1. What are the payback periods for the lawn-to-prairie conversion project, the dock blankets, the T-9 lighting fixtures, and the storm-water project?
2. Calculate the Net Present Value of the storm-water project, given the financial information in the case.
3. Evaluate the pros and cons of the storm-water project on both financial and non-financial factors and make a recommendation on what Richard Murphy should decide.
4. What are the advantages of pursuing LEED, Energy Star, and ISO 14000 certifications?
The primary subject matter of this case concerns how sustainable business practices and increased profitability can go hand in hand. Making decisions that are both environmentally responsible and advantageous to the business often requires the assessment of a variety of tangible and intangible factors and the reconsideration of traditional decision making guidelines. Richard Murphy Jr., the CEO of Murphy Warehouse Company, has spent a great deal of time analyzing sustainable ways to conserve resources, reduce costs, improve the well-being of his employees, and promote his company as an environmentally responsible logistics provider. Murphy also realizes that the benefits of sustainable projects must be weighed against the costs and payback periods of these investments. The case is designed to be taught in a one-hour class period, with two hours of outside preparation by students.
Imagine that you are Richard Murphy Jr., the CEO of Murphy Warehouse Company, a family-run company that began over 100 years ago. You feel the weight of responsibility to maintain the financial viability of the company that is now in its fourth generation of family ownership. One of your biggest challenges is to understand how the company should adapt to a changing business environment while conserving the company's financial resources and protecting the core business model that has sustained it for so long.
One major force in the current business environment is the sustainability movement, which focuses on the responsible use of natural resources. If you are Richard Murphy, you are trying to find the opportunities to adopt sustainable practices that also make financial sense to Murphy Warehouse Company. While you have successfully implemented several sustainable projects in your company, you are now faced with deciding to invest over a half million dollars in a storm water project that presents an unusually long payback period. It is a complicated decision that involves high expense, multiple tangible and intangible variables, and a fair amount of risk that something might go wrong. What do you do?
This case is focused on a real company, Murphy Warehouse Company, and its CEO, Richard Murphy Jr. The facts and statistics communicated in the case are real, and the data were collected from interviews with Richard Murphy and the documents, financial figures, and information that he provided.
Murphy Warehouse Company is a family-run company that began over 100 years ago. As CEO, Richard Murphy understands the weight of responsibility he has to maintain the financial viability of the company that is now in its fourth generation of family ownership. One of Murphy's biggest challenges is to understand how the company should adapt to a changing business environment, while conserving the company's financial resources and protecting the core business model that has sustained it for so long.
A major force in the current business environment is sustainable (green) practices, which focuses on the responsible use of natural resources. The case depicts Richard Murphy trying to find new opportunities to adopt sustainable practices that also make financial sense to MWC. Murphy has successfully implemented several sustainable projects that financially benefit the company, but now he must decide whether to invest over a half million dollars in a storm water project that presents an unusually long payback period. It is a complicated decision that involves high expense, multiple tangible and intangible variables, and a fair amount of risk that something might go wrong.
One of the main goals of the case is to move away from the mindset that green practices are primarily for businesses who are willing to sacrifice sound financial decision making models to pursue ethical and moral imperatives to "do the right thing" for society and the environment. The case strives to show how sustainable practices can be part of running a business that can tout its environmental achievements while maximizing long-term profits.
The case provides financial details on the conversion of lawn to prairie so the students can calculate a payback period that shows this project made financial sense (further discussion in case questions below). The lawn to prairie conversion also introduces several intangible and less quantifiable important benefits, including the reduction in the urban heat island effect, the attractive natural buffers between MWC and adjacent properties, and the attraction of wildlife to the area. Murphy has also gained a great deal of positive publicity for his prairie conversion project by sharing his experience at professional society meetings, local universities, and print media publications.
Other projects at MWC that are described in the case provide further evidence that sustainable investments and profitability can go hand in hand. The purchase of dock blankets, the upgrade in the lighting systems, and painting the ceilings white should be identified in the class discussion as examples where green initiatives and disciplined financial decision making can be complementary.
The decision point of the case, where Murphy is evaluating the feasibility of the storm water project, challenges the students to put together the lessons of the case and make a decision. The instructor should ask the students to evaluate the pros and cons of the storm water project, considering both tangible and intangible factors. The payback period should be calculated, using the numbers provided in the case. The students should discuss whether the significantly longer payback period can be justified (compared to traditional business practice and to previous projects at MWC).
Finally, the instructor should demonstrate to the class that sustainability is part of the "continuous improvement" management philosophy. The case demonstrates this by mentioning Richard Murphy's explorations of new energy technologies in solar, wind, and geothermal. He seeks partnerships with local utilities and researches government incentive programs that enhance the financial returns for businesses that adopt green practices. Making sustainability part of on-going company culture and management practice is promoted by the USGBC, LEED, and ISO 14000 organizations, as described in the case. The case also mentions several times that sustainability practice is a necessary part of being a player in the competitive marketplace in terms of attracting clients and building positive public relations.