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Modeling BEST business excellence

Article in Measuring Business Excellence · June 2002

DOI: 10.1108/13683040210431473

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Modeling BEST business
excellence
The beginning
Douglas A. Hensler and Rick L. Edgeman
Douglas A. Hensler is W. Edwards Deming Professor of Management, Lockheed Martin Engineering Management Program,
University of Colorado at Boulder, Boulder, Colorado. USA.
Rick L. Edgeman is QUEST Teaching Professor and Executive Director ± QUEST Program, Quality Enhanced Systems and
Teams, Robert H. Smith School of Business, University of Maryland, Maryland, USA.

Introduction

Abstract BEST business excellence addresses the issue of
excellence and sustainability from four perspectives:
bio/physical, economic, social, and technological. The concept
of BEST business excellence seeks to address the balance of
objectives that many academics and practitioners alike believe
are necessary, perhaps not sufficient, to secure the long-term
survival, prosperity, and thriving of humankind and its
institutions. Somewhat allied with triple bottom line, this concept
is in its infancy and little work has been completed in the
formation of the concept intuitively or formally. This paper begins
a discourse to develop an optimization model for the concept of
BEST business excellence. The models presented herein are
graphical and descriptive and offer a basis for further
development. These models represent the transformation from
maximizing economic outcomes as the organizational objective
constrained by B-sustainability (bio/physical) largely through
regulation, S-sustainability (social) largely through a sense of
obligation or by consumer action, and T-sustainability
(technology) largely through the limitations of current technology
available. The new model offers the different perspective of the
objective function containing variables representing B-, E-, and
S-sustainability, wherein those objectives are jointly optimised
using technology (T-sustainability) where cost becomes the
constraint. The resultant descriptive model shows how
technology forms the centerpiece of optimization and provides
direction for technological development resulting in
simultaneous optimization of bio/physical, economic, and social
objectives.
Keywords Company performance, Modelling, Optimization,
Sustainable development
B
EST business excellence (BBE), first proffered by
Edgeman (2001), is a unification concept for the
melding of business excellence and sustainable
development. BEST refers to four key sustainability
considerations:
(1) B-sustainability for bio/physical;
(2) E-sustainability for economic;
(3) S-sustainability for social; and
(4) T-sustainability for technological.
The business excellence construct to which BBE is most
closely identified is the European Foundation for Quality
Management Business Excellence Model; however, other
models such as the US Malcolm Baldrige Award and the
Australian Quality Award exhibit similar traits.
Edgeman states that BBE is a compromise, an ethical
and pragmatic compromise, of predominantly
environmental proponents with predominantly economic
proponents, with attention paid to social needs and
technological contributions. This paper advances this
understanding by portraying the melding of the four
elements of BBE as a joint optimization goal rather than a
compromise.

