Introduction:In the past, efforts to improve the environment almost always led to increasedproduction costs. In fact, some economists have attributed a significant part of the slowdownin productivity growth of the 1970s to increased attention to environmental issues (Gray,1987; Conrad and Morrison, 1989). This result is in accordance with neoclassical economictheory, which holds that firms maximize profits subject to given constraints. If a constraint(such as keeping emissions below a certain level) is added, then profits cannot be higher thanthey were before. However, in practice there are numerous examples of firms which haveboth reduced their emissions and increased their profits and/or their efficiency. (See forexample Porter and van der Linde, 1995.)Concomitantly, a central tenet of strategic management theory is that firms need tofocus on only a few distinctive competencies if they wish to be profitable (Hamel andPrahalad, 1990). However, Florida (forthcoming) has found a significant number of firmsthat are leaders in adopting new forms of both production management and environmentalmanagement.This paper explores these paradoxes: how firms can be both profitable andenvironmentally conscious, how they can be both innovators in manufacturing and leaders inemissions reduction. The contribution of this paper is to present detailed examples ofconditions under which these types of superior performance go together, and to begin todevelop a theoretical framework which explains the examples.The theoretical framework is based on Nathan Rosenberg's (1976) concept of'focussing devices'. His argument is that because managers are only boundedly rational, theycannot explore all possible sources of efficiency improvement at once. Instead, they developworldviews which give them ideas about where might be fruitful places to look. InRosenberg?s example, nineteenth-century US firms developed many labor-savinginnovations because of the salience of high labor costs in this country. Many of thesepractices increased efficiency and profitability in Europe as well, and were adopted there;however, they were not thought of there because labor costs did not stand out so clearly as akey element of costs.This paper argues that the recent diffusion of the principles behind the ToyotaProduction System gives managers a new focusing device, one which allows them to besimultaneously 'lean' and 'green'.