. Overview of ES-specific barriers
38
C. The META-matrix
40
D. Blueprinting
43
E. The VIP approach
45
5
Part I DES project, method & tools
6
1 INTRODUCTION
In the past decade, much experience has been gained with the environmental redesign of products, also
called ‘ecodesign’ (Van Hemel, 1998; Brezet and van Hemel, 1997). Although the environmental benefits
of these techniques are beyond dispute, they are insufficient to reach the needed improvement for a truly
sustainable society.
In Western economies, a shift has been visible from an industrial economy towards a service economy.
Because of the immaterial character of services, this development has been recognised as a potential
major opportunity to make substantial progress in sustainability. Several environmental groups across the
world regard services as the missing link to reach factor four and higher environmental improvements. To
seize this opportunity, it is necessary to map the road towards product-service systems that are more
sustainable than current systems.
Some research projects indicate that in principal significant environmental improvement can be possible
with Eco-efficient services, which can fulfill functions now carried out by unsustainable product-
service
systems (Goedkoop et al, 1999; Mont, 1999; Meijkamp, 2000). Building upon the experiences gained in
industrial ecodesign projects within the Design for Sustainability (DfS) program, research is now being
undertaken to know how, following the environmental design methodology of physical products, functions
can be performed more eco-efficiently with the help of these Eco-efficient Services.
The research project “Designing Eco-efficient Services” (DES project) is a collaboration between Delft
University of Technology and the Dutch Ministry of Environmental affairs. It is executed by the Design for
Sustainability program of the faculty Design, Construction and Production of the Delft University of
Technology, and is being conducted in close partnership with the research institute TNO Industry in the
centre for sustainable product innovation ‘Kathalys’.
We use the term Eco-efficient Services (ES) to indicate that services are central in this concept and that it is
important to design them in such a way that optimal eco-efficiency can be established. In other words:
functions should be performed with a minimum of environmental impact, use of resources and use of
space, while creating maximum added value for the different stakeholders.
This report deals with the question how Eco-efficient Services can be developed to support new business
developers and industrial design engineers on their road to sustainability. Its goal is to provide a practical
toolbox 1 for both product and service based organisations, which could assist them in their shift towards
Eco-efficient services. One of the first steps towards such a ‘Designing Eco-efficient Services’- toolbox is the
development of a more systematic ES design approach.
1 The term toolbox is used rather than ‘manual’ because a manual indicates a fixed dictation of how things should be done. The DfS
researchers have the strong feeling however that organisations are best guided by something ever evolving, which is capable of
adapting itself to a very dynamic environment, hence the word ‘toolbox’.
7
Design of Eco-efficient Services
Evaluation
Concept ES Methodology
Cases
research
Theoretical
research
New Research New cases
Existing methodology
Figure 1: Lay out of the DES
project
Ever evolving ES tool
2 PROJECT SET UP
The various studies that have been conducted on the topic of Eco-efficient Services provide on the one
hand an overview of successful ES-cases, usually in retrospect. On the other hand, these studies call for
further research, especially for a methodology (Mont, 2000; Clark, 2000). The case descriptions are
inspiring for entrepreneurs who are interested in ES, but they do not give an answer to the question how
and under what conditions economical and environmental gain can be reached. Since little is known
about the exact backgrounds and development methodologies behind the success stories, it is hard to
repeat them. The need for the development of an ES methodology that enables service designers and
product designers to develop and provide new and current eco-efficient services, is the backbone of this
report. Such a methodology can increase the possibility for successful ES-development, through better
insight in potential opportunities and barriers, and by the use of methods and techniques to deal with this
effectively. Besides, it will become possible for ES-developers to plan the design process systematically,
communicate about it within the company and the product-service chain and to get feedback at the end
of the developing process.
Once the beginning of a systematic ES-design approach is available, service design consultants,
educational and research institutions can take care of a continuous improvement and rapid distribution
through their activities. In other words: the development of an ES-design methodology, including factors
leading to success or failure, is a condition for further systematic and professional adoption and along with
that efficient diffusion of knowledge about eco-efficient services in the society. Rapid dissemination is also
essential to gather valuable feedback to ensure a growing and improving methodology.
In this first stage of the research, no distinction has been made between Business to Business markets and
Business to Consumer markets. The methodology that should be the result of the research aims to be
universally applicable.
2.1 Goal of the research
As mentioned in the introduction, the goal of the project is to design a flexible toolbox which enables
organisations to make innovations with a substantial improvement in eco-efficiency. The first step towards
this toolbox is the development of a methodology by which ES could be designed. The main questions to
be answered by the researchers of DfS during the DES project are:
1. How can Eco-efficient Services be systematically developed?
2. Which tools and techniques are necessary to reach the best result, both
economically and ecologically?
2.2 Lay out of the research
Point of departure for the research is an existing Product Development
Methodology. More about this existing methodology can be found in
paragraph 3.5, Methodological Basics.
The first stage of the research consists of two parts: an empirical and a
theoretical analysis. The empirical part has been conducted with the help of
case studies. Several ES development projects have been carried out by the
Design for Sustainability Program (Oude Elberink, 1998; Flipsen, 2000;
Brügemann, 2000; Reijnhoudt, 2000; Meijkamp, 2000; Knot, 2000).
Parallel to this, the theoretical research focussed on literature and other
research on this subject, besides analysing the characteristics of the case
studies (Bijma, 1999, 2000; Bosch, 2000; Van den Hoed, 1998). After the
analysis an evaluation took place, the outcome of which constituted the
design of a concept ES methodology. The concept ES methodology can
then form the starting point for new cases and theoretical evaluation. An
overview of the research layout is shown in figure 1.
8
3 THE CURRENT STATE OF PRODUCT SERVICE SYSTEMS
In chapter 3 the results from the theoretical part are described. Particularly, in the paragraphs 3.1 to 3.3
the background of services in general is being discussed. Paragraph 3.4 deals with function and system
innovations, of which Eco-efficient services can be a part. The chapter is closed with explaining the
methodology underlying the ES methodology.
3.1 Products and Services
The DES-project has led within the department of Industrial Design Engineering of the Delft University of
Technology, to a fundamental discussion about the question: “are services fundamentally different from
products?”. This question has also been dealt with in studies by, among others, Meijkamp (2000), Bosch
(2000), Brügemann (1999), Bijma (2000) and Reijnhoudt (2000), following the research of Mont (2000),
Goedkoop (1999), Slob (2000) and Kotler (1994) who engaged in this question before.
It appears from the discussion and literature research that every
product has some kind of service aspect and that every service is
usually based on the use of several (support) products. As is
depicted in figure 2, there is a continuum of products and services
with an unclear borderline between them.
This is why, in the DES-project, services and products are treated as parts of systems or combinations
which are focussed on the fulfilment of demand. These systems are often referred to as Product Service
Systems (PSS). A working definition of PSS is:
PSS are “marketable systems of products and services capable of fulfilling a user’s demand” (based on
Goedkoop and Mont, 2000)
Since all products and services are part of systems, the concept of PSS is not new. What is new is the
notion that companies should consider the system their product or service is in when innovating. Some
companies have already started to consider the supply chain and end-of-life part of the system, but the
new innovation challenge lies particularly in the user system.
When these PSS are consciously developed to contribute to sustainable development; that is with an
optimal eco-efficiency as compared to the current situation, we will use the concept Eco -efficient Services
(ES). This, by definition, also implies physical products as part of the system.
Eco-efficient services are systems of products and services, which are developed to cause a minimum
environmental impact with a maximum added value.
This implies that the development of ES refers to the
deliberate development of a new PSS or the redesign
of an existing PSS, aiming at a minimum
environmental impact per unit of added value. When
regarding the graph of figure 3, the aim is to reduce
the angle of the vector (environmental load divided
by the value). This makes the problem to be solved
more complex, because the innovation should involve
both axes of the graph. On the one hand the
environmental impact needs to be reduced, which is
more or less a technical problem. On the other hand
the value needs to be increased, which is a
No TV sets can be sold without a distribution network and shops (whether virtual or real shops), which are services.
No distribution service can exist without trucks, computers and warehouses, which are products.
service
product
Figure 2: The product service continuum
En
vi
ro
nm
en
ta
l l
oa
d
Value
Figure 3: the relation between environmental impact and
added value
9
psychological and social problem. Nevertheless, focussing on both sides will be a more powerful incentive
for companies to develop Eco-efficient Services than environmental considerations alone.
Focussing on both sides means the whole system of consumption and production needs to be redesigned,
which is at the heart of the ES methodology.
The ES term is introduced (instead of, for example, EPSS: eco-efficient product service systems) in order to
stress the service side of product service systems. Researchers believe that an emphasis on services instead
of products has the potential to lead to a significantly higher improvement of the eco-efficiency on function
and system level. Until now, the environmental focus in product- and service development has been mainly
on the physical redesign of products (ecodesign). It was being expected that by giving conscious and
systematic attention to PSS as systems, an innovation shift could be facilitated. In principle, this could
make considerable bigger improvements in eco-efficiency possible. The consequence is that while
designing ES, aspects of services as well as products have to be considered simultaneously. It must be
noted however, that services are not automatically more sustainable than products. In every case a careful
consideration needs to be made in order to design the package of products and services, which in that
particular case is the most sustainable solution.
Given the fact that services and products are both part of systems that aim at fulfilling a customer’s need,
this does not mean that they are developed in the same way. In table 1 the main differences between
service development and product development that came forward from the literature research of the DES
project are shown.
Product design Service design
Long lead time Short lead time
Is conducted by product developers
and technicians
Is conducted by marketers, business
administrators and service providers
Hard to adjust to a changing
environment
Easy to adjust to a changing
environment
Hard technical variables (material,
dimensions, etc.)
Soft variables (time, place, etc.)
Secondary products are unimportant
for the environmental impact.
Secondary products are essential for
the environmental impact.
Table 1 Relative differences between traditional product and service design
Another difference is that product developers can have years of experience with the integration of
environmental relevant aspects in their designs, because knowledge and methods have already been
developed for this purpose. For service developers, the consideration of environmental aspects is all but
common. They have to make up arrears in knowledge and experience.
These differences will be further discussed paragraph 5.3, which deals with barriers.
3.2 Towards a service economy
In Western economies, a shift has been visible from an industrial economy towards a service economy.
Three developments in the areas market, technology and business are the main causes for this shift.
First of all the market side has been changing, by demanding more and more customised solutions. This
means in practice that businesses offer flexible packages of products and services, which can be designed
to meet a certain need. This is also referred to as ‘mass customisation’. Especially in mature markets,
services can be the key to add value and diversification (Oppedijk van Veen, 2000). Besides, services offer
product based companies a way to get closer to their customers and build a relationship with them.
On the other hand are the developments in the Information and Communication industry, which expand
the possibilities for dematerialization enormously. Added value is not only generated by physical products,
but increasingly by intangible service elements (Nijhuis, 2000).
Finally, western companies tend to specialise more and more. They go back to their core business and
everything else is outsourced. This means that services that used to be internal and part of the production
process now become explicit. This has caused an explosion of new service companies, specialised on
business to business delivery (De Jong, 2000). In Business to Business industry the shift towards integrated,
customised product service systems is already happening for several years.
10
3.3 How to measure environmental impact of Services?
Pure –dematerialized- services as such have –in theory- no environmental impact. At the most, they
consume human energy, but not more. However, services always depend on support products, which –as
PSS- do cause environmental burden.
In order to determine the environmental impact of a product service system, one should determine the
environmental impact of all the products used in the system. Although tools already exist to do this, it is
more complicated than it seems.
The problem is to determine what products are in what proportion part of the system. To do this, system
boundaries need to be determined.
Measuring environmental impact is done in order to be able to compare the old system with the new one.