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Measuring Business Excellence 6,2 2002, pp. 49-54, # MCB UP Limited, 1368-3047, DOI 10.1108/13683040210431473
49
Brief literature summary
Edgeman's (2001) initiation of the BBE discussion
possesses roots in conflicts between environmental and
economic interests. These conflicts, although not new to the
recent past century, became focused in the latter part of the
twentieth century. On one side, economic progress, focused
in the sense of one plant, one company, one corporation,
produces externalities that are predominantly negative[1].
These externalities contain bio/physical, economic, and
social costs that impact people and other living entities
indirectly associated, and otherwise, with the polluting entity.
Economic analysis of externalities is well understood (for
example, see Hirschleifer and Hirschleifer, 1997) and
includes a number of remedies, albeit not normally at the
zero externality level.
The other side focuses on preserving the environment to
the exclusion of economic matters. In the extreme, this
position would feature a near humanless presence on the
planet by nullifying economic progress or incentives.
Economic analysis of this position finds that little wealth
creation occurs under this model and concludes that survival
of the human race would be uncertain at best under these
conditions.
The preceding descriptions are in the extreme and
possess self-balancing cycles such as those described in
Senge (1990). In the first case, a globe that produced
uncontrolled amounts of pollution would in the long run
poison mankind to the point of great loss of numbers, if not
extinction. One can easily argue that the pollution would be
self-regulating on the numbers of humans. However, as
environmentalists justifiable point out, the uncontrolled
generation of negative externalities would affect a great
many species. In the second case, environmentalism run
amok, the human species would be relegated to second-
class status among Earth's living plants and animals. This
would present a negative externality of sorts in the sense that
environmental preservation would impose suffering on
humankind[2].
To reconcile these issues, the sustainability movement
emerged. Sprouting in the murky waters of environmental
conservation, this movement possesses many levels, just as
the environmental movement does. Strong and weak form
sustainability, with ``very'' forms of each, provide a near-
continuum of positions one can take in this movement.
Hediger (1993) states that, in its strong form, sustainability
positions as:
. . . a physical criterion of maintaining the economy's resource base
intact for production through time, or as an ecosystem principle of
protecting the natural environment as our life-support system, or
both.
Edgeman (2001) provides concise descriptions of the four
levels of sustainability. Russell (2001) states:
A reasonable way to specify a sustainability condition, though one
that ignores distribution questions within each time period, is to
Measuring Business Excellence 6,2 2002
50
require that per capita utility be non-decreasing over time. (That is,
ut+1  ut, for all t, where u is per capita utility).
Russell's utilitarian description of sustainability assumes a
consumer perspective. Another perspective is that of a
producer, for which financial economists have exceptionally
well-developed analytical tools. To a financial economist
valuing economic entities via net present value (NPV), the
sustainability construct has to be very appealing.
Simplistically, one obtains NPV by discounting future
expected cash flows by the appropriate risk-adjusted
discount rate. The long-term perspective, which financial
economists argue they take, would necessitate a
conservationist view to prolong the flow of future cash flows
and reduce the risk of resource depletion. The combination
of Russell's utilitarian approach and the financial economist's
perception is closely related to Hicks (1939) in its
intertemporal income and real consumption construct.
Efforts to describe and foster sustainability cannot
proceed without explicit recognition of Gaia theory.
Originated by Lovelock (1979, 1988), Gaia theory holds that
the earth itself is a living entity. Given this, sustainability
becomes a more important concept to human kind, for, if
humankind does not adopt a broad sustainability position,
Gaia will simply do away with humankind. Margulis (1998) is
also associated with Gaia theory, much in regard to evolution
as a cooperative effort beyond the narrow Darwinism
competitive context. Along with Margulis et al. (1997a, b),
she points out the importance of understanding the impact
of cooperation in evolution. Those with a narrow focus on just
one of the BBE elements should take heed of Margulis' and
the others' emphasis on cooperation.
Edgeman (2001) provides additional details on
sustainability levels including strong, very strong, weak, and
very weak forms that result in different compromises. As the
argument here is that BBE is not an exercise in compromise,
rather an optimization exercise, this paper does not concern
itself with the various forms of sustainability. The argument,
perhaps the hope, is that the bio/physical, economic, and
social goals are combined in a way that yields an
optimization zone[3]. This is consistent with the well-known
triple bottom line concept. In spite of academic efforts, such
as the model in this paper and many others, and practitioner
efforts to date, there remains a crossroads of Earth@ vs
Sustainability@ (see Edgeman and Hensler, 2001).
Model evolution
The model evolution presented here possesses roots in the
economic literature. Hirschleifer and Hirschleifer (1997)
provide an excellent description and analysis of
microeconomics and price theory. While this traditional
portrayal of economic decision making possesses valid
analytical basis, it lacks responsiveness to new growth
economics as discussed by Romer (1990, 1993, 1994),
Arthur (1988, 1994, 1996), and Arthur et al. (1997). This more
recent economic development possesses profound
implications for achieving BBE.
Background
Neoclassical economics portrays the firm's production
decision as one in which the firm chooses to combine labour
and kapital (normally spelled kapital to differentiate physical
kapital from financial capital) in the least costly way to
produce a selected level of output. Figure 1 shows this as
tangent points of straight lines indicating the substitution of
the labour input and the kapital input for one another with a
specific production level.
The straight lines are budget constraints that represent
the trade-offs between spending a currency on the kapital
input versus the labour input. The convex lines are isoquants
showing the combinations of labour and kapital necessary
for producing the various output levels. Increasing levels of
output can be achieved as one moves from the origin to the
northeast corner of the graph employing larger numbers of
the inputs. Point A represents the lowest cost combination of
labour and kapital, La and Ka, required to produce 2,000
units and point B represents the lowest cost combination of
labour and kapital, Lb and Kb, to produce 2,500 units.
This graph represents the well-understood production
decision. Somewhat hidden is the determination of the
shape of the isoquants. The technology with which labour
and kapital combine to produce output determines the
shape of the isoquants. Traditional economic analysis, that
fitting commodity goods, considers that this technology is
exogenous to the decision that the firm makes. Those close
to any flexible manufacturing system or those close to the
knowledge economy know that this does not hold very well in
non-commodity businesses. In non-commodity businesses,
Figure 1 Ð Production theory
technology is endogenous to the manufacturing system.
That is, the firm not only has a great deal of power over the
technology it employs, but in a firm characterized as a
learning organization, technology of production is one of the
products of the internal system. The importance of this
relative to BBE is examined in the next subsection.
A similar looking model portrays the consumption decision
for individuals. In Figure 2, the straight lines are budget
constraints representing income and price combinations of
the two goods. In this portrayal, the prices are fixed while the
income flexes, as exhibited by the shifting straight line.
The convex lines are indifference curves showing the
combinations of Good X (i.e. oranges) and Good Y (i.e.
apples) that yield the same level of utility. This is the same
utility concept reference in the Russell quote. Increasing
levels of utility can be achieved as one moves from the origin
to the northeast corner of the graph as consumption
increases. Point A represents a utility of 350 reached by
consuming Xa units of Good X and Ya units of Good Y. Point
B represents a utility of 400 reached by consuming Xb units
of Good X and Yb units of Good Y.
A graphical model of BBE
Production theory (Figure 1) and consumption theory
(Figure 2) are instructive in the BBE graphical model
development in a number of ways. First, production theory
emanates from neoclassical economics, wherein technology
is exogenous, given to the firm. Except for a few cases
involving commodities, exogenous technology handed to
humankind from the far reaches of outer space is not
conceivable (actually obtained by virtue of long-run
competitive equilibrium, wherein all production participants
earn zero economic profits). Indeed, there is every reason to
Measuring Business Excellence 6,2 2002
51
 Figure 2 Ð Consumption theory

