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An online monthly research publication by the Ivey Business School
Volume 7,
Number 7 |
| Linking "green" with gain |
| The research of Rob Klassen finds ways for firms to improve both the environment and the bottom line |
 A number of years ago Xerox began to rethink the way it produced its core products. Rather than merely recycle or dispose of parts, Xerox redesigned the product and manufacturing process to reuse components. The strategy was three-fold: create higher end-of-life product value, reduce costs, and do some good for the environment.
While some companies like Xerox invest in "green" initiatives that also improve their competitive position, there still is plenty of caution. Managers wrestle with the question, what are the tradeoffs between environmental and financial performance?
Professor Robert Klassen has spent the last ten years studying this question. "I look at linkages between the environment and manufacturing to provide guidance on how to make improvements to both simultaneously."
Klassen's initial research examined the relationship between environmental performance and shareholder value. Looking at companies that had won environmental awards, he found a clear correlation. Stock prices of these companies were significantly higher following receipt of the award.
After this study Klassen began to drill down into the operational side of the company, measuring the economic impact of green changes on product, process, and management systems. Much of his research focuses on pollution prevention (avoiding something before it becomes a pollutant) and pollution control (capturing the pollutants before they get into the environment)-two general forms of environmental technologies.
When managers invest in environmental technologies, they face two critical questions: how much to invest, and how to allocate that investment between pollution prevention, pollution control, and management systems. In one of his studies, Klassen examined the links between environmental investments and manufacturing performance. He found no linkage-either positive or negative-between the overall size of the environmental investment and manufacturing performance. But the form of those investments did make a difference. "If you focused on pollution prevention, there were in fact significant gains," he says. "If you focused on pollution control, you tended to see performance worsen."
In another piece of research, Klassen looked at the linkage between managers' approach to environmental issues and firm outcomes. He found, for example, that manufacturing plants in greener companies tended to report a better long-term outlook. "The more confident that management is in the plant's survival over the long term, the more willing it is to invest in proactive environmental approaches," he explains.
Recently Klassen began to explore how companies view the environmental standard ISO 14000, and draw linkages between its adoption and that of the quality standard ISO 9000. He is now collecting the data from a survey of 500 firms that use one or both of the standards. From the results of this study he hopes to gain insight into certain supply chain issues, such as what firms expect from their suppliers in terms of ISO compliance, how they get their suppliers thinking about green issues, and most importantly, what are the implications for performance.
Although most managers accept the long view that green is good, their challenge over the short term is to adopt actions and practices that balance both the economic and environmental side. "There are many complex linkages between better environmental performance and competitive position," says Klassen. "My research works to understand how these pieces fit together."
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Professor Klassen's Homepage
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