This is “Adaptive Collaboration through Value-Added Networks”, section 4.5 from the book Entrepreneurship and Sustainability (v. 1.0).
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Value-added networks (VANs)The action-oriented teams that work collaboratively to execute a sustainability strategy. are necessary to implement sustainability innovation strategies; VANs provide the horsepower to implement projects and are the means to translate your strategic vision into competitive products or services. VANs are action oriented and results driven.
VANs are distinct from weak ties. The primary contribution of weak ties is new and diverse information that links strategy more coherently with broader systemic forces. Weak ties bridge the corporation to the “outside” world’s events and stakeholders. In contrast, VANs are composed of closer and stronger ties within your firm and its inner circle of collaborators. They are ties that can be intentionally and strategically joined to add value throughout the implementation process. Weak ties also differ from VANs in that they might be critics or even opponents of your company. The purpose of weak ties is information access beyond the known and the predictable, while the purpose of VANs is to take action. Weak ties serve an essential role for bringing creative alternative perspectives to the business at the options generation stage. VANs enable adaptive collaboration.
VANs can offer a wealth of creativity in the implementation process. VANs can be familiar faces in your backyard, or they might include suppliers or customers. They are an untapped, underappreciated resource for implementation ideas, feedback, and adaption as a plan is implemented. Rarely do company executives directly create and monitor VANs. More often they create the circumstances and culture that allow VANs to form and the protection and incentives for them to be effective. Our research indicates that where sustainability innovation strategies are successfully implemented, a group had come together with sufficient senior backing and the skills, resources, and authority to drive the project forward. It should perhaps go without saying that VANs tend to be more successful in implementing sustainability innovations in companies already open to change and known to be culturally innovative.
Membership in VANs can be formal or informal. If sustainability goals have been embraced by a company, the process might be more formal. If sustainability is being explored by only a subset of the firm, but resources and legitimacy are present, the process may be more organic. Sometimes all that is lacking to catalyze a VAN is the context for the right question, for example, asking a long-standing supplier, “Can we do this better if we integrate environmental/sustainability attributes?” When asked to provide greener, more benign materials, a supplier replied to one of the managers interviewed for this book, “Yes, sure, we can do that. You just never asked before.” In this situation, the collaborative VAN simply emerged, its leaders and other participants identifying themselves by stepping forward once the space is created for them to act and flourish.
VANs are often informal structures; they are interwoven in and under the firm’s formal administrative and functional hierarchies. However VANs are structured for a firm’s circumstances, there are certain things entrepreneurs and managers can do to provide conditions conducive to innovation. First, incentives for innovation and experimentation must be part of the picture. Making it safe to experiment is another essential element, as is fostering a culture where “there are no dumb questions” or “issues off the table.” Creating special, finite committees or advisory panels may be an effective approach for your context; if it is, be sure you reward members for their participation.
The VANs discussed here are the sets of relationships mobilized around sustainability innovation that contribute specific resources to converting ideas into action. In short, VANs are your nearest and best resource for inspiration, input, and feedback on how you can improve what you do and for practical ideas on how to implement and modify sustainability practices.
The examples that follow illustrate companies and individuals able to implement sustainability strategies by drawing knowledge and resources from VANs. Walden Paddlers’ VAN, under the direction of the entrepreneur-founder, illustrates that organizational boundaries—and as we will discuss, even the existence of an organization in some instances—are irrelevant to successful implementation. This example may seem odd to those unfamiliar with the rise of virtual organizations and virtual companies since the 1990s. The Walden Paddlers example is a powerful way of showing the effectiveness of determined efforts to employ VANs to implement sustainability strategy visions regardless of organizational structure.
Moreover, VANs can serve to implement strategy in diverse settings: Walden Paddlers was a fledgling enterprise and United Technologies Corporation (UTC) an established, multibillion-dollar global company. Walden had no existing procedures; UTC has decades of established operations procedures. Walden makes recreational kayaks; UTC makes massive industrial products. The companies have very different circumstances yet use similar strategies and tactics.
