~

The name Volvo is considered by many to be synonymous

.'with safety, In recent years. the company has'undertaken

a coordinated effort to expand that image to improve

environmental performance as a strong point for their

products. This case details the motivations behind that

effort. outlines the steps taken to improve Volvo's envi-

ronmental management, and evaluates its success to

date.

Sandra Rothenberg and James Maxwell

SANDRA ROTHENBERG is a doctoral candidate in the Orga-

nization Studies program at the Sloan School of Management,

MIT. As a research associate with the International Motor Vehicle

Program and MIT's Technology, Business and Environment

Program, she has studied corporate management ofenvironmental

issues for the past five years, with a focus on the automobile

industry. JAMES MAXWELL, Ph.D., is the director of the

Center for Environment and Health at John Snow Inc., and a

visiting scholar at MIT's Center for International Studies. He

previously served as co-director of MIT's Technology, Business

and Environment Program, and has written and consulted exten-

sively on environmental policy and management issues.

5CORPORATE ENVIRONMENTAL STRATEGY

threatened the survival of Volvo's products.Gyllenhammar had recognized the conflict betweenenvironmental protection and Volvo's products asfar back as 1972, when he declared: "Volvo does notwish to protect the auto at any price and under allconditions. It is in Volvo's best interest that the autois used in such a way that it does not cause environ-

mental damage."l It was not until a decade later,however, that Volvo expanded its commitment toenvironmental protection.

This policy is unique in both its breadth and itsearly emergence in the field of environmental man-agement. Cornelius Smith, vice president for Envi-ronmental Affairs at Union Carbide, would laterdescribe Volvo's policy as being among the mostprogressive corporate environmental policies thathe had ever come across} It preceded similar movesby many other leading companies, and also pre-ceded the formulation of such industry initiatives asthe Coalition for Environmentally ResponsibleEconomies, the Chemical ManufacturersAssociation's Responsible Care Program, and theInternational Chamber of Commerce's BusinessCharter for Sustainable Development.

By establishing this new policy, Gyllenhammarsought to make environmentally conscious opera-tions, like safety, a cornerstone of Volvo's corporate

.Volume 3 Number 2 EXTENDING THE UMBRELLA OF SOCIAL CONCERN

strategy and image. This meant developing a com-prehensive approach to address the total life cycleimpacts of Volvo's products. The policy called forVolvo to strive continuously to reduce the environ-mental impacts of its products and manufacturingprocesses and mandated that the company go be-

Group's social commitments beyond productsafety, a focus as far back as 1927, to includeworkplace issues. Explains one employee, "If onewere to go back to the 1970s, a young PehrGyllenhammar came into Volvo. He was veryinterested in the 'quality of life' and made severaldramatic moves to increase the quality of Volvowork life...His fundamental concern was with thecompatibility of industry with humanity."Gyllenhammar introduced new manufacturingsystems at two of Volvo's automobile plants toaddress these concerns. Although some questionsremain as to whether these new systems offereither the human fulfillment or productivity thatcan be found when using alternative productiontechniques such as lean production, Gyl-lenhammar's actions have inspired the people atVolvo to be concerned about worker safety andjob satisfaction.3 With the announcement of thenew environmental policy, Gyllenhammar fur-ther extended Volvo's umbrella of social concern.

Volvo has a long history of environmentalactivity, and was one of the first industrial manu-facturing corporations in the world to adopt aformal environmental policy.4 Until the mid 1980s,the primary emphasis of Volvo's environmentalstrategy was compliance with applicable regula-tions. It had some notable achievements in thisregard, such as the development of the three-waycatalytic converter with Lambda Sond. Duringthe course of the '80s, a general growth in envi-ronmental awareness in Sweden and throughoutthe world alerted Volvo managers to the eleva tedimportance that environmental issues would ex-ert on business decisions.

Even more important, Volvo managers werestrongly influenced by local changes in environ-mental activism. In the mid 1980s, Volvo applied tothe Swedish Licensing Board for EnvironmentalProtection for a permit to expand the Torslandapaint shop, its largest paint shop in Sweden. Volvo'senvironmental activity was subject to unpre<;:-edented scrutiny. Environmentalists also protestedGyllenhammar's active support of the "Scan Link,"a road and railroad running from Oslo down theWest Coast of Sweden to Denmark. Thousands ofseals were dying in the North Sea off the coasts ofSweden; environmental concerns were rated thenumber one political issue; and for the first timemembers of the Green party were elected to the

At the time of the policy, we had to define

our own strategy. We had to decide whether

or not our environmental activities should

be used to profile the company.-Oile Boethius

Manager of Environmental Affairs, Volvo

yond applicable regulations to improve environ-mental performance. To implement this progres-sive policy / Volvo created a variety of new organi-zational structures and management systems.