This should be kept in mind when determining the system borders. The old and new system should have
the same functionality.
Or, as Bras-Klapwijk (2000) puts it: The functional unit should be defined in such a way that it can
account for changes in volumes of products and processes that are needed per person per year. Instead of
a certain quantity of product, the functional unit should refer to an abstract function, like being clothed or
having mobility, and to a period of time. Needless to say: the wider the system boundaries the more
complex and time consuming the calculation will be.
Due to the important role of support products like roads, cars and computers, which often could be
neglected when analysing only products, it could be necessary to develop tools that are developed
especially for services. These could be based on the same LCA techniques that are used with products.
These tools should address specifically the way to determine system boundaries and calculate the
contribution of support products to a product service
system. In appendix C a concept of such a tool is
discussed.
Another complicating aspect of the analysis of systems
is the so-called ‘rebound effect’. Rebounds are negative
side effects that cancel out the main goal. These
effects are hard to measure because rebounds can take
place outside the considered system and concern
human behaviour patterns.
Vogtländer (1999) has developed a calculation method
to assess complex systems of products and services. He
takes ecological as well as economical parameters into
account which eventually is visualised in the EVR graph. An example of such a graph is shown in figure 4.
Example 1:
The service ‘teaching’ as such has no environmental impact. But regarding the system around ‘teaching’, pupils and
teacher use a mode of transport to get together, they use books and a lighted and heated building. These tangible
products that support the intangible service cause the environmental impact of the complete product service system.
Example 2:
When two friends take a walk in the park and one friend advises the other on a certain issue, this could be regarded as
a service. The environmental impact of this service is zero. However, the person having the problem could also hire a
professional consultant. Immediately, products are involved bringing along their environmental load. The consultant
visits with a car, calls with a telephone, uses the elevator, types on a computer, has an office and writes reports on
paper. The service has now economic value, but also environmental burden.
Example:
In the car sharing case an environmental assessment has been made with two different functional units, a limited one
and an expanded one. With the limited functional unit, only one kilometre with an owned car has been compared with
one kilometre in a shared car. This neglects changes in consumer behaviour. The expanded functional unit concerned
the total mobility of a household during one year, before and after adopting the car sharing service. Thi s calculation did
consider changes in consumer behaviour.
That the choice of functional unit strongly influences the outcome of the calculation is demonstrated by the fact that the
calculation with the limited functional unit yielded an improvement of 14%, while the expanded comparison led to an
improvement of 22%, or even 40% when compared with the mobility of an average household.
components
retail
marketing distribution
Assembly
Added value
Ec
o-
co
st
s
Figure 4: An example of EVR graph
11
3.4 Function and system innovation
In figure 5 an often quoted graph is shown that
positiones Eco-efficient services as a logical
continuation of the road already travelled with
ecodesign of products (type 2), since they are part of
the type 3 curve: ‘Function innovation’ and
sometimes even of type 4 ‘System innovation’. It is
being assumed, following the time axis, that it’s more
difficult to create whole systems changes, including
the establishment of new cultures and infrastructures,
than product and process redesigns. Also the type 3
and 4 function and system innovation approaches,
like ES, are supposed to have the best eco-efficiency
potential.
3.5 Methodological basics
Now we know the differences between products and services, it is time to focus on their similarities. After
all, we are looking for a way to develop Eco-efficient services in which services and products can be equally
represented.
When products or services are developed or redesigned, this means a company is innovating. They both
aim at fulfilling a need from the market with the ultimate purpose of making profit. For product
development a much used methodology is the product development process of Roozenburg and Eekels.
This is an extensively described process, of which an outline is shown in figure 6. (Roozenburg, 1998).
Figure 6: The product development process of Roozenburg and Eekels (1998)
Type 1 :
Product
improvement
Type 2 :
Product
redesign
Type 3 :
Function
innovation
Type 4 :
System
innovation Sustainable level
1990 2000 2010
Time
Ec
o-
ef
fic
ie
nc
y
Im
pr
ov
em
en
t
Figure 5: Eco-efficiency curves
Idea
finding
Generation
of requi-
rements
Develop-
ment
Imple-
mentation
Delivery
of service
Service creation Service engineering Service management
Objectives Strategy
Situation
analysis
Objectives &
strategies
formulation
Idea
generation
& selection Policy
New
idea
Plans
Production
Distribution
& sale
Use
Development
production,
design,
marketing
Policy formulation Objective finding Strict development Realisation
12
Research has shown that methodologies for product and service development are quite comparable. In
figure 7 the Roozenburg methodology is compared with a service development methodology based on
BMBF and Müller. (Brügemann, 2000)
Figure 7: The product development process compared with the service development process.
As the product development methodology is based on the structure of innovating processes, we expect
that it is applicable for eco-efficient product services too, and use this as a point of departure for the
development of a methodology for the design of Eco-efficient Services.
Objectives
& strategies
formulation
Idea
generation
& selection
Policy New idea
Product
design
Marketing
plan
Production
plan
Production Distribution
& sale
Use
Production
development
Product
design
Marketing
planning
Policy formulation Objective finding
Product planning Strict development
Product development
Realisation
Innovation
13
4 DEVELOPING AN OVERALL DEVELOPMENT PROCESS
The findings from the previous chapters lead to the expectation that for the development of an ES-
methodology, much of the existing product design basics and environmental tools are applicable, but need
to be adapted. Because many Product Service Systems are unique, it is not the intention to supply a strict
guideline on how ES should be developed but to assist decision makers with a structure, suggested actions
and tools.
A special point of attention is the complex initiation phase, which is not represented in the model of
Roozenburg and Eekels.
A first description of the ES-process to be followed is given in this chapter, which should be regarded as a
draft methodology that will evolve in the follow up of the DES project.
In chapter 5, the results from a preliminary test of this methodology in a number of cases are being given.
4.1 DES methodology
In this paragraph the draft ES development process is discussed per phase,
following figure 8. This process is a framework of activities, rules of thumb and
tools that enable people to develop ES. Much of these activities and tools still
need to be filled in. As mentioned before, the real process is never linear, like in
the figure. Sometimes it is necessary to jump back and forth between stages or to
repeat stages more than once. Nevertheless this process can be used as a
framework to structure and communicate the different activities that in the end
should lead to a successful Eco-efficient Service.
STEP 1: EXPLORATION
In this phase, which has been added to the phases of the process of
Roozenburg and Eekels, one person, company or institute gets the idea for a
function or system level innovation and makes sustainability part of this
innovation. Especially with system innovations, it can be necessary to form
coalitions of companies and stakeholder groups or new businesses are set
up (see paragraph 5.2). Therefore, relevant companies and groups need to
be identified and approached by the initiator. As with product innovation an
innovation champion within the company increases the chances for success.
When dealing with more than one company, every participant should have
his own innovation champion.
It is important to identify the drivers for innovations. These may not be the
same for all partners involved. One of the drivers can be ‘becoming more
sustainable’ but this is not necessarily so. The innovations will in most cases
also have to lead towards other benefits, like increased market share, better
image or competitive advantage. In this phase the scope of the innovation, or in other words the
system that will be changed is very broadly defined. If possible, future users should be identified and it
must be decided if and how they will be involved in the process.
Actions
• Form a project team of companies, departments and other partners that together have the
knowledge and means at their disposal to develop a successful ES, or start a new company with
the relevant resources.
• Appoint a project manager.
• Formulate a vision and goals.
• Determine the system that will be the ‘playing field’ of the project team.
• Make an analysis of the current situation.
• Assess the environmental load and the economical value of the system that will be innovated if
you wish to base your policy on this information. It is also possible to make a comparative analysis
later in the process.
• Identify future users.
ES Policy
ES idea
ES design
Start
New Activity
Policy
formulation
Strict
development
Realisation
Exploration
Idea
finding
Figure 8: the DES project
Evaluation
14
Tools
• Market research tools (mostly qualitative).
• Strategy and policy tools, like the SWOT analysis (SWOT = Strengths, Weaknesses, Opportunities,
Threats).
• Network management tools.
• META, a new tool, with which a qualitative, quick environmental assessment of a product service
system is possible. (See Annex C)
• ViP scenario approach: to be used for companies and designers that are fixed on existing products
and solutions. The approach offers the development of a new product or product-service vision by
envisagening the future context, the interactions with the user and by making the implicit
designers’ choices explicit. Within the DES project the ViP approach has resulted in unexpected
product and service related solutions (See Appendix E).
• Benchmarking, which stands for comparing services with the same functionality from the
perspective of quality, costs, environmental load, etc..
• Backcasting, looking back from future sustainable scenarios to today’s system, thereby identifying
key factors, actors and technologies for change (Vergragt, 2000).
Results
• A business coalition/new business.
• A team with a mission.
• A project plan.
• A description of the system within which the innovation should take place.
STEP 2: POLICY FORMULATION
During policy formulation, goals and strategies are defined in a policy. This policy should give
direction to the subsequent phases. When a network of companies is involved in the ES development,
joint and individual goals need to be formulated and the contribution of every participant needs to be
specified in time, money and tasks. However, even when it is an internal project of only one company
different departments need to participate for which it is also necessary to formulate goals and specific
tasks. Furthermore, the central management of the project has to be arranged.
Part of the goals should be the intention to end up with an eco-efficient serv ice. Also, the desired
balance between products and services must be indicated. Furthermore, the targets concerning
market share, profits and sustainability will be indicated. It must be noted that the vision formulated
by the partners in this phase, is determining the level of sustainability, which might be reached. A
company focus, for example, limits the scope of the innovation and therefore the possible
environmental gain.
When a certain environmental gain compared to the current situation is the goal of the project, it is
necessary to analyse the environmental impact of the current situation. This can also be done at the
end of the process, but when done during policy formulation it can be helpful input to set goals by
identifying bottlenecks in the current solution.
Actions
• Set more specific goals than the global ones formulated in Step 1. Indicate the direction of the
innovation.
• Determine the roles of the partners and external groups.
• Create an atmosphere of trust and openness between the partners.
• Specify budget and tasks.
• Make a time schedule with milestones.
• Refine the project plan with the ES policy in it.
• Determine what knowledge is needed and if this knowledge should be involved in the form of
participating partners or should be purchased.
• Develop a first list of requirements.
Tools
• ViP approach. See Appendix E.
• Adapted ecodesign tools.
15
• LCA scenarios.
• META matrix. See Appendix C.
• Project management tools (planning, flowcharts, budgeting etc).
• External analysis. To identify the customer need and external opportunities and threats.
• Internal analysis. Examine the strengths and weaknesses of the company or companies.
• Stakeholder analysis.
• Benchmarking.
Results
• A policy which at least contains the statement that the outcome of the project will be an Eco-
efficient Service.
• Time schedule.
STEP 3: IDEA FINDING
Idea finding is a bit odd name for this phase, because in reality, the whole process starts with an idea,
and more ideas are generated in every phase. This ‘Idea finding’ phase however, aims at translating
rather vague and broad ideas in concrete ES ideas.
The most important change in comparison with traditional product and service development in this
phase, is that it is necessary to think in terms of functions and customer demand instead of products.
This abstract level on which ideas need to be generated makes this phase more complicated.
The Idea Finding phase often starts with some kind of problem definition that needs to be solved by
the ES to be designed.
The techniques that are used in product development, to go from a policy to a design goal, are for
the most part also suitable for idea finding for an ES, for example internal and external analysis.
However the way the tools are applied in a multi actor project may differ from the traditional way they
were used.
Actions
• Define accurate problem definition.
• Refine the list of requirements.
• Generate ideas with the project team.
• Select one or more ideas to be further developed.
• If necessary, start sub-processes with participants or future suppliers.
Tools
• More expanded External analysis, especially among future users.
• Second Internal analysis. Examine the relevant strengths and weaknesses of the company or
companies to specify their tasks.
