Crossing the Chasm: Understanding the Critical Issues and Obstacles to the Successful Implementation of Environmentally Responsible Manufacturing 1

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1 Crossing the Chasm: Understanding the Critical Issues and Obstacles to the Successful Implementation of Environmentally Responsible Manufacturing 1 Steven A. Melnyk, Ph.D., CPIM Department of Marketing and Supply Chain Management Michigan State University Abstract Increasingly, managers are recognizing the need for developing and implementing systems and procedures that are more environmentally responsible. However, for the most part, this has been a difficult task. Traditionally, the approach for overcoming the resistance to Environmentally Responsible Manufacturing has rested on three legs: (1) development and introduction of new, more appropriate tools; (2) education; and, (3) documentation of successes. However, this may not be enough. Based on findings now emerging from research now being conducted at Michigan State University, a new factor is now emergent. There are differences being observed both between and within firms. Users can be classified into one of five groups: innovators, early adopters, early majority, late majority, and laggards. Each group has its own critical traits; each group responds differently to innovations such as environmentally responsible manufacturing. Between each group, there is a gap. However, the most critical gap is the one between the early adopters and early majority. This is the critical chasm that must be addressed before there is wide spread acceptance of the need to be more environmentally responsible. Overview The last ten years have been years of change for manufacturing and for the systems associated with manufacturing. Managers are now expected to develop and introduce new and better products, where the better is defined in terms of four critical dimensions of value (Melnyk & Denzler, 1996). That is, these products are expected to be designed and delivered in less leadtime, at a lower costs, with better quality and enhanced flexibility. However, these are not the only challenges facing the modern manufacturing manager. In addition, these same managers are now expected to become more environmentally responsible. That is, they are expected to reduce the pollution and waste streams associated with the design, production, use and, ultimately, disposal activities. These changes have resulted from a number of different. Some of these factors have been internal to the firm (i.e., the need to reduce the costs and problems associated with pollution). Other factors can be traced to the emergence of new environmentally based certification standards such the ISO certification procedures. Finally, other factors can be traced to changes in both the marketplace and in the expectations of the investment community (as underscored by the emergence of CERES). 1 This paper is based on a study into Environmentally Conscious Manufacturing, funded by the National Science Foundation, under Research Grant Number DMI

2 However, in spite of these and other factors, the rate of corporate acceptance of Environmentally Responsible Manufacturing (ERM) has been relatively slow. There are success stories, involving firms such 3M, Anderson Windows and Herman Miller. Against these successes, we must weigh the experiences of other firms firms where ERM is more of a constraint, rather an opportunity. Identifying and explaining the reasons for this low level of acceptance has formed a major focal point of research. In this presentation, we revisit this issue. Specifically, this presentation will deal with the following issues: Revisiting the concept of Environmentally Responsible Manufacturing; Identifying the traditional views on the obstacles to the acceptance of ERM; Summarizing background to this study; Examining the five categories of users and firms; and, Discussing the Implications of these differences for the acceptance of ERM. It is the major premise of this presentation that the lack of widespread acceptance of ERM can be traced to these differences between the groups. Specifically, many ERM systems have broken themselves on their inability to cross the chasm that separates the early adopters from the early majority groups. Environmentally Responsible Manufacturing Defining the Concept Before we can explore the concept of the chasm, we must first understand what exactly is meant by the term environmentally responsible manufacturing. For the purposes of this paper, we define ERM as: a system which integrates product and process design issues with issues of manufacturing production planning and control in such a manner as to identify, quantify, assess and manage the flow of environmental waste with the goal of reducing and ultimately minimizing its impact on the environment while also trying to maximize resource efficiency. Associated with this definition are several important assumptions and premises (which will be presented without discussion): ERM decisions are always present and are integrated in the business process. The ultimate goal of ERM is waste elimination. To be ultimately successful, ERM must be viewed as a strategically driven decision that is evaluated by comparing the relative costs and benefits. Effective ERM systems must focus on the three Ps -- Product, Process and Packaging. To be ultimately successful, ERM must be integrated into the product and process design and development system.