Positioning Volvo For Change

Volvo was incorporated in 1915 as a subsidiaryof AB SKF, a Swedish ball bearing manufacturer,and in 1935 it became an independent company.Today, the Volvo Group consists of four productcompanies: Volvo Car Corporation, Volvo Trucksand Busses, Volvo Penta (marine and industrialengines), and Volvo Flygmotor (aircraft and spaceengines)-cars, trucks and busses being its largestoperating sector. Under the leadership ofGyllenhammar, Volvo's business strategy has beento focus on niche markets. With a reputation forsafety, quality and durability, Volvo has targeted anumber of high end niche markets, and has tradi-tionally held a strong and relatively stable position.Intense competition in the early 1990s threatenedVolvo's position in these markets, and severalchanges have been undertaken to address theseproblems. Organizational changes, such as the con-solidation of the truck and bus divisions, have beeninstituted to make more efficient use of groupresources. Joint ventures and alliances have re-duced the cost of research and development.

Volvo's activities have always been stronglyinfluenced by the social commitments of its lead-ers. Gyllenhammar expanded the scope of the

6 CORPORATE ENVIRONMENTAL STRATEGY

Sandra Rothenberg and James Maxwell Volume 3 Number 2

Swedish Parliament. Angry environmentalists di-rectly confronted Volvo, Sweden's largest corpora-tion,about its environmental record.

As Volvo's top managers faced this change inthe salience of environmental issues to the public,they became aware of the need for environmentalaction within Volvo that went beyond compliance.Gyllenhammar decided Volvo should expand itscommitment to environmental protection. Remem-bers Inge Horkeby, manager of environmental pro-tection in Volvo's Technical Development Depart-ment, "Gyllenhammar heard [the changing inter-ests from the public] and realized that we have tohave our own goals in the future. It was a way forhim to manifest a true conviction that industry hadto show the way and to find a...better image for thecompany. We were not the ones trying to back offfrom our responsibilities. We wanted to fix them."Fixing these problems early and communicatingthese actions to stakeholders could also give Volvocompetitive advantage.

profile the company." In other words, they had todecide whether or not environmental issues shouldbe used commercially, and, if so, how should thecompany present itself with regard to these issues.Volvo decided to develop a unique company envi-ronmental profile, as had previously been donewith safety. If, however, Volvo managers weregoing to claim that they cared about the environ-ment, it was necessary to be able to back up theseclaims. "To profile is a sensitive issue," explainsBoethius. "It is not that easy to build up, but it isvery easy to fail... The more it appeals to the senses[like safety], the easier it is to destroy."

The task force designed an environmental policyto implement these ambitious strategic goals. Volvopledged to take a "total view" with respect to theenvironment, which meant considering environ-mental impacts over the product life cycle. Thisrequired that the company look beyond its ownwalls to suppliers, distributors, and customers; andrequired that they actively communicate with thesestakeholders about Volvo's environmental activi-ties. A credible image also requires consistency inenvironmental performance across geographic ar-eas. Therefore, Volvo pledged to strive to attain auniform, worldwide environmental standard forprocess and products.

Given the ambition of this strategy, the taskforce placed these goals in the financial and prod-uct constraints of the organization. To accommo-date financial constraints, the task force decidedthat while the company had sufficient resources,they should "opt for manufacturing processes thathave the least possible impact on the environ-ment," and invest in environmentally-oriented ac-tivities to the greatest extent possible. If the finan-cial situation were reversed, however, the state-ment allows for an appropriate modification ofenvironmental activities.

A New Environmental Strategy

In October of 1988, Gyllenhammar formed anenvironmental task force whose members includedthe top managers of each Volvo company. The taskforce was charged with creating an environmentalpolicy for the Volvo Group and programs to imple-ment this policy.

One goal of Volvo's environmental strategywas to increase its legi timacy and credibility in theenvironmental arena. This first required gainingcontrol of and improving Volvo's environmentalperformance. GyUenhammar had already begunto sell Volvo in Sweden on its environmentalperformance; he had observed tha tal though Volvowas working hard on environmental issues, itcould not effectively communicate what it wasdoing. GyUenhammar felt that he had to havestronger evidence to back the claims that he andVolvo were making.

At the same time, managers realized the com-petitive opportunities presented by environmentalissues, and, as they already had with safety, wantedto build concern for the environment into a corner-stone of the company. Explains OUe Boethius, man-ager of environmental affairs at Volvo Car Corpo-ration: "At the time of the policy, we had to defineour own strategy. We had to decide whether or notour environmental activities should be used to

Matching Ambition With a NewManagement System

Once this strategy had been developed, pro-grams needed to be designed to implement it. In1989, the task force produced a report that de-scribed Volvo's new environmental policy and pro-grams for implementing this policy. The reportoutlined guidelines based on a list of managementinitiatives created by Gyllenhammar and given tothe environmental task force.

7CORPORATE ENVIRONMENTAL STRATEGY

-.Volume 3 Number 2 EXTENDING THE UMBRELLA OF SOCIAL CONCERN

Exhibit 1

rues can choose from a variety of options. Volvo'smanagers realized that the company could notcompletely live up to its new commitments withinexisting systems for environmental management,therefore the task force outlined several programsto implement its environmental strategy.