believe that BBE optimality will be achieved only through the other two goods. For example, a declaration that all species
development of endogenous technological solutions. except humankind are endangered and concomitant policies
Indeed, technological evolution would by definition equate to would predictably result in huge gains in the bio/physical good
successive improved optimality conditions over time. at the expense of huge degradations in the economic and
Second, consumption theory is based on individuals social goods. This would be neither a compromise nor an
making decisions in their own economic interests. optimum, and such policies should be considered corner
Sustainability is by nature intertemporal and most solutions that are by no means Pareto optimal.
discussions of intertemporal utility take place in the sense of This last point regarding the combination of the cost
per capital utility. This implies a common, consensus-based function with the benefit function provides the initiation point
joint utility for three goods, the bio/physical good, the for the model. That is, to achieve greater levels of BBE, one
economic good, and social good. The use of the term good can perceive of the cost trade-off situation shown in Figure 3.
here is indeed broad and one can easily think in terms of the
well-being of each.
For example, while technology can devise ways to more Figure 3 Ð B-E-S sustainability cost trade-off
efficiently use petroleum-based fuels at ever-lower levels of
pollution, thereby achieving gains in all three BBE goods,
eventually petroleum reserves will deplete. Therefore,
technology will be required to devise solutions accessing
other sources of energy that will provide quantum jumps in
bio/physical, economic and social ``goodness''. In the short
run, this jump will hurt some sectors (to wit, petroleum-based
businesses) unless they view their businesses as energy
businesses and not petroleum businesses. In the long run,
the bio/physical, economic, and social gains to world society
at large more than compensate the losses. This is the
promise of fusion, but not to the elimination of other potential
sources of inexpensive technology released energy.
Finally, since technology in the sustainability framework is
endogenous, one can conceive of combining the benefit of
technology and the cost of technology into a single but
complex function. This function would include provisions for
extreme positive outcomes in one good to the detriment of the