Walden illustrates how a sustainability innovation vision can create and mobilize a network and resources around cutting-edge product innovations. Perhaps because sustainability goals can resonate strongly with the values of contributors, VANs can build a distinct energy and momentum. The vision defined by sustainability objectives acts like an extra lift under a VAN’s wings. The UTC example shows how VANs form between innovators across functionalities. To borrow from UTC’s experience: work with innovators in other fields. Differentiation is a moving target; your VAN can help you stay on top of it and continually redefine it.
There will always be pessimists, the lazy, the comfortable, and people whose income depends on continuing the existing way of doing business. These are not the people you want in your VANs. Their attitude is “no,” and they bring imaginations to match. Entrepreneur Paul Farrow’s launch, successful growth, and ultimate sale of Walden Paddlers provide an unusual illustration of building a VAN to successfully implement strategy. All new initiatives and fledgling enterprises are start-ups and need to recruit resource- and information-rich participants by building lateral networks. In most companies, implementing sustainability strategy will, to a certain extent, constitute a deviation from the norm because it represents a new activity with all the characteristics of entrepreneurial initiatives. This means creating networks of like-minded others who understand and rally behind a powerful vision.
This account provides the core steps that enabled this VAN to succeed. Grit and determination to proceed despite hearing repeated discouraging feedback is part of the process. VANs share this with any innovation process, but remember that strategy that incorporates sustainability values into the core represents a larger and more far-reaching innovation of knowledge and meaning than a new product alone.
Walden Paddlers represented a sustainability-oriented company from its inception. Paul Farrow built his company and core VAN from scratch. One day, on vacation in Maine, he made a back-of-the-envelope calculation that the economics of recycled plastics made into recreational kayaks was a market opportunity—thirty-five pounds of forty cents per pound of plastic sold for more than four hundred dollars at retail. Farrow saw the possibility for a higher quality product at a lower price to the user, and a profitable company. The question he pondered was whether he could create a new market space for kayaks made from used milk bottles. All he knew at that point was that he had a business idea worth exploring. He knew nothing about kayaks (except enjoying them for recreation) or recycled plastic, but he did know a little about plastics manufacturing.
The project began as many sustainability initiatives do. He talked with people he expected to understand his vision, experts in plastics and material science. He was summarily informed by materials specialists from preeminent Boston-area academic establishments that no one could make high-performance plastic for recreational kayaks from recycled materials. It was common knowledge; the composition of recycled plastics made it impossible. The recycled resins, appropriate for downscaling into speed bumps or perhaps waste cans, would not yield high-performance, aesthetically attractive kayak hulls. Furthermore, the industry lacked equipment to handle the new material and specifications. In conclusion, it could not be done.
Challenging the received wisdom of experts requires reaching beyond them to more open-minded fellow travelers, those with less invested in existing knowledge, objectives, and methods. With only his aspiration of earning a living doing something he believed in and that would help protect the natural environment, and a vague picture of using recycled resins to create a kayak of some sort (for a market that might or might not exist), Paul Farrow kept talking to people about his idea and gathering data. He sought the advice of materials science experts who would take his ideas seriously. He conducted research on the prospective customer segment and communicated through his extended family and network of friends that he had this crazy idea. In the process, he found a few receptive individuals who were willing to talk with him and consider the possibilities.
Your VAN can take form from unexpected locations. Reminded by his wife that he had a brother-in-law attending Rensselaer Polytechnic Institute in New York state, Farrow made some phone calls. His brother-in-law had taken a course on materials with a nationally known professor. Through persistence, several phone calls later Farrow connected with the professor, who had recently started a company with one of his former engineering students, Jeff Allott. Allott, now a product designer for the company General Composites, was coincidentally a paddle sports enthusiast and was intrigued by Farrow’s plan. Allott was also anticipating that the company’s government contracts would taper off in the near future, and General Composites needed to diversify. Moreover, Allott liked the notion of designing an unprecedented material that the experts had deemed impossible to create. Why not create a high-performance, aesthetically attractive, inexpensive recreational kayak from recycled milk bottles? Why can’t positive expectations for health, ecology, community, and financial gains be optimized simultaneously?
