Electrolux

A Natural Step Case Study

Overview
Electrolux, a global group of about 500 companies, is the world's largest manufacturer of household appliances (refrigerators, washing machines, vacuum cleaners), commercial appliances (refrigeration and laundry equipment), and outdoor appliances (chain saws, lawn mowers, and trimmers). Some of the better known companies in the US include Frigidaire, Eureka, and Kenmore. Today, employees number approximately 106,000 and net sales for 1997 were over $14 billion.

Background
Electrolux began operations in 1901 manufacturing kerosene outdoor lamps and in 1912 designed the first household vacuum cleaner. In the 1920s Electrolux bought AB Arctic, the world's first producer of refrigerators, thereby beginning its history of acquiring appliance and garden/forest-product companies. The Electrolux strategy has been to acquire companies and allow them to operate as individual units. It has become a multi-cultural, flat-management-style company that values cooperation, individual development, efficiency, and the environment.

Introduction to The Natural Step
Prior to the 1990s Electrolux was reactive and defensive about the environment. CFCs were becoming an industry issue, especially after the Montreal Protocol in 1987. The company was trying to find reasons not to change and was pointing to others around the world as worse violators than it. This strategy proved fruitless as the company began to see changes in market forces and demand for environmental goods in the early 1990s.

In 1991 top executives approached Karl-Henrik Robèrt, founder of The Natural Step (TNS), after a customer expressed concern over the use of CFCs (chlorofluorocarbons) in refrigeration equipment. The customer had told Electrolux that the use of CFCs would violate the second system condition of The Natural Step. Because the customer was canceling a large contract for commercial refrigeration units, senior executives had become involved. Through meetings and dialog with Karl-Henrik Robèrt, these executives learned that environmental leadership was the key to long-term survival and the surest way to satisfy environmentally aware customers and avoid unexpected costs resulting from environmental degradation.

As a result of this experience, former CEO Leif Johansson decided to be proactive and to embed environmental considerations into the company's business strategy. In 1992 Electrolux adopted an environmental vision and policy based on TNS principles. (See p. III-8.) Management liked TNS because the framework focused on causes rather than symptoms, could be understood and agreed to by most people, and was not controversial.

Implementing the Environmental Vision
Electrolux adopted a total approach in its environmental efforts. This approach implies an active commitment to the environment in all operations and a contribution from all employees. In addition, every phase in a product's life cycle is evaluated to minimize negative environmental impact and reduce consumption of raw materials and energy. In the words of current CEO Michael Treschow:

"Environmental protection is a long-term question of survival for individuals, companies and society. Activities must be adapted to nature's own limitations in terms of resource use and pollution. Environmental care must be a cornerstone in our operations and characterize our daily work."

To make Electrolux an industry leader, management decided to drive environmental developments in the respective markets rather than just keep ahead of legislation. It established an Environmental Board, with the CEO as chairman, to make decisions on major strategies. All product lines (some 20 divisions) were required to present plans to implement the environmental vision and policy. To advise the Board and to assure implementation of these plans, an Environmental Affairs unit was formed under Senior Vice President Per Grunewald. Integrating environmental and business strategies.

Environmental Affairs establishes minimum company-wide standards for environmental management systems, employee education, measurement, and reporting. However the business units are responsible for carrying out the environmental work. This is accomplished through a network of 70 environmental coordinators who are appointed by and report to product line managers. Through a number of seminars and workshops, Environmental Affairs has raised the coordinators' awareness and helped them create environmental strategies within their business areas.

In 1995 Environmental Affairs introduced the Environmental Change Program as a method of
identifying opportunities and integrating environmental concerns into business strategies. The
initiatives are driven by three forces:

• Potential legislation and treaties
• Cost reduction opportunities through resource efficiency
• Market demand for ecological products

Product-line management and staff explore environmental issues and develop action plans in
three phases:

1. Analyze the existing situation and draft alternative policies for addressing future environmental issues. Identify the business opportunities that might arise from the proposed solutions.
2. Develop and implement an action plan from the best business opportunity(ies).
3. Assess results to be woven into the organization as continuous improvement.

This program determines which environmental concerns receive attention from the operating units. The process helps to avoid disastrous environmental problems and create environmentally superior products.

Life cycle analysis. In the early 1990s Electrolux Research & Innovation performed life cycle assessments on different product groups. It discovered that only about 10% of the total environmental impact of the products occur in production. Most of the impact is generated in the form of energy and water consumption during the use of the product and the emissions and waste once the product is at the end of its useful life. As a result Electrolux chose, not only to become a leader in the development of environmentally sound products, but also to create demand for these products.

It places a strong emphasis on cutting the energy and water needs of its products and making them recyclable. Engineers look closely at the ease with which products can be dismantled and seek to eliminate undesirable materials. Some product lines have begun printing dismantling instructions.

Training
Training of 106,000 employees in over 60 countries has been a decentralized process at Electrolux. Some business units have used TNS directly; some have not. However, the company has developed a training package called Eco Know How that can be used for presentations, group exercises, or independent study. Module one, "Basic Training," introduces environmental issues and then basic principles of building an ecologically sustainable society. In this module the four TNS system conditions are highlighted as the guiding principles for Electrolux's environmental activities. The second module, "Electrolux and the Environment," details the holistic view that Electrolux has adopted. Information includes the environmental strategy and products. Both modules one and two are available to the general public on the company's internet site. Module three, "Environment at Work," provides employees with guidance and examples of environmental work in areas such as purchasing, product development, and distribution.