Procedures and Structures for Setting InternalEnvironmental Goals .

The Task Force Report detailed new mecha-nisms for the Volvo companies to set dynamicinternal goals. Long-term environmental goalsare set in three to five year plans (the lengthdepends on the company's own planning cycle),reviewed and updated yearly. Using these long-term plans as guidelines, one year goals are then

The management choices made by Volvo fitinto six generic areas:

.Procedures and structures for environmental

policy..Mechanisms to monitor and review environ-

mental performance..Incentives and controls to encourag environ-

mental achievements..Methodologies and tools to assist environmen-

tal decision making..Guidelines for environmental investments..Guidelines for communication with stake-

holders.

These categories are outlined in Exhibit 1(above);5 Within each of these categories, compa-

8 CORPORATE ENVIRONMENTAL STRATEGY

Lategorles

Procedures and A structure for environmental management helps firms to internalize and meet their regulatorystructures for and more proactive environmental goals. In addition, this helps to allocate environmental

environmental responsibility, specify the flow of internal and external information, and offer guidelines onpolicy how to carry out environmental activities.

Mechanisms to The potentially severe consequences of poor environmental performance necessitates accuratemonitor and review monitoring of environmental achievement. Two main mechanisms accomplish this: direct

environmental reporting of environmental activity and environmental auditing.

performance

Incentives and Incentives and controls are important to emphasize commitment to environmental perfor-controls to mance, and to encourage employees to perform in a manner which is consistent with thisencourage commitment. Incentives recognize and reward environmental achievements, innovations, and

environmental programs in order to motivate employees. Control mechanisms assess environmental perfor-achievement mance in performance evaluations.

Guidelines and Environmental investments frequently do not offer short-term financial pay-backs whentools for evaluated by traditional accounting procedures. Financial guidelines can suggest how manag-

environmental ers can consider such benefits as long-term financial savings and avoided costs when makinginvestments environmental investments. Tools to help evaluate environmental performance in financial

terms can be created.I

Methodologies and One of the most difficult tasks of environmental management is to assist employees makingI tools to assist environ- decisions about complex environmental issues. To reduce uncertainty in environmentalmental decisionmaking decisionmaking, companies can employ tools to help evaluate the environmental impacts of

product and process decisions, systems to record company activities and their associated risks,or standard operating procedures to guide employees when performing environmental related

.. fi tasks. Guidelines or

I communication with To ensure external support of the environmental strategy, managers have to communicate with, stakeholders company stakeholders. These programs could include participation in environmental debates

and financial support of environmental activities.

Sandra Rothenberg and James Maxwell Volume 3 Number 2

minimum standards set the year before and arethen reported to a higher level in the company forassessment. In addition, the task force developedan environmental auditing program as anothermechanism to follow up minimum standards andthree to five year plans.6 There is one permanentauditor who selects an audit team from a pool ofabout twenty employees throughout Volvo, de-pending on their area of expertise. This auditingstructure was selected for three main reasons: (1) itwould be small and flexible; (2) it would use ex-perts within the organization, leading to a moreeffective audit; and (3) it would allow auditors todisseminate information about observed environ-mental performance throughout the organization.

Like the usual concept of an environmentalaudit, Volvo's internal audits serve to ensure thatregulatory requirements are met. For the mostpart, however, the audit team concentrates onupcoming legislation and the plant and compa-nies' own internal minimum standards. Environ-mental management and routines are also scruti-nized to ensure that environmental responsibili-ties are delegated in a competent manner. To date,thirty-eight of the forty-one Volvo plants havebeen audited.

In 1994, the board decided to start preparing foran introduction of an environmental managementsystem common to the whole Volvo Group. TheVolvo Environmental Management System (VEMS)is designed to encompass current major standards.The first step for Volvo in the VEMS process was toprepare three of their plants to meet the Europeanl~co-Management and Audit Scheme (EMAS) stan-dards. There is significant overlap with Volvo'sestablished auditing program for those plants tar-geted for EMAS verification and registration. How-ever, EMAS audits are more detailed and compre-hensive than Volvo's internal audits. Required ele-ments of the EMAS review process are shown inl~xhibit 2 (page 10).

set and revised annually. These plans and goalscan cover such areas as production and productperformance, information gathering and dissemi-nation, environmental training, overall manage-ment structure and programs, internal and exter-nal communication, and public relations. Thegoals, explains Ulf Jansson, environmental man-ager in product engineering at Volvo Car Corpo-ra tion, are explici tly meant to push Volvo ahead ofregulations. "We could just say 'meet all the legalrequirements and nothing more'. Then wewouldn't need the minimum standards. We havedecided to go further."

Each section of the Volvo Group, includingdivisions like the Data Group, are required to par-ticipate in the planning process. Goals are set ateach level of the organization. While top managersin each subsidiary set broad long-term goals fortheir company, managers at the project level setboth three to five year goals and very specific one-year minimum standards.