• Creativity techniques to generate ideas.
• ‘Blueprinting’, when an existing service is being redesigned or replaced. Blueprinting is a method
to describe a service in the same way as a product with the help of a process tree, can be a
suitable tool to obtain insight in the visible and invisible elements of a service. See appendix D.
• ViP approach. See Appendix E.
• META-matrix. See appendix C.
• Adapted LiDS-wheel, both for generating ideas and for selecting them on environmental terms.
(Still needs to be developed; more information on the LiDS-wheel for products, See Brezet & van
Hemel, 1997)).
• Green options generation.
• Benchmarking.
• Ecocosts/value approach, EVR (Vogtländer, 1999).
16
Results
The result of this phase is a design brief. First ideas are generated (divergence), then a selection will
be made based on certain criteria (convergence). In the design assignment the most important
requirements are specified and which products and services should be part of the ES. In the case of a
product service combination the design brief need not necessarily go to one person or department. It
could for example be possible that the service part is developed within the company, but products are
purchased elsewhere, or vice versa, depending on the present know-how of the company. In case of a
network of companies this is the point at which each company will start to go through their own sub
development process.
STEP 4: STRICT DEVELOPMENT (DESIGN)
In this phase, the design brief has to be developed into a detailed and feasible design for the new ES.
All variables that determine the products and services forming the ES have to be considered, besides
the production of both elements and their marketing. It is in Strict Development that the differences
between service and product development (as discussed in paragraph 3.1) are most visible. Because
of these different aspects of PSS, the development of both needs to be carefully planned, especially
because they influence each other’s characteristics.
Actions
• Define every variable. For the involved products their specifications and for the services their
protocols of executions.
• Make an assessment of the prototype.
• Check if the ES complies with the list of requirements.
• Before one starts with the next phase, it is recommended to test the design, so when necessary,
adjustments can be made before the ES is being marketed.
• Have regular meetings with all people involved in designing the different parts of the system.
Tools
• Eco-purchase, a checklist aiming at the environmental aspects of the purchase of materials,
components, products, goods etc., that will be part of the new ES system.
• LCA scenarios.
• EVR (Ecocosts Value Ratio).
• Adapted LiDS (under development)
• Blueprinting. See Appendix D.
STEP 5: REALISATION
During realisation, the product components will be produced and all preparations to execute the
service part (which is produced at the same time as it is consumed) are made. These preparations
can range from the programming of a website, to organising a location, to training staff.
When all this is done, the ES can be introduced on the market place.
Actions
• Communicate the new ES to the market.
• Produce or purchase the necessary products.
• Hire staff.
• Maintain the service. (manage time, place and people)
• Sell the ES.
Tools
• EVR (See step 3).
• ‘Green’ communication: guidelines on the specific promotion of the ES.
• LCA scenarios.
• Distribution design.
17
Results
The result of this phase is an Eco-efficient Service, which is sold on the market.
STEP 6: EVALUATION
It is very important that in this last phase an evaluation is built in, in order to guarantee a process of
continuous improvement.
Actions
• Monitor market response.
• Measure the environmental impact of the new system and compare with the old system.
• Measure financial effects for the involved companies.
• Evaluate project process.
• Write final report.
Tools
• EVR (See step 3).
• Financial tools.
• LCA analysis of the new ES.
Results
The project should end with a Final report, including the environmental and economical effects.
18
5 RESULTS FROM THE CASES
The main selection criteria for the cases have been diversity in function fulfilment and learning
opportunities. These learning opportunities are reflected in the fact that the researchers have been
involved from the beginning as co-developers which makes it possible to closely follow the progress of the
projects. Furthermore, the Delft University of Technology and Kathalys have had the opportunity to supply
and test knowledge and experience in these projects (the “reflective praxis” research approach).
The majority of the projects concern the development of a new ES, while one case concerns the redesign
of an existing product service system. See Table 2.
The ultimate goal of every initiated experiment is to launch a commercially successful ES, which replaces a
non sustainable system on the marketplace. However, failures are permitted in this experimental stage, so
we can learn from the mistakes for the next cases. After all, with traditional product innovation, only about
one out of 25 original ideas ends up effectively at the marketplace.
Except with the Car Sharing case, which finds itself in the market stage for a period of time, the DES-
research team is still involved in the further development of these ES-projects.
The cases have been conducted in different fields of business that can be summarised as Mobility,
Household and Work.
The descriptions of the cases can be found in appendix A.
New Service Design Redesign of an Existing Service
Mobility Car Sharing Mobility plan Texel
Individual Transport on Short Distances
Household Upgradable oven
Outsourcing of clothing care
Work Office furnishing
Table 2: The cases that have been studied in the DES project.
Considering the limited amount of cases, the findings have an indicative character. At this point, further
external verification, analysis and continuing experiments still have to take place.
5.1 Development Process
Bosch (2000) has investigated the development processes of each ES case and
concluded that every case can be described with the stages of the Roozenburg and
Eekels methodology, as depicted in figure 6 in chapter 3. The differences are visible in
the activities within the stages and the tools that are used with these activities.
Furthermore it is necessary to add a stage before the real start of the project which
can be described as an explorative stage. In figure 9, the phases of the methodology
are depicted, expanded with this explorative stage. This stage is crucial for the
subsequent development stages, because there is not yet a vision, but only a
preliminary idea that might be in the direction of ES. The business vision will have to
be developed first by the initiators of the idea and sometimes it is necessary to start up
a new business entity or form coalitions with other businesses. More about these
coalitions can be found in paragraph 5.2.
A possibility to change a system is the foundation of a new company, whether by new
entrepreneurs or by existing businesses. Especially in the rapidly changing ICT world,
young new businesses are capable of realising radical system changes by inventing
new techniques or services.
Below an example is shown of the explorative stage from one of the cases.
One of the first activities in the Clothing Care case was the searching, selecting,
and convincing of relevant stakeholders. With a broad group of stakeholders ideas
were generated in a workshop setting. These ideas were later developed into
scenarios which contained products as well as services. Per scenario a new group
of relevant stakeholders was formed which would develop these scenarios further.
This could be seen as the start of the policy formulation phase of figure 6.
ES Policy
ES idea
ES design
Start
New Activity
Policy
formulation
Strict
development
Realisation
Exploration
Idea
finding
Figure 9: the
development process of
the cases
Evaluation
19
The diamonds shape of the phases symbolises the diverging and converging character of the activities
conducted in each phase.
It must be noted that the model of figure 6 is an extreme simplification of reality. ES development can be a
very complex process in which one goes rarely as linear through the phases as suggested in the model. All
thinkable jumps, interactions and iterations are possible. Besides, a decision making process is never
completely rational. Former experiences, personal preferences
and other unconscious factors are influential elements as well.
The model functions as a guide and a means to structure the
complex collection of actions within the process and to
communicate it to others. This is also why such a model of a
methodology is a good starting point to create a toolbox for
organisations.
It is possible, that while going through the process of developing
an Eco-efficient Service, one or more sub-processes are needed.
This can be the case when a company outsources a part of the
project for which it has not got the expertise. With the upgradable
oven case the project was initiated, managed and developed by
the service department. It was necessary however, to give the
design assignment for the physical product (the oven) to the
design department. Such a sub-process has been graphically
depicted in figure 10.
5.2 Business coalitions
The upgradable oven case is an example of the development of an Eco-efficient Service within one
company. This company has its own service department, so much of the needed expertise is present.
However, the company management restricted the innovation space in principle to the mere adding of a
service. System innovations however, are rarely done by one company alone. Chances of success increase
when a network of businesses, which together cover an entire system, work together. Changing the
mobility concept of the isle of Texel, for example, is only possible if all mobility businesses participate. The
bus company or ferry company could never pull off such an innovation by itself. See appendix A for a
further description of the case.
Forming such a coalition of businesses to go through an innovation process together has many
consequences for the process. Many forms of collaboration between companies exist. It is possible for
example that the partners start the process together, but
separate during the ‘strict development’ phase, so each
partner can develop a part of the system. See figure 11. In this
particular process every company uses its specific knowledge to
develop a certain part of the ES. The first and last phases
however, are completed together.
In the Texel case a plan was designed by the project team in
which all the partners were represented. The team conducted
the first three phases of the process. When the ‘strict
development’ phase begins, every mobility partner needs to
make the proper design changes in its part of the system.
During this phase the partners need to discuss their progress
and at the end of the phase create a working system from the
parts.
Collaboration between companies can also take the form of
supplier-buyer relationships. One company takes the lead in
the innovation project but outsources those parts of which it
has insufficient knowledge and means.
As a consequence, ES design requires a strong training in planning and controlling techniques, because
parallel sub-processes lead to more complexity.
Figure 10: Development
process of an ES with sub-
process.
Ec
o-
ef
fic
ie
n
t
Se
rv
ic
e
pr
od
u
ct
Together from
intention
towards policy
and ES idea
Every participant
develops its part
of the ES system
Together the developed
ES is prepared to
introduce on the market.
Figure 11: Development of an Eco-
efficient Service with a business coalition.
20
Badly organised and controlled networks of companies can stagnate an ES-project. To avoid this, special
planning and network management know-how is necessary, also from the side of the involved researchers
and developers. To keep the participants together and to synchronise the goals is a job in itself.
To build up a new business coalition from the explorative stage requires some special conditions that have
been investigated in the DES project. These conditions are listed below (Van den Hoed, 1999; Bosch,
2000; Knot, 2000).
• Different visions, expectations and interests of involved parties will have to approach one another
after some time, so when needed clarity can be gained, for example to control agreements about
financial contributions and project responsibilities;
• Commitment of partners and representation from a suitable business level (as to knowledge,
decision authority, involvement);
• An adequate – not too high, not too low – level of innovation ambition. It has to be avoided to
accumulate too much technological innovations in one new concept, while trying to go beyond just an
incremental step;
• Anticipate opposition that could be crucial for the implementation of the ES. A stakeholder analysis
can be a solution, as long as this does not mean that current stakeholders can control or stop the ES
development just because of existing interests;
• A realistic assessment of new technology options. Often ICT and emerging technologies like fuel cell
technology are part of the envisaged future ES, for instance to improve the communication, logistics
and emission profiles within mobility systems. However, it should be realized that these new
technologies require their own, new production, energy and distribution infrastructures, that should be
taken into account when calculating the eco-efficiency advantages of ES designs. (See for instance
Huiberts, 2001, for an estimation of the future energy use for ICT-services in the Netherlands);
• Sufficient involvement of future or current users: in the examined cases Car Sharing and Office
furniture, users are co-designers of the service. With the Clothing and Upgradable oven projects,
special techniques have been used to identify future consumer needs. In the mobility plan of Texel,
only the current users have been limitedly involved;
• Proper judgement of each others complementary strengths;
• Correct timing of the coalition formation, especially the coming forward of a business leader;
• Create an atmosphere of trust and openness among the partners.
5.3 Barriers
To follow the ES development process means meeting different barriers than with ‘standard’ product
development. Considering this, new solutions will have to be sought and applied. In the previous
paragraph already some barriers have been discussed that are specific for business coalitions.
Other main barriers that are new compared to traditional product development (Bosch, 2000) are:
• The idea generation phase can be more complex when innovating at function or system level, because
the ideas need to be found on a higher level of abstraction (not ‘design an artefact for transportation’
but ‘design a new mobility concept’). On the other hand a broader design space can invoke more
creativity and radical new ideas.
• The transition from idea to design. It can be hard to translate the new ideas in concrete ES ideas and
short term strategies. The phase of strict development no longer consists of one product, but of a
combination of products and services, which can be completely different from the current situation.
The requirements for each of the elements have to be known, as well as which part of the functionality
will be fulfilled by services and which part by products, before one can start with the strict development
phase (see figure 6).
