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Business Horizons (2015) 58, 109—122
Available online at www.sciencedirect.com
ScienceDirect
www.elsevier.com/locate/bushor
Strategic sustainability: Creating business
value with life cycle analysis
Holger Buxel a, Gökçe Esenduran b,*, Scott Griffin c
a
University of Applied Sciences Münster, Münster, Germany
Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus, OH 43210, U.S.A.
c
Chief Sustainability Officer, Greif, Inc.
b
KEYWORDS
Strategy development;
Sustainability;
Product management;
Life cycle assessment;
Business development
tools
Abstract Markets are increasingly demanding more sustainable products and services, as well as more information about the environmental qualities of the products
and services they use. To meet market expectations, modern management needs
powerful tools that can create an understanding about the environmental traits of
products and services and how these products and services can be made more
sustainable. The environmental life cycle assessment (LCA) approach is one such
powerful tool that can evaluate the environmental aspects and impacts of a product
or service from cradle to grave. While LCA was originally designed to support decisions
in the environmental engineering area, it is a tool that can also be used managerially
to develop valuable and fact-based sustainability strategies within the company
regarding its products and services. Recent examples from industry leaders report
exciting evidence of the power of LCA. This article introduces the LCA method as a
management decision tool, and illustrates its value creation potential through
multiple industry examples.
# 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All
rights reserved.
1. Sustainability management:
Fighting against blind spots
Scientific research regarding the role of humans on
climate change, as well as many lessons learned
from industrial pollution and its negative impacts
upon the environment, have led to a greater general
* Corresponding author
E-mail addresses: mail@holger-buxel.de (H. Buxel),
esenduran.1@osu.edu (G. Esenduran), scott.griffin@greif.com
(S. Griffin)
awareness of the need for sustainability. Customers
are increasingly demanding that products be produced in environmentally friendly ways that limit
negative impacts on the earth’s resources (Thorn,
Kraus, & Parker, 2011). Therefore, companies face a
growing need to incorporate sustainability into their
business models and marketing efforts. But that is
easier said than done.
Although today’s customers want more sustainable solutions and information about the environmental qualities of the products and services they
buy, many companies struggle to fulfill these
requests while concurrently adding value through
0007-6813/$ — see front matter # 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.bushor.2014.09.004
110
mutually beneficial sustainability. This issue often
stems from management’s limited understanding
and knowledge regarding general environmental
traits of the company’s products and services, as
well as critical sustainability drivers throughout the
entire product life cycle. In many companies, the
traditional management perspective focuses mainly
on customers, competitors, internal processes, and
relationships with suppliers. Managers are trained to
think along these categories and exchange processes between them. There is no doubt that this way of
thinking is helpful and generally makes sense in the
business environment. However, when it comes to
sustainability considerations of products and processes, this classic management perspective becomes too narrow rather quickly, as it does not
consider the relevant environmental impact parameters, which are often outside of the classic supplier-company-customer relationship.
If one considers the entire lifetime of products
from cradle to grave, the critical environmental
impact of products are caused not only by product
conversion processes or product usage, but also by
natural and physical traits of raw materials and
other inputs, extraction methods (e.g., mining,
refining), transportation, and storage processes,
as well as final disposal (e.g., landfilling, incineration, recycling). Many early life cycle steps (e.g.,
raw material extraction) and later life cycle steps
(e.g., disposal) are outside the traditional management focus and not considered relevant business
topics. This is because companies are not directly
involved in these market exchange processes. Moreover, the physical environmental traits of many
input factors, such as raw materials, are often
unknown because companies–—prior to the rising
sustainability trend–—generally did not require this
information. The result is that managers often suffer from blind spots about existing value creation
opportunities in the markets through sustainability.
In particular, this creates two typical management
problems. First, companies are not aware of relevant strategic opportunities and challenges, which
can be risky for the long-term development of the
company. Second, in the absence of relevant required information, companies have an inherent risk
of investing in ineffective sustainability improvement measures that are not honored by markets and
that do not add value for mutual benefit.
To overcome this blind spot issue in sustainability,
as well as to better understand the general environmental traits of products and critical sustainability
drivers over the entire product life cycle, management needs powerful tools that can close the
information gap and move the company toward a
more powerful strategy and product management
H. Buxel et al.
approach. Such a fitting but often disregarded tool
set on the management level is the environmental
life cycle assessment (LCA) analysis approach. Herein, we demonstrate the power of using the LCA method as the management decision tool. To this end, we
first introduce the method briefly in Section 2. We
then illustrate in Section 3, through multiple industry
examples, the value creation potential in five application areas including (1) strategy development, (2)
R&D and product development, (3) supplier selection
and production, (4) marketing and sales, and (5)
information, training, and education. In Section 4,
we discuss the potential challenges and pitfalls of
implementing LCA analysis and prescribe some remedies. We discuss innovative uses of LCA in Section 5
and limitations of the method in Section 6. We conclude our analysis in Section 7.