The Task Force Report also outlined a newdecentralized organizational structure in whichgroup companies could set their internal goals. Thenew structure included a small corporate levelenvironmental group and environmental offices ineach of the product companies. This structure servedseveral purposes for Volvo. First, it offered a forumin which environmental goals and decisions couldbe made and discussed. Second, along with estab-lished reporting procedures, the structure facili-tated the review of environmental activity, to en-sure that this activity was consistent with companyand group goals and policies. Third, the structurespecified who in the company is responsible forenvironmental activities.

The president of each company, for example,holds responsibility for implementing the environ-mental policy. This is important because it clarified thelegal and corporate responsibilities for Volvo's environ-mental performance, giving Volvo a greater amount ofcontrol over its environmental activities. Other Tools to Enhance Environmental .

Decisions

The Task Force Report outlined a plan for envi-ronmental training with three goals: (1) show thatVolvo was serious; (2) teach Volvo employees aboutenvironmental problems and the corporation's con-tribution to them; and (3) inform employees aboutenvironmental activities at Volvo and about what

Review of Company Achievement and Group

ConsistencyThe new environmental structure served as a

mechanism to ensure that companies and divisionsare meeting their internal goals and living up to thespirit of the Volvo policy. Yearly achievements ateach level of the company are compared to the

9CORPORATE ENVIRONMENTAL STRATEGY

Volume 3 Number 2 EXTENDING THE UMBRELLA OF SOCIAL CONCERN

Required Elements of the EMAS Review Process

.Product planning (design, packaging, transportation,use and disposal)

.Environmental performance and practices ofcontractors, subcontractors and suppliers

.Prevention and limitation of environmental accidents

.Contingency procedures in case of environmentalaccidents

.Staff information and training on environmental issues

.External information

Assessment, control and reduction of environmental

impactEnergy management, savings and choice

Raw materials management, savings, choice and

transportationWaste avoidance! recycling, reuse, transportation and

disposalNoise management

Selection of new production processes and changes to

production processes

Exhibit 2

investment criteria. Managers designing environ-mental management structures must decide howto consider environmental impacts of decisionsrelative to other investment criteria. As with othercompanies, projects at Volvo must routinely usecertain return on investment criteria. To addressthis issue, the task force specified a guideline formanagers to make investment decisions:

Prior to making decisions concerning ma-jor process or production changes whichresult in pollutant emission or other envi-ronmental adverse effects, measures shallbe taken to enable such decisions to bebased on the utilization of the best technol-ogy from an environmental viewpoint. De-cisions concerning deviations from thispolicy shall be made by top company man-

agement.

This type of criteria is important for a numberof reasons. First, it ensures responsible delega-tion of environmental decisions because it forcesany decisions to adopt more adverse solutionsup to top management. Boethius recalls, "We didnot want any president standing there saying 'Ididn't know'." Second, the s ta temen t encouragesmanagers to look at environmental investm.entsdifferently than other investments. As a result,Volvo has started to put money into activitieswithout the payback that was required before.This type of guideline is especially important formiddle managers, whose main concerns are tra-ditionally quality and cost. Without this clause,managers could easily block environmental ini-tiatives before they would have the chance to get

they personally could do to improve Volvo's envi-ronmental performance. The report outlines whoshou!d be trained, the nature of the training, andhow often training programs should be repeated.

The first environmental training class, for 450of Volvo's top managers was given in J an uary 1989.An employee remembers that at that first seminar"Mr. Gyllenhammar stated that anyone that doesnot care about environmental issues [and] does notcomply with environmental goals hasn't got a placein Volvo...It was very clear." He then made eachcompany president get up and state how theircompany would commit to environmental goals ofthe Volvo Group.

Many training classes follow a format similarto that original program. Environmental special-ists from government, industry, and environmen-tal organizations speak about the consequences ofenvironmental phenomena, such as global warm-ing, ozone depletion, urban air pollution, anddepletion of natural resources. Volvo uses train-ing programs to stress its commitment to solvingenvironmental problems, repeatingGyllenhammar's strong declarations. This alsoenhances internal communication about environ-mental issues and creates a common base of un-derstanding within the company. Training informsemployees who in the company is knowledgeableabout environmental issues, increasing internalcommunication with these experts. The Volvo CarCompany has recently committed to train all itsemployees, as well as suppliers, market organiza-tions and dealers-in total, about 70,000 people.

Another tool developed to enhance environ-mentally sound decisionmaking was a smart set of

10 CORPORATE ENVIRONMENTAL STRATEGY

Sandra Rothenberg and James Max'lvell Volu1ne 3 Nl11nber 2

to the company Environmental Working Groupsand Executive Committees. Third, the clause hasan important psychological impact because itplaces the burden of proof on those supportingoptions that are not as environmentally compat-ible, regardless of the cost.

