With the anticipation of increased emissions charges and taxes in the European industry, the company could have positive financial implications with the minimized risk of future operational limitations from the combination of international, federal, regional and local legislation. The Director of Aircraft and Engine Analysis could argue against the purchase of the green engines on the basis of cost and uncertainty of raised emissions regulations. The total cost of purchasing the green engines was estimated at kr 12 billion or 1. 14 billion US dollars. The director was also unable to produce figures on the economic payback of the purchase and use of the green engines. To support the argument of uncertainty, The regulatory structure of the industry made it hard to make any clear predictions on the anticipated increase in emissions charges and taxes. b. From the perspective of the SAS Management Team, two arguments for purchasing the green engines include; staying true with their commitment to environment policy and avoiding the potential emissions cap at certain airports.
The environmental commitment policy that SAS values as a company will be appreciated by the environmentally conscious culture in Scandinavia. To avoid the potential emissions cap would mean SAS could avoid the financial disaster that included a fleet of planes that possibly could be grounded at the company’s main hub. The SAS Management Team could argue against the purchase of the green engines on the basis that the costs of the technology used would be significant, and unanticipated complications could add even more costs.
The green engine has never before been installed on the 737 so technological hurdles had to be overcome with expensive research and development. The unanticipated complications are an inevitable with new technology. The only long-term research available is the actual use of the engine day after day, year after year. Internal and external influences: a. Three internal forces at SAS that could have influenced the firm’s decision to purchase the green engines were their objectives, capabilities, and culture.
SAS had a corporate identity as the leader in environmental commitment and the objectives were to maintain the identity with decisions of environmentally positive actions. The capabilities were there to make purchasing the green engines. The resources were available along with the finances as well. The culture of the company was socially influenced by the increasingly environmentally conscious shareholders. The strongest internal force influencing the decision to purchase the green engines was the culture factor because of its influence on shareholders.
A deep set of environmental values and beliefs embedded the culture of the shareholders. If SAS shied away from decisions the involved saving the environment, then shareholders could make decisions that would not help the business side of SAS and could eventually lose customers and therefore lose business. b. Three external environmental forces that could have influenced the SAS’s decision included industry, laws, and regulations. The industry was becoming more efficient and SAS was heading in the same direction.
The laws in Scandinavia were becoming tighter and more restricting. The regulations of most organizations and airports were cracking down on noise and Co2 out put and SAS had to stay a step ahead to be profitable. Of these external influences, regulations were the most influential because of the potential to be grounded if there was a regulation the SAS did not fall under. If that did happen, SAS could potentially not recover and become bankrupt. Recommendations: a.
While some of the long term benefits of environmentally responsible investments for a corporation are social responsibility, shareholders happiness, and regulation following, corporations should make these investments even if they don’t have a short term payoff because short gains now for big gains later always pays off better. The company should think of it as an investment into the possibility of business. The odds suggest that SAS will have a better chance of being profitable down the road rather than a cost cut now. b.
The SAS management team should approve of the purchase of the green engines because the long-term gains from using the green engines outweigh the short-term price cuts of a normal jet engine. If you take everything in consideration, from the social culture to the regulation implications that could limit the airline industry, the decision is easy. The culture of the company must stay consistent and should not deceive its share holders of its mission and objectives as an industry leader in environment responsibility. Another benefit to think about is the first to act on this type of technological breakthrough.