Incorporating Environmental Excellence in Service Industries

Peer-reviewed articleNazim U. Ahmed is a Professor of Information Systems and Operations Management at Ball State University. Sushil K. Sharma is an Assistant Professor of Information Systems and Operations Management at Ball State University. Ray V. Montagno is the Associate Dean of the College of Business, Ball State University.


This paper presents a model of incorporating environmental excellence in service industry. There are four major steps in the framework. First, all the major activity centers are identified. An activity center can be defined as a unit of the organization, which is distinct from other units in terms of criteria such as tasks, operations, responsibilities or function. Next, environmental impact analysis is done for each activity center. The third step is to come up with solutions using trade-off analysis. Finally, the environmental consciousness strategies are implemented through education and training, benchmarking and empowerment. The model can be used effectively by managers in the service industry for achieving environmental excellence.


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In the last two decades, significant social, technological and political changes have taken place. As the nations of the world industrialize, the growth rates of production and consumption have increased the challenge of sustainability and world ecological balance. Environmentalists use "carrying capacity" to measure the ability of Earth to sustain a level of population [Duffy and Potter, 1992] .Traditionally, carrying capacity was measured in terms of ability to feed the population on Earth. With advancements in technology, the carrying capacity of Earth has increased significantly. However, we have reached a point of diminishing returns. There is a new measure, which more accurately describes global carrying capacity. This is called "cultural carrying capacity" [Duffy and Potter, 1992]. Cultural carrying capacity takes consumption into consideration. The cultural carrying capacity of Earth is significantly less than the theoretical carrying capacity and, further, it appears to be declining due to continuous environmental degradation and patterns of consumption growth.

The traditional notion is that environmental concerns would negatively affect companies' performance, as a company has to invest more than usual amount of resources in its products and processes [Freeman, 1994; Judge, 1994]. Furthermore, many managers view environmental management merely as compliance with regulations . So far, there is not much empirical evidence available to prove or disprove this notion [White and Savage, 1995]. On the other hand, there are some suggestions that being proactive environmentally may lead to long term economic gain [Bandley, 1992; Remich, 1993; Wells, 1990]. Several articles  in the literature illustrate the success of specific companies using environmental consciousness as one of its strategies [Allen, 1992; Baker, 1993; Fernberg, 1993; Shi and Kane, 1995; Tedeshchi, 1993; Ahmed, Montagno and Firenze, 1998].

Traditionally, most of the focus for environmental management is geared towards manufacturing enterprises. However, it is a fact that a greater part of the U.S. gross domestic product can be attributed to the service sector of the economy. Examples of different categories of services are transportation/communication, wholesale/retail trade, financial services, professional services, education, health care, recreation and so forth. According to a recent estimate by the Bureau of Census (1996) seventy six percent of GDP is in the service sector. Also, the service sector will provide four out of five jobs by the dawn of next century [Bureau of Census, 1996]. Therefore, it is imperative that any sustainable development effort should include the service segment of the economy. This paper develops a framework to help achieve environmental excellence in the service sector.

The Case for Environmental Excellence in the Service Sector

Some service enterprises have recently become more environmentally conscious [Megan, 1998, Fitzgerald, 1997]. It can be argued that incorporating environmental excellence into service industry is far less complex than in the case of manufacturing industries. Table 1 (below) shows some comparisons between the manufacturing and service industries in terms of implementation of environmental excellence.

In the manufacturing industry incorporating environmental excellence necessitates major changes in product and process design and may affect customer satisfaction. For example, adapting today's disposable diapers to bio-degradable diapers involves major product and process design changes and may impact price and market share. On the other hand, the fact that K-mart decided to recycle used tires hardly affects customer satisfaction.