Committed to taking a total view of environ-mental issues, Volvo needed to find mechanismsthat enabled employees to assess the environmen-tal impacts of its products and processes at initialdesign stages. To achieve this objective, Volvohelped to develop and introduce two decisiontools-MOnV and EPS-to help employees makemore environmentally compatible material andchemical choices. These tools communicate com-plex environmental impacts of material and chemi-cal selection decisions in a way that can be under-stood by product and process engineers. The intro-duction of these technologies represents an impor-tant change for Volvo because it allows the organi-zation to lower the level at which environmentaldecisions are made, bringing in life cycle environ-mental considerations at the beginning of productand process development.

EPS was created to help designers comparethe life cycle impacts of their material choices.Developed in cooperation with the Federation ofSwedish Industries and the Swedish Environmen-tal Institute, the principle tool of the EPS system isthe definition of "environmental indices" in theform of numbers. Taking into account naturalresource depletion, raw material extraction, landuse, and emissions into air, water, and soil, theseindices measure the environmental impacts ofvarious material choices at each stage of productproduction and use. The designer compares asingle Environmental Load Unit (ELU) for eachmaterial choice.

The simple choice that EPS presents to de-signers is unique in the arena of life cycle analysisbecause it is the only system currently being usedin industry that offers so simple a presentation.As such, it has had many critics. EPS was chosen,however, explicitly because of its simplicity. Ex-plains Jansson, "Other [life-cycle systems] avail-able are too complex-you need something likethis to make it work:" To avoid misuse of thenumbers, the system is completely open for peopleto alter assumptions underlying the final num-bers, and each number is presented with its range

of uncertainty, to help users understand the sig-nificance of the £1 U.

Volvo also decided to adopt a computer data-base, MOTIV, which holds information on approxi-mately ninety percent of the chemicals used in thecompany. The system gives users access to detailedinformation on environmental, health, and safetyrisks; in-company chemical use; and availablechemical replacements for. the chemicals in thedatabase. MOTIV takes relevant information fromseveral sources such as toxicologists, environmen-tal regulations, and local in'-house instructions, andconverts it into a form which is understandable andclear to the users. The system, used by most of themajor companies and divisions at Volvo, containsinforma tion from throughou t the Volvo Group andis accessible to all group members. Since its intro-duction in January 1991, more than 100 people havebeen trained on MOTIV.

The most important aspect of MOTIV, assertsUrban Wass, manager of industrial hygiene atVolvo, is halo it is used in the organization. Usu-ally, all new chemicals to be used in Volvo arereviewed by the Industrial Hygiene departmentin Technological Development. MOTIV haschanged this process by giving the informationthat is needed for these types of decisions to peoplein research and development, product develop-ment, and production. This information is usednot only to resolve short-term chemical emergen-cies, but also to assist product and process chemi-cal choices. The system helps answer environmen-tal questions directly in production-the best placeto make process decisions.

MOTIV costs approximately $380,000 to developand $170,000 per year to maintain. From this invest-ment, however, Volvo has "actually saved approxi-mately $170,000 annually after expenses. Savingscome from identification of wasteful chemical prac-tices and simplified access to chemical information;reducing the number of chemicals that Volvo usessince MOTIV's introduction by fifty percent. .

As part of the profiling effort, Volvo takes thejob of communicating their environmental activi-ties seriously. At the group level, Volvo activelycommunicates their activities to stakeholders. One\\'ay this is done is through extensive involvementin local and global environmental debates. Anotherway Volvo communicates with regulators and en-vironmental interest groups is by inviting them to~

11CORPORATE ENVIRONMENTAL STRATEGY

Volume 3 Number 2 EX1'ENDING THE UMBRELLA OF SOCIAL CONCERN

participate as speakers in environmental trainingclasses. In addition, the Volvo Group has becomemore involved with the environmental commu-nity, through an annual 1.5 MSEK (approx. $225,000) environmental prize and other awards andscholarships to support environmental researchand activities. Similar communication activity oc-curs at each prod uct company, varying in intensitydepending on the product and its market.

cial resources. For a time, a financial downturn.affected the types of environmental investmentsthat were undertaken at Volvo's production facili-ties. In the late '80s, the company had the resourcesto invest in large environmental projects. Remem-bers Horkeby: "There was a mutual understandingin Volvo as an entire company-that processes weregoing to change... [It was] so obvious what we hadto do-at the same time there was a certain budgetwith which we could work... Luckily, we had themoney then!" This availability of finances allowedthe program to get off to a strong start.

This posi tive financial trend, however, reversedin the late 1980s and early 1990s. While Volvocontinued to invest its profits from earlier periods,financial constraints started to become a seriousobstacle to program implementation. The flexibil-ity of the management programs at Volvo allowedeach company to accommodate its environmentalactivities to these new financial constraints. Forexample, some program planners shifted environ-mental activity from capital investments to lesscostly monitoring, planning, and preparatory ac-tivities for future environmental improvements.

