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The Bold Look of Kohler And Commitment to Sustainability

By Daniel Heibel University of Wisconsin - Stout Strategic Management and Business Policy BUMGT-490 Date: December 17, 2009

Executive Summary “Waste not, want not” is a centuries old idiom that reminds us that the wise use of one‟s resources will keep one from poverty. But in the business world, business stakeholders demand that the wise use of resources will lead to profitability. This is the basis of corporate sustainability and can be described by the three elements of environmental, social and economic responsibility. Why has corporate sustainability become such a concern? Executives have come to recognize that long-term economic growth is not possible unless that growth is socially and environmentally sustainable. A balance between economic progress, social responsibility and environmental protection, sometimes referred to as the triple bottom line, can lead to competitive advantage. Developing sustainability strategies is often an important challenge for senior executives, but implementation is usually the larger challenge. Senior managers often find it difficult to simultaneously improve all three elements of sustainability. This analysis describes the Kohler Company‟s commitment to sustainability, compares it to other corporate strategies currently being implemented, and presents possible alternatives that will improve their implementation and strategy.

Opportunity Statement Identify Kohler‟s sustainability strategy and its implementation, and based upon comparison with best-in-class organizations, recommend alternatives or additions to its strategy. Company History and Profile The year was 1873, an unlikely time to start a new business in America. Despite the economic uncertainties of the day, John Michael Kohler purchased the Sheboygan Union Iron and Steel Foundry, never anticipating the growth of the company that would eventually bear his name. The firm produced cast iron and steel implements for farmers in the area, castings for the city‟s furniture factories, and ornamental iron pieces that include hitching posts, cemetery crosses, urns and settees. In 1883, Kohler took a product in his line, heated it to 1700°F and sprinkled it with enamel powder. Placing a picture of it in the center of his one-page catalog, he called it “a horse trough/hog scalder… when furnished with four legs will serve as a bathtub.” Kohler was in the plumbing business. Legend has it that the first bathtub was sold on barter arrangement for one cow and 14 chickens. Like Kohler himself, many of the early employees were immigrants. Their dedication to excellence helped forge one of the oldest and largest privately held companies in the United States. Kohler ideas craftsmanship and

technology are at work today worldwide. Kohler now produces plumbing products, exquisite furniture, tile and stone, engines and generators, and along with its hospitality and real estate group, they advance the way to a more “gracious living”. In 1899, John Michael purchased 21 acres of farmland in Riverside, four miles west of Sheboygan, to build a new foundry and moved the company to this location. In 1912, the name Kohler Company is formally adopted, and Riverside is incorporated as Kohler Village. Five years later, the Olmsted Brothers of Boston create a 50 year master plan for the development of Kohler Village as a planned community. The roaring twenties was a period of great expansion at Kohler. The company entered the power systems business, producing generators with small gas engines. The company also built facilities for the manufacture of faucets and vitreous china pottery, allowing it to become a full-line plumbing products manufacturer. At this time, Kohler scored a technological breakthrough by producing cast iron and vitreous china plumbing products in matching pastel colors. With the 1930‟s came the Great Depression and Kohler managed to keep full employment until 1935, when it was forced to cut its workforce until wartime production began in 1941. Kohler then converted much of its

production to torpedo tubes, artillery shells and other military components, producing only the plumbing products and generators needed for WWII. Following victory in WWII, Kohler converted back to peacetime production of plumbing fixtures and begins marketing its line of small engines. This begins another period of rapid expansion that is curtailed by a bitter six-year strike by the United Auto Workers union from 1954-1960. Despite the strike, a new 400,000 square foot small engine manufacturing facility is opened. The company also makes its first expansion outside of Wisconsin by building a vitreous china and reinforced fiberglass facility in Spartanburg, South Carolina. Kohler goes international by building a plant in Mexico City, to produce small engines for the Mexican market and for export, in 1964. 1967 saw the development of boldly colored products and the company‟s current tagline, THE BOLD LOOK OF KOHLER®. In 1974 we see the introduction of the first innovative, environmentallyconscious products, as low consumption toilets, faucets and showerheads are introduced to reduce the strain on municipal and private sewage systems, and to lower sewage and water treatment costs. The Wellworth® Water-Guard® toilet uses only 3.5 gallons of water per flush, a reduction of 30% from conventional toilets.

Kohler again expands in 1975 with another production facility for vitreous china and fiberglass reinforced plumbing products, this time in Brownwood, Texas. This same year, the production of generators is moved to a manufacturing facility in the Town of Mosel, just north of Sheboygan, Wisconsin. In 1977, the second 50-year master plan for the Village of Kohler is developed by the Frank Lloyd Wright Foundation. Another product innovation milestone is reached in 1978, when Kohler engineers receive a U.S. patent for a timed flushing system that increases the efficiency of Kohler‟s one-piece, low-flow toilets. The Kohler Company really takes off in the 1980‟s. Hospitality and Real Estate, forms as a Business Group, with the American Club, River Wildlife and the Sports Core. 1984 sees the first acquisition in the company‟s 111 year history, as Sterling Faucet Co. is purchased, significantly increasing market share and allowing greater access to retail markets. In 1986, Kohler enters the furniture business with the acquisition of Baker Knapp & Tubbs, Incorporated. Kohler establishes itself in Europe, by joint-venture with Jacob Delafon, a major full-line plumbing products manufacturer. To strengthen its position in fiberglass and acrylic products, Kohler acquires a Canadian company; Hytec Manufacturing Ltd. Kohler then acquires the FRP Components Division of Owens-Corning Fiberglas Corporation, allowing it to produce sheet molded bathtubs and enclosures. Not stopping there, Kohler goes on to acquire the Kinkead Division of USG Corp, the county‟s largest

