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5.3 Innovation and Sustainability

Learning Objectives

  1. Understand the role of innovation in sustainable business.
  2. Discuss the relationship between technology and innovation in sustainable business.
  3. Discuss the relationship between social networks and innovation in sustainable business.

Innovation in business involves a change in a product offering, service, business model, or operations that meaningfully improves the experience of a large number of stakeholders. There are two particularly important words in the previous definition—“meaningfully” and “stakeholders.”

Sidebar

Apple: The World’s Leading Innovating Company

Consistently since 2006, Fortune surveys have ranked Apple number one in innovation and the company is also frequently mentioned as the most admired company in the United States. In August 2011, Apple also became the world’s most valuable company at $349 billion based on stock market valuation. Apple’s innovations have revolutionized the way we use computers and phones and play music and movies. One innovation in particular, the iPod was the start of a trend of products with broad consumer market appeal. The iPod combined technical knowledge with a new online music concept to become the most influential new product in decades. That was followed by Apple’s introduction of the iPhone and iPad. All these products combine technological innovation with attention to design, usability, and content delivery in new and innovate ways to transform the way billions of consumers use music, use their phones, use their computers, and access the Internet.

If a company redesigns its packaging to be more environmentally friendly, that’s a change. It’s new. But does it meaningfully reduce the materials and energy use of consuming or using the product? There are many types of changes that can be made, but the question of whether it’s an innovation rests on how significantly it improves what is being targeted to be improved. This aspect of the definition raises the bar to avoid classifying meaningless changes as innovations. What is meaningful is contextual on a per innovation basis.

And for an inventionA new process, device, or method that did not exist previously and is the unique output of someone’s work. to be more than something new and creative, it should have broad impact. The term stakeholders acknowledges that the beneficiaries of an innovation can vary widely—consumers, shareholders, employees, and any subset thereof. All of these stakeholders can potentially benefit from different types of innovations meant to address sustainability.

Responding to an opportunity often requires innovation; for example, finding a new way to solve a problem or address a concern that is cheaper, faster, or better than the old way of doing things. The innovation can range from a relatively simple process (way of doing things) change to a highly complex new technology, such as those introduced by General Electric (GE) in their ecomagination program (discussed in the previous sidebar titled "Jack Welch at GE: An Industry Leader as an Intrapreneur").

Sidebar

Commercialization and Its Phases

The process by which a new product or service is introduced into the general market is called commercialization. Commercialization is broken into phases, from the initial introduction of the product to its mass production and its adoption. It takes into account the production, distribution, marketing, sales, and customer support required to achieve commercial success. As a strategy, commercialization requires that a business develop a marketing plan, determine how the product will be supplied to the market, and anticipate barriers to success. Read more at http://www.answers.com/topic/commercialization#ixzz1PvcRgIo5.

To help illustrate the concept of innovation, two companies will be discussed. Both companies are innovators in two entirely different areas at two entirely different price points. However, both companies are connected to sustainability in that they are providing a product to help reduce the consumption of fossil fuels for energy.

Enertrac (http://enertrac.com) provides low-cost smart sensors to track energy use so households and businesses know when they need refills. The smart sensors allow fuel distributors to electronically monitor the amount of oil in a tank. The sensors send information to a software-as-a-service interface that integrates into fuel dealers delivery scheduling systems. This allows business owners to make their delivery methods more efficient while reducing greenhouse emissions by 30 percent or more. The same sensors can also monitor other energy and natural resource use, including water, and can help with regulating use and conservation efforts. The basic smart sensor device is priced at less than $30. From early 2010 to early 2012, Enertrac went from 200 monitors installed to 25,000 monitors in place with 140,000 units on order.

On the other end of the technological spectrum is SustainX Energy Storage Solutions (http://www.sustainx.com/), a company started by the former dean of the engineering school at Dartmouth College. SustainX has invented a new technology to cost-effectively and efficiently store energy from renewable and other sources. The technology being pioneered by SustainX compresses and expands gas resulting in seven times the reduction in storage cost as compared to traditional methods. This could profoundly change the economics of energy generation from both renewables and conventional sources. The storage systems that SustainX is developing for utility companies will cost more than $1 million.

