GMGT - Chapter 11

Operations Management

Operations Management

Includes both production management and service operations, refers to directing and controlling the processes that convert an organization’s resources (inputs) into finished goods and services (outputs)

Understanding the relationship between operations and business’ impact on the natural environment.

Externalities

Climate change – the greatest market failure

Pollution

Biodiversity

Strategies to protect the natural environment.

Key Dimensions of Operations Management

Quality of the products and services being created. Aims to provide products and services whose features and reliability are appropriate for the customer market being served. Must conduct testing when delivering a new product

Dependability of delivering products and services. Aims to provide timely and reliable delivery of products and services (which allows firms to charge a premium price and thus enhance profits)

Speed/Flexibility of creating products and services. Aims to ensure that products and services can be easily customized or changed to meet customer needs.

Cost of creating products and services. Aims for the lowest financial expenditure possible to offer products and services (considering the desired quality, dependability, and speed).

Two key concepts to understand environmental impacts of business

The Commons

Externalities

Tragedy of the Commons

A phrase used to refer to the conflict for resources between individual interests and the common good (ex. society).

The term was made popular by Garrett Hardin in his 1968 essay “The Tragedy of the Commons”.

Hardin was concerned mostly with human population growth, infinite or limited natural resources, as well as environmental degradation.

He also focused on problems that do not have a technical solution.  In other words, he emphasizes human values and morality, and working together. 

Hardin concludes that there is no foreseeable technical solution to an increasing human population and their standard of living on a infinite planet.

Externalities

The cost or benefit that affects a party who did not choose to incur that cost or benefit

Negative Externality

Indonesia is good at tackling coal productions which is a negative eternality. Every company has agreed that slowly over the course of time every coal production company will move to solar energy and hydroelectric energy rather than coal.

Positive Externality

Let’s say you added beehives to your farm. The bees will go everywhere and will pollinate everywhere which helps other farmers as well. This is a positive externality.

Environmental Ethics

The set of values or principles that govern a corporation’s practices relating to the environment.

Sustainable Development

Development ensuring that the use of resources and the impact on the environment today does not damage prospects for the use of resources or the environment by future generations.

Six Rs of sustainability

Best: Refuse

Rethink

Reuse

Repair

Worst: Recycle

UN IPCC Report on climate change

To limit temperature increases to 1.5 degrees Celsius, massive changes would need to happen by 2030.

Virtual elimination of coal, oil, natural gas

Carbon capture (how to capture the carbon)

Reforestation (planting trees)

The chances of keeping the increase to 1.5 degrees Celsius is quickly decreasing.

If we do not make these radical changes, the destruction caused by climate change could be immeasurable.

A Risk to the Human Species

Hundreds of millions of lives are at stake, the report declares, should the world warm more than 1.5 degrees Celsius, which it will do as soon as 2040, if current trends continue.

Nearly all coral reefs would die out, wildfires and heat waves would sweep across the planet annually, and the interplay between drought and flooding and temperature would mean that the world’s food supply would become dramatically less secure.

Avoiding that scale of suffering, the report says, requires such a thorough transformation of the world’s economy, agriculture, and culture that “there is no documented historical precedent.

Business as a Contributor

Business has been a major contributor to carbon in the atmosphere.

Just 90 companies caused two-thirds of man-made global warming emissions.

Chevron, Exxon and BP among companies most responsible for climate change since dawn of industrial age, figures show

Funding climate change skepticism

Lobbying against regulation

Role of Business Pollution in Canada

By 2030, Canada intends to see its greenhouse gas emissions fall 30% from the 2005 levels of 749 mega tones.

Carbon pricing can be an effective weapon against global warming. But it’s also a concept that historically has drawn a lukewarm reception from businesses, which tends to fight its financial impact on them.

The two most commonly used carbon pricing systems are carbon tax and the so-called cap-and-trade. 

Impacts on Business

Climate change is changing the landscape of business.

Businesses that depend on water (it will be easier to transport goods)

Tourism (will no longer see tourism for places such as jasper skiing)

Commodity-based business (ex. oil, steel)

The NIMBY Problem

NIMBY = Not in my backyard

NOTE = Not over there either

NOPE = Not on the planet Earth

Technological Innovations

Clean energy, meat replacements (ex. impossible burger), big data, apps

Oroeco: A website and application-based service that allows users to track the climate impacts of their everyday decisions, recently launched a beta version of a new, interactive social platform that features sustainability ratings of individual publicly traded companies.

Paper Karma: A convenient way to speed up opt-out requests and works with thousands of verified mailers.

GiveO2: An app that calculates your transport-related carbon footprint. The app uses your smartphone’s 3G or GPS connection to track your daily movements and spits out an answer, explaining in grave detail just how much you’re destroying the world.

Food Carbon Footprint

Not all food (including meat) creates a high carbon footprint.

Beef has the highest carbon footprint.

Chicken and Pork have lower carbon footprints.

Water Pollution

The fashion industry has a disastrous impact on the environment. In fact, it is the second largest polluter in the world, just after the oil industry. And the environmental damage is increasing as the industry grows.

20% of industrial water pollution comes from textiles treatment and dying.

200,000 tons of dyes are lost to effluents every year.

90% of wastewaters in developing countries is discharged into rivers without treatment.

What can we do: Choose clothes made in countries with stricter environmental regulations for factories (EU, Canada, US, etc.).