An important aspect of the training is to demonstrate that environmental management, as Per Grunewald puts it, "has everything to do with business." As individual companies implement their environmental management systems, they are finding that most of the work does not involve the technology or machinery; instead it involves changing people's behaviors and habits.

The plant in Vallenoncello, Italy, when it was seeking initial certification of its environmental management system, trained its employees to see that real environmental quality comes from thinking about plant activity as a continuous process that starts from product planning and continues all the way to disposal and recycling.

Environmental Management System
Electrolux uses an environmental management system designed according to ISO 14001, developed by the International Organization for Standardization. This prescribes an environmental policy, planning, implementation, monitoring and corrective action, and management review. Once a manufacturing facility has a system fully operating, it can be ISO 14001 certified or registered with the European Union's Eco Management and Audit Scheme (EMAS). Electrolux is committed to have an environmental management system in all 150 manufacturing sites around the world by the year 2000. By the end of 1997 approximately 30 had ISO 14001 certification. Another 19 are expected to receive certification in 1998.

Results
Through its total approach to the environment, Electrolux has made many changes to products and processes to comply with the TNS system conditions. Some examples are highlighted below:
To reduce dependence on substances from the earth's crust

• A solar powered lawnmower that runs on solar cells
• A portable vacuum that uses cadmium-free rechargeable batteries
• The use of canola oil, a biodegradable vegetable oil, in its chain saws
• Utilization of the railway system (more fuel-efficient than trucking) for 75% of product distribution in Europe
• Brush cutters and trimmers that consume 30-35% less fuel than earlier models

To reduce dependence on unnatural substances

• Refrigerators and freezers that use no CFCs or HCFCs in the cooling system or insulation
• New equipment that replaces the dangerous solvents in commercial dry cleaning. The equipment uses water and biodegradable detergents, but avoids shrinkage by computerized timing, temperature, and moisture controls.
• Use of water-based and powder paints instead of solvent-based paints on white goods, resulting in an emissions reduction of 45% between 1992-95 by Electrolux's US white goods company
• Reduction of hazardous waste by 95% in 1994 by a St. Cloud, Minnesota plant
• An Eco vacuum cleaner containing no PVC
• Reduction in discharges of 17 chemical substances by 93% between 1988-1996 in North American factories

To minimize dependence on exhausting nature's biological diversity and ecocycle

• A wastewater cleaning system that recycles water within a Nashville, Arkansas weed eater plant instead of discharging it into the sewer system, saving 10 million gallons of water per year

To stop wasting resources and get more out of less

• A new dryer that uses a heat pump to cut electrical energy consumption in half
• Frigidaire's front-loading washing machine that saves about 18 gallons of water per load
• A series of AEG dishwashers using 26 components made from recycled plastic, reducing annual consumption of new plastic by 220,460 pounds
• Eco-vacuum cleaners in which 40% of plastic parts are recycled, many large plastic parts are uncolored to ease recycling, and plastic and rubber details are marked for easy recycling
• Ovens which use 60% less energy than comparable products
• Purchasing policies at AEG Hausgerate that require suppliers to use reusable packaging to the greatest extent possible. Between 1992-94 reusable packaging increased from 45% to
• 58%.

Environmental and Financial Benefits

Electrolux tracks environmental impacts of production through six key ratios, four of which are related to added value--the difference between total manufacturing costs and direct material costs:
1. Energy cost per added value
2. Energy consumption per added value
3. Carbon dioxide emissions per added value
4. Water consumption per added value
5. Energy consumption per square meter of heated surface area
6. Direct material efficiency--the amount of incoming material compared to the amount in the finished products

The most significant improvements occurred between 1991 and 1994. Continued improvements are more difficult because the easy steps have already been taken and because some plants with old technology have been acquired.
 

By 1996 the company had introduced four internal environmental performance indicators:

• Share of total sales represented by environmentally leading products
• Average annual environmental improvement of product range
• Increase in recyclability of products
• Environmental improvement of manufacturing facilities

Electrolux has been open about the results of its environmental efforts, recognizing that the availability of this information can help fuel further success. The Environmental Affairs unit has produced environmental reports each year since 1994. Senior Vice President Per Grunewald believes that governmental and non-profit education of the general public is not enough. In his view, the manufacturers and marketers are in the best position to persuade consumers to choose environmentally sound products.

The aggressive environmental strategy has been shown to be profitable. Data from 1996 show that the most environmentally sound products generated 3.8% higher profits than conventional products. Electrolux has introduced the first front-loading washing machine in the U.S. Many in
the company were quite concerned they would not succeed because the price is almost double that of other machines. The company advertising has emphasized the better washing quality and long-term cost savings, and the machine got the highest rating from Consumer Reports. Now they are selling more than they can produce.

Lessons Learned
Integration of The Natural Step framework into business strategies has changed the way Electrolux thinks about product design. For example, the company initially improved lawn mowers by adding catalytic converters, and it supported tougher emission legislation in California. Then the designers began to ask, "Why do it this way? What is the basic service?"
 
As a result of looking at how sheep "mow" grass, they designed a solar mower to work randomly when the sun comes up like sheep do. The design uses an embedded wire to keep the mower within bounds. Currently the model is too expensive. However, Electrolux got lots of media attention, and the few purchasers, such as restaurants and conference centers also got PR value. The company is developing a core competency in this area that it can use in future years when solar cell costs come down.

Sources
1. Electrolux Environmental Reports for 1994, 1996, and 1997.
2. Interview with Henrik Troberg, Product Ecology Manager by Duke Castle and Clem Laufenberg, September 14, 1998.
3. Email from Henrik Troberg, September 29, 1998.

This case study was prepared by Heidi Owens for the Natural Step Network.