The Calculus of Green Business

Last Updated Aug 20, 2007 7:19 PM EDT

Wind power generators seem now to be a symbol for green businessIt's easy to think the whole green business eco-trend thing is driven by a horde of exceptionally energetic environmental activists. While the tree-huggers are definitely present, their influence is well-balanced by hard-nosed business analysts. Take a look at this:

Profit optimization objective function in perfect information supply chain
What you see above is part of a profit optimization problem (it's the objective function, to be precise). Imagine you're a manufacturer like, say, Flextronics, and you're pumping out millions of Motorola brand cell phones. Then a third-party comes along and realizes that she can make a lot of money buying, refurbishing, and re-selling used Motorola cell phones. Not only that, but she can market her used products with an eco-slant because she's saving them from getting buried in landfills. So now every phone you produce may eventually become your competitor's product. What do you do?

Well, you can be the one to do the collection, refurbishing, and re-selling. There are all sorts of complexities here, and business analysts use game theory and optimization techniques to help manufacturers optimize their profits in light of challenges like market cannibalization. And it's not hypothetical -- HP uses such calculus in its ink cartridge remanufacturing business and Xerox has used it to analyze its copier remanufacturing operations.

So don't fall into thinking that green business is just fuzzy qualitative stuff -- it's for serious analytical enterprise.

(Image of Wind Power Generator by mason bryant, CC 2.0)