• The parallel development of different elements. The characteristics of the product elements can
influence the service elements of the ES and vice versa. This requires extra attention from the
management of the complete innovation project, because the two different elements do not have the
same lead time.
• The policy needs to be formulated much more extensively than for product development. Already in
the phase of policy formulation it has to be clear which players participate and what their role will be.
Also a detailed time schedule and the filling of possible knowledge gaps should be part of the policy.
This does not mean that the stakeholder group can not change during the process but this should be
accounted for at the start of the project. Participating in the first few phases of the project for example
could be with less obligation then participating in the implementation phase.
21
• Existing companies will have trouble with radical innovations because they will have to change their
complete company structure and culture or start a new business that could be a competitor to the
existing one.
For a more extensive list of possible new barriers, see also the barriers and solutions table in Appendix B.
5.4 Opportunities besides environmental ones
Because most cases are still in development, the non-environmental benefits are not yet entirely clear.
As far as the added value side of Eco-efficiency is regarded, in all cases a significant increase has been
determined. The studied ES-cases are in principal interesting for new business and offer a potential profit
perspective. Apparently, this business perspective seems to be the most important drive for ES-
development in four of the six cases.
The economical, technical, and social trends mentioned in paragraph 3.2 offer some major opportunities
for existing and new businesses developing ES.
Furthermore, when these services are developed consciously of the environment, the company can use the
Eco-efficient Services to create an image as “responsible company”. This is the case for example, with the
companies that offer car sharing. They emphasise the ecological benefits of their service in their
communications.
5.5 Environmental gain
The overall international expectation is that Eco-efficient services have the potential to lead to significant
improvements in environmental impact. Table 3 shows that with the investigated cases the environmental
gain varies strongly. This has to do with the much varying nature of the cases, but also with measuring
methods. The choice of system boundaries and measuring method influence the outcome of the
calculation. In every case researchers had to invent their own measuring method, although they all used
LCA based tools. As long as there is no unambiguous measuring method for complex product service
systems, the outcome of calculations cannot be compared to one another unambiguously.
Cases Environmental
Gain
Benefit
Office Furniture 25-30% Less use of paper and space
Car Sharing 40% Decreased use of cars
Upgradable Oven 5-16% Extension of economical life
span
Outsourcing of Clothing Care Potentially up
to 95%
Less use of textile, detergents,
water and energy
Mobility Texel 30% Less use of cars
Individual Transport on Short Distances 3% Less use of cars.
Table 3: Environmental gain of the cases.
However, in spite of the variety of the research output, three important conclusions can be made.
First of all, it seems that the more extensive the system is to be innovated, the better the environmental
improvement. For example, the upgradable oven and individual transport cases were only service added
products. This means a service was designed that could be added to an existing product. The changed
system was envisaged to be quite limited. If the complete kitchen or house-to-work mobility was innovated,
the environmental improvement could have estimated to be much higher. Another example can be found
in the Clothing care case. The scenarios designed for the complete clothing system have a much better
environmental gain then the scenarios only dealing with the washing of clothing. (Bras-Klapwijk, 2000).
Secondly, the environmental improvement depends on market penetration. If for example, the office
furniture service is used by only a handful of clients, the environmental gain will be limited. Naturally the
more clients use the Eco-efficient Service, the better the possibilities for significant environmental
improvements.
Finally, the way customers react to the Eco-efficient Service is determining the size of the environmental
gain. With the car sharing case there were customers participating in the Car Sharing program instead of
buying a car. This, of course, means a good environmental score. On the other hand however, there were
customers joining to have a second car at hand, one they could otherwise not afford. This example shows
22
that eventually it is customer behaviour that is one of the most important factors determining the
environmental improvements. That is why system innovations should aim at changing unsustainable
consumption patterns. Unfortunately, consumer behaviour is also the factor that is hardest to predict and
to measure.
5.6 Use of tools
The cases show that many of the in Ecodesign common eco-concepts and tools are applicable, but there
is a different user and infrastructure context.
For example LCA cannot always be applied in accordance with the ISO-standard, LCA scenarios are
needed that can compare one ES-system to another without having exactly the same functionality. In the
Clothing case, not the environmental effects were calculated, but system related indicators, such as the
amount of textiles, energy, clothing waste, washing equipment, detergents etc (Bras-Klapwijk, 2000).
Furthermore, an instrument like the MET matrix can still be applied, but has to include ‘support goods’
and ‘production of physical infrastructure’, which can determine the environmental impact of ES.
Benchmarking and the LiDS wheel (See Brezet & van Hemel, 1997) can be useful applied in adapted
form.
It is clear that development of additional tools is necessary, especially to assess the environmental impact
of Product Service Systems and to find improvement strategies. Bijma (2000) has already conducted
preliminary research into such tools. An example of an adapted MET matrix is discussed in appendix C.
23
Part II Review and Future
24
6 THE SUSTAINABLE SYSTEMS TRIANGLE
The DES project should be considered to be a first experiment for the development of a design
methodology for eco-eco-efficient product-services systems. More “reflective praxis” projects will be
needed, amongst others focussing on the potential differences between consumer oriented and business-
to-business services.
Before formulating elements for the further ES-research agenda, a reflection on the findings from the DES
project is appropriate. As a consequence, we will recommend future sustainable systems designers (both
industrial designers as new business developers) to take into account, next to several practical ecodesign
and ES-tools, the concept of the sustainable systems triangle (SST) as a potential guidance.
Looking back at the DES project and other ES case studies, Ehrenfeld & Brezet (2001) make several
observations, to take into account in further ES experiments. Points for discussion are:
I. eco-efficient services vs. products as discriminating notions;
II. eco-innovation as a process with a natural progression;
III. the humanistic side of eco-innovation.
ad I. Rethinking the notions of products and services.
Much current literature and emerging policy discussion has the general theme of a shift from products to
services (Heiskanen and Jalas, 2000. Mont, 1999. White et al., 1999. Stahel, 2000). The impression that
a reader gets from this literature is that products are substantially different from services. We argue below
that these two categories are merely different modes of delivering satisfaction and that the dichotomy
established in much of the current literature clouds the basic design issues involved in the more important
goal of finding more sustainable ways to satisfy demand. It is not the difference between product and
service, but the design of the artefact, its institutional (or infrastructural) context, and the consumers’
practices-in-use that are the critical factors determining its effectiveness in promoting sustainability.
Manufacturing processes produce artefacts that are then purchased and used ultimately to satisfy
consumers. These goods are artefactual or material in nature and we shall refer to them as products which
term is more familiar in the design community. (Normann, 1984) Products are artefacts purchased by
actors in anticipation of future service, even if they are used soon after the acquisition. Services, an
alternate mode of satisfying demand, are immaterial in nature (Mont, 1999. W. Stahel, 2000. R.
Normann, 1984). Services are consumed right away.
The apparent category difference of products and services has its roots in economic conventions where
market transactions have been divided, for convenience in keeping accounts straight, into goods
(products) and services. For goods, satisfaction follows after the market transaction and may be a single
event, for example eating the food brought home from the supermarket, or continuing events, like
commuting every day in the automobile purchased or leased from the dealer, or continuously enjoying the
comfort of a carpet on the floor. Services have a different temporality that we argue is the primary and
constitutive aspect differentiating products and services. Services are consumed at or very near the time of
the market transaction. Both forms of satisfaction involve both actors and artefacts and both involve some
sort of infrastructure (or institutional arrangement) in which the products and services are provided and
subsequently consumed. Consumption is equivalent to the actions that produce satisfaction. Thus we
argue that the very notion of product-service systems, as different from either products or services is
misleading as both products and services, as conventionally denoted, produce satisfaction within a system
of actors and other artefacts.
The number of terms in use is large and confusing as shown in the following list. (original citations in:
(Heiskanen and Jalas, 2000) and (Mont, 1999))
§ Non-material services
§ Dematerialized services
§ Eco-efficient services
§ Product-life-extension (services)
§ Product use services
§ Product oriented services
§ Need-oriented services
§ Demand services
§ Results-oriented services
§ Product-based services
Confusion between products and services is further complicated by the terminology of the Wuppertal
Institute where products are defined as “service-producing machines.” (Schmidt-Bleek, 1994) We
25
prefer to use a different distinction, satisfying, that avoids the confusion of terms in much of the
emergent literature on products, services, and sustainability. Human beings are actors spending most
of the time seeking satisfaction (completion or perfection) by pursuing intentional goals. Our days
are spent in practices that are so familiar that we do not think about them as we practice them.
(Heidegger, 1962. Giddens, 1984) As we satisfy our intentions in one domain of our concerns about
living, we move to another and so and on. In order to achieve satisfaction, we either pick up an
artefact we ‘own’ and use it or ask some other human being or artefact to do something that is
satisfying. The only difference in these two modes is whether we do the work involved or it is done by
another person or machine we do not “own.” There are no “products” or “services” involved, only
action in which artefacts or other people are involved. There is a clear instrumental character to the
artefacts-in-use.
Both modes of satisfying are encountered in everyday life, as illustrated in the next examples.
If we look at other examples of what are conventionally considered to be services, we often, maybe
always, find that the transaction between actor and service provider is aimed at providing immediate
satisfaction. On the other hand, when we look at market transactions involving goods (artefacts),
most of the time the artefacts are acquired for future use.
Although the product/service distinction is important to economists, it may not be as important to
designers of artefacts and the satisfaction-delivery system in which they are embedded. At the risk of
introducing yet another terminology, we will speak of sustainable satisfaction -delivery systems at
the target of our analysis. And although we claim that ‘products’ are always used in some system, we
will refer to products conventionally as artefacts that show up at the end of some manufacturing
process and have been brought to the market.
The key distinctions that emerge from this abbreviated discussion of human behavior are issues of
ownership and the temporality of acquisition. Satisfaction can be obtained either by using a product
previously acquired (self-satisfaction) or via a transaction in which satisfaction is obtained
contemporaneously from other actors and the equipment they own. Preferences for the choice of one
or the other of these modes of satisfaction are buried in the consumer’s cognitive system and are
influenced by many factors outside of the immediate acts of satisfaction. This basic preference
between self-satisfaction and conventional market-based services is important in designing
sustainable satisfaction delivery systems. It is not the case that consumers naturally prefer one
mode over another.
Example 2
When one buys food in a supermarket, she is obtaining an artefact (product) she
will use in the future to satisfy her hunger. But when one goes to a restaurant
(service), he seeks immediate satisfaction for the same concern. There may also be
other intentions present that lead to the choice of one mode of satisfaction over the
other, for example, wanting to be seen in the latest high-fashion bistro. When we
act, we aim to be satisfied in some domain of concern, and we will choose the
means according to other criteria depending on the moment. Artefacts are always
involved, whether we own them or acquire their services through other
arrangements. In the back of the restaurant, the chef is using a stove, food
processor and other tools just as we might at home.
Example 1
The most common way of commuting to work in the United States is via one’s own
car (the product). The actor drives the car to work. He or she is active in this role
and the artefact’s meaning as a “car” is constituted by and within the action in
which it is being used. It is nothing but a pile of stuff otherwise. On the other hand,
should the commuter’s car be unavailable, he or she can call a taxi and ride in it to
work (service). The actor in the second scenario is passive in this mode of
satisfaction and during the passage from home to work could be said to be
inactive. Technologically, little, if anything, is different. Identical models of vehicles
might be employed. The intention is virtually identical.
26
ad II. Innovation for sustainable satisfaction -delivery systems.
The significance of this analysis, so far, is that consumers always seek satisfaction whether via
‘products’ or ‘services’. There is less basic difference as claimed by many. The significant ontological
distinction is in the different temporality of satisfaction between the two categories. Other practical
differences are connected to ownership and potential technological differences between products for
self-satisfaction and functionally equivalent equipment used by service providers. Designers of
sustainable satisfaction-delivery systems need to focus on the particulars of the system rather
than assume that one mode is always or even generally better than the other.