3 To be ultimately successful, ERM must be incorporated into the three major activities of most firms: design (products and processes), planning/control/execution, and, performance measurement. ERM is ultimately a cross-functional undertaking. ERM recognizes the implications of the supply chain for the achievement of its objectives. ERM is dynamic. Assessing the State of ERM in Industry To better understand the current state of ERM, we must first learn how ERM is currently being implemented in most American firms. Then, we must look at the major activities that form the core of concern and attention for these firms. Finally, we must understand the interactions that exist between these two systems -- the ERM system and the corporate system. It is in these interactions that we can better understand the current system of ERM and the success (or lack of) that ERM has experienced to this point ERM The Current State In every firm, there exists an Environmental Management and Information System (EMIS) for monitoring and reporting on the performance of the firm from an environmental perspective. This system can be formal in structure (with a well defined organizational structure, reporting relationships, an operating budget and well established objectives) or it can informal (carried out by people within the firm monitoring or working on environmental issues in conjunction with other activities). The environment system can exist as a separate entity or merged with one or other areas (typically health and employee safety (Smith & Melnyk, 1996). Irrespective of its structure (formal/informal) or whether it exists as a separate function, every corporate EMIS provides (to varying degrees) the following functions for the firm: Compliance Assessment: One of the major activities of an EMIS is to monitor and inspect the activities of the firm to ensure that these activities are being carried out in a manner consistent with existing regulatory requirements. Information Resource Center: An EMIS can also act as a resource center in providing the various areas of the firm with information about current environmental regulations, proposed changes in these regulations, case studies of the impact of various aspects of environmental performance on corporate performance, and trends and developments taking place within industry. In some instances, the EMIS tracks and reports the penalties assessed by the various regulatory bodies or the penalties being assessed to its competitors. This information is used to gauge the actions of the government or to establish the firm s performance relative to its competition. Finally, the EMIS can undertake benchmarking activities pertaining to environmental issues. Corrective Action Resource Center: Another important activity that the EMIS can provide is that of helping departments or areas in correcting the environmental impacts of problems or situations currently being faced. For example, the EMIS could be called in to help with cleaning up a spill site or it could be called in to advise a manager facing a production

4 schedule which threatens to generate pollution emissions in excess of the levels permitted by current regulations (resulting in either fines or possible shut down of operations). Educational and Training Services: In this role, the EMIS provides various forms of training and education. It can introduce employees to the need for better performance on the environmental dimensions. It can expose these people to potential costs associated with poor environmental performance or benefits resulting from improved environmental performance. It can also introduce employees (at various levels of the firm or in the different departments) to the various regulations that can be expected to affect their performance or actions. It can also help train those employees who are to be assigned responsibilities in the management, storage or disposal of waste stream products. Coordination Services: The EMIS can help coordinate environmentally related activities being undertaken by different departments and/or areas within the firm. Documentation and Document Maintenance: EMIS can document the environmental activities or performance. This can be done either for internal use or to help satisfy externalreporting requirements set down by either certification bodies or regulatory agencies. In other cases, the EMIS can provide for the storage and maintenance of this information. Performance Measurements: The EMIS can help establish, record and report various environmentally related performance measures. This can be done to document current levels of performance (e.g., the number of tons of material recycled), current levels of success or to identify areas requiring attention. How these various activities are carried is not only dependent on whether the EMIS is formally or informally organized but also on the position of the firm with respect to ERM performance. This attitude can be described as a spectrum. At one extreme, management can assume a position emphasizing compliance. Here the intent is to undertake those actions necessary to ensure that the firm meets current regulatory requirements. The intent is to meet these requirements, not to exceed them if necessary. Environmental issues are treated as a constraint. Alternatively, at the other extreme, the firm can take a leadership position. Here, it views compliance as a floor to environmental performance. Rather than viewing environmental issues as a constraint, they are seen as being opportunities for improvement. Overcoming the Obstacles to ERM Traditional Views This perception of ERM as an obstacle rather than an opportunity is a major concern to most supporters of ERM systems. Traditionally, these supporters have relied on three major tactics in overcoming this resistance: (1) education; (2) identifying the true costs of not being environmentally responsible; and, (3) developing new tools and procedures. Each of these tactics is based on an assumption about the reasons for the lack of user acceptance. Education: Education focuses on introducing potential users to the potentials offered by being more environmentally responsible. Here, supporters rely on seminars and training sessions. Identifying the True Costs of Not being Environmentally Responsible: This second tactic is an extension of the first tactic. Here, supporters focus on uncovering the true costs of not being environmentally responsible. This tactic takes one of two forms. The first relies on