In light of these implementation issues, envi-ronmentalleaders in the company knew that theyneeded to push harder if they were going to be aworld leader in environmental performance, as thecompany planned. After the breakup with Renaultin December 1993, Volvo Group executive mem-bers revisited the environmental strategy andstarted to push harder for environmental changes.As explained by the current director of environ-mental affairs, Anders S. Rison Karrberg, "Volvo asa group has an objective to be and be considered asone of the world's top three automotive companiesin environmental care by the year 2000. This visionis now communicated internally and externally.Improved financial performance of Volvo will al-Iowa more aggressive response to this challenge."

Corporate-wide "working groups" were es-tablished in six major areas: recycling, EMAS,environmental information, production, productsand city transport. The group also developed theVolvo Environmental Management System(VEMS) to further direct member companies.Where needed, company level environmentalstructures were also changed to increase coordi-nation and empowerment. The car divisions' struc-ture was changed, for example, when the AB

After the breakup with Renault in

December 1993, Volvo Group

executive members revisited the

environmental strategy and started

to push harder for environmental

changes.

Making Ambition Real Over Time

As described earlier, the management systemcreated for environmental activities was decentral-ized. Similar to other group level initiatives, it wasdesigned so that most decisionmaking activitieswould occur at the company rather than the grouplevel. This would more actively involve individualcompanies in environmental initiatives and alloweach company to adjust its management systems tomeet its own unique needs and capabilities.

The danger of decentralization, however, isthe chance of inconsistent environmental perfor-mance. A few years into implementation of theprogram, undesired performance inconsistencieswere observed across the Volvo companies. Mini-mum standards across companies and divisionsvaried in breadth, specificity, and level of perfor-mance; and, possibly of greater concern, the ef-fectiveness of chosen management structuresvaried among product companies. A failedmerger attempt with Renault in combination witha severe market downturn had also drawn atten-tion from environmental issues in some of the

companies.In addition, as discussed earlier, Volvo's envi-

ronmental policy allowed for a modification of envi-ronmental activities, depending on available finan-

CORPORATE ENVIRONMENTAL STRATEGY12

Sandra Rothenberg and James Maxwell Volume 3 Nulnber 2

for example, was considering using new types ofplastics with better environmental attributes, butco:t more. An employee formulated a proposalto Introduce one of these plastics in the truck cab.The Working Group heard of this idea and in-vited him to an Environmental Council meetingwhere they evaluated how the new product sat-isfied the relevant policies and technical require-ments. Since it met these requirements, took lessenergy.to make, gave off less emissions, and wasonly slightly more expensive, the proposal wasaccepted. Sterner notes that "a few years ago, thiswas not possible-there was no one to go tobefore. As long as cost and quality requirementswere met-it was okay."

The structure also helps Volvo influence currentand future regulatory pressures. At Volvo's Techni-cal Development Center, they have learned that ifVolvo is in front of legislation, it can have more inputinto the development of new regulations. They feelthat if a company waits, it will be forced to usetechnology that may not be the best choice for itsplants and possibly for the environment.

While changing internal attitudes and ap-proaches to environmental performance were im-portant for 'legal reasons, Volvo also wished toenhance external perceptions of the company.Within Sweden, it is clear that Volvo has improvedits image and reputation considerably. This in-crease in pride allows the organization to have amore satisfied work force and enables Volvo toattract more competent people to the company.

Swedish regulators reported that they saw achange in Volvo's attitudes during the late 1980s andfelt that Volvo was serious about its commitments.Local regulator Kersten Aswald has observed largechanges in the attitudes of Volvo employees. Beforethe policy, she thought many Volvo employees "justfound environmental demands ridiculous. They onlysaw one problem at a time. Now they very muchaccept [that] their contribution to [environmentaldegradation] is a problem."

Environmental changes at Skovde engine plantprovide an example of the kind of innovative envi-ronmental technologies Volvo has implemented.During the permitting of the Skovde plant, Volvoproposed to the Licensing Board for Environmen-tal Protection that they add reverse osmosis to theultrafiltration techniques already being used inorder to concentrate and better separate the wastes~

Volvo Board suggested that it had to have a clearerand stronger priority on environmental perfor-mance. The car company formed an Environmen-tal Competence Centre, which brings togethertwenty-five environmental personnel in the VolvoCar Company, and approved VIla-Britt Fraejdin-Hellqvist as head of the center. One benefit of thisorganizational form is that it acts as a strongpressure group to integrate environmental issuesinto company-decisionmaking. It also clearly iden-tifies where responsibility lies within the com-pany. Since these changes, environmental em-ployees report more commitment to, and supportand resources for, environmental initiatives withinthe company.

Evaluating Success in Terms of Volvo Cultureand Key Stakeholders

Overall, Volvo has made significant progressin changing internal attitudes and decisionmakingprocedures regarding environmental performance.One sign of the organization's change is in em-ployee attitudes. Before, explains Inge Horkeby, itwas difficult to communicate about environmentalissues. "Now, you can feel that there has been a bigchange in the attitudes and communication aboutenvironment in the company. It has been a hotsubject in the past years and within Volvo there hasbeen a tremendous amount of interest-you feellike you are really achieving something."

