CB BureauTalking-and-thinking points from the report ‘Sustainable and inclusive innovation ” strategies for tomorrow’s world’ by CII-ITC CESD “ part 3
The five steps to ‘Sustainable and Inclusive Innovations’, or SI2, have been identified as important for a company that wants to explore sustainability and inclusivity as drivers for innovation. The five steps are represented in the shape of a circular strategy in order to illustrate that an ongoing process is necessary with the company constantly trying to improve its sustainability performance (the five steps are adapted from ‘Indian companies with solutions that the world needs’, CII-ITC Centre of Excellence for Sustainable Development and WWF-India, 2008):
- A vision for strategy
- Two drivers for innovation
- Three approaches to innovation
- Four stages of sustainable innovation
- Five indicators to progress
A vision for strategy
In order for companies to be sustainably innovative and derive profits therefrom, they need to prepare for basic conditions. There are five necessary conditions to integrate a sustainability vision into the business strategy.
- Companies have to recognize sustainability as a driver rather than a barrier for innovation. This will enable them to see opportunities and growth areas where others apprehend risks and increased costs.
- Companies need to acknowledge that sustainability is multidimensional and includes economic, social and environmental footprints.
- Companies must be able to engage with relevant stakeholder constituencies within their innovation process. This engagement should be followed by action for their future operations.
- Measurable targets must be set to ensure that sustainability efforts of the company add value in economic, social and environmental terms.
- Company’s efforts towards sustainable innovation need to be driven by leadership and supported by the rest of the organization force.
Having conditioned the organization, companies should also look at the level of innovation capability that results in business and sustainable value. Innovation is as much necessary for internal low-hanging fruits as it is for offering new products and solutions.
Two drivers for innovation
Two major drivers – poverty and natural-resource depletion – will continue to put pressure on all institutions in society such as government, companies and NGOs. All companies aiming for sustainable innovation should in a transparent way present how they help reduce poverty and increase resource efficiency, and provide products and solutions that meet sustainability challenges.
Exploring how poverty and resource efficiency can become two common platforms for innovation that can help spread sustainable and inclusive solutions through society is an area where companies could engage.
Three approaches to innovation
There are three different kinds of approaches that companies can use to embrace sustainability as driver for innovation where identified. These three can exist together within the same company, and within big companies they usually do.
The clean-slate approach
This approach can be used by a company, or a part of a company, that can start fresh from sustainability need and look for services needed. Integrated light system with solar PV, batteries and LED lamps, as provided by Selco, is one example where the need for poverty reduction and sustainable energy solutions are needs that are met. Grameen Bank and Grameen Solar are two other similar examples, where financial needs among the poor and smart energy solutions are met with smart innovation.
This approach is often technology-driven and it is important to include mechanisms within the company that explore if there are other technologies that can provide the same service in a better way. If a company only focuses on improvements in one technology, it can contribute to a technology lock-in even if the original intention was meant to deliver a sustainable solution. Car dependence and coal dependence are two examples of
solutions that have created a technology lock-in over time and where many companies involved do not look beyond the technology they provide. Similar mistakes should be avoided in new areas that are today seen as sustainable.
The springboard approach
This approach can be used by a company that realizes that at least a part of its business is currently not sustainable. This realization often happens due to external pressure. Instead of only defending their business, they can look for new business areas that build on their current strengths using the outside pressure to find new business paths, and thereby use the outside pressure as a springboard for a new and more sustainable business
strategy.
IKEA is a good example where initial outside pressure, related to toxic materials in part of their product line, resulted in a dialogue with environmental NGOs and an increased focus on strategic environmental work way beyond the initial work with toxic chemicals. Using the outside pressure, IKEA developed a strategy that resulted in a proactive approach.
Electrolux and other providers of whiteware is another sector that has applied a springboard approach. Many of them got the impetus to rethink their old business approaches during the CFC discussions in the 1980s. It was also after this that many of the companies started to explore a service-based approach (they realized that in order to be sustainable they need to move away from a perspective where they sell products, as their incentive is
not sustainable then, to a business model based on service). As the outside pressure was reduced, the appliance providers have lost some momentum and are more focused on incremental improvements in existing products these days.
An interesting case demonstrating the difficulties of the springboard approach is the oil sector. Companies like Shell and BP are examples of companies that, after heavy criticism, opened up new lines of business and invested in renewable energy and energy efficiency. Lately, however, partly due to investor pressure but also due to the companies’ inability to make sustainability fit in the core business, they are increasing investments in unsustainable practices. In some cases, their new areas are worse off than earlier work, such as exploration of tar sand. (http://www.independent.co.uk/environment/the-biggest-environmental-crime-in-history-764102.html)
Still, the work of Shell and BP has to be put into the context of their competitors. It is worth noticing that as late as June 2002 ExxonMobil’s chairman, Lee Raymond, said: ‘We in ExxonMobil do not believe that the science required to establish this linkage between fossil fuels and warming has been demonstrated.’
