| Summary: | 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'.
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