Volvo has also had some success in pushingenvironmental decisionmaking down in the orga-nization. Decision making tools, such as MOTIVand EPS, distribute information to people lower inthe organization and enable them to participatemore actively in decisionmaking processes. Inaddition, new programs have fostered an atmo-sphere in which environmental innovations aremore easily discussed and encouraged. Before thepolicy, there was no structure in which environ-mental decisions and goals could be systemati-cally reviewed.

This structure, along with the guideline forenvironmental investments, has reduced resis-tance often encountered at middle management.Kerstin Sterner, environmental manager at theTruck Corporation, explains that the policy pre-vents middle management from blocking envi-ronmental initiatives that spring from lower lev-els of the organization. The Truck Corporation,

13CORPORATE ENVIRONMENTAL STRATEGY

EXTENDING THE UMBRELLA OF SOCIAL CONCERNVolume 3 Nu1nber 2

the car. Volvo has been more careful by not usingsuch vulgar arguments."

Agren can, however, still perceive a discrep-ancy between Volvo's actions and its perfor-mance. This is most evident in fuel economy, andhe points to the new 850's high power engine asan example of this problem. When he questionsVolvo executives about this, they reply that it iswhat the Volvo consumer wants. VIla-BrittFraejdin- Hellqvist, head of environment at VolvoCar Corporation, admits that legislators and in-dustry do have a large responsibility in this area.At the same time, she explains, the customermust also do his or her bit. "The dream is to geteverybody to use the gas pedal lightly. When itcomes to driving, we are good at making de-mands on others, but most people reckon that 'ifI press the accelerator a bit more, it doesn't mat-ter so much."7 Mr. Agren responds to this line ofreasoning, "What they don't say, however, is thatthey (Volvo) have a large influence on the con-sumers."

It may be too soon to determine how Volvo'senvironmental activities have influenced con-sumer perceptions of the company. If these issuesbecome more salient factors in the automobilemarketplace, Volvo may benefi t directly. Al thoughmost consumers currently seem unwilling to paya price premium for environmental improvement,Volvo's target market may be more likely to breakthis mold. As with safety, these customers may bewilling to pay a premium price for Volvo's envi-ronmentally superior products earlier than otherconsumers. Even if this does not occur, Volvo'senvironmental efforts may serve to strengthentheir profile as a "caring" company. "Now," ex-plains one employee, "with Volvo, people are notonly safe in the car but also safe from the car. It isthe next logical step."

from the cutting fluids. The Licensing Board didnot mandate this proposal, as the proposal ad-dressed the treatment of fluids which most plantsin Sweden release directly into the environment.Instead, Volvo instituted this proposal becausethey felt it was unethical to release the waste un-treated. According to Peter Adler, a regulator withthe Swedish Environmental Protection Agency, ata meeting with the environmental manager fromthe Skovde plant, the "Licensing Board for Envi-ronmental Protection had to ask of Volvo two times'Can you really manage this?' Usually, it is theother way around!"

The Skovde case further illustrates how thenew environmental policy and programs have en-couraged more incremental environmental im-provements in manufacturing processes. Many ofthe minimum standards atSkovde focus on smallersources of waste, such as chemical durability, moni-toring and reduction of small solvent losses, andmapping and subsequent reduction of energy us-age. Environmental manager Magnus Tholanderexplained, "The main objective is that we shouldnot waste our natural resources. It may be that inthe process the costs are reduced because we buyand destroy less, but these are secondary reasons. Itis unethical to waste resources-here and in the restof industry."

Local environmentalists, although more skep-tical of Volvo's activities, have reassessed theirview of Volvo over the past several years. ChrisAgren, the Swedish NGO secretariat on acid rain,thinks tha t:

[Volvo has definitely] been more thoroughthan other Swedish companies in trying tobe green They do not just have a greenCEO, but they are also performing educa-tion within their own company, which isvery important for results. [For an effectiveenvironmental policy, you] have it at alllevels, and Volvo has been conscious ofeducating at these levels... They are one ofthe few companies that did this fairly early.

He also appreciates the honesty in Volvo's ap-proach. Comparing them to one of their main com-petitors, he comments: "I don't like Saab's adver-tisements. They l~cd to a false understanding [ofthe environmental impacts of their cars]. They im-ply that you can improve the environment by using

Can Others Ride with Volvo's Directions?

Like many other companies in the late '8°.8,Volvo was under increasing criticism for its envi-ronmental record. Pehr Gyllenhammar recognizedthat the global environmental crisis would pro-foundly influence Volvo's core businesses, threat-ening the very existence of its products. He guidedtop managers to devise a new environmental policyand management system to build environment as acornerstone for the future survival of the company.