Table 1: Differences between Manufacturing and Service Industry From Environmental Excellence Perspective

Operations Variable



Output Design


Less Complex

Process Design


Less Complex


          Very Difficult

Less Difficult

Effect on Market Share

         May be negative

Usually not significant

Effect on pricing

         May be negative

Usually not significant


Difficult and time consuming

Usually simple

Environmental Auditing

Complex and Difficult

Less complex

Also, there is no significant change in the service delivery system. Similarly, when McDonalds decided to switch from Styrofoam packaging to paper packaging, the impact on service delivery process and customer satisfaction was minimal. However, it had significant impact on reducing pollution and may have saved money.

In general, it is relatively easier to implement an environmental consciousness strategy in the service sector because the changes needed in service delivery systems may be less complex.

A Practical Framework

This paper presents a model of incorporating environmental excellence in service industry. There are four major steps in the framework. First, all the major activity centers are identified. An activity center can be defined as a unit of the organization, which is distinct from other units in terms of criteria such as tasks, operations, responsibilities or function. Next, environmental impact analysis is done for each activity center. The third step is to come up with solutions using trade-off analysis. Finally, the environmental consciousness strategies are implemented through education and training, benchmarking, and empowerment. This model can be used effectively by managers in the service industry for achieving environmental excellence.

In the following section of this paper a practical implementation framework for incorporating environmental excellence in the service sector is discussed. The framework includes the following four steps: 1) identification of major activity centers; 2) environmental impact analysis of the activity centers; 3) trade-off analysis and improvement decisions; and, 4) implementation.

Step 1: Identification of Major Activity Centers

The activity centers can be defined as a unit of the organization which is distinct from other units in terms of tasks, operations, responsibilities, or function. Table 2 (below), gives some examples of activity centers for three types of service organizations.

Table 2. Examples of Activity Centers

Department Store



Auto Repair





Administrative staff

Clothing department

Pathology lab

Food services

Meat department

X-ray and MRI lab

Residence halls

Produce department

Pediatric care

Building maintenance


Nursing station

Custodial staff

The activity centers shown in Table 2 are not an exhaustive list. However, in a real situation, it is important to identify every major activity center.

The next step is to analyze each activity center to take an inventory of environmental degradation. To illustrate this we chose to use a university as an example. Within this type of service organization, we have selected "faculty" as the activity center. Table 3 (below) presents the environmental impact analysis and trade-off decisions for this activity center. It can be seen from this table that there are six sources of environmental degradation identified in the six rows. The first source is internal paper-based mail. It is assumed that if a faculty receives 0.5 pound of internal paper mail per day on the average (in the form of memos, reports, newsletters etc.) and based on two hundred working days and one thousand faculty members, the total will be 100,000 pounds per year. Similarly, the environmental impact from all the other sources can also be estimated.

Step 2: Environmental Impact Analysis of the Activity Centers

A-B-C Analysis

When we have a large number of sources of environmental pollutants for an activity center, it may be a good idea to prioritize the sources in order of importance [George and Weimerskirch, 1994]. Here "A" items are those which may be a few in number, but  they account for a major part of environmental degradation.  "B" items are those that account for a moderate amount of degradation, and "C" items are usually large number of sources contributing to a small amount of environmental degradation.

Table3. An Example of Environmental Impact and Trade-off Analysis of an Activity Center (Faculty)

Source of Environmental Degradation

Magnitude of



Problem Category

(ABC Classification)




Impact  on







Internal paper

based mail

100 lb/yr

x 1000 faculty



75% conversion

to e-mail; 25%

paper-based also recycle



Out-going mail

30 lb/yr

x 1000 faculty

=30,000 lb/yr



25% conversion to e-mail



Class hand-out

10 lb/yr

x 1000 faculty

=10,000 lb/yr



Put 50% on the Internet



Obsolete text


50 lbs/yr

x 1000 faculty





Neutral to slightly




x 1000 faculty

=90,000 lbs/yr


Multiple-choice Test(75%

done on line)




800 kwh/yr

x1000 faculty =800,000kwh/yr



Use efficient lighting. Turn -off light. Monitor heating



Instead of emphasizing all polluting sources equally, it may be wise to give priority to "A" and "B" and address  "C" items only if time and resources permit.