manufacturer of tub and shower enclosures. Finally in 1989, Kohler adds two more businesses to its family; Ann Sacks Tile and Stone, which produces hand-made tile and marble, and Kallista, which produces high-end plumbing products that appeal to the interior design market. Another product innovation milestone is reached in 1989, as the 1.5 gallon Wentworth Lite® toilet (which many of us have had the honor of plunging) is introduced. Kohler continues their rapid expansion in the 1990‟s by six more acquisitions: McGuire Furniture Company, Sanijura S.A., Robern, Inc., Holdiam, Inc., Canac Kitchens Ltd., Lumatech International Inc. They also expand by opening two plants in China, two in Indonesia; one in Mexico, as well as two in the U.S. Kohler also enters a joint-venture with a Beijing faucet manufacturer. A new business group is added, Kohler Rental Power. Since 1998, Kohler expansion has continued, primarily through the strategies of horizontal and forward-gaining integration, concentric diversification, and through product differentiation. This has resulted in a doubling of size, with more than 50 manufacturing locations worldwide, 32,000 Kohler Co. associates working on six continents, and 39 brands comprised within four major business units; Kitchen & Bath, Global Power, Interiors, and Hospitality. Being a privately held company, financial numbers are hard to come by, but best estimates indicate revenue of $6 billion for 2008.

The mission of the Kohler Co., in its higher level of gracious living concept, is all about improving the quality life. They accomplish this through the design and engineering of their products, and by capitalizing on the historic and environmental nature of their services. For sustainability, “the enhancement of nature” shows their commitment to improving the quality of our environment.

Mission Statement
Kohler Co. and each of our more than 32,000 associates have the mission of contributing to a higher level of gracious living for those who are touched by our products and services. Gracious living is marked by qualities of charm, good taste and generosity of spirit. It is further characterized by self-fulfillment and the enhancement of nature. We reflect this mission in our work, in our team approach to meeting objectives, and in each of the products and services we provide.

Because their products are found in many public areas, homes and offices, one can be “touched” by Kohler‟s products without being an actual purchaser. The same can be said about their services; one can be a visitor or guest without being an actual paying customer. For sustainability, the world is “touched” by Kohler‟s sustainability initiatives in: waste management, energy efficiency, water conservation, incorporating green building principles into their facilities, and developing more environmentally friendly packaging.

Sustainability The framework of Kohler‟s commitment to sustainability is the Sustainability Strategic Plan, launched in 2007 to institutionalize sustainability within Kohler. It is a triple-faceted strategy consisting of: education, attaining a net zero environmental footprint by 2035, and driving growth and competitive advantage with innovative sustainable products and services. It is more than a project as it sets forth to embed a culture of sustainability throughout the company. 49 champions have been named for the North American campaign, with a global network of champions soon to be announced. “We need respected, passionate associates to help bring the plan to life in the workplace,” says Jeff Plass, Manager – Global Environment, Health & Safety, and a member of the Kohler Environmental Leadership Team (KELT). KELT is a cross-functional group of company leaders who have designed the Sustainability Strategic Plan with an ambitious implementation plan. The champions of Kohler‟s Sustainability Strategic Plan have adopted an informal mission statement of their own. It is a 1934 quote from then company president Walter J. Kohler, which exemplifies the company‟s long standing tradition of environmental stewardship, “So-called „free goods‟ such as sunshine and fresh air may be of more real wealth than most economic

goods.” This may be the first known mention of environmental stewardship in the corporate world. Current President and COO, David Kohler, also has an inspiring quote for commitment to sustainability, “Business success doesn't matter much if we can't say we left the world a better place than we found it.” In phase 1 of the education facet of the Sustainability Strategic Plan, the champions have been tasked to help create a culture where associates think about sustainability in their day-to-day work. This is reflected in their vision statement, “Think green, and be green.” For them, every little thing that promotes sustainability counts. They believe that every associate can contribute in some way. In phase 2 of the education facet of the Sustainability Strategic Plan, as champions have been involved in different business activities, they identify and emphasize areas that can be used to promote sustainability gains. For example, at a recent pottery division workshop that involved mapping value stream inputs and outputs, excesses and wastes were found in water usage. A sustainability project was subsequently launched and completed with the Environmental, Health and Safety (EHS) team, resulting in a water savings potential of 6.5 million gallons per year. Kohler‟s educational strategy extends beyond the walls of its own businesses and into the world with its Save Water America program, which

holds events across the country and can be accessed online at SaveWaterAmerica.com. These events partner with local water utilities and plumbing distributors across the country to help consumers and businesses save water. They demonstrate ways to save water at home through working displays and offer event discounts on toilets, showerheads, and faucets. Kohler Co. has used this program to raise water-conservation awareness and help people take action to save water at home. The key metric and focal point of the net zero footprint component to the Sustainability Strategic Plan, is a 4% yearly reduction in energy consumption, water usage, landfill usage and carbon emissions. Using the year 2008 as their baseline, the 4% per year objective will allow them to achieve their net zero footprint goal in 2035. As with any sustainability strategy, the basic beginning is the reduction of wasted energy, which also adds unnecessary carbon emissions. At Kohler, the KELT team works closely with the Kohler Energy Management Group (KEMG). KEMG is a group of engineers and technicians who are constantly scrutinizing energy usage, looking for cost savings anywhere it might help with the 4% plan for a net zero footprint. Many of these cost savings are called the „low hanging fruit‟ of sustainability because they seem so obvious and easy to correct, but with careful effort, implementation can be made to further the sustainability effort.

