The Green Technology

Executive summary

Environmental friendly technologies have a positive impact on the environment. It also benefits the firm’s monetary aspect and increases its competition by tapping large growing markets. Strategy and literature based environmental innovation organizations embraces on those technologies. They warn firms and nations to be strongly committed to green products to acquire the reward. It is unfortunate that green products are not reflecting in the real market implying lack of success in environmental care.

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This paper focuses on the introduction of modified version of value chain analysis. This will help discuss the evaluation of diffusion prospects of green products. The functional area within a firm is based on the value chain. Reduction of costs such as logistics, operations, and sales provide value. Specific focus on value enhancing activities in a firm restricts the usefulness of value chain when analysis green products. The success of green products requires an understanding of its implication on the cost and values of stakeholders.

Life-cycle analysis (LCA) is a multi-stakeholder tool.  It calculates the environmental impact of a product chain. It represents phases of product’s life cycle. The phases are extraction of raw material and transport to manufacturing and distribution, and to end use and disposal. The green innovation value chain (GIVC) employs the multi-stakeholder LCA with the traditional value chain analysis. This will overcome the disadvantage of each tool evaluation of prospects of green products. This paper introduces the green innovation value chain as a tool for analyzing the financial viability of green products using a multi‐stakeholder perspective that includes manufacturers, distribution channels, consumers, the environment, and governments as separate links in the chain. Hybrid vehicles, such as the Toyota Prius, are used as an illustrative case and are found to be financially unattractive compared with conventional vehicles across the entire green innovation value chain.

Synthesis of the article (Main ideas)

There is substantial support from the industry and the government that the Hybrid has received. Despite the support, there has been little empirical analysis of the Hybrids attractiveness to stakeholders or the environment. All used hypothetical best-case Hybrid cost and performance data were not efficient for unbiased GIVC analysis. The limitation was overcome creating new a database by using reputable trade and business media sources. The U.S. market is the focus of this analysis as it has accounted for two thirds of global Hybrid sale. In this article Sarkis (2006), retrieves GIVC comparison of Hybrid and their conventional equivalent. The Hybrid manufacturers’ financial statements enhance calculation of the capital for use in the financial estimates.

Narrative summary

The manufacturer link of the GIVC

There are three major financial areas in manufacturing Hybrid vehicles. The areas are; Development and integration of Hybrid hardware and software, production and assembly of extra Hybrid components and development of the actual vehicle platform that houses the Hybrid technology. For the purpose of this analysis, the total estimated Hybrid development cost based on Ford and Toyota public Hybrid breakeven announcements. It is important to calculate the operating profit per vehicle (OPV) in order to use breakeven production volume. The OPV depends on the relative Hybrid price premium and its added manufacturing cost.

The development cost estimates from the first column result in table 2 shows a sale-weighted average manufacturer loss of $2868 per unit (Sarkis, 2006). The suggestion from the manufacturer link estimates depicts that none of the current Hybrids earn a reasonable profit. This suggestion corresponds to most public statements. A good example to illustrate that Hybrid are produced for purposes of public relations is the Ford. GM claims that they produce Hybrid vehicles to create consumer demand rather than profit as their sale is below cost. The profitability for manufacturers of Hybrid depends on cutting the development and manufacturing costs. It also implies that the manufacturer link is dependent on attractiveness sales to the GIVC link.

The retailer link of the GIVC

The previous LCA studies have not evaluated the financial implication of Hybrid on automobile retailer costs and revenue. According to Sarkis (2006), Hybrids are likely to increase inventory costs due to their higher cost than equivalent conventional vehicles. From the table 2 in the article, CS1 and CS2 represent two conventional car segments. CS1 consists of Hybrid buyers who may have otherwise purchased an equivalent conventional car with a 4% higher average retail margin. On the other hand has a 20% lower retail price. CS2 assumes the Hybrid buyer would have bought an equivalent conventional car that would have a 31% higher retail margin. 

From the table in the article, it is revealed that a great deal of retail margin variance. Likewise, some of the manufacturers such as Honda and Ford provide their dealers with Hybrid margins that are attractive. Toyota being the biggest seller of Hybrid has built a portion of their high market share by cutting retail margins. This is evident as none of the Toyota or Lexus Hybrids yield a higher profit for dealers than equivalent CS1 and CS2 sale. Assuming that CS2 has 75% of Hybrid buyers and CS1 has 25% Hybrid buyers, the average retail profit will be reduced by 33%. The reduction in retail profit implies that only two Hybrid models are more profitable than conventional cars under the same condition.

