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A casual reader of the popular press cannot help but notice that Business Week is beginning to look more like Sierra magazine. Conferences once reserved for environmental engineers and scientists are now populated by business executives proudly expounding on such themes as environmental stewardship and sustainable development. It would be easy-and incorrect-to dismiss many of these public pronouncements as corporate rhetoric chasing “green” consumers. In fact, industry has developed, and is applying, a set of managerial approaches and technical tools to create the next generation of environmental improvements.

Unfortunately, policymakers will probably either miss or misunderstand these changes. Having spent the last 25 years focused on the cheaters and laggards, we are ill-prepared to understand the motivations and the methods of the industry leaders. But policymakers who are willing to leave some cherished beliefs behind and journey into the strategic core of innovative corporations will discover the most radical restructuring of production since Henry Ford-one with far-reaching implications for the environment.

First, industry is moving into a world where many products will be designed, built, and tested before they physically exist. Whether it is chemicals or a Boeing 777, a new generation of virtual prototyping systems is allowing companies to engage in what Gary Pisano at the Harvard Business School calls “learning before doing.” This practice opens up new opportunities for environmental improvement by moving decision making upstream, before the manufacturing process, before any waste or harmful pollutants reach the air, water, or landfills.

Second, having exploited many existing opportunities for environmental improvements within the firm, more and more companies are expanding their search to encompass the entire “value chain”-from raw materials producers to suppliers to manufacturers to customers. For example, 3M and the Netherlands-based chemical company Akzo Nobel developed an environmental guide for the furniture industry-one of their major customers-to help ensure that their products were being used in an environmentally responsible manner. Motorola, when faced with the challenge of eliminating chlorofluorocarbons from its production processes, moved technical expertise upstream to its suppliers-the same strategy the company used to great advantage in its earlier efforts to raise product quality. In industries that have “outsourced” much of their production, disseminating technical expertise and environmental management skills up and down the value chain becomes the strategy of choice for making more environmentally sound products.

Finally, as customers demand more environmental information and value from producers, businesses are angling to position themselves and their products as the green choice. A recent study showed that Arm & Hammer, by providing better environmental information on its laundry detergent, was able to realize an additional $10 million in annual revenue for that product. People gravitated to the Arm & Hammer brand out of loyalty to a company whose detergent they believed would not foul the environment. The bottom line is that many companies no longer view environmental concerns as a cost of doing business but as a profit driver.

Will corporate environmental sensitivity make government’s protective role pass? Hardly. Government will play an important role in disseminating information on best environmental practices, setting “baseline” standards for environmental performance, and in measuring and reporting on the state of the environment. And as in the past, government regulations will provide incentives to gently nudge the less enlightened companies to clean up their acts. But numerous interviews with managers in innovative U.S. firms have convinced me that companies want from government something more. They are looking for attributes that characterize any good business partner: predictability, cohesiveness, and speed.

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