This was a typical entrepreneurial endeavor during which Farrow repeatedly heard “no” in response to his questions Eventually he received a “maybe” from a more imaginative individual who could see the new market space. The pattern of “no” and a few “maybes” repeated itself with manufacturers, national retailers, distributors, and component suppliers. From his innumerable rejections, Farrow had collected valuable information about how to implement his vision that he used to refine and recalibrate his plan. In this learning process Farrow’s VAN identified itself in a self-selection, self-organizing fashion typical of new enterprises.
Each node in the network was a person with close knowledge about how to implement the proposal. Each suggested ways forward and was willing to collaborate with untested strategy, design protocols, product ideas, and market segment definitions that had unknown but possibly significant returns. Farrow also tapped into each individual’s sense of competitive challenge, fun, and creativity posed by accomplishing something the so-called experts said was impossible. The results of the process were a set of innovations, an award-winning kayak, and a profitable company.
This story teaches the necessity of carefully selecting VAN participants whose goals are aligned with yours. The first manufacturer to sign on was Hardigg Industries. Its manufacturing manager was curious about working with the new recycled plastic resins and driven by the economic pressure of unused plant capacity. This seasoned manager was also interested in the prospect of a growing a new customer base in recycled plastic molding. In fact, Hardigg’s management was so motivated to try new approaches in recycled plastics that it contributed capital to the start-up by agreeing to generous terms that acknowledged the start-up’s cash-strapped condition. Hardigg invested $200,000 in new equipment and drew up a flexible, informal contract based on shared returns and aligned future interests should the venture take off.
The start-up’s next phase illustrates how sustainability innovations are created. Extensive experimentation with different plastic compounds and resin colors followed. There were adjustments to the equipment to modulate temperatures and vary cooling times and methods. Farrow, along with the manufacturer and the designer, spent many hours testing, analyzing, discussing, and retesting. It was a microcosm of any implementation situation characterized by innovation and entrepreneurial process: learn as you go, draw from the creativity and imagination of your partners, collaborate, adapt and incorporate new knowledge along the way, and allow the feedback and events to shape the path and even the destination.
Entrepreneurs need to keep searching for allies to fill in the VAN gaps. The right mix of recycled plastic had to be developed to match the materials specifications of the product and the high heat demands of the molding equipment. Turned down by multiple plastic recyclers, Farrow finally found a Connecticut recycler who was trying to build his business and had a reputation for being open to new ideas. That recycler joined the emerging VAN and experimented with different collected plastics, testing a variety of pellets for melt consistency, texture, and color. More weeks of prototype experimentation unfolded, involving Paul Farrow, Jeff Allott, the recycler, and the head of manufacturing at Hardigg designing and redesigning incrementally but ultimately successfully to produce the first kayak.
Now Farrow had to address how to sell the kayak. What was the least expensive and most leveraged way to test the market? Attracted to the idea of selling more environmentally responsible kayaks, leading national sports equipment retailers were open to Farrow’s product ideas. Through extensive discussions with retailers like REI, Eastern Mountain Sports, L. L. Bean, and others emerged optimal pricing strategies at wholesale and retail, creative in-store marketing, and colorful packaging for the customer to protect the kayak when it is placed on a vehicle roof rack. In other words, the collaborative retailers literally told Farrow what decisions to make on pricing, marketing, and packaging to optimize sales.
A successful VAN process will elicit energy and initiative from those self-selected to be involved because they know that business, the environment, and communities are not separate. Explicit sustainability strategies attract committed people and release their creativity. Dale Vetter, an operations expert and Farrow’s friend and former business colleague, was drawn into the business bringing operating skills that complemented Farrow’s finance know-how and general management experience. Vetter’s creative redesign of the transport system that moved the kayaks from the manufacturer to Walden’s tiny warehouse and office headquarters outside Boston resulted in dramatically improved logistics efficiencies and reduced labor costs. The kayak seat supplier was persuaded by Farrow and Vetter to take back its packaging, ultimately saving itself money when it discovered a method to recycle its packaging materials. This allowed Walden to avoid expensive Boston-area waste disposal fees.
