In this video, we look at how some firms are using an eco-efficiency strategy to reduce environmental harm and lower costs through careful design of their internal processes. An eco-efficiency strategy is characterized by focus on finding synergies between efficiency and low environmental harm in internal processes that together contribute to lowering costs. This keeps product prices low, and while consumers are not paying for low environmental harm, they do like the low prices. The idea of doing more with less of course makes intuitive sense. However, turning this into a strategy to do better than competitors is not so easy, because using resources efficiently is always in a firm's interests. If you can make more product or provide the same quality of services using fewer resources, then you should do it, because if you don't, your competitors will. So, everyone should do it, and if everyone does it, it's not strategic because it does not give you any particular advantage. Whether any eco-efficiency strategy can work for a firm depends in great part on the business context and the firm's place in the industry. Is there talent for innovation? How much will the market reward efficiency gains? Are there synergies with other industries? Some situations in which an eco-efficiency strategy can work well include; where it is hard for others to copy, because it requires skill and innovation to get to an efficiency level which others can't easily duplicate. Where efficiency gains and cost reduction are greatly valued such as an industrial markets where every penny counts. Where waste stream can create a byproduct market that adds a new revenue stream in an industry where margins are very tight. Let's give you some examples. Our first example about innovating to reduce waste comes from an account by Amory Lovins with the Rocky Mountain Institute. Interface, a carpet manufacturer, was designing a new plant. In making carpets, there was a dense sticky hydrocarbon called bitumen, that is used as the back-end for carpets. Bitumen is the same semi-solid stuff that is used in road asphalt and for roofing. It takes a lot of energy to heat the bitumen to 170 degrees centigrade, and to run the pumps to push to go around the factory. The factory design stage locks in decisions about how resources are used and how waste is created. When building a factory, the most common way to do it is to lay out the big expensive equipment first and then add in the piping afterwards. Then, the engineers calculated the size of the pumps needed to push the hot bitumen through the like of the pipes. When the factory is designed this way, the pipes have to go around equipment and there were a lot of sharp right angle turns which create friction and requires bigger pumps and furnaces. In this particular case, the designing engineer did something radically different. He decided to lay out the pipes first and then place the equipment around the pipes. He knew that pumping bitumen use a lot of energy, and he was given a mandate to reduce energy use. The result was that pipes were shorter and fatter and the pipes had gentle curves instead of sharp angles. Because the pipes are fatter and there were no sharp bends, there was less friction and it took less energy to move the bitumen. So, pumps could be small, and because the pipes are shorter, they didn't need to be heated to such a high temperature, so that reduced energy use even more. Altogether, the design cut energy consumption by 86 percent and the factory cost less to build. In this case, innovation was used to cut waste and cut costs by redesigning internal processes. On the surface, it may seem easy to copy but it's not, because it requires an uncommon respective on design, and so it gives the company a lasting cost advantage over other firms. Our next example of eco-efficiency is the French company, Pocheco. Pocheco makes business envelopes or ecovelopes as they call them, two billion of them a year. As you can imagine, making paper envelopes for a living is a very cost competitive business. Pocheco is on a mission to reduce its environmental impact throughout its operations. It's philosophy is, "Nothing is lost and everything is transformed." Here are some of the things that they do, heat from the compressors is recovered to heat the building in winter. Paper waste is recovered in sulfur recycling. It uses water based ink so that wastewater can be cleaned by the ecosystem services of a bamboo forest on site. The bamboo is used as fuel for the furnace. Instead of packing envelopes into boxes, they put them on giant wheels, which saved an estimated two million cardboard boxes over 10 years. It uses rainwater for its industrial processes, which reduces water costs. It uses paper from sustainable forests and commits to plant four trees for every tree it cuts down. It claims all this and more has reduced its cost by hundreds of thousands of euros while they still retain a 70 percent market share in France. Pocheco was an interesting case, because it goes much further than most firms in both its environmental focus and its business philosophy. For our purposes, we see a company competing in a cost based industry that keeps its costs low through sustainable processes that removes waste from its systems. An eco-efficiency strategy could go beyond the scope of a single firm to a network of firms. This ties into the concept of industrial symbiosis, where the waste of one process becomes food for another. In China, the Rizhao eco-industrial park, also known as REDA, uses the waste from one firm as the input for another. A beer brewery produces thenasis, a by-product of sugar, which goes off to the fertilizer factory. The scrap wood, from a wood factory goes to a pulp and paper mill. The paper mill produces sludge that is used for fertilizer, green mud for building materials, white sludge for a citric acid factory and a cement plant, wood chips for a charcoal factory, fly ash for a cement plant, and waste hot water for an aquaculture mill. These are no longer wastes, but valuable inputs to other processes. In fact, there are 31 firms at REDA that has a symbiotic interconnections. These substitutions reduce the cost for raw materials for all the firms involved. At REDA, 98 percent of the waste is reprocessed. It doesn't even need a waste treatment plant. In these cases, what separates an eco-efficiency strategy from just being efficient, is that it lowers costs and it lowers environmental harm in a way that gives the firm an advantage over its competitors. To take this a bit further, there are lots of ways to be efficient and lower costs, but increase environmental harm. Substituting chemicals for labor has made processes efficient and lowered costs tremendously. But in many situations, it has created much more environmental harm. So, being efficient isn't enough for an eco-efficiency strategy. Lowering costs and lowering harm but without creating a unique advantage, is also not a strategy because it leaves the firm open to being copied. In each of the cases we described, you can see how these firms have created a unique advantage. While Interface's and Pocheco's processes can be copied, unfortunately, most firms don't have innovative management, the skill or the imagination to do so. At REDA, the inter-firm coordination and cooperation present a significant information hurdle for others to copy. Finally, there is overlap between an eco-efficiency strategy and concepts such as lean manufacturing, circular economy, industrial symbiosis, green supply chains, and others. These are synergistic, not in conflict. What distinguishes an eco-efficiency strategy is its target of creating a lasting competitive advantage by targeting waste in the internal processes of a firm. In this video, you've seen three examples of firms using environmental activities to lower their costs, satisfy their customers' quality demands, reduce environmental harm, and build a competitive advantage over their competitors. Thank you for watching.
