Can Green Be Lean?

Abstract

Introduction: In the past, efforts to improve the environment almost always led to increased production costs. In fact, some economists have attributed a significant part of the slowdown in productivity growth of the 1970s to increased attention to environmental issues (Gray, 1987; Conrad and Morrison, 1989). This result is in accordance with neoclassical economic theory, which holds that firms maximize profits subject to given constraints. If a constraint (such as keeping emissions below a certain level) is added, then profits cannot be higher than they were before. However, in practice there are numerous examples of firms which have both reduced their emissions and increased their profits and/or their efficiency. (See for example Porter and van der Linde, 1995.) Concomitantly, a central tenet of strategic management theory is that firms need to focus on only a few distinctive competencies if they wish to be profitable (Hamel and Prahalad, 1990). However, Florida (forthcoming) has found a significant number of firms that are leaders in adopting new forms of both production management and environmental management. This paper explores these paradoxes: how firms can be both profitable and environmentally conscious, how they can be both innovators in manufacturing and leaders in emissions reduction. The contribution of this paper is to present detailed examples of conditions under which these types of superior performance go together, and to begin to develop a theoretical framework which explains the examples. The theoretical framework is based on Nathan Rosenberg's (1976) concept of 'focussing devices'. His argument is that because managers are only boundedly rational, they cannot explore all possible sources of efficiency improvement at once. Instead, they develop worldviews which give them ideas about where might be fruitful places to look. In Rosenberg?s example, nineteenth-century US firms developed many labor-saving innovations because of the salience of high labor costs in this country. Many of these practices increased efficiency and profitability in Europe as well, and were adopted there; however, they were not thought of there because labor costs did not stand out so clearly as a key element of costs. This paper argues that the recent diffusion of the principles behind the Toyota Production System gives managers a new focusing device, one which allows them to be simultaneously 'lean' and 'green'.