2. From cradle to grave: Life cycle
assessment
LCA is a technique that measures the environmental
aspects and impacts of a product over its entire
lifetime, from cradle to grave (i.e., from raw
material extraction through materials processing,
manufacturing, distribution, use, repair and maintenance, and disposal or recycling). While simple
and rudimentary LCA methods were first considered
in the 1960s in the area of environmental and
chemical engineering to identify key environmental
issues of products or processes, the main development phase of modern LCA approaches began in the
1990s (Curran, 1996) and are now chiefly regulated
by ISO 14040 and 14044 (International Standardization Organization, 2006a, 2006b). A life cycle assessment weighs a product or process by asking two
main questions: (1) How big are the total environmental impact and the corresponding emissions of a
product system over its entire lifetime? (2) Looking
at the different life cycle steps, which life cycle
steps are critical and have the highest impact on the
environment?
To answer these questions, the LCA method calculates specific measures for a product or process
along several environmental impact categories.
For example, global warming is considered one
of today’s most pressing environmental problems
(Natural Resources Defense Council, n.d.). To measure a product’s or process’s impact on global warming, the impact category ‘CO2 equivalent emissions’
is used. If only CO2 is considered, the LCA result is
often called the ‘carbon footprint.’ In addition to
global warming, there are several other environmental impact categories such as acidification or
eutrophication of the environment; depletion of the
Strategic sustainability: Creating business value with life cycle analysis
Figure 1.
Product life cycle and life cycle assessment
ozone shield; release of fine dust particles triggering
human toxicity; and reduction of non-renewable
energy sources, fresh water, and forest. Many actions
that are effective in reducing the global warming
impact of a product can trigger other environmental
problems. To get a holistic view of a product’s environmental impact, LCA considers several impact categories simultaneously.1
Within the LCA process, the environmental impact of a product in an impact category like global
warming is derived by evaluating every single life
cycle step in this category. The sum of the impacts of
all life cycle steps represents the gross environmental impact estimate for the product. An analysis only
based on the sum of the impacts from these life
cycle steps would not be a fair evaluation of a
product’s environmental performance because
many products contribute positively to the environment at the end of their life cycle, for example by
leaving recyclable materials behind that can be used
in subsequent products to replace virgin raw material needs. Some products can likewise be incinerated upon disposal, thereby generating heat or
electricity and thus decreasing demand for other
1
111
For an overview see Institute for Environment and Sustainability of the European Commission (2010) and Klöppfer and Grahl
(2009).
energy resources. For such beneficial contributions,
the products receive credits that reduce their gross
environmental score. By deducting the credits from
its gross environmental impact, a net score is derived, which represents the product’s total environmental performance including its harmful and
beneficial aspects in the impact category. Figure 1
illustrates an example of LCA featuring an industrial
plastic drum that is used for shipping liquids, such as
chemicals or foods, within industry.
By screening a product life cycle, LCA produces
an accurate and clear picture of the product’s total
environmental performance. It also identifies the
critical life cycle steps with high environmental
impacts and enables companies to conduct various
simulation analyses to answer questions including,
but not limited to: how the environmental impact
would change if other materials were used, parts of
products or processes were removed, transportation
methods or suppliers were changed, or the recyclability or reusability of a product were increased by a
percentage. Such information is invaluable when
improving products and processes to optimize their
environmental performance.
Next, we provide an example to demonstrate the
details of LCA steps. We refer interested readers to
Guinée (2002), Baumann and Tillmann (2004), and
Klöppfer and Grahl (2009) for further details regarding methodology.
112
2.1. How to run LCA
LCA can be conducted by a company with its own
resources or with external support. Due to the growing role and popularity of LCA in today’s business
environment, several software tools are available
(European Commission Institute for Environment &
Sustainability, 2014); independent organizations also
offer LCA service support to companies. Although it is
good news that no internal expert know-how on the
technical side of LCA is required to run a project
efficiently and successfully when engaging an external supporter, it would be useful to understand the
four basic steps in a life cycle assessment project
(Williams, 2009). To briefly illustrate these steps,
we next present an example of a new product development case:
A manufacturer of industrial packaging has invented a new manufacturing process for 55gallon plastic drums. The new manufacturing
process consumes less energy and results in a
product design that is of equal quality but saves
15% of raw materials compared to conventional
drum designs as offered by competitors. Management wants to evaluate the environmental
benefit of the new drum to be able to base its
market introduction on a sustainability platform.
2.1.1. Step #1: Goal and scope definition
The company needs to define an appropriate goal of
the study in the first step to make sure that the LCA
supports the intended application focus. In our case,
the goal of the LCA would be to find answers to these
two questions: What is the overall environmental
performance of the new product? If the new product
is compared against conventional designs, what is
the environmental benefit?
Next, a functional unit that allows a meaningful
comparison of the new drum and competitive products should be defined. The main function of a drum
is to ship liquids. Some competitors may offer 55gallon drums, but some may also offer 50-gallon
drum designs, too. Therefore, a direct comparison
of the drums themselves does not make sense, as the
designs vary by 5 gallons. Comparison becomes
meaningful only if the function of the product is
the same, so the functional unit could be defined as
‘transport of 1,000 gallons.’ This allows us to compare the performance of drum systems accurately.