5 introducing users to the legal implications of not being environmentally responsible. In other words, the supporters rely on the legal penalties to increase the cost functions. The second is to decompose the overhead costs to identify and present those cost components directly attributable to not being environmentally responsible. Ultimately, this tactic relies on showing potential users that the costs of being environmentally responsible are often far less than the costs of not being environmentally responsible, ONCE those costs are clearly identified and studied. Developing New Tools and Procedures: The third tactic assumes that one of the major reasons that potential users are not environmentally responsible is that they lack the appropriate set of tools. As a result, it is assumed that if the proper set of tools is developed, then they will be used (with the corresponding set of outcomes). This tactic has resulted in the development of such tools as risk assessment, life cycle assessment, and assessment of product content for recyclability. These tactics should work, provided the underlying set of assumptions on which they are based is correct. However, what if these assumptions are inappropriate? This is the question that is being assessed by a result study being carried out at Michigan State University, and funded by the National Science Foundation. Understanding the Factors Affecting Acceptance of ERM Practices and Systems To determine what factors influence the acceptance (or rejection) of ERM practices and systems, it was decided to study these factors through a series of detailed case studies. These case studies focused on the product design and manufacturing scheduling processes in 16 different companies. The firms represented a mixture of leading edge and normal users of ERM systems. The firms were located primarily in the Midwest United States and included companies located in the furniture, automotive (primary and component suppliers), chemical, and computer industries. In each firm, the researchers interviewed representatives from a number of different functional areas, including design, manufacturing, production, purchasing, and environmental affairs. The interviews were carried out using a combination of procedures, including on-site interviews, fax, telephone and Internet interviews. During the interviews, the focus was not on environmental responsibility. Rather, the focus was on the design and scheduling processes. The reason was to avoid any potential confounding problems due to issues of social desirability. The data from the various interviews was collected and analyzed using procedures and guidelines presented by Miles and Huberman (1994). Acceptance of ERM: Identifying the Five Categories of Users In examining the results generated from this study, one of the first findings pertained to the differences in the users. Each firm, and its personnel, reacted to ERM differently. These differences paralleled strongly the model of user acceptance developed by Moore (1991). This model was developed to explain product success and failure within the software industry. Five distinct categories of users were identified: innovators, early adopters, early majority, late majority and laggards. Innovators are the smallest group. These users are the first to accept and

6 implement ERM systems. Often, the reason for this decision is not based on an economical analysis or justification. Rather, it is based on considerations such as the social desirability of the action. For the managers of one firm, the decision to become more environmentally responsible was based on the view that it was the right thing to do. The managers recognize that these new systems could improve the performance of the firm. However, they were willing to proceed without having first having proof of the presence of these benefits. The second group, the early adopters, were larger in number. Managers in these firms had done an analysis of the relative costs and benefits. While they were aware of the benefits, there was often no quantitative proof of their existence. Rather, there was an expectation (often rather strong) of the presence of these benefits. The managers were willing to make the investments necessary to attain these benefits. In other words, they were willing to take risks. Early majority users were willing to consider ERM. However, they were much more risk adverse. They wanted to see verifiable, quantitative evidence of the presence of these benefits before they would make the required investments. They also wanted to see systems that did not extensively change the current systems or affect the way that activities were carried out. These users can be viewed as highly practical. Unless it was shown otherwise, they initially tended to view new developments such as ERM as being fads. Because many of the fads typically do not pan out, these users tended to take a wait and see attitude. That is, they were willing to let others (typically the early adopters) take the risks. These early majority users would evaluate the experiences of the others and, if the returns were adequate, follow suite. In many cases, these users had to be presented with a strong, compelling reason to change. This compelling reason to change took one of three forms: A reduction in costs (direct or overhead); Enabling a previously unavailable strategic capability that provides a dramatic competitive advantage in an area of prime operational focus; or Improving productivity on a critical well-understood critical success factor. The fourth group, the late majority, are very similar to the early majority, except in one respect. They tend to be less comfortable with the new innovations and changes being proposed. As a result, they tend to be more hesitant. They need stronger proof of the advantages offered by ERM systems. The final group, laggards, are the most resistant to change. These firms and users tend to see no real benefits in changing. They must be forced to change. These compelling reasons come in the form of legal or regulatory changes. As a result, these users introduce ERM-driven changes because they are forced to. They only introduce the minimum level of change. For these users, ERM is now and will also be a constraint. They can never be convinced that ERM offers a compelling and verifiable set of benefits. Crossing the Chasm Identifying the Critical Gaps Separating these five groups are a series of gaps. For a development to gain wide scale acceptance, it must cross each of these gaps. Of the four gaps, the most critical is that one separating the early adopters from the early majority. As defined by Moore, this is the chasm,