Farrow has downplayed the challenges of creating his company, yet in its time Walden Paddlers implemented an early model of sustainability innovation that functioned under an innovative corporate structure. The company was one of the earliest documented virtual corporationsSee also extensive literature on “network organizations.” See Mark Granovetter, “Economic Action and Social Structure: A Theory of Embeddedness,” American Journal of Sociology 91 (1985): 481–510; Walter W. Powell, “Neither Market Nor Hierarchy: Network Forms of Organization,” in Research in Organizational Behavior, ed. Barry M. Staw and L. L. Cummings (Greenwich, CT: JAI, 1990), 12:295–336; Andrea Larson, “Social Control and Economic Exchange: Conceptualizing Network Organizational Forms” (paper presented at the Annual Meeting of the American Sociological Association, Washington, DC, August 1990); Walter W. Powell, “Hybrid Organizational Arrangements: New Form or Transitional Development?,” California Management Review 30, no. 1 (1983): 67–87; H. B. Thorelli, “Networks: Between Markets and Hierarchies,” Strategic Management Journal 7 (1986): 37–51; Andrea Larson with Jennifer Starr, “A Network Model of Organization Formation,” Entrepreneurship Theory and Practice 17, no. 2 (Winter 1993): 5–15. Andrea Larson, “Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships,” Administrative Science Quarterly 37, no. 1 (March 1992): 76–104; Andrea Larson, “Partner Networks: Leveraging External Ties to Improve Entrepreneurial Performance,” Journal of Business Venturing 6, no. 3 (May 1991): 173–88; Andrea Larson, “Strategic Alliances: A Study of Entrepreneurial Strategies for the 1990s” (paper presented at the Eleventh Annual Babson College Entrepreneurship Research Conference, Babson College, Babson Park, MA, 1991). and continued to innovate in materials, product design, transportation system, vendor relations, and wholesale buyer collaborations. Farrow was a sincere, informed, and modest yet passionate catalyst. Each VAN participant got hooked on his vision, and Farrow worked to ensure their economic interests were aligned. Both vision and potential returns were critical.
VAN participants, along with Farrow, heard discouraging comments throughout the start-up’s early stages. Farrow laughed as he said, “You have to get used to hearing ‘no.’ Your attitude has to be, ‘so what’? So you hear ‘no’ repeatedly.”Paul Farrow, interview with author, July 1996. Farrow’s casual way of talking about the implementation process masked his determination, persistence, and willingness to learn and adapt and to compromise when economic necessity required. The perfect would not shut out the good. His attitude was contagious and created the required commitment to make this idea fly. He commented on the people who said “no” to him: “Those people just have less imagination. But those aren’t the ones you want to work with. Do people think I’m a little odd in my passion for the vision? Sure, but you keep talking to people until you find the right partners who believe and will work hard to make the impossible happen.”
The Walden Paddlers case shows how you may need to create and inspire your VAN while you are on the journey. If there are no precedents, the VAN literally creates what it is doing as it goes forward. Farrow had only one of the requirements needed to build a company: a vague idea backed by some rough financial calculations. He needed a materials specialist to design the first kayak from recycled plastic because he knew nothing about designing kayaks and even less about materials science. He needed manufacturers with knowledge of molding equipment. He needed operations capability, administrative processes for health benefits and hiring, transportation services, and retail and wholesale outlets. Yet within eight years he had built a virtual corporation before “virtual” or “network” organizations were recognized as legitimate forms for business. He defied conventional wisdom on materials design and sold high-performance, aesthetically attractive, 100 percent recycled and recyclable recreational kayaks through nationally known retailer chains. In addition, he sold his company at an undisclosed price, gave himself time off to build a vacation home with his wife and three sons, then took on a new corporate sustainability challenge with a small, growing company. How did he do it? It was important that he didn’t accept the notion that his vision could not be realized. He formed his VAN of like-minded others and together they made it real.
