Beware: Automotive manufacturers who ignore 'green'

Manufacturing News, Source : The Manufacturer US
Published : 19 Jan 2007 20:42

Beware: Automotive manufacturers who ignore 'green' will do so at their financial peril
Detroit, MI., January 11, 2007 — According to commentary delivered today by Deloitte Consulting LLP at the 2007 North American International Auto Show (NAIAS) Inforum Automotive Breakfast, companies are falling short in recognizing the impact of a critical business component for survival: “going green.” The transition, Deloitte Consulting says, is a vital business component for today’s automotive manufacturers in particular, to not only survive, but to thrive.

According to industry experts, automotive manufacturers that generate increased value through reduced impact on the environment, or those who “go green,” are the companies that will draw the most customers, the best talent, and long term health—even as the dynamics of global conditions continue to change at a rapid pace.

Sustainability is quickly becoming a crucial business strategy for manufacturers looking to adapt the green model. Driven by a convergence of factors, including increasing regulation, changing customer expectations, competitor advances, value chain partner requirements, brand equity protection and risk management, sustainability has begun driving improved value into leading companies.

“Companies that build a capability for sustainable transformation will build and lock in competitive advantages as the marketplace, regula tion and customer demand move in this direction,” said Christopher Park, Principal, Deloitte Consulting LLP. “Companies that do not invest now run the risk of being compromised or even eliminated if the effect of sustainability on brand equity drives real and rapid changes in market valuations.”

Forward-thinking automotive manufacturers are heading in the right direction by inverting the relationship between growth and expansion. As a hedge against potential scenario drivers, such as global warming or vanishing supplies of petroleum, companies that demonstrate the ability to add value through sustainability and contraction will be best suited for permanence. Customers will demand it, and talent will seek organizations whose cultures align with their personal values.

“Today there is clear and growing support for the idea that companies can transform themselves into environmentally and socially responsible enterprises that deliver measurable benefits to their host communities, while still providing solid returns for their shareholders,” said Park.

To drive long term and repetitive shareholder value, the definition and application of green principles must be expanded to encompass the entire activity base of the enterprise. According to Deloitte Consulting, “green” can be defined as a set of core principles:

Waste is reduced, eliminated or reused

Net consumption of resources (capital, human or natural) for a specific product or service outcome is reduced

Consumed resource is partially or completely replaced

The ratios of natural to man-made and organic to synthetic are increased

The net global impact footprint (GIF) is reduced.

In recent years, a number of sustainability organizations, methods and tools have been developed and adopted to varying degrees of success. Deloitte Consulting identified three primary reasons why tactics executed by numerous companies have had limited applicability:

They are driven by ecological or environmental priorities which may or may not be the highest priority for a company at any given time. This limits the applicability and longevity of such efforts.

They have been limited in scope or application to specialized areas of commercial activity. The risk is that the potential benefits from a long list of discrete but uncoordinated efforts may be limited, and great ideas don’t get expanded beyond their initial frame while bad ideas are tried again and again.

They have been hampered by the perception of ‘green’ or sustainable practice as highly politicized and by the idea that “green” practices should be implemented irrespective of the business case.

An additional challenge facing companies in the process of shifting to “green” manufacturing is choosing and embracing the proper technology to make the transition to green. Few technologies have faced true market tests, or the test of time, which puts manufacturers into the position of making expensive, high-risk decisions with often

minimal information.

“Companies need to identify the real issues and relevant facts in opting for a given technology,” said Steve Laughman, a Partner of Deloitte & Touche LLP and the Global Automotive Industry Leader. “In fact, just making the choice may be the riskiest piece of this technology shift. Companies that make the right choice will be best poised for success and growth as competition continues to get tougher and “green” becomes an ever more important component of doing business.”

The framework for “greening a company,” Deloitte Consulting says, involves the application of multiple principles across each element of a company. The entire effort represents a fundamental change in the strategy and composition of the company, but the changes themselves are incremental and hence, executable.

“Evolving towards a fully sustainable, green global enterprise is a long term journey. Companies are approaching these issues in different ways, for different reasons, and no clear picture has yet emerged on the market’s valuation of sustainability transformation,” said Park. “Yet it’s clear that some action is better than none.”

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