7 which most innovations fall to cross. This gap was also noted in the companies studied. Specifically, the difference between the two groups can be best seen in this chasm. For the early adopters, the firms were working on the assumption that ERM was good for the firm. They were also willing to invest in broader set of environmental options. Finally, they were interested in the active development of a wider set of metrics. The reason is that they wanted to identify the impact of ERM-initiated programs and to monitor the impact of these initiatives. In contrast, the early majority users tended to be more conservative in their approach. They were more interested in the cost impact of any ERM-based initiative. Their metrics were more costbased and were often based on the EPA measures. They also tended to consider more limited set of ERM-options. For example, they were interested in options such as recycling and reducing the use of pollution causing material. Also, they experienced more difficulties in dealing with the various trade-offs inherent in the ERM decision-making process. When implementing ERMbased options, their approach is also very conservative. They tend to implement proven approaches and technology. They also pick those options that fit well with existing procedures and systems. Guidelines for Crossing the Chasm Crossing this chasm requires the consideration of some important issues. First, ERM issues must be justified in terms of the four major dimensions of value, namely, lead time, quality, flexibility, and cost. ERM will only be accepted to the extent that it positively influences corporate performance on these dimensions. Second, greater emphasis has to be placed on the development and analysis of metrics. Metrics play a very important role in any system. They direct action, communicate intent and report performance. In most firms, the current metrics ignore the impact of environmental problems. If present, they intend to focus on criteria established by organizations such as EPA. The result is a very limited set of metrics and a very narrowly defined perspective. What is needed is a more extensive set of measurements. Third, the impact of environmental actions has to be linked more closely with processes. Within most firms, there is a well-established understanding of processes. Most managers tend to think in terms of processes. They are interested in those factors that influence the operation of processes. Pollution is a form of waste that is often very evident within processes. It often creates a situation where the sum of the output is less than the sum of the inputs. The difference between the inputs and the outputs tends to be waste. In many systems, this waste is hidden. For example, it is a common practice to assign all of the waste streams to the good items produced. This practice reduces the urgency of identifying and addressing environmentally related problems. Finally, ERM activities should be linked as much as possible to existing planning systems. These planning systems must encompass the design, production planning and execution activities. Introducing new parallel systems will inhibit the ability of ERM system to cross the chasm. The reason is that such systems introduce a new set of complexities. They also ignore a basic fact of early majority users their basic business is to get products out within the less lead-time, at the highest quality and lowest cost. They are only interested in ERM as it affects these objectives.

8 Concluding Comments ERM has now become a manufacturing fact of life. However, for many firms, ERM is more of a constraint, rather than an opportunity. It is seen as offering more of an increase in costs rather than an increase in benefits. The response to this perception has been to assume that the resistance can be overcome by creating awareness, showing the true costs and benefits of ERM, and, developing and making available new tools. In this paper, we have that this view may not be appropriate in all situations. What we have shown is that all potential users are not the same. Rather, they tend to fall into one of five categories. Of the five groups, only two, early adopters and early majority users, are the most important. Separating these two groups is a critical chasm. As we have shown, the major task facing supporters of ERM systems is that of developing and implementing strategies and tactics aimed at helping ERM cross this chasm. Unless this chasm is attacked and crossed, ERM-related strategies such as remanufacturing will continue to be seen as niche strategies something of interest to certain groups but not all groups. References Melnyk, Steven A., and Denzler, David R. Operations Management: A Value Driven Approach. Burr Ridge, IL: Irwin, Melnyk, Steven A., and Smith, Richard T. Green Manufacturing. Dearborn, MI: Society for Manufacturing Engineering, Miles, Matthew B., and Huberman, A.Michael. Qualitative Data Analysis. Thousand Oaks, CA: Sage Publications, Moore, Geoffrey A. Crossing the Chasm. New York, NY: Harper Business, 1991.