What else can we learn from this case? Farrow questioned the conventional business wisdom—a common practice among entrepreneurial individuals. Their commitment to the unproven premise can be intense, and they may seem as though they will vision into action and results. However, implementation needs and invites collaborators.
Another lesson from the Walden Paddlers’ example is that it took patience to allow solutions to emerge and evolve from the network participants’ contributions. All participants had to be open to learning and finding the right “partners” willing to go outside their comfort and expertise zones to invest time and resources in a new idea. Don’t be surprised if it takes time to find willing partners. There are too many strong influences at work that cause people and firms to be insular.
Finally, you don’t need extensive resources, just enough to get to the next step. At every stage, the VAN became more closely aligned, tapping into its growing collective wisdom, imagination, and resources. The most underrated resource for breakthrough ideas might be the network of people you already know inside your firm or the network you can build outside through your company’s supplier and customer relationships.
Creativity and imagination drawn from people who initially may be considered outsiders can be pivotal to a company’s success. These individuals and their institutions can come to have a strong stake in the outcome, and they have the knowledge to generate paths forward that otherwise would remain latent. In Paul Farrow’s case, there were no vertically integrated functions; he was building from the ground up. Within an established firm, some functional activities in the VAN are typically incorporated into the formal boundaries of the organization (e.g., design, product development, manufacturing, marketing, sales). Others lie outside with suppliers and buyers or other key allies. Implementation requires you to ignore conventional corporate boundaries and view the VAN as a lateral web of information and material flows through which ideas and resources can be mobilized. There is no reason not to tap into this potential power.
United Technologies Corporation (UTC), despite its large size and dominance in mature markets with mature products, remains remarkably innovative, including its leadership in sustainability strategy. In the 1990s, UTC CEO George David announced the company’s goal of reducing its environmental footprint by a factor of ten. Explicitly committed to sustainability from the top, UTC was ahead of its time for an aerospace and building products and services firm. Management has since driven resource use efficiency programs through the business units and transitioned into new product designs that provide the power and performance people want for vehicles and operations while delivering on sustainability’s positive health, ecological, and overall natural system robustness agenda.
Its disciplined process of bringing innovative ideas to market explains UTC’s success over the years. The keys to UTC’s success were highly motivated VANs formed across business units and with outside customers and supply-chain participants that drove the new ideas to successful commercialization. These VANs are at the leading edge of solving problems with technology and market receptivity and are characterized by creative and innovative participants who bring extra dedication to sustainability ideas.
The company’s alternative power products business unit, UTC Power, faced a challenge, however. UTC’s goal for that unit was to shift the market paradigm for power generation in stationary applications and transportation. The issues for large power consumers are straightforward. Customers want energy efficiency and reliability, lower bills, and protection from grid outages. They need system resiliency to assure ongoing operations and customer satisfaction in case of weather or other disruptions. For example, supermarket chains, hotels, and hospitals experienced the impact of Hurricane Katrina and the human and financial losses when their doors had to be closed.
UTC Power has a portfolio of solutions that offers power generation solutions in a variety of new technology combinations. However, when you are working with new products and new markets, a paradigm shift requires extraordinary effort. In UTC Power’s case, you see examples that build on the company’s competencies in technology innovation and management of massive supply chains to form VANs with more creativity than the norm. Jan van Dokkum, president of the UTC Power business, described the unique VAN situation as follows: “We carefully analyze the market for opportunities to improve emissions and efficiency. We then work closely with UTRC [UTC Research Center], buy standard, volume-produced equipment, optimize the system, and, finally, work with the customer to deliver high levels of service.”Jan van Dokkum, phone interview with author, June 21, 2001.
