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For the exclusive use of S. Sami, 2016. NA030 Balancing Stakeholder Interests and Corporate Values: A Cummins Strategic Decision

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For the exclusive use of S. Sami, 2016.
NA030 Balancing Stakeholder Interests and
Corporate Values: A Cummins Strategic
Decision
Erica Berte, Indiana University–Purdue University Columbus
Christine Vujovich, Retired, Cummins, Inc. As it was for almost everyone, 2001 was a difficult and demanding year for Cummins
. . . the worst market conditions in the Company’s 82-year history . . . In our Engine
Business, we made unprecedented decisions over the course of the past year, including
a significant strategy shift in our heavy-duty engine business.1 I Tim Solso, Cummins CEO n 1998, the United States Environmental Protection Agency (EPA) and U.S.
manufacturers of heavy-duty diesel engines, including Cummins Inc., signed a
consent decree. The consent decree involved, among other things, implementation by October 2002 of a new oxides of nitrogen (NOx) emission standard of 2.5
grams per brake horsepower hour (g/bhp-hr) that otherwise would have taken effect
in January of 2004. The fifteen-months-early implementation of the new standard was
technically called a “pull forward” of the standard.
In early 2002 customers and competitors were pressuring Cummins to not follow
the consent decree deadline and instead accept a significant non-conformance penalty.
Other stakeholders such as environmental Nongovernmental Organizations (NGOs),
suppliers, shareholders, and employees had different opinions about whether Cummins should follow the decree.
Cummins Engine Business president Joe Loughrey and his team needed to make a
strategic decision prior to the consent decree taking effect in October 2002. Should they:
A. agree with the competitors’ position and ask the EPA to delay the consent
decree implementation date, and then delay the development and production
of their new engine, thus facing an EPA non-conformance penalty; or
B. implement the terms of the consent decree, launching a new, but more
costly engine that meets by October 2002 the more stringent NOx emission
standards. Loughrey knew that a wrong decision could put the company’s future at stake, since
the Cummins Engine Business Unit represented more than half of the total company’s
sales. In addition, Cummins had the second largest market share of the total U.S.
heavy-duty engines market. With a major industry player implementing the consent Copyright © 2014 by the Case Research Journal and by Erica Berte and Christine Vujovich. The authors
thank Cummins members for their contribution to this study. They also thank the CRJ reviewers and
editors for their comments and editorial assistance. An earlier version of this case was presented at the
NACRA 2012 Annual Meeting. The authors thank the conference reviewers’ suggestions. Balancing Stakeholder Interests and Corporate Values: A Cummins Strategic Decision 139 This document is authorized for use only by Shawkat Sami in MBA-635 Corporate Culture and Social Responsibility 16TW4 taught by Lindsay Conole, Southern New Hampshire University
from March 2016 to August 2016. For the exclusive use of S. Sami, 2016. decree, it would be easier for the EPA not to postpone the decree implementation
deadline as Cummins’s competitors were asking. Consequently, Cummins’ decision

 
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