Environmental performance metrics must support innovation and growth, if industry is fully to benefit from their potential to improve product design and boost the bottom line.
Environmental metrics were not much of an issue when I started as a young engineer at General Motors 36 years ago. The metrics we used were the number of cars we produced and how good their quality was. What few environmental metrics we had were mainly driven by regulatory-agency audits. It is not that we were not responsible. I think we were. We were just as concerned then about clean air and clean water as we are today. But we did not have the metrics necessary to optimize our environmental performance or to understand the implications of our decisions on either our business or the environment. The critical measurement was the profit we made. Either we met our program volumes and profits, or we did not. Environmental performance was not a key factor in whether or not we met our business objectives.
Over the last 3 decades, I have learned -- like everybody else -- that environmental issues have a direct impact on the bottom line and therefore affect how we design our products. Once we decided that we had to do more measuring, we faced two simple but thorny questions: What do we measure and how do we measure it?
First, we felt we had to measure things that added value to our decisions. Measuring for the sake of measuring was seen to be a waste of time.
Second, we had to measure the same way others around the world were measuring, because the global nature of business requires that metrics be harmonized. This latter concern is particularly important at my company right now. As Daimler Benz and Chrysler merge, the metrics of both companies must also merge, and new and innovative metrics must be created to address our global needs.
For DaimlerChrysler to grow as a corporation, a competitor, and a technology leader, we must achieve a level of performance that was beyond our wildest expectations just a few years ago. Success depends on having the correct set of metrics in place to gauge our progress in meeting our business objectives, and we include our environmental responsibilities as part of those objectives.
Key Metrics Characteristics
I contend that these metrics must have the following key characteristics:
- They must address the needs of all stakeholders -- community, government, and business.
- They must facilitate innovation and growth; continuous improvement must be the cornerstone.
- They must be harmonized at the local, state, national, and international levels.
- They must be fully compatible with existing business systems. If they do not add value, they will not support continuous improvement and will not be used.
- They must measure the right things -- what is measured is what gets managed.
We are not starting from scratch in this effort. We have some proven techniques already in place. First, there is benchmarking, one of the oldest learning tools known. Figure out who is doing it best and learn from that. In the case of metrics, you must understand what they are doing and why. Once you know that, you may even figure out how to do it better. Second is continuous improvement. The status quo won't do in today's competitive world. When you think it can't be done better, you must redouble your efforts and find new and better ways of improving value and efficiency. Third, you must reduce cost while adding value. Fourth, you must measure. If you don't measure, you can't manage and you can't improve.
Finally, you must measure the effectiveness of your metrics.
Many of today's environmental metrics evolved from the end-of-pipe command-and-control regulatory approach that has been implemented in a piecemeal fashion over the past 30 years. Federal environmental regulations now span a mind-boggling 10,000 pages. Industry is required to measure its performance against these and other prescribed standards and then report to federal, state, and local regulatory agencies that have little understanding of how business works.
Simply put, these metrics don't work! They inhibit, rather than encourage, innovation and growth. They clearly are not harmonized -- different agencies and countries require different measures of the same variable. And they don't add significant value to the business process -- much of today's measurement is for measurement's sake alone. One thing is clear: We should not expect regulatory agencies to come up with environmental metrics that will create a win-win situation between environmental and business interests.
Let me give an example from our industry that clearly demonstrates how regulatory bureaucracy inhibits progress in this area. Auto manufacturing is a capital-intensive industry that has frequent new-model launches requiring investments of $1 billion or more. Timing is crucial and time is money. Lots of money. Cut months from the process and you cut hundreds of millions of dollars.
The industry has been very successful in reducing the time it takes to bring a new product to market. The product cycle has decreased from over 5 years to less than 3 years. That saves money and it makes us more competitive. However, a new problem has surfaced: the uncertainty associated with acquiring air emissions permits.
It takes over 9 months, on average, to negotiate an air emissions permit required for a major paint-shop change. Before we can even apply for a permit, we must complete the design of our process equipment, select the materials that will be used, and model the environmental impacts. We then begin negotiations with local, state, and federal regulators, and those negotiations are protracted. Easily half of the 3-year product-introduction cycle can be consumed by permit acquisition. And, no facility construction or modification can occur until a permit is issued.
If we have to change the planned process, materials, or production rate, we must modify the permit application and renegotiate the permit conditions. The process of acquiring air emissions permits has become a limiting factor in our new-product cycle. So far, the longest permitting period the industry has endured is 14 months, and that did not include the time it took to develop the process information necessary to apply for the permit. The largest industrial merger in the world took less time to complete!