One of the main areas that KEMG is involved with is lighting systems, both for offices and factories. An energy efficient lighting system includes bulbs, ballasts, motion sensors, task-specific lighting, and integrated natural light. KEMG specializes in retrofitting energy-efficient lighting systems through the use of fluorescent lighting with low power factor ballasts, incorporating motion sensors that turn off unused fixtures after a period of inactivity. By adding these motion switches, an energy savings of 15 – 25% can be realized, depending on the size of the area. Their favorite myth buster is to disprove the idea that it uses more energy to shut off and start-up fluorescent lights, than to leave them on all the time. A recent sustainability project success of the KEMG team was realized at the Brownwood, Texas plant, which installed more efficient lighting and kilns to save 7,555,000 kW hours of energy, enough to power over 100,000 laptops for a year. Another area of focus for KEMG is the lesser known area of energy waste in compressed air systems. It turns out that air compressors can be a source of electrical energy waste due to air leaks and the matching of demand to air availability. Their team seeks out the air leaks and implements a timedsequence strategy of different compressors to match compressed air demand. The team has also explored this approach as it applies to dust collector systems, and has realized cost savings there as well.

The third main area of focus for KEMG has been the retrofit of standard efficiency motors, with premium or ultra-premium efficiency motors. A standard electric motor has an efficiency rating of 88%, a premium has a 93.5%, and an ultra-premium carries a 95% rating. KEMG has specified the use of premium and ultra-premium in all replacement situations, as well as a minimum standard in OEM equipment purchases. Kohler participates in the Wisconsin Focus on Energy program and receives rebates from $2 to$5 per horsepower, depending on the type of motor. KEMG recently applied for and just last week received a $1.7 million grant from economic stimulus funds through the American Recovery and Reinvestment Act. This grant was a part of a $14.5 million dollar fund, aimed at cutting energy costs and creating and retaining jobs, administered through the Wisconsin Focus On Energy Program. The money will be used to remove and upgrade more than 800 light fixtures in the company's foundry building. The company will also replace steam-powered hot water systems in two buildings with natural-gas-fired equipment. A third project will replace a steam-powered clay dryer in the pottery division with a new system that uses waste heat from pottery kilns. The second part of the net zero footprint strategy involves water usage in the manufacturing processes. The pottery division has completed several water reduction projects in 2009, resulting in an overall consumption

decrease of 17%, compared to 2008. One of those projects involved the elimination of a cooling tower. Cooling towers are major water consumers, losing water mostly through bleed-off, and to a lesser extent, evaporation. This particular cooling tower was found to use 1.5 million gallons per year. Besides eliminating water in a process, another way to reduce water usage in a process is simply to replace it with a substitute. This is exactly what an EHS project accomplished when it converted the glaze filter magnet system, from an open water-cooled system to a closed coolant system, resulting in a water savings potential of 240,000 gallons per year. Still another way to think about water usage is what can be done with the wastewater from a production process. Kohler Co. operates a wastewater pre-treatment plant and has a project slated for 2010 where recycled water will be piped back into the plant and used for toilet and urinal flushing systems. Other manufacturing processes are also being considered as uses for this recycled (although not potable) water. The third part of the net zero footprint strategy involves landfill use. The Kohler Co. private landfill in Sheboygan County is approaching its capacity. Kohler has made attempts to open a new landfill, but has been met with opposition from residents who live near to the proposed locations. Kohler has decided to abandon the idea of opening a new landfill, and incorporate landfill use into the 4% plan. This dovetails quite nicely since a 4% reduction

per year means that a landfill won‟t be needed in 2035, and at that projected rate, the landfill will be at capacity in 2035. Kohler has been very involved in landfill reduction for many years and has long considered recycling as a primary goal of its philosophy of environmental stewardship. The pottery division has recently achieved a milestone as 100% of its fired cull materials are now recycled. Pottery product cull has found beneficial reuse in the flooring tile and cement industry. A project to recycle worn-out plaster pottery molds into a soil erosion abatement product was tried, but didn‟t quite work, so for now, some of the pottery plants are returning the used molds to the mold supplier for recycling. This means there are very few materials left that are by-products of their manufacturing processes which at this time cannot be recycled. EHS has taken action in exploring and implementing beneficial reuse of these remaining cull materials. The fourth part of the net zero footprint strategy addresses carbon emissions. Carbon emissions are also called greenhouse gases (GHGs). The Kohler Co. strategy addresses the following GHGs: carbon dioxide (CO2), methane, nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6), using a protocol established by The