Step 3: Trade-off Analysis and Improvement Decisions for Activity Centers

The next step is to identify and analyze alternatives for reduction of environmental degradation from each of  the major sources. Each alternative should be evaluated in terms of cost, reduction of pollutants, effect on customer service and satisfaction, and the effect on business or organization goals. The ultimate solution should employ some trade-off between conflicting objectives such as customer satisfaction, company profitability, and so forth.

In Table 3 (above) , some proposed trade-off solutions are presented. For example, a trade-off solution for internal paper-based mail is to convert seventy-five percent to e-mail, with the remaining twenty-five percent still paper-based. However, we move further towards achieving our environmental goals by employing a recycling strategy. The impact of this solution on customer satisfaction is neutral. (In this case sudents are assumed to be the customer.) The impact on organizational goals is positive. Hopefully, a seventy-five percent conversion to e-mail would generate significant savings that  may offset the cost of recycling twenty-five percent of the papers generated by internal mailings.

Another trade-off solution is to use the Internet for multiple-choice type of testing. Many universities have testing software such as INQUISIT, which can be used by students for taking a multiple-choice test. If proper procedures are installed, this could not only make test taking environmentally friendly, but it may also increase student satisfaction and may save time and effort by the instructor. The university will save significant amount of money in paper and time spent on grading, etc. Therefore, this will also enhance the reaching of the university's goals. Trade-off solutions for other sources of environmental degradation are also presented in Table 3.

Many of the trade-off solutions necessitate the use of computers. One may argue that using computers may save paper, but at the same time they will generate more waste because of the increased use of hardware such as computer itself, monitor, and printers. This may not necessarily be true, as most of the organizations will use computer for their routine business functions anyway. So, any changes in operations and processes that makes use of computers to enhance environmental excellence will not necessarily mean more pollution.

Environmentally Friendly Material: E-Materialization

Recently computers have become less material intensive. Laptops are getting smaller and smaller. Flat screen monitors are replacing the CRTs. In addition, materials used in products such as newspapers, books, dictionaries and encyclopedias, periodicals, etc. could be eliminated to a great extent by using digital mediums. Equipments such as stereos, video recorders, cameras, telephones, and answering machines are products designed to manipulate, store, and transmit information. Similarly, many of our institutions, from the post office to the local bank, consume energy and materials by occupying structures that exist mainly to process information. As a technology for manipulating, storing, and transmitting information, the Internet can perform many of the same functions and in some cases do it  much more quickly and conveniently. Therefore, it has the potential to dramatically reduce the materials and energy used in by businesses. This substitution of bits and bytes for physical goods has been called "e-materialization." E-materialization via the use of the Internet not only eliminate material use, it also achieves savings in energy use. By 2010, e-materialization of paper alone will reduce U.S. industrial energy use and GHG(green house gas) emissions by more than 1.5% [Romm, 2000].

Step 4: Implementation

The implementation step should consist of the following tasks:

1) education and training;

2)benchmarking; and

3) empowerment.

Education and Training

An education and training program should include:

 1) environmental awareness; 

2) activity center focused strategy to achieve environmental goals; and 

3) collection and effective use of environmental information.

Environmental Awareness

The public is becoming more environmentally conscious. However, few people have a significant appreciation and understanding of the potential threat to the environment or the opportunities to make our environment safer. Environmental awareness is the first step in education and training toward achieving a sustainable environment. This will enable employees to take a more serious view of  threats to the environment and may lead them to strive for incorporating environmental consciousness into their decisions.

Activity Center Based Environmental Training

Training and education should include seminars that specifically detail different strategies and techniques to be used for reducing environmental damage. This should be geared toward specific activity centers. In our university example, the techniques and strategies used for faculty may be entirely different from those that would be used for the food services staff.

