New Bottom Line Volume 7.3 – Strategic Sustainability (6): Driving a Larger Vehicle

February 10, 1998

So, what do you do if you’re a manufacturing company? You started out making automobiles, and over the years have rounded out the product line to include trucks, construction equipment and more. You’re noted worldwide for your commitment to safety and quality. Life is good.

But then two things happen. First, you begin to understand — your people are too smart not to understand this — that while expanding economies in China, Brazil and elsewhere will fuel expanding demand for motor vehicles, increasing consumption of fossil fuels, and the environmental burdens they engender, are simply “not a good long-range strategic bet.”

Second, your eleventh-hour retreat from a long-courted merger triggers an identity crisis and deep soul searching. Your board of directors is “restructured” — that is, largely replaced; the new board meets biweekly for months in an intensive review of issues, opportunities, strategy — and core values.

This example, of course, refers to Volvo. Formed in 1927 by two engineers committed to building safe vehicles, Volvo added “quality” as a core value in recent decades, and recently added “environment” to round out their core value triad.

But how does a heavy manufacturing company, deeply involved in steel, coal, rubber, plastics, petroleum and more shift in the direction of “sustainability”, which as we’ve repeatedly seen carries a critical dimension of dematerialization? By reducing the environmental burden from the manufacture, use and decommissioning of their products; by bringing their value chain along in the process; and by questioning their fundamental value proposition.

“Ultimately,” according to one Volvo executive, “we will be solution suppliers, not product suppliers, who ‘by the way’ sell some products. We are not selling buses; we are selling transport systems.”

In Curatiba, Brazil, for example, Volvo collaborated with a visionary city government to create an integrated, bus-based, and internationally praised transit system, at far lower cost than light rail alternatives. And as China fires up its appetite for private vehicles (a strategy whose limits one hopes China will ultimately recognize), Volvo is actively developing mass transit markets in that country. Another Volvo division makes global positioning systems (GPS) that enable precise satellite-assisted locating and tracking of vehicles and shipments, potentially supporting a large increase in transport efficiency.

An energetic Design for Environment (DFE) program includes a push toward an increasingly recyclable vehicle; black lists of chemicals and materials they will no longer use, and gray lists of chemicals and materials they will no longer accept in five years; as well as design and engineering support for suppliers to help them meet the same standards.

Volvo’s environmental performance metrics track “Environmental Load Units” throughout the life cycle, based on five aspects: health, biodiversity, biological productivity, natural resources, aesthetic values. Tracking financial metrics, Volvo reports that “environmental investment costs” — e.g. for cleanup — are declining, while “environmental development costs” — e.g., for emissions reductions and resource efficiency — are rising.

Driving its environmental posture through its supply chain, Volvo requires that suppliers have: an environmental management system (EMS), eventually certified (to ISO14000, EMAS or BS 7750); goals and action plans for ongoing reduction of environmental impact; open data sharing; full cooperation on life cycle analysis and design; full control of materials used (in relation to black and gray lists); optimized handling of waste materials; design for recyclability; shifting to use of recycled materials.

Because environmental education is “too important for just a few specialists,” Volvo has developed a six hour environmental training for all 70,000 Volvo employees, plus dealers, and a modified version for suppliers and contractors. The training addresses: the “ecological context;” energy, transport and environment issues; and Volvo programs & performance. Some 100 in-house trainers are delivering the program — in five languages! — in a three year program scheduled to conclude in late 1998.

How far will this go? Hard to say, since there are many other factors in the competitive landscape. Environmental strategy is certainly not the only reason Volvo’s share value has doubled in three years. Volvo is certainly not the only auto company actively pursuing design for environment and perhaps even more aggressive sustainability-driven strategies. And Volvo, along with its peers, will certainly be responsible for huge environmental impacts on the path to any transition. But there seems to be something distinctive, deep, and surprisingly… well… thoughtful, about Volvo’s approach.

“It is the values of the company that you really buy,” a Volvo executive told us, “not [just] the product.” And in his mind, honoring Volvo’s founding commitment to vehicles that transport people safely, “we need to be concerned with the safety of the larger vehicle — the planet.”

[Thanks to Russell Barton and EKOS International for their contributions to this NBL. Click here, or details about future Executive study missions, meeting with senior executives of companies that are applying sustainable development for competitive advantage, or send e-mail to [email protected]; for details about our Executive Briefings on Strategic Sustainability[tm], contact Natural Logic at 1-510-849-5467.]

(c) 1998 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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