Climate Registry (http://www.theclimateregistry.org). CO2 accounts for the majority of carbon emissions, especially where fossil fuels are burned. Kohler takes a production-specific approach to minimize or eliminate carbon emissions through reductions in: electrical energy use, manufacturing processes, packaging, transportation, space heating, water heating, and disposal requirements. In most of Kohler‟s worldwide manufacturing locations there are already strict controls on air emissions, while other locations will likely see a substantial tightening of their standards and enforcement. The third facet of the Sustainability Strategic Plan, driving growth and competitive advantage with innovative sustainable products and services, has been a stalwart of the overall Kohler business strategy for decades. Kohler Co. has the world‟s largest portfolio of water-saving plumbing products. The Kohler and Sterling brands market 27 different models of HighEfficiency Toilets (HET) that use only 1.28 gallons of water per flush (gpf). The Kohler brand HETs can be had with five different proprietary flushing technologies, Class Five®, Class Six™, Pressure Lite®, Power Lite® or Dual Flush technology, while the Sterling brand features the Dual Force technology.

The Kohler brand markets six different styles of 1.75 gallon per minute (gpm) showerheads and handshowers. For an average family of four taking approximately seven-minute showers, using a 1.75 gpm showerhead equals a 35% water savings over a less efficient 2.75 gpm showerhead. In other words, you save over 7,700 gallons of water per year. Ironically, these 1.75 gpm showerheads have yet to be installed in employee showering facilities, although projects to do just this are on the docket for 2010.

Kohler offers over a hundred different styles of bathroom faucets, most carry the WaterSense label, which signifies that it has a 1.5 gpm watersaving aerator. A 1.5 gpm faucet offers a 45% water savings over less efficient 2.75 gpm faucets. For the average household, this can equal over 14,700 gallons of water saved each year.

On the commercial side of Kohler‟s environmentally–friendly products is the waterless urinal, and the .5 gallon gpf urinal. Kohler states that each waterless urinal can typically save 40,000 gallons of water per year. The .5 gpf models use half of the industry normal 1.0 gpf urinals. Flushometers are devices that control water flow in tankless commercial urinals and toilets, and Kohler uses proprietary technologies such as; WAVE technology, which puts control back in the hands of the user, and Tripoint™ technology, suitable for challenging environments. Both technologies save water by

activating only when needed and delivering outstanding performance with minimal water use.

A project that exemplifies all three facets of the Sustainability Strategic Plan was the transformation of the company‟s Environmental, Health and Safety building into a more environmentally efficient structure, which resulted in Kohler Co. being awarded Silver LEED® Status from the U.S. Green Building Council. The U.S. Green Building Council is a nonprofit membership organization whose vision is a sustainable built environment within a generation, and sponsors the Leadership in Energy and Environmental Design (LEED) Green Building Rating System, which is a feature-oriented rating system that awards buildings points for satisfying specified green building criteria.

To earn Silver LEED status, Kohler made several enhancements to the building‟s interior and exterior, along with installing several upgrades and monitoring devices for energy and water usage. A 50 percent reduction in water usage was achieved by installing new faucets and fixtures in the bathrooms, including the KOHLER Steward waterless urinal. High Efficiency Toilets such as the KOHLER Highline 1.1 gpf were also installed, and .5 gpm faucets with KOHLER Tripoint Touchless Technology all contributed to the significant water savings. New landscaping around the building includes native Wisconsin plant life, all of which is easy to maintain and are able to

grow without the use of herbicides and extra potable water. A green cleaning program was developed for the building, for which environmentally-friendly cleaning products are used exclusively to maintain the building. Natural lighting is utilized where possible, and in the areas extra light is needed, low energy, long-lasting compact fluorescent bulbs are used. KELT presents this Silver LEED accomplishment as an educational centerpiece for sustainability because its incorporation of sustainable design and practices, reminds employees and visitors alike that sustainability is a part of the Kohler culture. Sustainability Partnerships The U.S. Green Building Council is one of four partnerships for sustainability that Kohler has entered into. The other three are the Alliance for Sustainable Built Environments (ASBE), the Alliance for Water Efficiency, and the WaterSense program of the U.S. Environmental Protection Agency. The Alliance for Sustainable Built Environments (ASBE) was formed in 2003, as an exclusive group of international building industry manufacturers with a similar approach to business, who banded together and committed to an aggressive, coordinated campaign to inform decision-makers that the choices they make with regard to their facilities can be economically and environmentally sustainable. They believe as catalysts for change,

manufacturers have a unique place in the sustainability movement as they are the ones producing the products and developing the services that deliver high performance green buildings. The Alliance for Water Efficiency is a stakeholder-based 501(c)(3) nonprofit organization dedicated to the efficient and sustainable use of water. Located in Chicago, the Alliance serves as a North American advocate for water efficient products and programs, and provides information and assistance on water conservation efforts. A diverse Board of Directors governs the organization and has adopted a set of guiding principles and a strategic plan. The WaterSense program of the U.S. Environmental Protection Agency is a partnership program that seeks to protect the future of our nation's water supply by promoting water efficiency and enhancing the market for waterefficient products, programs, and practices. WaterSense helps consumers identify water-efficient products and programs. The WaterSense label indicates that these products and programs meet water efficiency and performance criteria. WaterSense labeled products will perform well, help save money, and encourage innovation in manufacturing.

