1611 a. Customer, Nonfinancial, Objective, External, Lag (Lead) b. Process, Nonfinancial, Objective, External, Lag (Lead) c.

Financial, Financial, Objective, Internal, Lag (Lead) d. Financial, Financial, Objective, External, Lag (Lead) e. Learning and growth, Nonfinancial, Subjective, Internal, Lead f. Process, Financial, Objective, Internal, Lag (Lead) g. Customer, Nonfinancial, Subjective, External, Lead (lag) h. Process, Nonfinancial, Objective, External, Lag (Lead) i. Learning and growth, Nonfinancial, Subjective, Internal, Lead j. Customer, Nonfinancial, Objective, External, Lead (Lag) k. Financial, Financial, Objective, External, Lag (Lead) Note: Attempting to place measures in lead and lag categories will likely provoke some discussion. Lead indicators make things happenthey are the things that enable outcome measures to be achieved. Manyif not all measures may act as both lead and lag indicators. Pure lead measures are most likely to be found in the learning and growth category, whereas pure lag measures are most likely in the financial perspective category. It is very difficult to classify measures as lead or lag without knowing the underlying strategy. This is an important message of the exercise. For example, on-time delivery is both a lead and lag measure. As a lead measure, it may signal an increase in customer satisfaction as on-time delivery improves. On the other hand, it may act as an outcome measure for a manufacturing cycle time measure (as cycle time decreases, then on-time delivery increases). As a second example, consider unit product cost. This is a lag indicator (e.g., a result of improving process efficiency), but it can also serve as a lead indicator (e.g., if a unit cost reduction leads to a price decrease which, in turn, leads to an increase in market share).

176 1. Activity rates: Packaging rate: $5,400,000/5,400,000 = $1.00 per pound Energy rate: $1,440,000/1,800,000 = $0.80 per kilowatt-hour Toxin release rate: $720,000/3,600,000 = $0.20 per pound Pollution rate: $1,680,000/600,000 = $2.80 per machine hour Unit cost: Herbicide Packaging: $1.00 3,600,000 $1.00 1,800,000 Energy: $0.80 1,200,000 $0.80 600,000 Toxin releases: $0.20 3,000,000 $0.20 600,000 Pollution control: $2.80 480,000 $2.80 120,000 Total Unit cost per pound $ 6,504,000 12,000,000 $ 0.542 1,344,000 336,000 $ 2,736,000 30,000,000 $ 0.0912 600,000 120,000 960,000 480,000 $ 3,600,000 $ 1,800,000 Insecticide

The herbicide has the highest environmental cost per unit. So, to the extent that the per-unit environmental cost measures environmental damage, we can say that this product causes more problems than the insecticide.

2. Excessive usage of materials and energy is classified as an external failure cost (once too much is used, then customers and society bear the costthe effect has been released into the environment). 3. These costs would increase the toxin release rate by $0.90 per pound ($3,240,000/3,600,000). This increase, in turn, would increase the amount assigned to each product: $2,700,000 to the herbicide and $540,000 to the insecticide. Unit costs, then, would increase by $0.225 for the herbicide ($2,700,000/12,000,000) and $0.018 for the insecticide ($540,000/30,000,000). This is a full-costing approach, which many feel ought to be the way environmental costs are assigned. However, it is often difficult to estimate the societal costs, and many firms restrict their cost assignments to private costs. 1715 1. Avade Company Environmental Financial Statement For the Year Ended December 31, 2008 Environmental benefits: Income: Recycling income Increased sales Current savings: Cost reductions, hazardous waste Cost reductions, contaminant releases Cost reductions, scrap production Cost reductions, pollution equipment Energy conservation savings Remediation savings Reduced insurance and finance costs 800,000 1,200,000 200,000 640,000 144,000 880,000 640,000 $ 200,000 1,600,000

Ongoing savings: Cost reductions, hazardous waste Cost reductions, contaminant releases Cost reductions, scrap production Cost reductions, pollution equipment Energy conservation savings Remediation savings Total benefits Environmental costs: Prevention: Designing processes and products Training employees Detection: Measuring contaminant releases Inspecting processes Internal failure: Producing scrap Operating pollution equipment External failure: Disposing of hazardous waste Releasing air contaminants Using energy Remediation Total costs 400,000 2,000,000 1,152,000 1,520,000 $ 9,432,000 1,000,000 1,040,000 560,000 640,000 $ 800,000 320,000 400,000 800,000 200,000 400,000 144,000 800,000 $ 9,048,000

2. The total environmental costs in 2006 were $14,280,000. The total costs in 2008 were $9,432,000, a significant decrease. Adding to this the fact that sales increased because of an improved environmental image, financing and insurance costs decreased, and recycling income increased, then there is strong evidence of increased efficiency. Moreover, the ratio of benefits to costs in

2006 is approaching one. Thus, ecoefficiency is working, and the firm is strengthening its competitive position.

1718 1. The basic issue is which material should be used. Presumably, the functionality of the two designs is similar (for example, durability is not an issue). The weight of the polymer product is much less than the steel product and, therefore, uses less raw materials. This advantage, however, is counterbalanced by the very high recyclable advantage of steel. Only 0.5 pound appears to be lost, while almost all the polymer material is lost (through incineration). While incineration provides an energy source, it also uses up a nonrenewable raw material. Steel recycling keeps most of the nonrenewable raw material in play. The polymer design, though, does have a product use advantage. It causes less petroleum to be consumed per year than the steel product. It also uses less energy in the production stage. But whether this all offsets the recyclable advantage is unclear. The residue picture is also unclear. The polymer produces more gaseous residues but less solid residues. It would be interesting to know which of the two has the most environmental impact. For example, if the gaseous is more serious, then the contamination advantage could flow to the steel product. Other information that might be useful is the energy used to produce the raw materials. 2. Life-cycle cost: Polymer Materials: $30 9 $15 20 Energy: $ 270.00 $ 300.00 Galvanized Steel

Production: $0.50 135* $0.50 200* Product use: $0.70 66 $0.70 110 Contaminants: Gaseous: $100 0.4 $100 0.2 Solid: $40 0.6 $50 2.0 Incineration benefit Recycling benefit Total *Pounds Kilowatt-hours per pound Strengths: This approach provides a single summary measure of the environmental effects. It values potential trade-offs. For example, cost may act as a surrogate for the relative importance of contaminants. If so, then the solid contaminants appear to weigh more than the gaseous. Weaknesses: It is sometimes difficult to estimate the value or cost of certain items. For example, the recycling benefit of $20 may understate the importance of this variable. Furthermore, the incineration benefit does not consider the permanent loss of a nonrenewable resource. In fairness, it should be mentioned that these problems are more significant when the cost difference between the two is small, which is not the case in this example. 3. Although product-use effects and disposal are not included, they do have environmental effects caused by the company. Furthermore, some of these (2.00) $ 445.70 24.00 100.00 (20.00) $ 577.00 40.00 20.00 46.20 77.00 67.50 100.00

costs, such as energy efficiency, are borne directly by the consumer. Reducing postpurchase costs decreases sacrifice for the customer and increases customer value and therefore may be the source of a competitive advantage. Customer demand for cleaner products may also be a good reason for paying attention to these costs. Finally, the costs are a signal of economic inefficiency and thus should prompt a search for more ecoefficiency. 4. Given the cost difference of $131.30 ($577.00 $445.70), the polymer design would be selected. The recyclable advantage is so understated that it would overcome this difference. The favorable cost trade-off for the contaminants is a significant factor in favor of the polymer unit.