Similarly, designers should be critical of claims that there is a natural progressive hierarchy to
innovations in satisfaction delivery systems. Some have suggested that there are successive stages in
design that offer qualitatively improved levels of environmental performance. (See for instance
Vermeulen and Weterings, 1996) Figure 5 in paragraph 3.4 depicts these stages. The time axis
suggests that it takes longer to produce systems changes than product redesign, for example.
More recently, researchers have raised questions about this progression and the impact of the shift
from products to services. In a comprehensive look at car sharing, Meijkamp concluded that ‘eco-
efficient services’ could not produce the magnitude of impact reduction consistent with calls for
factor 10-20 improvement. (Meijkamp, 2000) The effectiveness of leasing, a key strategy in the
product to service transition, is questioned in research work by Inform, Inc. (Fishbein et al., 2000)
The authors argue that leasing programs may not lead to consistent dematerialization through end-
of-life recovery unless some 10 factors are considered in the design of the lease and its
organizational context. These works point to the need to look more carefully at the specific nature of
the satisfaction-delivery system.
The following discussion examines the scheme in Figure 5 and proposes an alternative structure.
The design of eco-efficient or of more sustainable processes and products has become a standard
practice in many firms around the globe (Stages 1 & 2). The objectives of such eco-design is to find
artefactual forms that are superior to the ones they substitute largely via three strategies:
§ De-materialization
§ De-toxification
§ De-energization (or de-carbonization)
In this stage of redesign, one of the primary approaches is to examine the life cycle impacts of the
artefact and seek changes that produce the desired results in the above list. Little or no consideration
of the functions or purposes of the artefact is involved at this stage. In fact, one of the key aspects of
using LCA’s in design is to assure that any two designs that are to be analyzed and compared have
the same functional equivalence. For example, different size bottles or delivery systems must be
compared on the basis of a fixed quantity of contents.
The first two stages represent re-design modes for both processes and products. In this stage, the
design maintains its basic character and performance modes. We may change the materials used to
make a bottle or even a more complex artefact like a car. In thinking about complex artefacts like
cars or electronic goods, however, it is not clear what constitutes product redesign. Is using an
improved ignition/carburetor system for an internal combustion engine in a car a product redesign or
does it fall into the next category of functional innovation?
Functional innovation (stage 3), in this scheme, means the substitution of a new artefact that
performs the same function as the one it replaces. New is used in the sense that the artefact has a
different character from the old and is based on a different operating concept. The boundary
between these two categories (stage 3 and stage 2) is a bit fuzzy. As shown in Figure 5, this stage,
functional innovation, is presumed to offer more potential for environmental benefit than the earlier
ones. In this stage, one seeks alternative systems that provide the same outcome. Such innovations
can range from simple notions like changing the size of a milk container to achieve material and
transport efficiencies or replacing the type of engine in a car.
An improved internal combustion engine may be conceptually and operationally different from the
one it replaces, but it continues to function in the same way. But the car, taken as a whole, is more
or less the same as before, It is critical, then to look at the context in which an innovation shows up
in practice in deciding what stage of innovation it represents. This distinction is important when one
is concerned with the institutional arrangements in which design takes place and the structures in
which the artefact is to be used (infrastructure). Functional innovations generally preserve the basic
way the system is used and require little or no change in the infrastructure. Thus, the improved car
27
described above needs little change in the supporting infrastructure. The user can adapt to using the
improved vehicle transparently and does not even have to know that a change has occurred. On the
other hand, repair mechanics will have to learn new skills and perhaps require new tools.
The fourth stage, system innovation, is one where both a new artefact and a new infrastructure
replace the old. Continuing with cars for a moment, the replacement of gasoline-fueled, internal
combustion engine powered vehicles with methanol- or hydrogen-fueled fuel cell powered vehicles
would be a system innovation. Entirely new infrastructure would be required. The performance of the
car might be different enough from the old to require that the user acquire new practices and skills.
But again, the boundary between this stage and the previous one is a bit fuzzy. Where should one
place the electrically assisted vehicle that Ford has announced? As far as the driver and the majority
of the infrastructure are concerned, nothing has changed.
There is a fifth class of innovations that has not been explicitly included in this present classification
scheme. These are innovations where the artefactual system remains more or less the same, and
where innovative institutional arrangements lead to the benefits. Examples here are car-sharing,
leasing instead of purchasing and owning, rental of work clothes, and so on. The highly cited, but
relatively unsuccessful so far, carpet-leasing program of Interface Carpet falls into this category.
Recapping, then, we say that process product redesign involve little or no change in the design
concept or in the quality of the design as seen by the user and virtually no change in the
infrastructure. The new items can be used as transparently as the old without the requirement of
new practices or learning. Functional innovation involves changes in the design concept, but like
the prior changes, the user sees little or no changes. Some change in the infrastructure is likely.
System innovation involves changes in all categories. The design concept is new; the user will
need to learn new practices, and new infrastructure will be necessary.
We will add another category, institutional innovations, to represent the last type of innovations
that involve only or primarily institutional or infrastructural change. What many call services fall
into the institutional category since in the general case, services involve the same artefacts as those a
consumer uses in self-satisfaction activities.
These categories are summarized in Figure 12: the Sustainable Systems Triangle . We have dropped
the notion of stages, as we noted that any orderly progression from the top to the bottom in terms of
sustainability performance has yet to be firmly established. Product and process redesign is lumped
into a single category: device. The different categories are constituted by three factors of change: in
the artefact, the institutional arrangement in which the artefact is used, and in the user’s practices,
respectively.
28
Figure 12: The Sustainable Systems Triangle (SST)
Explanation: When designing sustainable systems, the SST framework suggests designers to holistically look for the innovative
potential of (1) the devices/ artefacts applied; (2) the physical and institutional context/ infrastructure; and (3) the potential of
new user practices and user learning.
Figure 13 The Upgradable Oven in the SST Scheme
Explanation: To reach the envisaged sustainability improvement changes are considered in (1) the technical device;(2) the
marketing and service infrastructure; and (3) the user behaviour (do-it-yourself-service for the new design). Because the
envisaged changes are radical compared to the existing oven system D’, I’ and U’ are depicted relatively far from their origins
(the corners of the triangle).
This characterization of innovative categories and the above discussion suggest that the key to
designing more sustainable satisfaction-delivery systems may be in looking with an integrative
perspective into the innovative potential of device change, infrastructural factors change and user
behaviour change at the same time.
In annex 9, describing the DES cases, the relative score of each ES within the SST scheme has been
depicted. Also, from these cases it becomes clear that the real challenge in the design of sustainable
satisfaction-delivery systems is to develop new systems in which changes in device, infrastructure and
user behaviour work most effectively and efficiently together for the goal of eco-efficiency, or better
sustainability.
To see how the SST scheme works, let us look at a specific case and see
how it fits, for example, let us examine a case being considered by a
manufacturer of kitchen appliances in which the basic oven can be
upgraded for fashion or functional reasons by the owner. This new
development is being carried out in the ‘service’ department of the firm.
This is consistent with the general notion of product-life -extension as a
‘service’ (Stahel, 2000) But if we look to see where it fits in the SST
scheme, it would be in all three corners of the triangle. The device has
technically been changed for upgradability. A new marketing and care
infrastructure is needed. The user will have to learn some new practices. By
categorizing it as services only, the design process may end up in the
‘wrong’ part of the firm, out of sight from the ‘product’ designers and the
competence of the marketing department, that takes care of the contacts
with clients and distribution channels. The other way around: by looking
consciously at the oven redesign from a SST perspective, unexpected new
options for a sustainable system design have been generated with an
interesting eco-effi ciency potential. As depicted in Figure 12 and 13, new
designs should take into account the sustainable potential of not only
technical redesign of the artefact, but also of other institutional
arrangements and physical infrastructures, as well as the pote ntial of new
user practices.
U
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D’
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USER PRACTICE
Behaviour, Learning
and Flourishing
Potential
DEVICE
Artefact, including
dematerialised
aspects
INFRASTRUCTURE
Physical, Institutional
Innovation Space
for Sustainable
Satisfaction
Delivery Systems
29
Ad III. The humanistic side of eco -innovation
In the move towards services, something very central to sustainability may have become lost.
Services, as opposed to products, produce relatively instant satisfaction and require little from the
consumer other than sufficient funds to purchase the services. This mode of satisfaction has the
distinct character of a commodity (Borgmann, 1984). There is no learning involved. Instead the
opposite process occurs. Consumers gradually unlearn competent skills they might have once
possessed relative to producing self-satisfaction, using tools (products) that they have previously
purchased. The consequences of this unlearning or de-skilling process are loss of autonomy and
increased dependence on the purveyors of the services. The experiential context of such other-
satisfaction modes is narrow and probably fails to spill over into other domains of satisfaction, as do
practices in more ‘home-like’ places. If this occurs, the consumer may (and does according to many
surveys) feel unsatisfied and seek more consumption to fill the hole.
Looking positively, the humanistic domain offers a set of design criteria attached to sustainability that
can potentially radically extend the idea of product/service systems. One possibility, for example, is to
ask whether the technological offerings to be found in the market place of affluent communities
satisfy the human striving for authenticity, that is the discovery of one’s ‘true’ self. Or in less affluent
areas of the world, the relevant question is whether these offerings satisfy more basic needs
according to some Maslovian-like hierarchy. The recent SusHouse project at the Technical University
of Delft suggests that it is possible to produce gains in the naturalistic dimension (dematerialization)
simultaneously with positive results in the humanistic (Vergragt, 2000) This report described gains in
the strength of relationships among families, an attribute closely related to flourishing.
New theories of design delve into the domain of behavior-steering attributes of artefactual systems
that may be incorporated in the design. (Jelsma, 2000) In the self-satisfaction mode, consumers
develop routines through which they produce satisfaction. These routines represent practical learning
acquired through use. The designer, consciously or unconsciously, builds in such routines in the
artefact. But the user may depart from the intended practical routine with unexpected and
unpredicted outcomes. In the language of post-modernism these routines are mediated by ‘scripts’, a
linguistic equivalent of the message the user gets from the object when it is being used. (Latour,
1992) Reflecting the asymmetry of the designer’s intentions and users realization, Akrich and Latour
refer to ‘scripts” as the routines inscribed by the designers in the artefact and described by the users
in actual practice (Akrich and Latour, 1992).
This theory of practice, which suggests that users create meaning through use, raises the possibility
that designers can inscribe scripts with more than mere utilitarian ends. As Jelsma writes (Jelsma,
2000):
…In the context of a policy aiming at fostering sustainability, designs of artefacts must seek to
mediate between the wants of users and the (represented) needs of nature, instead of just serving
consumers. To develop such mediating designs, we need a new design paradigm (concepts,
strategies, tools) bridging the gap between technical functionality, user needs and sustainable
development….
30
7 THE FUTURE OF ES DESIGN
The results of the DES project (practical tools) and the reflection of Chapter 6 show an interesting
sustainability potential when moving away from the mere ecodesign of artefacts. Relevant notions
and tools have been developed, that need further “reflectice practice” and refinement from
experiments. It has become clear that, next to entrepreneurs and responsible business leaders,
industrial designers can significantly contribute to the “sustainability journey”.