Technological Innovation and Sustainable Business

Fundamental to many sustainable businesses, including Enertrac and SustainX, are so-called clean energy technologies or sometimes called clean tech. These include technologies that generate energy from renewable sources, store energy, conserve energy, monitor and regulate energy usage and the pollution it generates, and efficiently manage water and other natural resources.

Technological advancement relies on investment in research and development. This can range from relatively small investments for Enertrac and other sustainable businesses pursuing low-cost technology solutions to millions of dollars for companies like SustainX, which are pursuing more radical (so-called game-changing) inventions.

Public policy can play a role in encouraging the development and adoption of new technology, which serves to jump-start market development and demand and reduce start-up risks for sustainability entrepreneurs. Research and development tax credits can reduce the costs of innovation and new products and services, offering development for entrepreneurs. And public programs offering tax advantages and rebates to customers, such as the California Solar Initiative (http://www.gosolarcalifornia.ca.gov/csi/index.php), can lower the cost and increase the rate of customer adoption of new products and services.

Sidebar

Financial Incentive from Government to Innovate: The Research and Development Tax Credit

The Research and Development (R&D) tax credit is for businesses of all sizes, not just major corporations. Any company that designs, develops, or improves products, processes, techniques, formulas, inventions, or software may be eligible. In fact, if a company has simply invested time, money, and resources toward the advancement and improvement of its products and processes, it may qualify. The company receives a credit that can be used against taxes owed for their investment in qualifying research and development. The credits are available in the United States at the federal level at 14 percent (as of 2011), and additional R&D tax credits are available in some states.

Also important in the development of new technologies are the industry standards the government defines and regulates. Examples of public policy initiatives that have pushed forward technological innovations are energy efficiency standards for appliances and for buildings.

Innovation in turn can lower the barriers and costs of public policy standards on emissions and efficiency, and this can also be true for some policies to address social injustices (e.g., technologies that improve the productivity and output of workers and that can lower the costs of increasing the minimum wage). So from a systems perspective, there is feedback going in both directions between innovation and public policy.

Sidebar

Energy Efficiency Standards and Clean Tech Innovations

Minimum standards of energy efficiency for many major appliances were established by the US Congress in various legislations including the Energy Policy and Conservation Act (EPCA); the National Appliance Energy Conservation Act; and the Energy Policy Act of 2005, Public Law 109-58 (http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/epact2005_appliance_stds.pdf).To access these laws establishing federal appliance and equipment standards and Department of Energy’s authority to review, revise, and issue standards, see Energy Conservation Program for Consumer Products Other Than Automobiles, 42 USC § 6311. Regulations are issued by executive branch agencies to carry out federal laws, such as the standards laws, and are available in the Code of Federal Regulations.For the regulations pertaining to appliance and equipment standards, see Energy Conservation Program for Consumer Products, 10 CFR Part 430 (http://www.gpo.gov/fdsys/pkg/CFR-2011-title10-vol3/pdf/CFR-2011-title10-vol3-part430.pdf) and Energy Efficiency Program for Certain Commercial and Industrial Equipment, 10 CFR Part 431. Proposed and recently adopted rules and regulations may be found in the Federal Register (http://www.gpoaccess.gov/cfr/).

The end users of clean energy technology are diverse. They include private households, businesses, public agencies, and utilities. End users can take advantage of public incentives and they can also influence the public discourse and policies concerning investment, standards, mandates, and incentives. Most importantly, the choices end users make influence decisions by green producers and sustainability entrepreneurs regarding new products and services. For example, as end users are becoming more conscious about the environmental impact of a product from production to discontinued use (from “cradle to cradle”), consumers are demanding cleaner production processes and recycling services for the end of the product’s life. And this provides an entrepreneurial opportunity.

Innovation and Social Networks

To compete in the sustainability arena, entrepreneurs must frequently go beyond what has worked in the past and seek new and different perspectives and connections. One important area of innovation is new associations, networks, and partners that can provide new resources and information and foster new ways of doing things. Facebook is an example of a social network that has been innovative in creating new connections and relationships on a global scale that otherwise would not have existed through applying existing technology.

