Turning waste into by-product
By: Deishin Lee
Contributors: Harvard Business School
Edition: 5th rev.
Series: Working paper / Harvard Business School -- 07-098; Working paper (Harvard Business School) -- 07-098.
Publisher: Harvard Business School
Published: 2007
Place of publication: [Boston]
Language: eng
Number of pages: 40
Description: This paper studies how the conversion of a waste stream into a useful and saleable by-product (the practice of by-product synergy, BPS) affects a firm's optimal operating strategy and the resulting environmental implications. We show how waste disposal cost acts as a key lever in determining the optimal BPS operating strategy. The avoided disposal cost creates a favorable cost structure for the firm and can be a source of competitive advantage against firms who do not practice BPS. However, the firm can increase profits by patenting and licensing its BPS process to its competitor, even though it would negate its cost advantage. We show that lever- aging the synergies between the original product and by-product can lead to counterintuitive profit-maximizing operational practices such as increasing the amount of waste generated and strategically increasing the quantity of original product above the business as usual production volume. Although firms are inclined to treat BPS as merely an alternate form of waste disposal, our results show that the process should to be managed at a strategic level. We present a framework for assessing the environmental impact of BPS and show that, contrary to conventional wisdom, it may not necessarily benefit the environment if the firm converts its waste into by-product.
Notes: "July 2007, revised July 2007, February 2009, April 2009, June 2009, April 2010"--Publisher's website.

Originally published as: Using by-product synergy for competitive advantage. c2007.

Includes bibliographical references.