Increased retailer support is dependent on the likelihood of selling large quantities of higher price Hybrids. This is to offset the reduced profits received from each Hybrid sale. This is challenging to a mature markets majority of the share comes from competing retailers. This study suggests that retailers profits may be negatively affected if Hybrids become more than the market niche. Retailer link profits are dependent on the number of customers that perceives Hybrids as attractive and worthy for their retail prices.

The Hybrid Consumer Link of the GIVC

Five key dimensions explain high level of innovation diffusion. The dimensions are; high relative advantage versus current offerings, low complexity, easy trial ability, high compatibility with current practice, and high observability (Janssen and Jager, 2002). The Hybrids are positioned on several dimensions when assessing them within the diffusion framework. Compatibility of Hybrid with conventional car is lower with plug-in Chevrolet. To maximize on the environmental and operation cost benefits, the owner is required to regularly plug the car to recharge its batteries. Consumers are unwilling to pay for the lower emissions of green products contribute to the advantage of the public. It depicts relative advantages on some conventional attributions of non-green are vital for a successful market (Orsota, 2006).

From the study, several vital attributes are deficient in an average Hybrid. Comparing with conventional equivalents, they are more expensive to buy and insure, they are generally weaker in performance, Hybrid utility, and comfort is compromised by the required battery space. Hybrids are much heavier than the conventional equivalents due to extra weight from the hardware. As indicated in figure 4, Hybrid will generate about 9.7 and 6.1 fewer tons of CO2 over its lifetime in comparison to its conventional equivalent. It is confirmed that at even 15,000 miles per year, nine out of twenty Hybrid models do not reduce CO2 in the environment. CO2 emissions are increased by 50% in manufacturing the higher capacity batteries versus comparable conventional car.

Rebound effects would eliminate calculated CO2 reductions above. This can be achieved assuming that Hybrids are driven approximately 2000 extra miles per annum because of their lower fuel consumption. Assuming that there is no rebound effect, it means that Hybrid can potentially reduce CO2 emissions caused by automobiles by double-digit percentage. If Hybrids are widely adopted, they can cut CO2 emissions. The wide adoption suffers negative financial returns for each link of the GIVC. Widespread Hybrid diffusion needs government’s support and subsidies to several GIVC links.

The Government Link of the GIVC

There is a variety of support given to Hybrid from the government. From an economic point of view, government’s support for green products should be less than the value received by consequent environmental damage reductions. The environment link results suggest that Hybrid offers a poor return as compared to taxpayer money. Hybrid is unlikely to completely eliminate the development and manufacture cost disadvantages. This system requirement makes Hybrid more like solar and wind power that require backup. The fluid state technology of Hybrid requires large Hybrid related investments in several areas.

Reaction and reviews

Personal reaction

GIVC is an important analysis tool in the context of green products. Higher levels government assistance is supposed to reach profitable levels of Hybrid diffusion. The environmental link analysis shows that green innovations like Hybrids may not always be greener than conventional alternatives. Several factors need to be analyzed before a green innovation is launched. Some green products might depict poor financial gains for one or two links in the chain. This may reduce or eliminate the efficiency of diffusion prospects as evident in the article.

Scholarly reviews

Hybrid technology accounts for less than two 2% of the global new cars. This is a setback in the sense that after the huge investment for more than a decade. The analysis that is presented in this article suggests that Hybrids are currently financially unattractive for any of GIVC links. Hybrids are not expected to move beyond its current niche without major increases in fuel prices and cost friendly technologies. From research, it is suggested that everyone wants to go green but a small percentage of buyers are willing to make any serious sacrifices to achieve it (Ambec and Lanoie, 2008).

My conclusions and recommendations

Conclusions

The article provides the Green Innovative Value Chain that analyses the feasibility of the Hybrid technology. There is one limitation of GIVC accounting for nonfinancial rationales to have the go-green technology. The analysis demonstrates the significance of considering interdependencies among the chain links to predict success and failure. The GIVC demonstrates its ability as a tool to evaluate alternatives scenarios for every independent link. The GIVC analysis can show the gap sizes between products and conventional alternatives across a variety of scenarios and links.

Recommendations

The Green Innovation Value chain can be applied in other green products that have not yet achieved their set goals. The analysis that gets financially unattractive propositions at each link should be warned of product’s low likelihood of displacing conventional alternatives. It is important that scenario parameters are not chosen based in supporting pro-green biases that hinder financial and environmental assessments.

References

Sarkis, J. (2006). Greening the Supply Chain. London: Springer-Verlag London Ltd.

Ambec, S., and P. Lanoie. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives 22 (November): 45–62.

Janssen, M. A., and W. Jager. (2002). Stimulating diffusion of green products. Journal of Evolutionary Economics 12: 283–306.

Orsato, R. J. (2006). Competitive environmental strategies: When does it pay to be green? California Management Review 48 (Winter): 127–43.

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