The DfS program of TU Delft
Based upon it’s experiences with the design of Eco-efficient Services, or preferably, the design of
Sustainable Systems, the DfS program of TU Delft will focus on:
• The integration of the Sustainable Systems Triangle (SST, see Chapter 6), as building block for
the Exploration and Policy Formulation phases, into the ES methodology, as well as the analysis
of it’s consequences for the subsequent phases of the ES development;
• Refining and expanding the ES-methodology and tools, regarding among others ES-
benchmarking, an ES-LiDS wheel, generation of green options, EVR method, Purchase and
Rules of Thumb for ES;
• Applying the Sustainable Systems Triangle as a tool for analyzing emerging new PSS with
respect to their sustainability potential;
• The development of the website ECOSM, in order to build flexibility and new insights in the DES
toolbox. This website should support a rapid further development and dissemination of the DES
methodology and serve as a discussion platform;
• Continuation of “ES Experimentation” within the DES project, based on new Kathalys cases,
SusHouse, new ES projects with Shell, Motorola and other industries, European projects within
the ‘PREPARE – EUREKA’ network as well as via sustainable tourism cases.
Research recommendations
The following recommendations came out of the project:
• Much more attention of policy makers, companies and educational institutes for the ES redesign
of potentially unsustainable, existing and emerging, services, in particular energy intensive ICT
(see also Huiberts, 2000);
• Further experiments with ES methodology and ES promotion via amongst others the networks
and programs of PREPARE-EUREKA, the EU and UNEP.
31
8 LITERATURE
§ Akrich, M. and B. Latour, A summary of a convenient vocabulary for the semiotics of human and
non-human assemblies, in Shaping technology, building society, W. Bijker and J. Law, Editors.
1992, The MIT Press: Cambridge, MA. p. 259-265.
§ Bijma, A.S., Aanzet voor een MSO methodologie, Internal report, Design for Sustainability
Program, Delft University of Technology, May 2000
§ Bijma, A.S., Voorstudie Assessment Tool voor Services, Internal Report, Design for Sustainability
Program, Delft University of Technology, September 1999
§ BMBF (Bundesministerium für Bildung, Wissenschaft, Forschung und Technologie),
Dienstleistungen für das 21. Jahrhundert; Handlungs- und Förderungskonzept, September 1998,
Köln: DLR-Drückerei
§ Borgmann, A., Technology and the Character of Contemporary Life. 1984, Chicago, IL: The
University of Chicago Press. 302.
§ Bosch, M., Product/dienst innovatie, Een omschrijving van het begrip en een aanpak voor het
ontwikkelen van product/dienst combinaties, MSC thesis, Delft University of Technology, June
2000
§ Bras-Klapwijk, R., Environmental Assessment of Scenarios, Final Report, SusHouse Project, Delft
University of Technology, Technology Assessment Group, TBM Faculty, 2000
§ Brezet, J.C., A.S. Bijma, S. Silvester, Innovative Electronics as an Opportunity for Eco-efficient
Services, contribution for Electronics Goes Green 2000, July 2000
§ Brezet, J.C., Hemel, C.G. van, UNEP Ecodesign manual, Ecodesign: a promising approach to
sustainable production and consumption, United Nations Environmental Programme, 1997
§ Brügemann, L.M., Innovation of an Eco-efficient Product -Service Combination, MSC thesis, Delft
University of Technology, February 2000
§ Clark, G., H. te Riele, Report on the PSS Expert Meeting, Draft, UNEP, August, 2000
§ Ehrenfeld, J., J.C. Brezet, Towards a New Theaory and Practice of ‘sustainable’ Product/ Service
Systems, Proceedings of the 7th European Roundtable on Cleaner Production, iiiee, Lund, May
2001
§ Ehrenfeld, J.R., Being and Havingness. FORUM for Applied Research and Public Policy, 2000.
15(4): p. 35-39.
§ Ehrenfeld, J.R.Colorless Green Ideas Sleep Furiously: Is the Emergence of ‘Sustainable’ Practices
Meaningful? Reflections, 2000. 1(3): p. forthcoming.
§ Fishbein, B.K., L.S. McGarry, and P.S. Dillon, Leasing: A Step Toward Producer Responsibility.
2000, New York: Inform, inc.
§ Flipsen, S.F.J., Eindrapportage Mobiliteitsconcept voor Individueel Transport op de Korte Afstand
(MITKA), TNO Industry report, August 2000
§ Giddens, A., The Constitution of Society. 1984, Berkeley, CA: University of of human and non-
human assemblies, in Shaping technology, building society, W. Bijker and J. Law, Editors. 1992,
The MIT Press: Cambridge, MA. p. 259-265.
§ Goedkoop, M.J., C.J.G. van Hale, H.R.M. te Riele, P.J.M. Rommens, Product Service Systems,
Ecological and Economic Basics, Report of Pi!MC, Storrm C.S. and Pré consultants, in
assignment of the Dutch ministries of Environmental and Economical affairs, 1999.
§ Heidegger, M., Being and Time. 1962, New York: Harper and Row.
§ Heiskanen, E. and M. Jalas, Dematerialization Through Services — A review and Evaluation of the
Debate. 2000, Ministry of the Environment: Helsinki. p. 43.
§ Hemel, C.G. van, Ecodesign empirically explored, Doctoral dissertation, Delft University of
Technology, 1998
§ Hoed, R. van den, Project ‘Kantoor van de Toekomst, Beschrijving en Evaluatie van een
Milieugericht Innovatieproces, Internal document, Kathalys, August 1998
§ Huiberts, E.J.T., Verkennende studie naar het energiebegruik van datahotels en
telecomswitches. Tebodin, Den Haag, Maart 2001
§ Jelsma, J. Design of behaviour steering technology. in Strategies of a Sustainable Product Policy.
2000. Deutschlandsberg, Austria.
32
§ Jong, P. de, Groenewegen, P., Dematerialisation: some Examples of Eco-efficient Producer
Services, Free University of Amsterdam, Faculty of Sciences, Social Aspects of Science and
Technology, 2000
§ Kisch, P., Preventative Environmental Strategies in the Service Sector, Doctoral Dissertation, Lund
University, May 2000
§ Klok, Ch., Rijckevorsel, P., Schaffroth, N., Energy efficiency of sending messages; comparison of
different methods of sending messages, Institute for Advanced Industrial Design Engineering,
Technische Universiteit Delft, Juni 1999
§ Knot, M., Sustainable Clothing Use and Care in 2050, Clothing Care function, The Netherlands,
Final Report, SusHouse Project, May 2000
§ Latour, B., Where are the missing masses? The sociology of a few mundane artefacts, in Shaping
technology/Building society, W. Bijker and J. Law, Editors. 1992, The MIT Press: cambridge, MA.
p. 225-259.
§ Meijkamp, R., Changing Consumer Behaviour through Eco-efficient Services, an empirical study
on car sharing in the Netherlands, doctoral thesis, Heveka Alblasserdam, 2000
§ Mont, O., Product-Service Systems, Shifting corporate focus from selling products to selling
product-services: a new approach to sustainable development, AFR-report nr. 288, December
1999
§ Müller, H., Service-Marketing; Service-Kompetenz als unternehmerischer Faktor. Berlin etc.:
Springer,1995
§ Nijhuis, L., Scholl, G., Slob, A., Innovation of Eco-efficient Producer Services, EU-project
‘Creating Eco-efficient Producer Services’, Stage 1 report, June 2000
§ Normann, R., Service Management — Strategy and Leadership in the Service Industry . 1984,
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§ Oppedijk van Veen, W.M., Schoormans, J.P.L., Strategic Opportunities and Pitfalls in Developing
Product Service Systems, Delft University of Technology, Faculty of Designing, Engineering and
Production, 2000
§ Oude Elberink, B., Integratie van fiets en bus op Texel; ontwikkeling van een moviliteitsconcept,
MSC thesis, Delft University of Technology, September 1998
§ Reijnhoudt, J.C., Dienstingang, Het Ontwerpen van een Dienst op het Gebied van
Kantoorinnovatie voor de Handelsonderneming Ahrend Inrichten, MSC thesis, Delft University of
Technology, September 2000
§ Riele, H. te, Elburg, M. van, Kemna, R., Dematerialisatie, minder helder dan het lijkt, Report of
Storrm C.S. and Van Holsteijn en Kemna, in assignment of the Dutch ministry of Environmental
affairs, 2000
§ Roozenburg, N.F.M., J. Eekels, Productontwerpen, structuur en methoden, Uitgeverij Lemma BV,
Utrecht, 1998
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2000, February, 18, 2000: Gaia Group.
§ Vergragt, Ph., Strategies towards the Sustainable Household, Final Report, SusHouse project,
Delft University of Technology, 2000
§ Vermeulen, W. and R. Weterings, Van afvalzorg naar milieu-innovatie van produkten. 1996,
Rathenau Instituut: den Haag.
§ Vogtländer, J.G., Bijma, A.S., Communicating the eco-efficiency of products and services by
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§ Zeithaml, V.A., Services marketing, McGraw-Hill, 1996
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9 APPENDICES
A. Cases
Ahrend Office Furniture
The office furniture firm Ahrend wanted to investigate the possibility to
expand their product portfolio with a service. This idea was partly the
effect of demand from the market and partly a spin off, from the
Kathalys project Sustainable Office of the Future. In this project
Ahrend, KPN, Xerox, IBM, TNO Industry, and the Delft University of
Technology have developed scenarios for an eco-efficient workspace.
The original project aimed at the realisation of an eco-efficiency leap
in the office environment by using new intelligent technologies parallel
with new concepts for the workspace. By designing customised
telecommunication infrastructure, better adapting equipment to
expected information needs and document flows, using mobile
furniture and presentation concepts and with all this use energy intelligent equipment and
installations, substantial reductions in space occupation, energy use, paper, furniture and equipment
can be reached.
Research has been conducted among future users in offices, expected new technologies have been
mapped and several ‘efficient workspace’ concepts have been developed.
Ahrend, traditionally a sales organisation of office interiors, emerged from this exploring stage with
an idea for a new Eco-efficient service. The development of this new ES, which could also imply
starting a new business or business unit, should be conducted in various pilot-projects with clients of
Ahrend.
A preliminary calculation of the possible environmental gain, gives a saving of 25% in use of space
and energy and 30% saving on the purchase of office furniture (which saves materials and costs).
The possibilities of the new service are currently tested in various development pilots. These pilots
serve to investigate the feasibility of the service as a new business for Ahrend, while at the same time
a concept development process is evaluated. (Reijnhoudt, 2000)
Figure 14: The ahrend Case in the SST Scheme
Explanation: Only small changes in the device are needed, but big changes in marketing and business infrastructure as well as
in user behaviour.
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Car Sharing
With Car sharing, subscribers can have a car at
their disposal at any desired time, which implies
they do not need to own a car anymore. In other
words, Car sharing is a form of car renting with
minimised discomfort for the customer.
This means in practice
that the rental company is localised near the
customer or delivers the car at the customer’s house, that there is an optimal availability of very well
maintained and modern cars and that attractive financing is possible.
Car Sharing has started as an experiment in 1995 in the Netherlands, initiated by a few young
entrepreneurs and has at this moment 25000 participants in 100 cities with 500 rental points. The
idea of car sharing is a few decades old, but recent developments in information and communication
technologies make a car sharing system economically feasible. Although the Car Sharing business
has been set up because of commercial opportunities, the environmental potential of replacing
owned cars by rented ones was recognised in the early stages. The Delft University of Technology
has been involved in the development since the start of the experiment with continuous evaluation of
the behaviour and attitudes of the participants. Recently a dissertation written by Meijkamp (2000)
about this subject has been published, in which the environmental benefits have been examined. He
found that a kilometre in a shared car compared with a kilometre in an average car has 14% less
environmental impact. This small improvement follows from efficiency gain of shared cars. Much
more environmental benefit follows from the behavioural changes caused by the Car Sharing system.
People who formerly owned a car, but switched to a shared car use this car 65% less, while their
overall mobility increases with 13%. This means that they use other modes of transportation, like
bicycle, train and bus. Compared with the average Dutch household the environmental gain is 40%.