The paint shop is the most environmentally sensitive of our production processes, so it's not surprising that the government wants to measure it. But how much is enough? How much can we learn from it? U.S. regulators like to measure everything: line speed; daily, monthly, and annual volume; pounds of pollutants per hour, per day, per month, and per year; composition of materials; point sources; fugitive sources; emissions by process; chemical inventories; and on and on. In addition, the regulations establish "limits" that tend to be moving targets.
Faced with the risk of huge investments and unplanned downtime, the business reaction is obvious: Try to avoid facility changes that trigger new permits. Unfortunately, this also means that many environmental improvements and cost savings are not realized as soon as they could be.
To solve this problem, we need a new approach that uses continuous improvement to enhance environmental performance and reduce time and cost. A new, single air-emissions metric such as pounds of toxics released per vehicle built, subject to an annual cap, could be the new tool. Toxics from all painting, sealing, coating, and cleaning operations would be added together to get a single plantwide emissions number.
With this type of metric, the plant would have a strong incentive to make material, process, and technology changes that improve overall environmental performance and lower cost. To stimulate further environmental improvements, some type of incentive needs to be offered. This could be in the form of tax credits or public recognition of a company's progress in this area. One critical improvement would be to allow timely modifications or construction to occur without preapproval from the regulators. As a trade-off, the plant operator would risk financial penalties if the modified operations exceeded a preestablished limit.
The LCM "Tool"
Another important tool for improving environmental performance is life cycle management, or LCM. It is clear that we can no longer take a snapshot of the environmental implications of our products. Rather, we must assess their life-cycle impacts early in the design stage to optimize both environmental and business value. Innovative companies like DaimlerChrysler are using LCM to factor environmental, occupational health and safety, and recycling considerations into business decisions long before a product is ever manufactured. LCM is a cost-based approach that allows competing alternatives to be analyzed. Years ago, we didn't understand the environmental component of cost and, therefore, did not consider it fully. We didn't think it was significant. We've learned that's not true. The costs are high. You pay now or you pay later, and if you pay later, it usually costs a lot more.
LCM has convinced us that "pollution prevention pays." Not only does it pay, it can be a competitive advantage. Chrysler has completed 22 case studies that have demonstrated we can better protect the environment and reduce costs at the same time. This is a win-win situation -- a win for the environment and a business win for us and our suppliers. Let's look at several examples.
Most auto companies use an electrocoat primer to rustproof automobile bodies. Historically, we used a material that contained lead. When we considered using a leadfree electrocoat, we found that it cost 10 percent more than the lead-containing material. After completing an LCM analysis, however, we found we could reduce our operating expenses by $150,000 to $300,000 per plant per year, because the life-cycle cost of the leadfree material turned out to be lower. Not only did we save money, we also improved quality, reduced maintenance downtime, and better protected the environment.
Another example is the use of mercury switches in underhood convenience lighting applications. The mercury switch had the lowest initial purchase price and, therefore, was the preferred choice. But when an LCM analysis was completed, we found that the total life-cycle cost for the mercury switch exceeded the cost of a mercuryfree alternative. We eliminated the mercury switch and, subsequently, other mercury-containing components using LCM metrics to guide us.
Chrysler has applied the LCM approach to splash guards made from used tires, water-based paints for buildings and equipment, and the use of recycled materials in applications such as low volume roof rails and protective plastic seat covers. Clearly, the right metrics can yield concurrent value to business and the environment.
But those metrics must be based on sound science, flexible, and able to operate in the global business economy. They must support innovation and growth. And they must be harmonized, so that we understand and measure performance the same way no matter where in the world our operations are located.
Accomplishing this task will require close cooperation between government, industry, and academia. Industry input is critical to ensure that the metrics are meaningful and workable in the business world. Government involvement assumes that the public's concerns are properly understood and balanced, and that incentives are present to encourage the active support of business. Academia must assure that the metrics are based on sound science and then teach students how to use them.
Unfortunately, metrics alone will not solve the problem. Our regulatory system must be revamped to embrace a more cooperative, collaborative approach, rather than the contentious command-and-control system that has prevailed for nearly 3 decades. This is a challenge that the National Academy of Engineering should address.
I began by noting how metrics have changed during my career. Globalization and environmentalism weren't the driving forces then that they are now. I'm sure there are emerging concepts, like sustainability, that will drive future changes. And as the world changes, so must our metrics.
Metrics can do one of two things: They can tell you what you should do, or they can tell you what you should have done. If you use them to tell you what to do, you'll be using them to measure your successes. But if you use them to tell you what you should have done, you'll be using them to measure your failures. Clearly, it is the former approach, not the latter, on which we should focus our efforts.