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Sandra Rothenberg and James Maxlvell Volume 3 Number 2

s

Larger questions still loom. With its competi-tors in the automobile industry, Volvo may have toask what role the automobile can play in a sustain-able society. Environmental, transportation, and

Part of this strategy was to take a

long-term view of environmental

issues and to operate under the

assumption that environmental

issues will eventually exert an

influence on consumer decisions.

mobility issues are all interacting to create a hostileenvironment for the automobile. This hostility canbe seen in Europe, where cities are already imple-menting bans or restrictions on vehicle use.

Volvo has started to address these concerns intheir new 850 line, designed with engines that arelighter and more compact than Volvo's old family ofengines. In addition, in preparation for other futureenvironmental trends, this engine is designed towork, and give peak performance, on methanolmixtures with only minor modifications. Volvo hasalso developed an experimental "hybrid" vehicleand created a "city traffic" program to participate inthe development of more proactive policies in thearea of transportation. Related strategies such as" city cars" and IVHS show promise in addressing

these concerns, but they may not be enough tosatisfy societal demands. Automobile companiesmay eventually need to consider diversification intoalternative transportation markets and public edu-cation on environmentally responsible use of theautomobile. Since Volvo AB produces products re-lated to a wide range of transportation vehicles, theyfeel that they are well prepared to adjust to society'schanging transportation needs. When this time ar-rives, Volvo will be well positioned for leadership inits industry.

The approach taken by Volvo is unique in itsearly recognition of the strategic importance of theenvironment, and in its effort to integrate environ-ment into its business strategy and operations. Partof this strategy was to take a long-term view ofenvironmental issues and to operate under theassumption that environmental issues will eventu-ally exert an influence on consumer decisions. Thedecision to build a company and product "profile"that extends safety to include environmental re-sponsibility drives many of Volvo's efforts.

To implement the new policy, Volvo initiatedcomprehensive change in their management sys-tem. A new structure for environmentaldecisionmaking has opened paths for discussingenvironmental improvements and for setting andreviewing environmental goals. This structure,while creating new abilities within the organiza-tion, was designed to fit with the existing decen-tralized structure so as to reduce resistance to thechange. Top management commitment led to in-creased employee concern for and participation inenvironmen tal decisionmaking. Wi th environmen-tal auditing, these were the primary incentivesand controls relied upon. This choice again fitwith an existing company culture, which had astrong history of social concern and did not re-quire the use of stringent control mechanisms toencourage environmental action.

A central piece of Volvo's program, the man-agement system offered a method for Volvo totake a "total view" of its environmental perfor-mance, as well as the potential to improve con-tinually its environmental performance through-out the product life cycle. Goal setting activitydirectly enhances each divisions' capability forcontinual improvement. New technology systemshave increased Volvo's ability to monitor and useenvironmental information over the total life cycle,making it easier to integrate environmental con-cerns into the design stages of products and pro-cesses. Environmental guidelines for suppliersand distributors, as well as research on vehiclescrapping and recycling, are additional compo-nents of this life cycle approach. Volvo intends tocontinue this life cycle focus and has publiclyannounced that by the year 2000, the first Volvowith a complete life-cycle declaration may see thelight of day {the declaration will include abouteighty percent of the life cycle).8~

Acknowledgment: This Research 'lvas Funded by the

International Motor Vehicle Program at the Massachu-setts Institute of Technology. The authors would like toackno'lvledge Volvo for its cooperation and exceptional

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openness during their research. In particular, we offerour sincerest thanks to Sigvard Hoggren, Axel Wenblad,Inge Horkeby and Eeva-Liisa Book for their assistance.Their time and efforts, along with other Volvo employ-ees, are greatly appreciated. .

ENDNOTES

1 Whelan,J. (1989, November 27). We can save the earth: Aspecial advertising section. Time Europe Edition.

2 Smith, C. C. 1990. "Proactive Corporate EnvironmentalManagement," in Environment: Another Challenge for

Industry. Rome, Italy.3 Womack, J. P., Jones, D. T., & Roos, D. 1990. The Machine

That Changed the World. New York: Rawson Associates.4 Sten Langenius, Welcoming Address in Managing and

Developing Environmental Auditing Programs in EuropeanIndustries: Seminar at Volvo, Gothenburg, Sweden, 27November, 1991.

5 Rothenberg, 5., Maxwell, J., & Marcus, A.1993. "Issues inthe Implementation of Proactive Environmental Strategies,"in Business, Strategy and the Environment. 1(4), 1-12.

6 This program was developed along with the Federationof Swedish Industries. Members of the Federation,including Volvo, thought that auditing was somethingthat industry should implement on their own before theylost control of the process to an undoubtedly less effective

government auditing process.7 As quoted in Edstroem, Maria, "Vlla-Britt saetter alIa pa

Volvo I miljoeskolan" ("Vlla-Britt Puts Everybody atVolvo into Environment-School"), in Ny Teknik, Issue 14,1995.

8 "Volvo Miljoemaerks foere ar 2000" (" A Volvo Will beEnvironmentally Labeled Before the Year 2000"), in NyTeknik, Issue 6,1994.

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