(http://www.guardian.co.uk/science/2004/jun/17/sciencenews.research)
As is true in the case of a person using a springboard, a company using a springboard approach must ensure that the direction is right, because if it is not, it might bounce back to the old way of doing business or even shift its business in a less sustainable direction.
One major challenge for companies driven by outside pressure and applying a springboard approach is to ensure that basic structures in the companies are reformed so that the energy that is turned against the company’s unsustainable part is directed in a sustainable direction without coming back again due to lack of supporting structure and links to the company’s core strategy, key performance indicators (KPIs) and future revenue flows. The company needs to engage with stakeholders that are sceptical of a new sustainable direction. It is especially important to discuss with investors and be transparent about the needs for innovation to ensure that the sustainable direction is profitable.
The quantum-leap approach
The quantum-leap approach is for companies that do not have any outside pressure to deliver sustainable solutions but have products and services that are part of a sustainable development. These companies have either new or existing solutions that can help society become more sustainable.
One of the challenges for a company applying a quantum-leap strategy is that they might have outside pressure in an area that is not that important, but it may shift the focus away from the proactive strategy. The internal energy use by IT companies is an example of this. It is not irrelevant, but it represents approximately two per cent of the global emissions and IT companies can provide low-carbon IT solutions that provide a significant reduction of the other 98 per cent emissions. In such a situation, it is not very strategic to spend most of the resources addressing the two per cent internal emissions while ignoring the 98 per cent they can help reduce overall emissions to a considerable degree.
Biotechnology is another sector where focus so far has been on their internal environmental performance, or risk with certain technologies. These are important areas, but there are also significant opportunities with smart biotech solutions using biomimicry. For serious biotech companies that stay away from high-risk technologies, there will be significant opportunities for a quantum-leap approach. (http://en.wikipedia.org/wiki/Biomimicry)
Four stages of sustainable innovation
It is important to establish the ambition for innovation within the company. In many cases, different kinds of innovations are needed at different stages at the same time. For instance, the EHS department might need ‘innovation’ to comply with new legislaton, at the same time the product development division may want incremental innovation to keep up with competitors’ enhanced performance, and at the same time the CEO and the senior management team might decide that they want to support transformative innovation to move into new business areas.
Reactive
This is probably still the most common stage and usually treated as innovation in relation to sustainability today. Due to new legislation, changing customer preferences, buyer demands, competitor moves, media attention and others, companies find that they are under pressure to change. There is a tendency to resist change or adapt to secure existing business deals. Increasingly, however, companies try to comply with legislation and improve their performance. The incremental innovation is an important part of strategies of most companies to ensure that resource efficiency and environmental improvements are constantly improving.
Incremental
Leaving an ad-hoc approach to sustainable innovation behind, many companies now try to build in systems for constant improvement using ISO systems and other management systems. The case studies have demonstrated that incremental steps, beyond-compliance processes “addressing current issues of cost, risk and footprint reduction” have been an important step towards a better understanding of what sustainability means. Indeed, pollution prevention and product stewardship have succeeded in reducing waste, emissions and impact, while simultaneously reducing cost risk and stakeholder resistance. The incremental gains are generally inadequate to change the course fundamentally. The first step towards sustainable innovation is often focused on reducing risks and cutting costs. This means reductions in waste, air emissions and energy use. Companies come to understand that their sustainability efforts will end if they do not demonstrate a viable commitment to cutting their environmental footprint and reducing risks today.
Demonstrating significant progress on reducing waste and emissions is crucial for external credibility. But keeping an eye on the bottom line is equally important inside the company. Cost reductions can often go straight to the bottom line, improving competitiveness and reducing risks. Reaching out beyond internal borders to engage outside stakeholders, including powerful community groups, NGOs and regulators, is unusual for most companies. This nature of engagement can often be defensive and combative. Listening to many people with whom they do not usually interact and taking their input seriously are crucial to the process of sustainable innovation.
For innovation to be successfully introduced into the marketplace and accepted by society, it must be based on many forms of partnerships and continuous dialogue with stakeholders, including government, NGOs and academia. Innovation that does not address pressing human needs will not advance sustainability. Likewise, a vision of sustainability detached from science and technology will not succeed.