UTC’s PureComfort heating and cooling energy system is a good example. The PureComfort system offers the customer three features in one: electrical power, heating, and cooling. The system operates either off the electrical grid or connected to it and thus can serve as a cheaper and more reliable ongoing operating power source, even when the grid goes out. Highly motivated existing VANs at UTC drive conventional products and markets effectively, but for a new product and new markets plus a sustainability focused change, there are extra drivers, particularly once the product goes to market. The PureComfort system project began under the leadership of the corporate UTRC, working with autonomous business units Carrier and UTC Power. The group brainstormed combining their expertise to produce new products for new markets. They looked for ways to improve building system efficiencies by using the “waste” from power generating equipment (e.g., microturbines or reciprocating engines) as a “fuel” for heating and cooling equipment. They collected the hot exhaust from the supplier-produced microturbines and ran it to a Carrier double-effect absorption chiller, which produces hot and cool water. They found the flow rate temperature ideal to generate cold or hot water, thus creating three-in-one equipment producing on-site electricity, hot water, and cold water for refrigeration.
The A&P supermarket chain installed a PureComfort system in its store in Mount Kisco, New York. A&P chose the highly efficient heating, cooling, and power system because it leads to energy savings and ultimately reduces the store’s dependence on the grid. The new rooftop unit uses underground-supplied natural gas to generate electricity for the store. Then it generates cold water, runs it to refrigerator “chillers,” and provides heat when needed. The UTC PureComfort unit produces combined power, heating, and cooling at greater than 80 percent efficiency rates compared to approximately 33 percent from the electric grid. Distance monitoring by UTC Power means the company’s service people will be at the A&P store to fix a problem before the people at A&P even realize one exists.
Meeting customers’ multiple cooling, heating, and power needs with an innovative integrated, reliable on-site system solution at a cost reduction from existing options addressed UTC Power’s strategic goals to deliver new products and new revenues. At the same time these offerings provided very low emissions, reduced customers’ energy costs, lowered grid dependence, and assured standby power supply. While it would not have necessarily called its strategy “green,” and its sales force is not necessarily hearing the term “sustainability” from its customers, UTC Power nonetheless has incorporated the core ideas into its strategy. These products provide safer, cleaner, and more reliable power sources than the alternatives available, at commensurate prices that are less expensive when full costs are considered.
However, the issue was not whether the PureComfort system met buyer needs or satisfied sustainability requirements; it did. The challenge was whether customers’ standard way of meeting power needs—paying for electricity from the grid—could change to a solution that required new purchase practices and economic calculations as well as different impacts on the company’s profit and loss statement and balance sheets.
Breakthroughs happen when VAN teams can tap into an intangible creativity source in sustainability agendas: the energy, the extra little bit of horsepower, or a passion for the technology and market changes. UTC Power experienced this type of breakthrough in its work with the city of London and the Ritz Carlton hotel chain in San Francisco. In each situation the VAN participants were well known for being creative, innovative, and willing to spend extra time to find solutions. New competitive space and successful positioning in that space were realized by firms working with other firms also positioned in the same market frontier.
The catalyst for this creativity is the process dynamics of UTC Power’s technology design to achieve clean, safe, reasonably priced products combined with supply-chain partners that want to save money and assure performance but also have an absolute commitment to creating sustainability solutions through redesign of products and procedures. This means there is more continuity and commitment in teams because participants are passionate about seeing their ideas come to fruition. VAN participants will go the extra distance. When innovators talk with other innovators about how to implement sustainability innovations, results are achieved.
UTC Power uses its internal, highly disciplined product development process and committed working relationships with buyers and original equipment manufacturers to accelerate learning and feedback and to improve its power products. UTRC also employs an innovation effort, working with the business units that have identified UTC technologies for new, market-ready products and markets. The PureComfort system process started with a small, multidivisional group looking at opportunities at the intersection of power, heating, and cooling.
Brainstorming engineers, who did not usually work together, found the intersection of power, heating, and cooling rife with possibilities and developed a second product, known as the PureCycle 200 system. Together they altered standard Carrier industrial cooling equipment by converting it to run “backward”; instead of using electricity to produce cooling, the system uses waste heat to produce electricity. The system uses field-tested Carrier technology to provide turnkey, zero-emission, reliable, low-cost electricity from various industrial heat sources. The electricity can be used on-site where it is produced or sold to the electric utility grid. Customers can potentially make money by offsetting traditional fossil fuel electricity generation. The payback and savings depend on the geographic location in the United States and the price of the displaced energy.