Choose organic fibers and natural fibers that do not require chemicals to be produced.

Animal Rights

Animal rights ideology is based on emotion, not science or facts, and advocates that animals are equal to humans.

Advocates for the rejection of all animal use, regardless of how humane

Advocates for the liberation of all animals from human care

Animal Welfare

Endorses the responsible use of animals to satisfy certain human needs from companionship and sport, to uses for food, clothing, and medical research.

Ensures the practice of animal husbandry and ensures that all animals used by humans have their basic needs fulfilled in terms of food, shelter, and veterinary care while minimizing stress of the animal.

Protecting the Environment

There are a number of different ways to limit the environmental harm caused by business. Each has their own strengths and weaknesses:

Regulations, laws, market-driven approaches, environmental NGOs (ENGOs), multi-stakeholder initiatives and standards, corporate programs and policies

Regulations

Environment Canada

Canadian Council of Ministers of the Environment (CCME)

Canadian Environmental Assessment Agency (CEAA)

Environment Canada

The federal department responsible for the environment.

Creates policies for the provinces and territories.

Operates various programs, tracks, and reports on environmental issues, and administers environmental legislation and regulations.

Similar departments exist in most provinces and territories.

Canadian Council of Ministers of the Environment (CCME)

CCME comprises environment ministers from the federal, provincial, and territorial governments and meets at least once a year to discuss national environmental priorities and determine work to be carried out under the auspices of CCME.

Canadian Environmental Assessment Agency (CEAA)

This agency was formed to provide high-quality environmental assessments that contribute to informed decision making relating to sustainable development.

Strengths/Weaknesses of Regulations

Strengths:

Power for oversight and sanctions in cases of non-compliance (have the power to sanction your business if you do not follow the regulations)

Externally controlled so more stakeholder interests considered.

Weaknesses:

Susceptible to lobbying and corporate influence

Can be viewed by industry as inefficient since government may not have the necessary knowledge of an industry.

Cannot regulate outside jurisdiction.

Laws

New laws are being introduced to hold corporate actors (directors and officers) accountable for environmental crimes

Many environmental statutes make directors and officers liable for participating in, or acquiescing to, conduct that contravenes environmental laws, regardless of whether or not the corporation is charged or convicted.

Directors and officers may be liable under laws that impose statutory duties to ensure that directors and officers take all reasonable steps to prevent environmental contraventions.

Strengths and Weaknesses of Law

Strengths:

Have the power to enforce compliance and can sanction non-compliance.

Potentially less susceptible to influence than regulations.

Weaknesses:

Fines are often not a deterrent for large corporations. (they don’t lose any money $250,000 fine is nothing for a big business)

Several instances where corporate executives have avoided criminal accountability.

Market Driven Approaches

Market incentives for protecting the environment.

Emissions trading

Emission reduction credits (Offsets)

Carbon capture and storage (CCS): Storing carbon underneath the ground in coal beds, salt beds, saline aquifers, and depleted oil/gas reservoirs.

Strengths and Weaknesses of Market Driven Approaches

Strengths:

Incentives for companies

Potentially “efficient”

Weaknesses:

Allows corporations to continue to be environmentally destructive without addressing internal issues.

Potentially a form of “greenwashing” (just because you paint the room green does not mean that it is greener. You are not fully solving the problem)

Environmental NGOs

Greenpeace Canada: An independently funded organization that works to protect the environment.

Energy Probe: A consumer and environmental research team, active in the fight against nuclear power, and dedicated to resource conservation, economic efficiency, and effective utility regulation.

Friends of the Earth Canada: A charitable, non-profit environmental organization. Mission is to serve as a national voice for the environment, working with others to inspire the renewal of communities and the earth, through research, education and advocacy.

Pollution Probe: An environmental organization that defines environmental problems through research, promotes understanding through education, and presses for practical solutions through advocacy.

World Wildlife Fund Canada (WWF-Canada): A conservation organization supported by more than 50,000 Canadians.

Strengths and Weaknesses of Environmental NGOs

Strengths:

Can effectively pressure corporations into changing policies

Externally (stakeholder) controlled instead of internally (corporate) controlled.

Weaknesses:

Do not possess the same amount of power as regulations or laws.

Potential for co-optation

Multi-Stakeholder Initiatives

Numerous organizations and actors from different areas come together to develop standards, rules, policies, and principles around environmental performance.

Examples: Kyoto Protocols, ISO 14000, FSC

Forest Stewardship Council: An international non-profit, multistakeholder organization established in 1993 that promotes responsible management of the world's forests.

An example of a market-based certification program used as a transnational environmental policy.

Strengths and Weaknesses of Multi-Stakeholder Initiatives

Strengths:

Input from multiple stakeholders

Are often transnational in focus (not only localized focus).

Encourage collaboration and cooperation.

Weaknesses:

Voluntary (ex. Canada withdrew from the Kyoto)

Slow progress

Often “watered-down” to satisfy all parties.

Corporate Programs and Policies

Almost all corporations have policies and programs aimed at addressing environmental issues.

Environmental management systems (EMS)

The “business case” for environmental management

Strengths and Weaknesses of Corporate Approaches

Strengths:

Internally controlled so more likelihood for efficiencies and integration

Company buy-in

Weaknesses:

No external oversight or enforcement

Company has complete discretion.