Environmental Compliance The sheer size and the global nature of Kohler present a challenge in compliance with all the different environmental laws and government agencies as they vary from state to state, and country to country. Environmental compliance is only a precursor in achieving sustainability, but represents an opportunity to work with the various government agencies. Kohler Co. typically treats environmental compliance as a separate issue from sustainability. Recent legislation from the state of California brings up a case in point where environmental compliance can be a driver for sustainability initiatives. The California law calls for all water fixtures and fittings that are intended to carry drinking water to contain less than 0.25% lead (typical lead content 23%) starting in 2010. The law would only be applicable to newly installed and replacement fixtures. The law doesn't take into account the technological ramifications of using essentially lead-free copper alloys in these applications, but Kohler Co. has developed their own secret formula for a no-lead alloy brass used in their drinking water faucets.

Analyses I have discovered that the Kohler Co. actually employs three types of sustainability strategies – market-driven, process-driven, and culturaldriven. Since becoming a full-line plumbing manufacturer in the 1920‟s, this family-run, privately held company has been manufacturing plumbing products which have a designed emphasis on environmental stewardship. This has been their market-driven sustainability strategy. It is only in the last 20 years that the manufacturing processes themselves have been developed to become more environmentally-conscious. This has been their process-driven sustainability strategy; making products in a way that minimizes the consumption of energy, water and other natural resources. Importantly, a formal sustainability strategy has only been developed within the last two years and only recently has its implementation begun. This has been the genesis of their cultural-driven strategy. The major strength of Kohler‟s market-driven strategy is their brand, which can be represented by the company‟s tagline, THE BOLD LOOK OF KOHLER®. In our world of information overload, brands matter. As customers are bombarded with product options and configurations, brands provide a shortcut for customers to identify their favorite products – and for talented workers to pick their employers. The better a company does at protecting its reputation and building brand trust; the more successful it will

be at gaining and maintaining competitive differentiation. A strong brand with a full “trust bank” is a valuable asset. (Esty, 2009) A tremendous brand strengthening in regards to sustainability has been achieved through its Save Water America Program, http://www.savewateramerica.com, and its sustainability partnerships. For the customer, this means that choosing a plumbing product with a high environmental performance also means longterm savings. For Kohler Co. it means making consumers aware of this connection. Kohler‟s brand positioning as the world leader in water saving plumbing products has created exposure in a world where sustainability matters. Marketing the company‟s greenness has worked extremely well, but does company have the commitment to sustainability to maintain that image in everything it does? Kohler‟s passionate focus on green products has allowed it to adopt a process-driven sustainability strategy as a natural extension of its existing business mind-set. It is a steep challenge for any old-line, industrial business to transform itself into a low-carbon and eventually a zero-carbon player. (Dumaine, 2008) Yet a company like Kohler has to start somewhere. Given the resources that David Kohler is directing toward the Sustainability Strategic Plan, the company so far seems to be laying a solid groundwork for the implementation of a culture-driven strategy. Getting CEO leadership and

support may be the most important step toward a commitment to sustainability. (Laszlo, 2008) A very unique part of Kohler‟s commitment to sustainability is due to their superior product quality and high customer satisfaction ratings. Kohler products last for years and years longer than the average product lifecycle. It saves a great amount of energy and resources if a product lasts for twenty years instead of only 10. Another facet of this is through the use of service parts. For example, a 1968 Kohler shower body valve can be rebuilt, instead of replaced, because Kohler still makes the service parts available. Decision Criteria Kohler‟s premise for sustainability is somewhat similar to the triple bottom line approach as developed by R. Edward Freeman‟s stakeholder theory. (Ball, 2007) For Kohler to reach a decision to determine the merit of a sustainability project or initiative, the following three yes/no questions must be answered with a yes. 1. Is this a win for the environment? 2. Is this a win for stakeholders? 3. Is this a win for profitability? Or, is there a payback?

Recommendations There is no one-size-all approach to sustainability. Strategies need to take many different shapes and forms, depending on the unique interrelationship between a specific organization and society, and the unique social, environmental, and economic opportunities that result from that interrelationship. (Wirtenberg, 2009) I have conducted research to identify current examples of sustainability practices implemented by best-in-class organizations and have included this research in Appendix A. According to the Dow Jones Sustainability Index (2009), leading sustainability companies display high levels of competence in addressing global and industry challenges in a variety of areas:  Strategy: Integrating long-term economic, environmental and social aspects in their business strategies while maintaining global competitiveness and brand reputation.  Financial: Meeting shareholders' demands for sound financial returns, long-term economic growth, open communication and transparent financial accounting.  Customer & Product: Fostering loyalty by investing in customer relationship management and product and service innovation that focuses on technologies and systems, which use financial, natural and

social resources in an efficient, effective and economic manner over the long-term.  Governance and Stakeholder: Setting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting.  Human: Managing human resources to maintain workforce capabilities and employee satisfaction through best-in-class organizational learning and knowledge management practices and remuneration and benefit programs. Kohler appears to be meeting these challenges head-on. An area which could be improved upon in order to enhance their cultural-driven strategy is stakeholder engagement. Stakeholder engagement can be achieved with effective communication and providing access to information, focusing on desired outcomes and frequently reporting progress. I propose that this can be achieved at minimum with an article about sustainability in each weekly Kohler Capsule, the company‟s news publication for Wisconsin associates, as well as similar publications in Kohler‟s varied business locations. Kohler does include a Green Tip section in the Capsule; it is usually a two sentence concept that points out what people can do in their day-to-day living to become more sustainable. Here is a recent example of the Green Tip. “Snow Removal: Whenever possible, chose to shovel snow rather than use