It is not necessarily easy building new types of supply-chain relationships to implement sustainability innovations. In UTC Power’s case, cross-business unit sales and service provisions had to be tightly coordinated, and getting electric utilities to buy excess power from buyers has been an uphill battle. Even with these challenges, a major obstacle is in developing trust with the end users, specifically the facility leader who makes the purchase decision and who is paid to be conservative. It is a tough sell because the system (though not the components) is new. It is mechanical and therefore may need servicing. Facility managers fear the unit will fail, and they have to be educated about the system, which takes time. Finally, having the system installed may seem “inconvenient,” as it can disrupt current operations during the switch.
Thus the value proposition has to be communicated effectively. UTC Power has developed economic models that show payback time frames for equipment installed in different geographic locations according to size of facility, electricity rates based on different fuel sources, and seasonal demand. In addition, a turnkey service contract is offered that monitors units from UTC centers in Charlotte or Hartford where operators have the technological ability to locate errors. As UTC Power continued to refine its extensive supply-chain coordination, more new opportunities for innovation emerged.
Fuel price volatility, changing and more violent weather patterns, deregulation, supply interruptions, and rolling blackouts and brownouts in the Northeast and California have generated considerable interest in distributed (nongrid, noncentralized), on-site, clean and reliable electricity, heat, and cooling power sources. To capture this interest while overcoming the natural resistance of cautious buyers is still a challenge. UTC Power and UTC are addressing this challenge by creating an “all in service” solution. Through a long-term contract, a customer avoids the up-front cash cost and spreads it over time, thereby better matching the cost with the energy savings.
Another value proposition involves public health. An important sign of change that should be noted by all managers is occurring in UTC Power’s urban bus transportation markets. Buyers such as the city of London and AC Transit in Oakland, California, are building previously externalized health costs into their purchase decisions. A regional public transit authority, AC Transit considers the cost of respiratory and other air-pollution-related illness resulting from diesel gasoline combustion, particularly from buses. Incorporating more of the full system costs into the equation shifts the price-performance calculation for conventional bus drivetrains compared with fuel cell systems. The price of the latter looks more attractive when adjusted downward by health cost savings due to reduced particulate matter and other air pollutants from transportation.
Through product take-back, UTC Power is getting a handle on design for disassembly. The company’s team must determine what parts are recoverable and recyclable and the economics of remanufacturing the leased units brought back for repair or at the end of their useful life. Extending this concept to field-installed stationary fuel cell power units, UTC Power found that the reverse logistics and reuse/recycling of materials and parts could actually make money. The notion of leasing transportation or stationary power plant fuel cell stacks has engaged UTC Power even more closely with its suppliers and buyers along the value chain to source recyclable materials and components. Successful supply-chain coordination within the company and outside is important to the success of any leasing solution and to the systems redesign for disassembly and recyclability.
Because new ideas that challenge existing ways of operating require early adopters, innovators initially tend to work with and sell to other innovators. UTC Power is building new markets through cooperation with forward-thinking internal UTC executives and staff in other business units, and combining that synergy with eager corporate buyers trying to solve urgent problems (e.g., harsh storms in tropical geographies, zero-downtime requirements for electrical power) or open-minded municipalities searching for creative cost-cutting measures.
As we noted at the outset of this section, VANs are necessary to implement sustainability strategies. VANs provide the horsepower to implement projects. They are the means to translate vision into competitive products or services. Whatever your business is, catalyzing VANs is essential to put your nascent strategy into action. The following are strategies for working with VANs:
Since by definition you will be forging a new path, you will hear “no” a lot. Don’t stop there: seek out those who understand the bigger vision and are inspired by the prospect of inventing the way forward with you. Source participants from your existing suppliers or find new ones inspired by your green strategic vision and the multiple gains, including financial, that would come to participating organizations that develop new capacities. Collaborate closely with other innovators in other functions or fields. Since differentiation is a moving target, call upon your VANs to help you continuously redesign and improve, moving individual participants in and out of the constellation of skill sets and leadership attributes you need. Implementing strategy requires new approaches to your existing relationships, tapping into the latent creativity that is there.