Measuring Business Excellence 6,2 2002

52
This initiating cost trade-off model is akin to the budget
constraint in consumption theory (see Figure 2). That is,
expenditures in one sustainability area (good) represent loss
of expenditures in the other two.
These expenditures for bio/physical-economic-social
(B-E-S) sustainability are matched by benefits. Combining
benefits with costs in the graph has the effect of changing
the surface from a planar budget constraint surface for the
three goods. To facilitate this transformation, one must now
think of goods in a global fashion as opposed to goods in
the individual consumption context. This is so because
sustainability by its nature is a global and intertemporal
construct. The effect on the surface of the graph is to
transform it from the plane in Figure 3 to the concave surface
of Figure 4.
Until this point the concept of T-sustainability in BBE has
occupied little place in the model. As with the isoquants in
production theory, technology enters the BBE model by
creating the curvature and the level of the surface in Figure 4.
The curvature represents the effectiveness with which current
technology at any point in time is combined to achieve higher
levels of B-E-S sustainability. The increasing levels of convex
surfaces represent leaps in technology such as the nuclear
fusion example previously discussed.
To complete the model, consider a ``global utility'' function
that overlays this graph (not shown) akin to consumption
theory indifference curves shown in Figure 2. In this three
dimensional schema, these would show up as non-
intersecting parabolic surfaces, one of which would be
tangential to each one of the technology surfaces shown in
Figure 4. These tangency points would theoretically
compose the optimal combination of B-E-S sustainability.
Figure 4 Ð B-E-S sustainability achievement,
benefits less costs
This latter point is fraught with political considerations.
These global indifference surfaces are derived by consensus
among nations as represented by delegates. This is no easy
task as self-interest dictates that positive analysis across
nations will be conflicted. Reaching policy agreements will be
challenging at best. Therefore, one is advised to think in
terms of joint optimization zones rather than optimization
points. Optimization points are very elusive and very costly to
locate.
Summary
The time has arrived to stop swinging environmental,
economic, and social pendulums back and forth. A glaring
example of the current state of matters is the fact that school
children in the USA are inundated with environmental
preservation rhetoric while receiving almost no economic
training. Sustainability and BBE offer a way to consider
bio/physical, economic, and social considerations in a joint
manner.
Edgeman (2001) seeds the discussion by introducing the
concept of BBE to include the bio/physical (B-sustainability),
the economic (E-sustainability), the social (S-sustainability),
and the technological (T-sustainability). He seeks an ethical
and pragmatic compromise of these four considerations.
This paper sprouts Edgeman's seed into a model of joint
optimization of B-sustainability, E-sustainability and
S-sustainability using technology (T-sustainability) to achieve
the optimization goal. At this stage of development, the
model is intuitive and graphical. As indicated, technology
determines the shape of the surface portraying the
opportunity set of combinations of bio/physical, economic,
and social achievement, and technological change
determines the level of that achievement.
As the paper title states, this representation of BBE is
merely the beginning. A tremendous amount of work remains
in specifying the costs and benefits of using technology into
a global function resulting in the opportunity set surface.
Likewise, determining a global utility surface allied with per
capital utility preservation presents an enormous challenge.
Notes
1. For example, air pollution is a negative externality of unrestrained
wood products manufacturing, or automobile operation.
Nonetheless, one positive externality associated with air pollution
is spectacular sunsets.
2. For an in-depth treatment of environmental economics using
traditional economic analysis (see Russell, 2001).
3. Management scientists will agree that finding the elusive
optimization point is often an exercise in futility and in the end a
game not worthy of the costs of finding that elusive point.
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