the snowblower. You‟ll prevent emissions and get exercise at the same time.” The irony is that Kohler does indeed manufacture small engines used in snowblowers, and they have worked very hard to feature those engines with low-level emissions. So the Green Tip is just a tiny baby step in the education process. An even better alternative would be a monthly worldwide sustainability newsletter. Ideally stakeholder engagement through communication should evolve to what Procter & Gamble has been doing annually for 11 years now, as illustrated in Appendix A, in the Strategic Focus on Data section. Kohler‟s strategy and implementation have been similar to Procter & Gamble‟s, therefore I propose that Kohler prepare an annual sustainability report that will build credibility and encourage stakeholder engagement. Further development for stakeholder engagement through communication would include an overview of sustainability similar to the methodology used by Bristol Myers-Squibb as illustrated in Appendix A, in the Defining Sustainable Development section. This method would be most effective if globally implemented. Parts of this method can be found on the Kohler intranet and on Kohler‟s various websites. I propose this overview of sustainability be built into a dedicated website. Due to the private nature of Kohler Co., there could be one site for the internet and one for the intranet.

Finally, my recommendation for developing stakeholder engagement through communication would include stakeholder relationship performance indicators. I propose a tracking survey which measures the performance of Kohler‟s sustainability efforts in comparison with its main competitors. This will help Kohler to respond to new needs and to improve the quality of its products and services. An Alternative Recommendation One idea for implementation that could be a home-run for all three of Kohler‟s strategies, involves the use of lead in Kohler‟s products. One of the most challenging materials to reduce and eventually eliminate is lead, which poisons water and soil to the detriment of sea life and humans alike. (Gordon, 2001) Kohler has successfully eliminated lead in all of its products except in die-cast brass products. While the amount of lead that can be leached from brass plumbing components is generally low, it has been found that the amount of lead that can be leached from plumbing components may exceed either current or future planned standards. The previously mentioned California No-Lead law has been a driver for eliminating lead in water carrying faucets and fittings. Kohler‟s response has been excellent, as they have achieved a competitive advantage with its secret no-lead alloy brass. But several technical obstacles still remain; it is still more costly to machine, polish and plate the secret no-lead alloy brass. Although this might border

on alchemy, I propose Kohler continue its research and development efforts to eliminate lead from all alloy brasses, thus allowing Kohler to proudly claim all its products to be lead-free. The key factor is decision criteria number 3; is a 100% no-lead brass alloy a win for profitability? Right now it‟s not, but if it could, then it should be exhorted as a major breakthrough and definitely as a way of sticking it to the competition. Conclusion The company has realized that the world‟s perception of environmental protection has been changing, and has adjusted their environmental strategy with the times, realizing that sustainability is a long-term, ongoing process that will continue for years to come. Ultimately for any business, the key strategy will be financial sustainability. Making an environmental sustainability strategy work with a financially sustainable strategy, will enhance the strength and viability of the company and the world. At the recent news conference where Kohler was awarded a $1.7 million grant for sustainability projects, COO and President David Kohler said, “We firmly believe that (when) properly conceived, a sustainability strategy, one that fully integrates business principles and environmental principles, is the only strategy for the road ahead.”

Company Response Daniel, Thank you for the opportunity to review your analysis paper. You have demonstrated a great deal of understanding of the company history, of sustainability drivers and the Kohler Co. response. Your analysis did not change our sustainability direction, as we are already working on closely related ideas. However, I do appreciate the confirmation that we are proceeding in the right direction. I hope for your personal good fortune as you pursue your education. Warmest regards,

Nathan Nissen Kohler Co. Environment, Health and Safety Office 920.453.6312 | Cell 920.207.7565

Appendix A Current Examples of Sustainability Practices from Best-in-Class Organizations

Type of Practice

Current Example

A Comprehensive Reporting Structure

Rio Tinto‟s reporting structure is illustrated by this graphic. They used this to prepare the company‟s Social and Environmental Report. This makes it apparent that Rio Tinto PLC understands the importance of bringing corporate policy makers together with operational managers to produce a report that has meaning inside and outside of organization.

Strategic Focus on Data

Procter and Gamble builds credibility and uses resources most effectively by providing detailed data on five sustainable strategies listed in their 2009 sustainability report, http://www.pg.com/company/our_commitment/pdfs/PG_2009_Sustainabi lity_Overview.pdf, Strategy 1: Products Delight the consumer with sustainable innovations that improve the environmental profile of our products. Strategy 2: Operations Improve the environmental profile of P&G‟s own operations. Strategy 3: Social Responsibility Improve children‟s lives through P&G‟s social responsibility programs. Strategy 4: Employees Engage and equip all P&Gers to build sustainability thinking and practices into their everyday work. Strategy 5: Stakeholders Shape the future by working transparently with our stakeholders to enable continued freedom to innovate in a responsible way.