Training Employees How to Perform a Simple Environmental Audit

Finally, it is necessary that employees be trained to generate and use appropriate environmental information. One can collect and use environmental information through environmental audits. Successful environmental audit training program provides hands-on experience -- either through an actual audit or in a role-playing situation [Harrison, 1994]. The ideal is the combination of both based on an exchange of information from a knowledgeable and experienced auditor. According to Harrison (1994) the audit training should include:

Goal Setting and Bench-marking

Once employees are trained in the techniques and strategies specific to their own activity center, it is important to set standards and goals and to design and implement a system of measurement. Benchmarking is the continuous process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders. Standards from world-class firms and customer expectations are useful in setting up desired levels of goal attainment. In the long run, the benchmark must reflect the desire of the company to be one of the best [Camp, 1993 and Camp 1989]. An organization may not be in a stage where it can compete with the best environmentally conscious companies. However, it may be a good idea to use the process to make significant improvement over a period of time. For the those who are just staring out, it may be appropriate to set incremental goals at the end of certain time line. For example, a ten-percent recycling in the first year, fifteen percent in the second year and so on. Traditional U.S. managers maintain product and processes until they can be replaced by new technology [Evans and Lindsay, 1996]. However, the cumulative effect of successive incremental improvements and modifications to established products and processes can be very large and may out pace efforts to achieve technological breakthroughs  [Evans and Lindsay, 1996 and  Dertouzous et al, 1989]. This can also be true about an environmental consciousness strategy.

A tracking system should monitor the performance against the benchmark. The measurement system should employ simple and accurate criteria [Chung, 1989 and Tobin, 1990]. The information provided should be concise, timely and easy to understand. Such information will promote accurate data collection and actual usage.


The organization culture should be empowered so that all the activity centers of the organization may provide quick, timely and uninhibited feedback. Huston (1992) suggested a four-step process to go along with empowerment.These are:

1) visualization --clear goals; 

2) formalization -- tightening up the planning and deployment process; 

3) individualization -- defining clear individual expectation and rewards; and 

4) socialization --the need to create shared values and trusting relationships throughout the organization.

As many of the activities in the organization are done in teams, it is important to understand team dynamics with respect to empowerment process. The current focus is on self-managed teams, which require that a team manage their own work without much intervention from the hierarchy. This concept has been proven successful for many organizations (Pegels, 1995). Cross-functionality is implicit in this approach, and the benefits from the diverse perspectives of the organization will enhance environment-related decisions. The key is to provide the team with enough decision-making authority that will increase job satisfaction, and enhance productivity and competitiveness.

Employees generally respond to rewards provided by the organization. If successful implementation is connected with a set of monetary and/or recognition rewards, the employees may take the environmental effort more seriously.


The proportion of our gross domestic product and employment accounted for by  the service sector is growing, and the trend will continue. Historically, most of the efforts to implement environmental consciousness strategies have been directed towards manufacturing organizations. While implementing environmental consciousness strategies in manufacturing organizations is extremely important, it is equally important to do the same for the service sector of the economy. Fortunately, incorporating environmental management strategies for service industries are generally less complex. These strategies do not require radical changes in the a service industry's delivery system. This paper describes a framework to guide the implementation of an environmental excellence philosophy in the service industry. There are four major steps in the framework. First, all the major activity centers are identified. The activity centers can be defined as a unit of the organization, which is distinct from other units in terms of criteria such as tasks, operations, responsibilities, or function. Next, environmental impact analysis is done for each activity center. The third step is to determine solutions using trade-off analysis. Finally, the environmental consciousness strategies should be implemented through education and training, benchmarking and empowerment.

The model developed here has practical significance and can be used effectively by any small, medium, or large service organization for incorporating environmental excellence in their business. Service firms that  are successful with this approach may be able to advertise themselves as environmentally proactive to gain competitive advantage.

Articles on the same subject as this one is appearing in this year's issue of B>Quest:

"The Invisible Hand at Odds with Environmentalists "Affected to Trade for the Public Good"

"Sustainable Development: Pros and Cons"


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