The proactive management of environmental and social pressures for corporate and societal gain – all grouped under the rallying cry of “sustainability” – is no longer a side issue for business; it’s now a strategic imperative.
The forces driving business down the green path are varied, powerful, and relentless. Consider what’s on the corporate agenda today: issues such as climate change, water shortages, business customers greening their supply chains, employees looking for values in their workplaces, technology-driven transparency raising the bar on all products, and resource constraints caused by billions of new consumers around the world. Working within these new realities will require business leaders to rethink how they operate.
Whether your purpose is to solve global sustainability challenges or just to create the most value possible for your company, the answer is really the same: make sustainability-driven innovation a core business pursuit.
Innovation in the service of sustainability can create value in many ways. Companies such as 3M and Dow have made an art form out of cutting costs – literally billions of dollars – through eco-efficiency, mainly from energy and waste reduction. Sustainability innovation also drives top-line growth through product and service innovation, generally by helping customers meet their sustainability goals. For example, Boeing’s new Dreamliner 787 helps its customers cut energy use 20% and help control their most volatile input cost. Agricultural companies developing drought-resistant plants are helping farmers grow crops in areas facing water shortages caused by climate change and population growth.
Companies seeking this kind of innovation need to create a culture specifically geared to identifying sustainability opportunities. Some tried-and-true methods for “systematizing” innovation will work well. Here are a few suggested tools:
· Set aside creative time specifically for sustainability. 3M and Google have famously allowed engineers to spend 20% of their time on anything they’d like. Imagine an allowance for new thinking around sustainability pressures and what they mean for your business and your value chain.
· Create champions outside of the sustainability function. The R&D department, and other critical functions like marketing and customer needs identification, need someone tasked with sustainability innovation.
· Set goals and track performance on innovation on sustainability. You can set goals for portions of R&D, percentage of the product portfolio, or total sales. P&G set a target of $50 billion in cumulative revenue from its “sustainable innovation products.” Similarly, GE has a revenue goal for its “ecomagination” products (that portfolio has grown twice as the rest of the business). And DuPont’s R&D target is to introduce 400 new products by 2020 that improve global food security.
· Use scenarios and storytelling to highlight where sustainability trends are heading and how your company can best respond. Paint pictures of the future for you, your suppliers, and your customers. What will climate and water pressures mean? What about the rise of transparency or calls for labor equity around the world?
· Integrate sustainability innovation into the product development process. For years, companies created special “green” products that unfortunately included trade-offs for the customer in terms of performance or price. But if you build sustainability considerations into the process as far upstream as possible, you can more likely innovate around these constraints. Methodologies and tools, from simple checklists for designers to more comprehensive software programs that measure prospective product impacts, formalize and systematize the integration of sustainability into the product development process.
· Understand your customers’ sustainability challenges through market research. Most companies work hard to learn what their customers really want. But relatively few dig deeply into how their products do or don’t support customers’ sustainability needs. More recently, electric utilities such as PG&E have experimented with smart meters in homes, using market research to understand how the rich data from meters can help customers meet their personal environmental objectives.
· Gather data on value chain impacts of your products and identify “hotspots” of larger risk, impact, and opportunity. P&G’s lifecycle analysis of detergent identified the use of the product in homes (washing clothes in hot water) as the biggest energy hog. This discovery led directly to the creation of Tide Coldwater – a sustainability-driven product innovation, but one that would help customers save money as well. Identifying where the impacts are helps create mental space for creativity and serendipity. More recently, PUMA completed a detailed 'environmental profit & loss' which measures the external impact of the apparel company's value chain.
· Collaborate with a wide range of stakeholders (that is, “open” up your innovation). A PwC survey found that 40% of CEOs expect that the majority of future innovation will be co-developed in collaborative networks outside their organizations. In 2010, GE established the ecomagination challenge, asking the world to submit ideas for making homes or the energy grid more efficient. Thousands of business plans later, the company and its venture capital partners had invested $140 million in new and early stage companies to help them get to scale. Or consider Starbucks’ “co-creation” efforts to gather key knowledgeable stakeholders together to tackle the challenge of designing a greener takeout coffee cup.
This final point touches on entire new areas of innovation. So-called “collaborative consumption”, as part of the new “shared economy” is driving deep innovation to allow many people to share products and services, thus reducing the impacts of consumption. In addition, companies dedicated to closing the loop on materials are creating a “reuse economy” and many companies are looking to entirely new markets, particularly in the developing world, to design products for the rising lower-middle class, or the “base of the pyramid.”
In short, there are a great number of shifts in the world that are fodder for new thinking. Many of these new business models are a result of, or strengthened by, the large sustainability forces at work today. Climate change, water shortages, feeding what will be 9 billion people, overall health and wellness, equity, and so on – these are the largest problems humanity faces. And thus solving them will create enormous business value. Multi-trillion dollar markets in food, energy, transportation, and buildings are at stake.
Are you using a sustainability lens to drive your innovation yet?
Andrew Winston advises some of the world’s leading companies on how to profit from environmental thinking. He is a globally recognized expert and speaker on the business benefits of going green. Andrew is the author of Green Recovery and co-author of the international best-seller Green to Gold. He serves as an external Sustainability Advisor to PwC. Andrew recently presented his ideas on heretical innovation at HSM’s World Innovation Forum in New York.
Don Reed is a Managing Director in the Sustainable Business Solutions practice at PwC. He has over fifteen years experience helping operating companies deliver better environmental and social outcomes with measurable shareholder benefits and financial services companies integrate sustainability trends into credit and investment analysis.