Connecting Life Cycle Assessment (LCA) to Financial Performance

Norsk Hydro has applied life cycle assessment to the workings of the entire company. The aggregated data allows for a striking overview of company consumption of natural resources and pollutant emissions in light of annual profits. A LCA has also been completed for each major company division. Electrolux has also reported on the life cycle analysis of a number of their products. A strong impetus for the appliance industry to offer products with reduced environmental impact is the fact that the main environmental impact is usually greater in product use than during production, and furthermore is closely connected to the individual household economy.

A life cycle assessment of a washing machine for example shows that about 80 percent of the total environmental impact during the life of the machine consists of water, energy and detergent consumption. A similar analysis of the total cost of the entire life cycle of the machine shows that the cost of water, energy and detergent consumption exceeds the initial purchase price. For the customer, this means that choosing an appliance with a high environmental performance also means long-term savings. For the appliance industry it means making consumers aware of this connection. Replacing old, inefficient white-goods with a new generation, resourceefficient appliance is beneficial for the environment.

Defining Sustainable Development

In reporting on its definition of sustainable development, Bristol-Myers Squibb goes beyond the traditional one-line statement to include a comprehensive look at the all the issues that have an impact on operations and stakeholders (both local and global). BMS' overview of sustainability includes policy statements on external evaluation of EHS policies and procedures, supplier compliance, technology transfer, charitable contributions, transportation impacts, local noise and odor issues, new acquisition and divestiture processes, animal testing, pharmaceutical residuals in the environment, genomics, biosafety, and bioprospecting.

Measuring Social and Environmental Impacts

In 2001, UK-based The Co-operative Bank developed a methodology to measure how its sustainability practices affect revenue and growth. The methodology uses several calculations and survey questions. From the survey, the bank determined that 53% of personal current account customers state that sustainability is one of a number of important factors in why they opened or maintained an account at the bank, while 31% cite sustainability as the most important factor. The bank has estimated the profitability of each product, including all direct costs and indirect costs attributable to the product. The profitability is then multiplied by the sustainability factor, and then aggregated to produce a sustainability profitability contribution range (which ranges from those customers for whom sustainability is the most important determining factor to those customers for whom sustainability is one of a number of factors). The bank concluded that 26% of profits could be assigned to customers who cite sustainability as an important factor, and 14% to customers who cite sustainability as the most important factor.

Integrating Long-Term Economic, Environmental, and Social Aspects in Business Strategies

Unilever‟s group CEO, Patrick Cesau, is a strong advocate of assisting developing nations, and he embraces the notion that this is tied to the company‟s strength in the marketplace and fiscal well-being. According to Engardio, Cesau sees the importance of “helping such nations wrestle with poverty, water scarcity, and the effects of climate change as vital to staying competitive in the coming decades.” The company promotes its soap and detergent in an impoverished are of Sao Paolo, Brazil, by running a free community laundry. In that same country, Unilever supports tomato growers‟ efforts to adopt environmentally friendly irrigation systems by contributing financially to the program. In addition, at a toothpaste factory, it focuses on recycling waster. In Ghana, Unilever brings potable water to communities in need and teaches people how to reuse waste. In response to green activists, the company discloses how much hazardous waste and carbon dioxide its factories release worldwide. As environmental regulations grow tighter around the world, Unilever believes it must invest in green technologies or its leadership in packaged foods, soaps, and other goods could be imperiled. Unilever‟s efforts in these areas have profited not only the people in developing nations but the company itself. About 40% of the company‟s revenue now comes from developing countries, as does much of its growth.

Shareholder Value Analysis

Georgia-Pacific, the large forest products company, used shareholder value analysis to align the company‟s goals of creating shareholder value and environmental responsibility. The EH&S department at GeorgiaPacific, as well as individual environmental projects, has been evaluated using shareholder value analysis, Included in each environmental project evaluation is an assessment of the project‟s impact on revenues, operating costs, such as consulting fees, fines and administrative costs, and capital costs. Using shareholder value analysis, Georgia Pacific has been able to identify environmental investments that create financial and shareholder value for the company. For example: -A project to use boiler fly ash generated at the plants reduced landfill and transportation costs, generating a shareholder value analysis of $800,000 - An aerator optimization project reduced energy usage, generating an shareholder value analysis of $102,000 -By re-engineering the process for complex environmental permitting, the cycle time for new permits and construction projects was reduced, as well as external consulting fees, generating increased shareholder value of $2.1 million.

Incentives and Rewards for Sustainability Performance

Swedish-based Scandic Hotels initiated a program called Resource Hunt, which rewards employees for improving resource efficiency. The program encourages employees to reduce consumption of energy, water, and waste. The hotel invested $150,000 to train employees on the specific objectives and issues of the program. Employees at each hotel receive a percentage of the savings. From 1996 to 2001, 35 hotels saved $1.5 million through Resource Hunt. This program saved money for the company and motivated employees to consider sustainability in their dayto-day decisions.

Stakeholder Relationship Performance Indicators

BP Amoco reports on the objective research, carried out both in the UK and internationally, which seeks the views of the public, business leaders, opinion-formers and NGOs. A 12-country study confirmed the importance of social and environmental responsibility as a factor in determining opinions about companies. BP Amoco's Global Image Tracking Survey measures the performance of BP's brand in comparison with its main competitors, which helps BP to respond to new needs and to improve the quality of its products and services.

