Turning Waste into by-product
By: Deishin Lee
Contributors: Harvard Business School
Edition: 7th rev.
Series: Working paper / Harvard Business School -- 07-098; Working paper (Harvard Business School) -- 07-098
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 30
Description: This paper studies how a firm can create and capture value by converting a waste stream into a useful and saleable by-product (i.e., implementing by-product synergy, BPS). We show that BPS creates an operational synergy between two products that are jointly produced. In essence, BPS is a process innovation that reduces the marginal cost of the original product and/or the by-product. The firm creates value through this process innovation and can capture this value by taking market share from competitors, capturing newly created market opportunities, or licensing the innovation to its competitors. We determine the optimal operating and licensing strategies for the firm and find market conditions under which the firm would benefit most from implementing BPS. We show that the optimal operating and licensing strategies are driven by the size of the cost reduction enabled by the BPS process innovation for each product. We also show that leveraging the synergies between the original product and by-product can lead to counterintuitive profit-maximizing operating strategies such as increasing the amount of waste generated, and strategically increasing the quantity of original product above the business as usual production volume. We present a framework for assessing the environmental impact of BPS which incorporates the impact of the optimal operating and licensing strategies.
Notes: "July 2007, revised January 2011, July 2011" -- Publisher's website.

Originally published as: Using by-product synergy for competitive advantage (2007) and reissued as: Leveraging waste : implications for competition and welfare (2009).

Includes bibliographical references.