Impacts of SOI go well beyond revenue generation.
This blog post is the second in a four-post series on Sustainability-Oriented Innovation (SOI). The first post in the series argued that SOI breaks conventional trade-off thinking. In this second post, we explore different types of SOI and the different ways companies are using it. The series builds on our published work on Accelerating the Theory and Practice of Sustainability-Oriented Innovation by Jason Jay and Marine Gerard.
Sustainability, sometimes under the banner of corporate social responsibility (CSR), used to be a specialty practice used by only a few companies, like Nike and Coca-Cola, to manage risks to their high-value brands.
But times have changed, and as we described in our first post, Nike is now using sustainability to drive the top line by enhancing product development and revenue growth with technologies like Flyknit. Startups like Liquiglide and its super-surfactant products, unicorns like Uber and its on-demand transportation service, and large systems integrators like Lockheed Martin with burgeoning renewable energy and energy storage systems are combining sustainability with revenue generation in various ways. Sustainability-Oriented Innovation (SOI) is the basic enabler of this trend.
Because SOI allows companies to push beyond their usual innovation boundaries and their typical business protocols, it is expanding the range of businesses that are practicing sustainability and finding new fuel for their innovation processes. It is also allowing them to reap the benefits of products and services that create social and environmental good.
The context and intent around SOI influences its final shape and form. Our research has identified three degrees of sustainability orientation: Sustainability-relevant, sustainability-informed, and sustainability-driven.
The most common form of SOI in the mainstream corporate world is sustainability-informed innovation (SII). The aim of SII is to meet a well-defined customer need using a design informed by sustainability considerations. Nike and its Flyknit technology discussed in our first post offer a good example of SII.
Many "green" brands and internal labels, such as Clorox Greenworks and Johnson & Johnson’s Earthward program, also fit this category. Some companies, like Patagonia, build their whole R&D portfolio around SII. Since its founding in the 1970s, Patagonia’s mission statement has evolved from "build the best product" to "use our business to inspire and implement solutions to the environmental crisis."
With this mission statement in mind, sustainability has become integral to Patagonia’s innovation process, which has resulted in products such as "synchilla" fleece made from recycled plastic bottles and the recent Yulex wetsuit — the first bio-material-derived wetsuit in the surfing industry.
Nike Flyknit and Patagonia Yulex illustrate two benefits that companies reap through SII. The first is that sustainability constraints help drive a wider search for new materials, new processes, and new designs that can yield higher performance products. The second is that SII creates possibilities for differentiation among sustainability-minded customers. In this way, it manages risks and opportunities as customer preferences and regulations change.
Sustainability-Driven Innovation (SDI) is another kind of SOI that innovates with the specific goal of solving a public problem. An example of technology-based innovation would be renewable energy companies like SunPower, which are developing high-efficiency solar photovoltaic panels to mitigate the air and climate pollution associated with fossil fuels.
Other enterprises, like Sanergy, achieve SDI through business-model innovation. Sanergy is an MIT spinoff established to solve sanitation problems in the developing world. Knowing that nearly 8 million people in Kenyan slums lacked access to a proper sanitation, the Sanergy team used $25,000 from the MIT Public Service Center to test their solution. They installed two toilet stations and franchised them out to local entrepreneurs, who maintained them and charged for use. Sanergy safely collected the waste and converted it into fertilizer that could be sold to farmers. The pilot was so successful that in 2011 the team formed a for-profit and non-profit business to continue its work. The for-profit arm developed and sold the toilet stations and waste fertilizer. The non-profit arm supported the franchisees and infrastructure with training and services.
- installation of 734 toilets
- 33,000 daily uses
- removal and treatment of 6,028 metric tons of waste
- creation of 763 jobs
In addition, local entrepreneurs, 35%–40% of whom are women, are making a profit of at least $1,000 per year; organic fertilizer made from the waste sells for 30% less than inorganic alternatives; and local school attendance increased 20% after schools purchased toilets, which gave parents more confidence to send their children to class.
The third form of SOI, sustainability-relevant innovation (SRI), is the most broadly applicable but the least discussed. SRI is about discovering and leveraging hidden sustainability benefits after innovation. Zipcar and the car-sharing revolution are a prime example. The practice dates back to the late 1980s in Europe with the rise of programs like Mobility Switzerland and StattAuto Berlin. Convenience and cost savings were the original value drivers of the innovation. The success of these programs in providing superior benefits over owning a car led to wide adoption in the United States and Europe. In addition, membership exploded once Internet technology made it possible to streamline business operations.
Zipcar rode this wave after debuting in Boston in June 2000, and its leadership quickly realized that this new business model had tangible sustainability benefits as well. Entering into public-private partnerships with cities like Baltimore made Zipcar aware that their business was encouraging people to sell their cars, avoid buying new ones, take fewer trips, drive fewer miles per trip, walk and bike more, and take public transit more often.
Another positive by-product of SRI for Zipcar was the unanticipated recruitment of allies for its business. Cities and universities came to see it as an eco-friendly alternative to car ownership, with the added benefit of fewer regulatory barriers and lower parking prices.
These behavioral changes all entailed real social and environmental benefits. Although more research is needed around their quantification, better air quality, less traffic congestion, and more physical activity are highly likely. Zipcar stumbled upon these sustainability benefits as a free and positive side effect of its business-model innovation and made it possible for people to drive within a new sustainability-oriented context. The result of Zipcar’s SRI activities was nothing short of industry shaking.
SRI can also grease the wheels for SII and SDI projects. Consider GE’s "Ecomagination" strategy. When it began, GE focused on identifying the environmental benefits of their existing products, such as more energy efficient appliances and engines. By marketing these benefits to customers, employees, investors, and other stakeholders, GE established broader legitimacy of an SOI approach. From that foundation, GE was able to undertake SII and SDI projects. EcoSwitch — a tea kettle, slow cooker, hot plate, and blender combined into one energy efficient package — is an SII product, and Open Innovation was an SDI project that called for innovators to solve water scarcity and energy challenges in international communities struggling with those issues.
Although one form of SOI may have significantly greater scale or impact than another, all three are beneficial. The sum reduction in GHG emissions from car-sharing (SRI, Zipcar) and the GHG emission reductions achieved by replacing petroleum-based neoprene with e-fiber in wetsuits (SII, Patagonia) are both beneficial, even though the former clearly will have a larger-scale impact than the latter.
Each of these three SOI variations will have its own area of impact. SIIs will tend to include mainstream consumption channels and foster shifts in industry impact. SDIs will tend to push the envelope and be very specific in focus. And SRIs impact will be in discovering and leveraging hidden sustainability benefits after innovation.
Whether technological, organizational, institutional, or social innovation, SOI practitioners will benefit by recognizing the need for an ecosystem of SOI that will accommodate the entire spectrum of impact.