And this does not even cover the decrease in necessary parking space, a big problem in cities.
Meijkamp speculated that with an increased number of subscribers the environmental gain could be
much higher. An important barrier is the emotional value many people see in owning a car, no
matter how many benefits Car Sharing has.
Figure 15: Car Sharing case in the SST Scheme
Explanation: No or very small changes in the car design, big changes in infrastructure and user behaviour.
Upgrading of an Atag oven
Inspired by the EET-project of Atag, which is aimed at the
development of an energy efficient and intelligent kitchen for the
future, the service department of Atag has started to look for
possibilities for the development of Eco-efficient Services. A wide
array of ES options has been generated for Atag, from which
‘upgrading of an oven’ has been chosen as the most suitable.
Adapting the product to changing consumer needs by changing the
appearance of the oven (front, buttons), adding or deleting functions
and thorough maintenance can double the economic life span of the
oven. Preferably the upgrading is done by the consumer himself, for example with the help of parts
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delivered by mail. This concept has interesting opportunities for Atag to deliver added value and has
the possibility for an environmental improvement of 5 to 16%, mainly by product life extension.
(Brügemann, 1999)
An important characteristic of this case is that the current business situation formed the starting point
and the limitations of the innovation project. This reduced the possibility for system innovation
considerable, but accelerated the total time needed for the project.
Figure 16: Upgradable Oven case in the SST scheme (see for explanation paragraph 6.1)
Outsourcing of clothing and clothing care
The so-called SusHouse-project is conducted by six European research
institutions, among which the Delft University of Technology. In this project,
research has been done, based on the “backcasting-scenario-stakeholders”
approach, to answer the question whether and how the eco-efficiency of
domestic functions could be improved by a factor 20 in 50 years. One of the
functions on which the research focussed was ‘clothing and clothing care’.
From the backcasting workshops about clothing, several “design oriented
scenarios” (DOS) have emerged. An example of such a scenario is
“outsourcing of clothing and clothing care”. In this future scenario
professional service providers are the owners and caretakers of clothing. Households can subscribe to
this organisation, which enable them to have clean clothes at their disposal on a rental basis. It is
also possible to subscribe to a personal lease-service, which provides the client with a wardrobe over
a certain period of time, based on individual preferences.
In all these cases the service provider organises the cleaning in professional launderettes, supported
by so-called “dirt indicators”, which indicate when clothing should be washed and how. Underwear is
not part of this system, but is made of biological degradable disposable materials.
For every scenario in the SusHouse project an environmental analysis was conducted, based on an
adapted LCA (scenario) method. The analysis of the “outsourcing of clothing” scenario reveals that
this system could lead to a reduction of 95% in materials and waste, to significant savings in energy,
detergents, washing machines, and water. At the same time however, it could lead to an increase of
travel kilometres and waste from disposable underwear.
This outsourcing concept is currently developed further in a new commercial business concept by one
of the participating companies of the project.
(Vergragt, 2000)
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Figure 17: Clothing and clothing care in the SST scheme
Explanation: Some changes in the device, big changes in user behaviour and infrastructure.
Mobility plan Texel
In 1997 the Dutch island of Texel, initiated by the then mayor, conceived
the plan to redesign its mobility system for tourists. Caused by the yearly
growth in car mobility, congestion problems exist on peak days, waiting
times increase for the ferry boat and a continuous adaptation of the
infrastructure (roads and parking space) is necessary. On top of that, the
image of the island of ‘Rest, Space and Nature’, is negatively influenced
by this growth.
The size of the island makes it unfeasible to completely ban the car. That
is why the Workgroup Sustainable Tourism Texel, in which all stakeholder
groups are represented, has ordered studies and made a plan for
attractive public transport on Texel.
Initially, this plan focussed on the realisation of an Eco-efficient Service
with free public bus transport, in connection with the already successful
telecom-taxi service on the island. Another part of the plan was peak
shaving: shifting arrival and departure hours of guests from the traditional Friday to other days by
giving discounts on ferry tickets. The consultancy DTV has developed, in collaboration with bus
company Connexxion, several alternatives for the existing bus system. The so-called STAR-model was
preferred in terms of quality and costs. This system should allow twice as much tourists to take the
very cheap bus and a modest environmental gain could be reached in the short term. A temporary
subsidy to set up, and if needed, adapt this new system was promised by the Province of North
Holland.
Additional research of the Delft University of Technology proved that the environmental benefits as
far as tourist transport is concerned would be significantly higher when there would also be more
substitution of the car with the bicycle. An LCA scenario calculation indicated a possible saving of
30%, based on a flexible and partly mobile system of bicycle issue points.
By now the subproject peak shaving, a collaboration between Teso boat service, the society of hotel
owners and the Tourist Information service, has been realised and is currently being expanded.
Due to heavy resistance of the Society of Bicycle Rental Companies of Texel, the new mobility service
has been redesigned. They feared false competition of the – almost free – bus and felt that the
carrying out of a sustainable bicycle plan should prevail above an improved bus service. The society
was supported in this view by lobby organisation Bovag, the Bicycle Federation and the powerful
local political party Texel’s Belang.
The redesigned plan gives a stronger priority to the substitution of cars by innovative bicycle concepts
(partly with electrical power support), car sharing and chain mobility, that is the possibility for tourists
to easy move from one transport mobility (for instance the bus) to another (bicycle, cab, etc.). Within
the new system, a new coordinating organization has been envisaged, Texel’s own mobility service
(TEMO). The new plan will be implemented from September 2002, having gained the support from
the Province of North Holland and the Minister of Transport as national demonstration project for
chain mobility.
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Figure 18: Mobility Plan Texel in the SST scheme.
Explanation: Relatively radical changes are foreseen in all aspects; the devices to be used (new bicycle concepts, technically
adapted busses and cars), the infrastructure (physical: possibility for chain mobility; institutional: new service organisation) and
in user practices (chain mobility, use of human power, information use).
Mobility concept for individual transport on short distances (MITKA)
This project has been carried out by four companies: TNO (research institute), NIKE (sporting
goods), Gazelle (bicycles) and Stork (machinery). These companies had different roles in the process:
developer, future client and producers. Goal of the project was to find an alternative transportation
system for home to work traffic on distances shorter than 20 kilometres. The majority of travelled
distances in the Netherlands are shorter than 20 kilometres, while on these short distances the
emission of harmful substances by cars is worst. Besides, increasing car traffic is leading towards
serious parking and accessibility problems for companies.
To deal with this problem, the project team has developed two things: a new means of transportation
that combines the advantages of cars and bicycles, and a package of services to increase the
attractiveness by customisation. The functionality of the Product Service System was made to exceed
the functionality of the car, so people would leave their cars at home. This is what makes it an Eco-
efficient service. The expected environmental gain in replaced car kilometres is about 3 %.
The project has now come to the end of the first development stage and is ready to be produced,
tested, improved and launched.
The collaboration between the participants passed without any problems. This was possible due to a
very thorough project plan and a clear division of tasks.
(Flipsen, 2000)
Figure 19: The MITKA case in the SST scheme
Explanation: radical changes are envisaged in the device (world premiere of a car/ bicycle integration), the infrastructure (new
MITKA service from Nike required) and the user (cycling instead of car driving)
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B. Overview of ES-specific barriers
New barriers for the development of Eco-efficient Services
BUSINESS VISION DEVELOPMENT
Barriers Possible solutions Tools
To innovate on a system level,
people and companies need to
have al long term vision.
Formulate strategy and policy
for the short, medium and long
term
• Strategy and policy tools
• Scenario writing
• Backcasting
• Roadmapping
System level innovation
involves high risks because of
high level of uncertainty.
Spread risks by joining forces
For system innovations
business coalitions or new
businesses are needed.
• Network management
• General process
management
POLICY FORMULATION
Barriers Possible solutions Tools
Goals and strategies need to
be formulated in such a way
that an eco-efficient
combination of products and
services is a possible outcome.
View from a higher level of
abstraction. What kind of
functionality or added value do
you want to deliver?
• ViP
• Roadmapping
An environmental goal should
be formulated.
First the current situation needs
to be analysed on
environmental impact. Then
goals for the new ES can be
formulated.
• Current ecodesign tools
• LCA scenarios
• Adapted MET-matrix
When a network of companies
is involved a joint goal needs to
be formulated.
Project management,
Stakeholder analysis
• Project management tools
(planning, flowcharts,
budget etc)
A network of companies needs
to be managed.
Central management • Network management
IDEA FINDING
Barriers Possible solutions Tools
Customer need should be
translated in functions, not in
products.
Function based market
research
• Quality Function
Deployment (QFD)
Products as well as services
should be regarded as possible
part of the solution.
Environmental gain as a
starting point
• Blueprinting
• Adapted MET-matrix
• Adapted LiDS-wheel
• Green options generation
• Benchmarking
• Ecocosts/value approach
The development of different
elements of the solutions
should be planned in advance.
Project management • Project management tools
39
STRICT DEVELOPMENT (DESIGN)
Barriers Possible solutions Tools
The development is split up in
several parallel sub processes.
Outsourcing or purchasing • Eco-purchase
• Blueprinting
An indication is needed of the
environmental gain of
designed concepts
Quick and Dirty environmental
analysis
• LCA scenarios
• EVR (Ecocosts Value Ratio)
The final total solutions should
result in environmental gain.
Special ES strategies and rules
of thumb
• Adapted LiDS
REALISATION
Barriers Possible solutions Tools
All components should be
completely developed and
tested before the final ES can
be marketed.
Thorough planning and
management
The solution will often be
relatively new for the customer.
Good communication • Green communication
The final version needs to be
evaluated on market success
and environmental impact.
To assess the environmental
impact of services, they need to
be described as a collection of
products.
• EVR
• LCA scenarios
40
C. The META-matrix
For a fast evaluation of the environmental impact of physical products exists the MET-matrix (Brezet
et al, 1997). See Figure C1. MET stands for Materials, Energy and Toxic substances. On the vertical
axis of the matrix, the phases of the Product Life Cycle are reflected. The filling in of the matrix can
be done qualitatively as well as quantitatively. The filled in matrix is intended to give insight in
environmental problem areas.
MET-matrix Materials Energy Toxic substances
Input/ output Input/ output Output
Production and delivery of
materials and components
Production
Distribution
Use Operational
Maintenance
End of Life Collecting
Disposal
Figure C1: the original MET matrix for products (Brezet et al, 1997)
This tool was adapted to make it suitable for the analysis and benchmarking of services. Because the
environmental impact of services wholly consists of the environmental impact of the products and
support material that are used with this service, it is not necessary to adapt the horizontal axis (M, E
and T). There will be added one column however, which reflects the Added Value to approach the
EVR model (Vogtländer, 1999), hence the META matrix. See figure C2.
More has been changed in the vertical axis. De lifecycle of a product is very different than the life
cycle of a service. With a service, production, use and disposal happen virtually in the same instant.
In addition, the limitations of what belongs to the service system and what not are not always as
clear as with products. These system boundaries need to be determined at the start of the analysis
and will be specific for every product service system.
One thing that is the same for every service is the fact that the environmental impact is determined
by products and materials that are needed to deliver the service. That is why the vertical axis is
diverted in categories of products and support materials. See figure C2. Of course one could have
summarised this in one line: products that are used with the service. The diversion in categories is,
like the examples mentioned in the matrix, meant to support the designer not to overlook anything. If
desired, a separate traditional life cycle MET matrix can be made for every support product.
An important difference with the analysis of physical products is the adding of personnel and
infrastructure to the analysis. Also the use of certain capital goods like computers are part of the
analysis, while they are often regarded as negligible when physical products are analysed. With
services these ‘second order’ products and infrastrucures are of concern, because this type of
products often determines a great part of the product share in product service combinations.