Benchmarking Corporate Environmental Management Practices

In its Towards Sustainable Development report, Ontario Power Generation includes a description of the benchmarking study conducted by a consultant to compare OPG's corporate environmental management practices and processes to those of best-in-class organizations. The consultant's report affords OPG a third-party evaluation of both strengths and weaknesses in its corporate environmental practices and processes, and an essential baseline for measuring its progress. A synopsis of the findings is provided and OPG also outlines its response.

Organizing for Sustainability

DuPont‟s organizational structure has undergone changes over several years. It was one of the first companies to create an officer-level VP (vice president) of EH&S in 1989. At that time it used a decentralized EH&S structure consisting of managers for medical, safety, occupational health, and environment. These managers were supported by a small staff with specialists in each facility. In the early 1990s, DuPont created the Corporate Safety. Health and Environment Excellence Center. The group‟s services were contracted by the strategic business units as needed. In 2004, DuPont was reorganized. Previously, the Excellence Center reported to the VP of engineering, under the direction of VP of EH&s. DuPont has now created a VP of safety, health, environment, and engineering who is responsible for the strategic direction and administration of the group. An additional position of VP and chief sustainability officer was created to be responsible for product stewardship, sustainable growth, and long-term strategy and goals. DuPont also uses a combination of centralized and decentralized structures. This includes a corporate group, leaders in each business unit, and also leaders at each site.

Green building Designs

The Oceano Community Center, in San Luis Obispo, CA, opened a 15,380 square foot facility that incorporated a variety of green building and pollution prevention strategies in its design. The gym has a photovoltaic system to generate on-site electricity and several energy saving features to reduce energy demand, including clerestory windows that open to provide efficient cooling; the use of “light shelves” to reflect and enhance natural daylight; occupancy sensors for lighting control; a roof designed to minimize solar heat gain; and north-facing glazing to provide light without adding solar heat gain. In addition, recycled and environmentally friendly construction materials were used wherever possible; automatic controls on the lavatories were installed to reduce water usage; and the landscape plantings are drought resistant. Building maintenance practices include the use of nontoxic cleaning supplies and recycling of waste materials. Recognizing that 30% of the 7,250 resident users are below the age of 18, bike racks were conspicuously placed to encourage travel to the facility by means other than a car.

Integrating Collaboration With NonGovernmental Organizations

Timberland Company, a U.S.-based clothing and footwear company, has focused much of its sustainability strategy on a partnership with City Year, a national youth corps. The partnership began in the late 1980s when Timberland donated boots to City Year corps members. After this initial donation, Timberland established its “Path of Service” community service program, entitling employees to 32 paid service hours per year, to encourage employees to participate in volunteer activities, particularly with City Year. Over the years, Timberland‟s relationship with City Year has evolved. Timberland‟s CEO joined the City Year Timberland headquarters. Timberland executives also realized that it needed to alter its organizational structure to integrate sustainability into the organization. It started the reorganization by hiring a director of social enterprise, who happened to be a City Year employee. Then the question arose as to where to house the Social Enterprise Department. Some members of senior management argued that members of the Social Enterprise Department could be located in an existing department such as human resources. However, the decision was made for it to be its own four-person division within the marketing department. By separating the department, Timberland management could signal to the other members of the organization the importance of sustainability. General Electric‟s Ecomagination program seeks to leverage the brand value in green business. This program started because GE senior leadership saw that there were major trends creating increasingly intense environmental and growth challenges for customers across a majority of GE‟s businesses. Ecomagination was created as a business strategy in response to these challenges. To measure some of these intended outcomes, GE uses a rigorous, thirdparty-audited certification process to determine whether individual products and services deliver sufficiently differentiated financial and environmental performance to be “Ecomagination-certified.”

Product Performance Indicators

References Jeff Plass, Manager – Global Environment, Health and Safety Steve Oliver, EHS Project Safety Specialist Jeff Edge, Electrical Design Analyst – Kohler Energy Management Group Wendy Johnson, EHS Project Safety Specialist Preston Radant, HR Generalist - Operations Support Nathan Nissen, Program Supervisor, Global Energy Management

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Selected Readings Bachman, Glenn, The green business guide: a one stop resource for businesses of all shapes and sizes to implement eco-friendly policies, programs, and practices, Franklin Lakes, NJ: Career Press, c2009 Callenbach, Ernest, EcoManagement: the Elmwood guide to ecological auditing and sustainable business, San Francisco: Berrett-Koehler Publishers, 1993 Epstein, Marc J., Making sustainability work: best practices in managing and measuring corporate social, environmental and economic impacts, Sheffield, UK: Greenleaf Pub. ; San Francisco: Barrett-Koehler Publishers, 2008. Jensen, Derrick, and, McBay, Aric, What we leave behind, New York: Seven Stories Press, c2009 Lockwood, Charles, The green quotient: insights from leading experts on sustainability, Washington, D.C.: Urban Land Institute, c2009 Schendler, Auden, Getting green done: hard truths from the front lines of the sustainability revolution, New York: PublicAffairs, c2009. Swallow, Lisa, Green business practices for dummies, Hoboken, N.J.: Wiley, 2009