“There’s no alternative to sustainable development” begins the recent Harvard Business Review article, “Why Sustainability Is Now the Key Driver of Innovation.” Sustainability and green initiatives are no longer optional contend the article’s authors — Ram Nidumolu, C.K. Prahalad and M.R. Rangaswami. Not only is the business case getting stronger, but embracing a sustainability agenda can stimulate innovation, pushing companies to rethink their operations, products and business models.
The authors studied the sustainability initiatives of 30 large companies and discovered what they describe as a “mother lode of organizational and technological innovations that yield both bottom-line and top-line returns.” From their research, they’ve developed five distinct stages of change that transforms a company from sustainability laggard to leader. Each stage has its challenges, required competencies and abundant opportunities as the authors illustrate through case study examples.
Why Sustainability is now the Key Driver of Innovation
Companies that pursue a sustainability agenda typically follow a 5-stage process:
1. Viewing Compliance as Opportunity – Most companies start with compliance. All must comply with legal regulations that can vary based on region. And in addition, some choose to follow voluntary, sector-specific codes of conduct. Rather than viewing compliance as a burden and doing as little as possible, the authors suggest complying with the most stringent rules and doing so before they become mandatory. This first-mover approach provides a competitive advantage as well as efficiencies of scale. Staying ahead of regulation can also put companies in a position to shape future legislation.
2. Making Value Chains Sustainable – Keeping pace with regulation makes companies more environmentally aware and more attentive to their resource consumption habits. They will look inward to reduce consumption and waste in their operations and workplace environments; and then outward to their supply chain and other external partners to drive efficiency through every link in the value chain. This forces companies to become more adept with new tools like life cycle assessments, energy footprint calculators and carbon management protocols that can lead to future innovation especially in the design of new products and businesses. Driving sustainability through the supply chain compounds the positive effect by requiring suppliers, typically small to medium businesses, to improve their environmental and labor practices.
3. Designing Sustainable Products and Services – With an increased focus on efficiency and newly acquired skills like life cycle assessments, companies can redesign their offerings and tap into growing consumer demand for more eco-friendly products and packaging. But this is more than just a PR exercise. Through this process, management also learns how to scale new sources of supply and distribution, as well as gain expertise in new manufacturing techniques. The skills learned today provide the foundation for developing tomorrow’s products.
4. Developing New Business Models – As companies view current business models through the lens of sustainability, they will inevitably rethink these models, especially with the advent of new technologies and the shifting landscape of customer expectations. New models have already started to emerge emphasizing the delivery of value through services rather than products, and the combination of digital with physical infrastructures.
5. Creating Next-Practice Platforms – A sustainability focus also allows companies to build on their existing competencies to develop next-practice platforms and new paradigms. Can we imagine products like waterless detergents, or crops that grow without water, or biodegradable packaging that plants seeds as it decomposes? Can we imagine a national energy system that uses digital technology to manage power generation, transmission, distribution and consumer demand all via the Internet? Innovators like Cisco, HP, Dell and IBM can. They call it the smart grid.
Growing concerns over climate change, stricter government regulations, pressures from NGOs and shifting consumer expectations will force businesses to change. There is little disagreement on this point. Knowing that change is inevitable, smart executives are embracing the sustainability agenda and rethinking long-held axioms. The transformation will take committed leadership at the top levels and a motivated, talented workforce in order to execute this agenda. Are you ready?
More to come. Next up, an interview with C.K. Prahalad.