Something fundamental must change if we are to accommodate a burgeoning population of nine billion globally. Looking at the overall trend and the need to bring billions out of poverty, it is obvious that incremental innovation is not enough. The transport system, energy system and urban development today make buildings and energy part of the problem rather than part of the solutions. Moving beyond incremental improvements to transformative solutions will allow this to change.
Radical
A company’s growth trajectory is what will propel it to create sustainable value and provide it with the ability to make a significant positive difference in the world. It is at this stage that companies ask questions like: How are we going to bring our products and services to a larger world and shift our way of thinking about global social and environmental issues? How are we going to reach people who want and need to improve their quality of life and standard of living?
Many of the advancements pertaining to sustainability initiatives to date have been achieved within manufacturing plants. But as companies reach out to new markets, they may realize that their products have
far greater impact than their manufacturing facilities. Driven by an accelerating rate of technological change,
radical innovation is a vital stage in transition to sustainable business and low-carbon economy. In doing so, the corporate sector becomes a primary driving force for sustainable development. This is the advantage that social
enterprises presumably begin with.
Transformative
When a company begins to look towards the future, the shift in focus is transformational. Many companies, for example, are reinventing themselves. The first-half of the 21st century will witness many companies embracing this approach and will involve a focus on the combination of bio-mimicry, natural-material use and its recycling, and others, in a most environment-friendly and conservation-oriented manner.
In addition, companies need to be focussed on a few ‘mega-sustainability trends’ that will shape the markets of the future: the drive for renewable energy and materials, the demand for greater safety and security, and the need for increased food production. Also vital is how some of the unmet needs could be met by rethinking delivery processes and methods. Leapfrogging to inherently clean technologies through disruptive business models, for instance, at the base of the pyramid, enables companies to confront directly the sustainable development challenges. These also provide the basis for the repositioning and growth that will be needed for companies “and society” to thrive in the future.
Five indicators to progress
A long-term approach requires business leaders to make judgements that incorporate long-term measures into the definition of success.
Create a sustainability vision
Many companies cannot survive without a great vision. Especially in the current climate, how can an organization survive without a well-defined vision? It’s not just about the vision statement alone. But a real vision “a vivid enough picture of the future that has no boundaries, it is larger then the organization itself and it is lofty enough to want to work hard for. If a company has a great vision, everyone can see a clear direction and a focused path to the future. Good organizations have a vision. Great organizations redraw the vision for the entire society. Traditionally, it has been said, without a vision, the company will fail. Now, without a sustainability vision, the company is bound to fail.
Ensure leadership conviction
A comprehensive sustainability strategy can only be implemented with support from the top by leaders who have strong convictions. Long-term, sustainable profitability is the key measure of success and such profitability comes through creating the right products and services for the right customers over time. Such convictions should be reflected in the way leaders identify opportunities that are radically different from those prevailing in current times.
New opportunities and challenges emerge, and it is important that a company spends resources to stay ahead as a leader. The world needs companies that produce tough leadership material and explore new ways to deliver sustainable results. These leadership initiatives must be clearly linked to the key challenges, or open up a discussion for potential new challenges and opportunities that have not been acknowledged so far in society.
Check if there is a strategy pay-off
Is the sustainability-driven innovation and profit-making strategy paying off? Transformations are not trivial. Implementing a sustainable innovation strategy requires internalizing sustainability notions in profound ways. Sustainability-based thinking, perspectives and behaviours are integrated into everyday operating procedures and the culture of the organization. When these migrations happen, the metamorphosis is underway. The payoff is tapping into the revenue, innovation and productivity side of the sustainability business case rather than just the risk mitigation and cost-savings side.
Work with stakeholders
No company can achieve transformative change alone. To work with other companies is therefore necessary. To present results from these collaborations is also important. As many companies focus more on communication than actual results, it is important for serious companies to use independent verification of the results and ensure that collaboration is encouraged with those groups that can help keep the focus on actual results and not mere communication. To actively be a part of creating new networks that focus on concrete reductions, it is also important that the companies help to develop tools to calculate the savings from the networks that they participate in.
Measure value-add
Annual or quarterly financial results tell only a part of the story. Social and environmental factors also play a part in any holistic process of performance measurement because a company with a good record in these areas will attract employees, and build trust among current and potential employees, customers and governments, while a company with a poor record will suffer increasing isolation.
Companies need to design such long-term measures and metrics, explaining to the external world why these are valid as indicators of sustainable value creation. How many people have they helped to move out of poverty and how have they provided solutions that reduce use of natural resources and improve quality of life? For innovation to work, as argued earlier, employees must be fully engaged” more often, everyday, in every project they are contributing to.