Aligning accountability and awareness for environmental performance in opertions

Production and Operations Management, Fall 2001 by Chinander, Karen R

ALIGNING ACCOUNTABILITY AND AWARENESS FOR ENVIRONMENTAL PERFORMANCE IN OPERATIONS*

This study assesses internal drivers of a firm's level of environmental awareness, including methods for incorporating environmental objectives into the strategic planning of operations, communication of objectives throughout the organization, and deployment of accountability to operating personnel and managers for environmental performance. Challenges firms may encounter in motivating and holding employees and process owners accountable for environmental performance are discussed, as well as a potential for inconsistencies between management's espoused theories and theories in use. A case study of a steel manufacturer is used-to determine how accountability for and awareness of environmental objectives can be operationally implemented.

(ENVIRONMENTAL MANAGEMENT; ACCOUNTABILITY; COMMUNICATION; ESPOUSED THEORIES VERSUS THEORIES IN USE; CASE STUDY)

1. Introduction

Due to increased environmental regulations and costs of non-compliance over the past two decades, corporate expenditures in the area of environment, health, and safety have increased substantially. By the mid-1990s, expenditures in pollution control alone in the United States totaled over $125 billion per year, a level that represented more than 2% of gross national product (GNP) (Jaffe, Peterson, Portney, and Stavins 1995). In 1990, estimates of the cost to comply with the newly enacted 1990 Clean Air Act Amendments were projected at $4-7 billion for the coming decade (U.S. Environmental Protection Agency 1990). As a result of the large amount of capital expenditures required for environmental compliance, and the potential for substantial fines or criminal penalties for non-compliance, environmental concerns have become a key factor in a firm's level of competitiveness (Post and Altman 1992; Jaffe, Peterson, Portney, and Stavins 1995). It is thus important for a firm to incorporate environmental objectives into its overall strategy, and to hold management accountable for environmental performance. To do so requires a clear definition of objectives in operational terms, a commitment by management to monitoring performance against these objectives, and an awareness by all employees of expectations. Perhaps the most difficult aspect of this process is promoting awareness of the company's policies and objectives at all levels.

Several studies have investigated the external drivers that cause firms to increase awareness of environmental issues (i.e., regulations, industry trade associations, consumers, etc.) (Schmidheiny 1992); however, research is limited in how this awareness gets implemented, or articulated internally throughout the firm. While external drivers may have positive effects in improving environmental performance and awareness, increased regulation may have unintended consequences such as creating barriers to market entry due to excessive compliance costs involved (Dean and Brown 1995). Several researchers provide a framework for the types of strategies firms develop to address environmental concerns. Firms can generally be divided into those using a proactive versus a reactive strategy (Hunt and Auster 1990). Proactive firms focus on pollution prevention methodologies and going beyond the regulations, while reactive firms focus on end-of-pipe solutions and just meeting standards. Others have explored whether proactively integrating environmental management into a corporation's overall strategy improves business performance. Berry and Rondinelli (1998), Porter and van der Linde (1995), Schmidheiny (1992), and Shrivastava (1995) all propose that it enhances performance, while Gray and Shadbegian (1993) and Walley and Whitehead (1994) argue that it may negatively impact performance. These differences may be explained by differing manufacturing operations, in terms of both product and process designs (Cairncross 1992; Schmidheiny 1992; Hart 1995; Klassen and Whybark 1999). Given the impact of environmental issues on operational technologies and product designs, many firms have implemented the use of operational tools to improve environmental performance such as design for the environment, design for reuse, and design for recyclability. However, many environmental management challenges still exist in operations, particularly in production and inventory control (Inman 1999). Other researchers have examined difficulties corporations have in accounting for environmental costs and have developed improved tools for cost accounting and involving accountants in investment decisions to improve environmental performance (Bailey and Soyka 1996; Epstein 1996; Shields and Boer 1997; Whycherley 1997).

While the implementation of these cost accounting and design tools has reduced waste and pollution as well as operating costs, the new procedures and policies raise new challenges in keeping operating personnel aware of a firm's environmental policies and strategies. Prior studies have not addressed how the level of awareness of the operational personnel about a firm's environmental strategy impacts their motivation to improve environmental performance. Research is also lacking in understanding whether stated management strategies are actually in place. This latter question draws on Chris Argyris' work (Argyris and Schon 1974; Argyris 1982, 1990, 1993, 1998, 2000), which addresses the inconsistency, or gaps, between management's espoused theories and theories in use. This discrepancy may result in ineffectiveness and counterproductive results. This is especially true for non-routine behavior or decisions such as those that occur in the environmental arena. This work is further explored in the model development section below.