People from the same circles tend to share the same pools of information and contacts. Research indicates that the longer the duration of these direct connections, the more similar the perspectives and resources. Under normal circumstances, this is fine. However, when entrepreneurs want to take action in an arena outside the familiar terrain—such as launching a new sustainable enterprise—it is likely that information from existing relationships will not be enough. Instead they must search outside of their traditional network of relationships.

For new entrepreneurs, it will be beneficial to seek information and resources from new relationships and contacts. These new relationships can be formed with a range of individuals and organizations—including academics, consultants, nonprofit research institutes, government research organizations, and nongovernmental organizations (NGOs). NGOs have often been business’s harshest critic on environmental and social issues. It is for this reason that businesses are increasingly forming relationships to these groups to engage them in thinking strategically about solutions and new venture opportunities. The most innovative ideas may well come from those quarters most critical of how business has traditionally been done. An example of this is McDonald’s benefitting from collaboration with the Environmental Defense Fund, which was one of the company’s harshest critics before their working together. In consultation with the Environmental Defense Fund, McDonald’s has reduced their use of materials in packaging, replacing polystyrene foam sandwich clamshells with paper wraps and lightweight recycled boxes, replacing bleached with unbleached paper carry-out bags, and making dozens of other packaging improvements behind the counter in McDonald’s restaurants and throughout the company’s supply chain.

Ronald BurtRonald S. Burt, Structural Holes: The Social Structure of Competition (Cambridge, MA: Harvard University Press, 1995). and other network theorists add useful and interesting constructs to the discussion of entrepreneurship, which is relevant to understanding the benefits of weak ties to sustainable businesses. Burt’s focus is on what he calls “structural holes.” Structural holesThe gaps between nonredundant contacts. are defined as the gaps between nonredundant contacts, stated more simply for our purposes here: it is individuals not connecting with resources that would be very helpful to them.

For sustainable business focused on producing green products or services, structural holes often take the form of engineers aspiring to start businesses based on new technologies they have conceived but that are not connected or don’t know how to get connected to well-qualified (1) marketing professionals (who can help them identify specific market opportunities) and (2) management professionals (who can help them effectively develop and implement business plans and to potential funders).

Burt suggests the value of processes at the “local” level, which help to fill structural holes for entrepreneurs. An example of what Burt suggests is the Green Launching Pad (GLP; http://greenlaunchingpad.org/about/overview) at the University of New Hampshire. The GLP works with aspiring entrepreneurs and connects the entrepreneurs with qualified marketing and management professionals and potential funders. The program works with entrepreneurs to accelerate the development of new sustainable businesses that will directly reduce energy use and carbon emissions while creating new jobs and economic opportunities in the state of New Hampshire. In a short time period, just more than one year (from May 2010 to June 2011), the GLP helped to launch eleven companies, including Enertrac and SustainX.

The GLP’s focus is on helping entrepreneurs enter new social networks that are critical to their success. The GLP helped Enertrac gain the support of state and federal government officials and helped the company to expand the markets they target and reach. The GLP is helping SustainX, which is dominated by highly skilled engineers, connect with market development expertise. Without GLP, both these companies would not have been able to establish these connections to new resources and to develop their businesses as fast and as effectively.

Key Takeaways

  • Innovation is a new change in a product offering, service, business model, or operations that meaningfully improves the experience of a large number of stakeholders.
  • Responding to an opportunity effectively often requires innovation.
  • Clean tech includes technologies that generate energy from renewable sources, store energy, conserve energy, monitor and regulate energy usage and the pollution it generates, and efficiently manage water and other natural resources.
  • Innovation can lower the barriers and costs of public policy standards on emissions and efficiency, and this can also be true for some policies that address social injustices.

Exercises

  1. Search online for a clean tech product. Describe the product and discuss how it is innovative compared to conventional alternatives.
  2. Search online for the example of a social network that specifically applies to sustainability, such as the Green Launching Pad. Provide detail of how this social network is specifically useful in forming new relationships for a sustainability entrepreneur.