While personnel alone hardly causes any environmental impact, this category has been added
because personnel does often determine a significant part of the added value.
(Bijma, 1999)
41
META-matrix Examples Materials Energy Toxic substances Added value
Input/output Input/output Output
Transportation Truck
Plane
Ship
Train
Infrastructure Road net
Telephone net
Water net
GSM net
Buildings Offices
Climate controlled
warehouse
Shop
Personnel Mechanic
Office clerk
Salesman
Consultant
Tools and support
products
Laptop
Electric drill
Telephone
Camera
Consumption goods Paper
Water
Detergents
Chemicals
Main service products Washing machine
Copy machine
Locker
Gambling machines
Figure C2: the META-matrix for services (Bijma, 1999)
In figure C3, an example can be found of a filled in META matrix.
42
META-matrix Medium Materials Energy Toxic
substances
Added Value
Input/output Input/output Output Costs from user perspective
Transportation Traditional
mail
car’s
train
bicycle
(as well of the user
as the letter)
20,7 kJ (use)
Production energy
Production
emissions
(included in stamp)
Telephone Cables
Exchange points
1,3 kJ (use)
Production energy
Production
emissions
27,20/ 200 + 0,10 =ƒ 0,24
8 min * 0,20 = ƒ 1,60
Fax Cables
Exchange points
0,3 kJ (use)
Production
energy
Production
emissions
27,20/ 140=ƒ 0,19
Email Cables
Exchange points
1,1 kJ (use)
Production energy
Production
emissions
27,20/ 100=ƒ 0,27
Infrastructure
Traditional
mail
Road net
Production energy Production
emissions
(included in stamp)
Buildings Traditional
mail
Mail collection
building
Production energy Production
emissions
(included in stamp)
Personnel Traditional
mail
Postman (included in stamp)
Telephone 2 telephones4 2 x 0,4 kJ (use)
Production energy
Production
emissions
ƒ 250 / 12000 = ƒ 0,02
Fax 2 faxmachines3
computer1
printer2
2 x 156 kJ (use)
80 kJ (use)
32kJ (use)
Production energy
Production
emissions
2 x ƒ 500 * (2/9870)=ƒ 0,20
ƒ 3000 * (20/ 169200)=ƒ 0,35
ƒ 1000 *(1/ 35250)=ƒ 0,03
Email 2 computers1 107,7 kJ (use)
Production energy
Production
emissions
2 x ƒ 3000 * (15/ 169200)=ƒ 0,53
Tools and support
products
Traditional
mail
computer1
printer2
mailbox
80 kJ (use)
32kJ (use)
Production energy
Production
emissions
ƒ 3000 * (20/ 169200)=ƒ 0,35
ƒ 1000 * (1/ 35250)=ƒ 0,03
Fax A4 paper
Ink
36 kJ (production)
production energy
toxic
ƒ 0,16
ƒ 80 * (1/300)= ƒ 0,27
Consumables
Traditional
mail
A4 paper
envelop
stamp
ink
36 kJ (production)
32 kJ (production)
production energy
production energy
production
emissions
toxic
ƒ 0,04
ƒ 0,20
ƒ 0,80
ƒ 0,02
Figure C3: Example of a filled in META matrix: comparison of four media for sending messages (Klok et al, 1999; Bijma,
1999)
43
D. Blueprinting
To systematically describe a service, the blueprint technique has been developed (Zeithaml, 1996).
With this technique, the activities that constitute the service are chronologically ordered. The
interaction with the customer is a central theme.
To make a blueprint Zeithaml gives eight steps that need to be undertaken, which will be discussed
below.
1. Identify the Service Process to be blueprinted.
Determine the system boundaries of the service to be analysed. Formulate the level of detail that
should be reached. When possible identify expected bottlenecks that should be analysed in more
detail, for example with a separate blueprint.
2. Map the Service Process form the customer’s point of view.
Describe the customer. Make a different blueprint for every category of customers. Map out the
actions and choices of the customer regarding the perception, consumption and evaluation of the
service. Give special attention to what is perceived as the start and the end of the service.
3. Draw the line of interaction
Identify all customer contact and the types of interaction that occurs.
4. Draw the line of visibility
Point out the aspects of the service that are visible to the customer and those that are not.
5. Map Contact Employee Actions, both onstage and backstage.
The activities of the company that involve customer contact are identified, both visible (on stage) and
invisible (backstage) activities. It is important for the company to recognise the difference the client
perceives between these two activities.
6. Draw the line of Internal interaction
Describe what happens backstage, invisible to the customer.
7. Map Internal Support Activities.
The next step is to fill in the activities that support the interaction with the customer (Internal
Support) without having direct contact. This reveals the influence of these support activities on the
total process.
8. Add Evidence of Service at each customer action step.
At each process part, the physical evidence that the customer receives or sees is identified. Examples
of physical evidence are certificates, contracts, etc.
Reijnhoudt (2000) ads an extra step to these eight steps, which is especially designed for product
oriented companies trying to go into the service business.
9. Add Non-Phycical Evidence of service at each customer action step.
At each process part, Non-physicall evidence that is perceived by the client is identified. Examples of
non-physical evidence are the friendliness of personnel and waiting times.
To demonstrate the use of a blueprint, a filled in example is shown in figure D1. The service reflected
is a taxi service.
44
Figure D1: blueprint of a taxi service. (Reijnhoudt, 2000)
Non
Physical
Evidence Receptionist is friendly and
patient
The taxi shows up fast Friendly behavior driver Driver knows the way and
drives carefully
Taxi with sign on the roof Appearance of taxi and
driver
Physical
Evidence
Customer
Actions Client walks to the taxi
Client calls a taxi Client waits for the taxi Clients steps in Client says his
destination
Receptionist answers the
call
Taxi shows up Driver opens the door Taxi drives away
Onstage
Contact Driver assists with
suitcases
Backstage
Contact
The receptionist calls an
available taxi Support
Process Driver and receptionist
agree on the job
45
E. The VIP-approach (Vision in Product development)
Note: This description is based upon the article “ViP – Visie in Productontwikkeling” from Paul
Hekkert and Matthijs van Dijk. Faculty of Industrial Design Engineering. TU Delft. Febr. 2000.
The ViP approach aims at the development of an innovation vision on future products for a company
or design consultant.
The framework of the approach includes the following elements:
– the designer: is responsible for his/her vision on the world and has, in the design-decision
making process, sufficient space for free, personal and conscious choices;
– the product: according to the designer the product represents an important value in the
world. It is the result of a personal and free design process, lead by opportunities (in stead of
restrictions) and therefore, it is original. It can also be new and unusual, but this is not a
requirement;
– the context: a product, a user and their relation are not only part of a context, but also are
being created by the context. The product-user relationship can be considered as an entity
that should fit into the context, like an organism has to adapt to the ecosystem where it’s
part of;
– the company: the ViP approach expects from the company to give the designer the
necesarry design freedom. This means that it will have to refrain from pushing the designer
in certain directions, based upon prejudices on”how things are or should be”. On the
contrary, from the company an active and stimulating role in the design process is being
expected;
– the user: the user is the object of the design but not the co-designer in the ViP approach.
The reason for this is the thinking and feeling of users based upon their past experiences
and their present mental framework, that is aiming at problem solving in stead of thinking in
new opportunities;
– the interaction: the product-user relationship is to a large extent being determined by the
context. Therefore, it is important for the designer to first build an image of this context and
the interaction process, before designing the actual product.
Based upon these elements, the ViP approach follows the next 6 phases in the design process:
1. Destructuring
In this phase it is important that the designer gets rid of all knowledge and insights, which have
created the existing product-user relationship. Fixation on existing knowledge will not lead to
original solutions. All implicit assumptions should be reconsidered. For the designer, not only the
product is the subject of study, but also the user needs and context variables that were important
in the product creation process.
2. Creating a new context
In order to be able to determine which circumstances and factors are influencing the new product-
user interaction, it is necessary for the designer to build a new context. For this, two strategies
can be followed: (1) reformulation of the present context or (2) description of the future context.
In this phase, information retrieval is crucial, particulary focussed on the aspects that emerged
during the destruturing phase. As search fields also completely other domains should be taken
into account, to enlarge the chances on new insights on the design problem.
3. Formulating the interaction vision
In this phase the designer defines the interaction vision, based upon the new context. An
interaction vision is a presentation or understanding of the interaction between a (future)
product and a (future) user, as envisaged within the new context to create a new balance.
An appropriate interaction vision (1) has a clear and consistent relation with the context
description; (2) is being formulated at a sufficient operational level for the further design process;
and (3) gives certain original new insights into the existing product-user relation. Particularly, the
interaction vision might become interesting, if it involves new characteristics that were not
involved in the existing interaction.
46
4. From interaction vision to product vision
Based upon the interaction vision, now it’s possible to define the qualitative characteristics of the
product to be designed: the product vision. They can relate to the product’s meaning, function,
value, style etc.. An appropriate product vision fulfills the following demands: (1) a clear and
consistent relation with the interaction vision; (2) is suffiently operationalized; and (3) is to
a certain extent original, compared with existing products.
5. Turning the product vision into a product concept
Now, the product vision and the underlying interaction vision serve as a programme of
requirements for the product conceptualization. This step is principally not different from the
“normal” product development process as for instance described by Roozenburg and Eekels
(1991).
6. From concept to design
Eventually a new product or product-systeem emerges from the design process, again using the
standardl tools and methods as described in Roozenburg and Eekels. However, in many ViP based
projects the final result will be the product concept as generated in phase 5.
Literature
Roozenburg, N.F.M. & Eekels J. (1991). Produktontwerpen, struktuur en methoden. Utrecht.
Lemma.
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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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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Week 2 Guidance – Strategies for Building Eco-Advantages
As we have learned building competitive advantage based on Porter work can be achieved through:
1. Lowering cost – efficiency; or
2. Differentiation.
This concept is still valid but it should be based on environmental strategies. A company can drive revenues by increasing price or volume. Increasing the price is tactical and for the short term. Cutting cost is about making business more efficient.
Volume increase means more market share and this is a long-term strategy. Increasing revenue is about growth, and this is more about strategy and vision.
The environmental strategies will support achieving the competitive advantages. The text book p. 102, shows the strategy framework. It has four quadrants, the upper half is based on revenues and intangibles (upside building), and the lower half of the figure is based on cost and risk (downside management).
Managing the downside is based on:
· Cost:
o Eco-Efficiency Improve resource productivity. Anything not in the product is a cost. Here you try to get the same output with less input (resources), based on the equation below:
Productivity = Output / Input
Input = Resources (energy, skills, equipment, automation, machines, material…etc).
o Eco-Expense reduction. Cut environmental costs and regulatory burden. This is achieved through innovation around waste reduction and resource productivity, which translates to Eco-Advantage.
o Value chain efficiency. lower costs upstream and downstream the chain. Lower value chain costs by cutting the environmental and financial expenses of product distribution
· Risk:
o Eco-risk control. Manage environmentally driven risks. These risks could be financial, strategic, operational, and hazard. This evaluation and assessment is done through anticipatory issues management (anticipate risks). This could be done through scenario planning, supply chain auditing, and regular risk reviews.
Building the upside is based on:
· Revenues:
o Eco-design. Meet customer environmental needs. Here the business tries to meet a need that exists in the market and that customers really need.
o Eco-sales and marketing. Build product position and customer loyalty on green attributes. However, the product will not sell just based on the environmental attributes. Customers need reasons to buy such as price, quality, performance, and service.
o Eco-defined new market space. Promote value innovation and develop breakthrough products.
REFERENCES:
Esty, D.C., & Winston, A.S. (2009). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. Hoboken, NJ: John Wiley & Sons, Inc. ISBN: 9780470393741