In addition to defining the functional unit, decision
criteria need to be chosen for the analysis, such as
deciding which environmental impact indicators
should be included (e.g., global warming impacts,
water usage, acidification, or eutrophication).
H. Buxel et al.
Finally, the relevant system boundaries of the
LCA study should be considered. For example, some
processes used in plastic drum manufacturing may
vary between the U.S. and Asian markets because of
the differences in recycling quota at end-of-life.
Thus, it is important to decide if the focus of the
analysis should be a North American market, an
Asian market, or both.
2.1.2. Step #2: Inventory analysis
Based on the goal and scope definition, a process
tree or flow chart should be created to classify the
events in a product’s life cycle. In our example, it
would be the processes for producing plastic resins
at a supplier ! transport of the resins to the drum
making plant ! production of the drums out of the
resins by a blow molding process ! palletizing of the
drums to prepare them for shipping ! distribution
of the drums to a customer ! filling of the drums
with a liquid ! distribution of the filled drums to
end customers who need the liquids ! emptying of
the drums ! disposal and recycling or incineration
of drum parts. For each of the life cycle steps, all
mass and energy inputs and outputs should be determined by collecting relevant process data, such
as how much energy and water is needed for the
blow molding process of the drums at the plant, and
how much plastic resin is needed in the process to
create one drum.
2.1.3. Step #3: Impact assessment
For each of the life cycle steps, the emissions and
consumptions should be translated into environmental effects. For example, if global warming is
the focus and the life cycle step of producing drums
by blow molding consumes 100 kWh of electrical
energy, the emissions for producing this electrical
energy are assigned to the production step using
the emissions data for equivalents of CO2 produced
by energy plants.
2.1.4. Step #4: Improvement assessment
In this last step, analysis results should be plotted on
output graphs that allow an interpretation and a
review along the impact categories. An illustration
of an analysis of the results comparing the new drum
design with two other traditional designs is provided
in Figure 2.
From Figure 2, we observe that the new drum
design has a 28% lower impact score on climate
change compared to traditional drum design B,
and a 13% lower impact score than that of traditional drum design A. In addition, the new drum design
has a positive overall environmental profile compared to both traditional drum designs in all other
impact categories. Next, we discuss how a company
Strategic sustainability: Creating business value with life cycle analysis
Figure 2.
113
LCA results example (drum case)
can use such information as a powerful value-adding
tool.
3. LCA as a management tool: Value
creation areas
Life cycle assessment creates huge learning value
within companies (Frankl, 2001). It is a very powerful
support tool for decision making that can be of great
worth in various areas along the product development and implementation chain (Baumann, 1998;
Bültmann & Rubik, 1999), including improving products and processes by optimizing their environmental
performance or marketing the environmental benefits of products compared to competitive solutions
(Frankl & Rubik, 2000; Jensen, Hoffman, Møller, &
Schmidt, 1998). Next, we identify five specific application areas as summarized in Figure 3 and provide
examples from industry to illustrate how the LCA can
be used to create value.
3.1. Strategy development
One way that LCA can add value to the company is
through strategy development. LCA allows a systematic identification of critical sustainability issues
related to a product’s entire life cycle, and also
reveals opportunities and risks within the company’s
product line. This information enables companies to
develop better and more fact-based strategies to
meet future market challenges in the context of
sustainability. Greif Inc. starting a new business
and Procter & Gamble offering a new product line
exemplify the value creation power of LCA in strategy development.
3.1.1. Greif
Greif Inc., the world leader in industrial packaging
products and service, realized some of its key customers were increasingly demanding environmentally friendlier product solutions. Many of these
customers have their own corporate sustainability
programs and began asking for environmental information (e.g., greenhouse gas emissions data) on
Greif products, including its industrial shipping containers. It became apparent that customer priorities
were shifting from buying shipping containers to
seeking shipping solutions that could also help fulfill
environmental goals. Greif Inc. conducted a life
cycle assessment on its products to identify areas
for improvement.
Previously, customers had suggested that ensuring shipping containers were full would be key to
improving their environmental profiles because this
would reduce emissions from transportation. Greif
114
H. Buxel et al.
Figure 3.
Application and value creation areas of LCAs in management
Product development and implementation chain
Strategy Development
Support of strategic decisions:
•
Identify opportunities and
evaluate potential of how to
meet emerging green
markets with more
environmentally benign
products, services, or
processes.
•
Evaluate shifts from
products to services.
Evaluate options for
•
industrial symbiosis.
Position of the company in
•
the product life cycle chain.
Risk assessment: Identify product and
life cycle related environmental issues
and threads.
R&D/Product
Development
Innovation idea collection: Identification
of environmental critical points along the
product life cycle as input for product
innovations or product improvements
(e.g., design for reuse, design for
recycling, design for end of life).
Innovation idea assessment:
Comparison of existing products with
planned alternatives.
Innovation controlling: Measure and
follow-up of product improvements.
Bottleneck identification: Prioritization of
sustainability tasks and resource
allocation.
Procurement &
Production
Support sourcing and upstream supply chain
improvements:
•
Bottleneck identification –
Prioritization of environmental
improvement activities for
suppliers and supply chain.
•
Improve procu …
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