INNOVATION FOR SUSTAINABILITY
Business contexts and drivers
By Dr Aileen Ionescu-Somers and Professor Francisco Szekely - March 2013
Business has entered a challenging new world full of opportunities for strategic innovation, and sustainability will be a major driver of these opportunities into the future.
Let's look at some of the trends that indicate the emergence of this brave new world. There is a widening gulf between the replacement economy of industrialized nations and the first-buy economy driving consumption in poor and emerging countries. There is also increasing tension between material and non-material economies: production, demand, and commodity prices are rising, while the costs of immaterial goods such as shared multimedia content are falling. And there are new markets springing up to serve the "less poor," who earn between $2 and $10 per day. Other important trends include the flourishing "south-south" economy–where emerging economies are trading with each other and with less developed countries–and its range of newly influential companies and brands. We are also witnessing the gradual obsolescence of traditional enterprise boundaries–an example being when individual homeowners produce electricity and sell it back into the grid.
Companies that want to deal with the complexity of these shifts will have to move away from traditional approaches. The new framework, which already dominates in a handful of the world's leading companies, is solution-oriented strategic innovation for sustainability. This sounds like a mouthful, but what it means is finding new ways to improve performance through innovation in all three dimensions of sustainable development: environmental, social, and economic.
Innovation for sustainability is more dynamic than innovation per se, since people working in this area have to be incredibly flexible to take account of the numerous drivers in play. For example, they have to think long-term: just remember what happened with CFCs, which were considered a highly-innovative technological solution when they were introduced in the 1920s, only for scientists to discover decades later that they harmed the ozone layer. That problem was solved by replacing them with HFCs – which, as it turns out, are greenhouse gases that also have a powerful effect on the Earth's climate. Tomorrow's company will have to think further ahead than addressing an issue in the short term; increasingly, future solutions will have to support the three pillars of sustainable development; environmental, social as well as economic.
The innovation for sustainability spectrum
The first type of innovation on the spectrum is characterized by incremental, step-by-step change. Many companies take this approach, largely because they are risk-averse, particularly in recent crisis-affected years.
The second - radical innovation - means creating new business models, but doing it within a traditional business system. The third is the game changer: systemic transformation which reinvents business systems that are faulty and unsustainable by their very nature. Very few companies are doing this today, but we can see some new and more reflective business models emerging in some corners.
Let's consider the automotive industry example. In empirical research carried out by IMD's sustainability research center in 2001 to 2004, few companies were concerned with climate change as a strategic issue and certainly not one that was driving strategy. Today, the goalposts have changed. Take BMW, the super-sector leader in the Dow Jones Sustainability Index. In 2007, it created Strategy Number ONE to develop sustainable, visionary concepts for mobility that would address the challenges and requirements of customers in an urban environment. The strategy is a road map designed to help the company achieve growth and profitability. It shapes BMW's future, and introduces new technologies to help it to achieve its goal of zero-emission vehicles that also reduce the impact on the environment by reducing use of resources.
Toyota, which is in the vanguard of hybrid car technology, is taking things a step further. It too is looking at next generation technology that uses a more diverse energy mix, as well as using fewer other resources. The company's Powertrain Map for Future Mobility develops scenarios that tailor-make types of vehicle and mixes of fuel for use in particular contexts.
The company is also asking itself questions. The big one is about how it can promote the introduction of next generation vehicles, and the infrastructure needed for them to operate efficiently (charging stations with solar panels, for example) while also promoting the use of car sharing and mass transit systems, and reducing congestion in cities.
To aid its search for answers, it has broadened its strategic thinking to incorporate other dimensions that will affect its innovations: global concepts of success and progress; "bio-capacity" (capacity of an area to provide resources and absorb wastes) available per person; and individual countries' need to improve development and/or/while reducing ecological impact.
Uncertainty: a barrier and an opportunity
Three types of uncertainty could affect the evolution of innovation for sustainability: physical/ecological, political, and behavioral. It is difficult for any organization to look into the crystal ball on these fronts; nevertheless, companies will have to become increasingly adept at developing a forward-looking perspective. This will require new skills in the managers of tomorrow. In any case, uncertainties create opportunities as well as barriers. Overcoming the difficulties to grasp these opportunities, and make the most of innovation for sustainability, requires organizations to take three steps.
First, calculate the true cost of innovation for sustainability. For example, calculation of the costs and benefits of increasing renewable energy capacity must encompass elements such as persistent subsidization of fossil fuels and the multiple negative impacts of climate change and pollution.
Next, replace obsolete thinking. Short-term frameworks and goals in politics and in business must be replaced with long-term flexible thinking. This can in turn enable organizations to stop making decisions in a negative, reactionary way, and instead move to a positive, proactive approach that will allow them to focus on, and seize, the opportunities at hand.
Finally, involve a wider range of stakeholders. This will help to ensure the success of innovation for sustainability. The bottom line is that people most affected must also have a say in managing both their immediate environment, and the global commons.
Sustainable innovation within the firm
Managers have started to speak differently about strategic innovation for sustainability in the last few years. It is no longer a niche area of business, but a concept that is moving into the mainstream. Leading innovators such as IBM, 3M, and DuPont de Nemours all say that they see sustainability pushing the core business strategy, and that it is increasingly not an option to have things happen the other way around.
Managers can take a number of approaches to encourage innovation for sustainability within their organizations. The starting point is to make sure that it is considered an opportunity, not a threat, and to help people realize that high-impact ideas are necessary to change customers' mindsets. It is equally critical for organizations to ensure that they have the right incentives in place (fiscal, regulatory, and legal) to promote a longer-term view that supports sustainability.
Companies that are already making strategic innovation for sustainability work tell us that there are a number of elements that can help to drive improvement in this area.
1. Value the role that leadership will play, in conjunction with clear priorities and a linked corporate strategy, in making this happen.
2. Ensure that the business case for innovation is supported by thorough analysis and scenario planning.
3. Focus on client needs, leverage applied technology, and share knowledge through a transparent approach to research and development within the firm.
4. Ensure that strategy and sustainability performance are embedded in core processes, where they can drive change, rather than being add-ons.
5. Engage staff through a clear strategy, strong program office, company-wide training, and effective communication of best practices.
6. Support strategy development and implementation by promoting an innovative, interactive corporate culture.
Dr Aileen Ionescu-Somers is the director of IMD's Global Center for Sustainability Leadership (CSL) Learning Platform; Francisco Szekely is the Sandoz Family Foundation Professor of Leadership and Sustainability and Director of the Global Center for Sustainability Leadership (CSL) at IMD.
IMD's Global Center for Sustainability Leadership has a primary focus on strategic innovation for sustainability through development of relevant thought leadership, research and learning activities. In particular, its innovative One Planet Leaders Program – a collaborative effort with WWF, the environmental organization – is focused on tomorrow's challenge of living within the limits of one planet. Click here for more information and to register on the forthcoming program. The CSL Learning Platform is holding its next thought leadership Roundtable on Sustainability Dilemmas and Solutions affecting Natural Resources on 20/21st March. Click here for more details.