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Over the past decade, companies have become increasingly aware of the social and environmental pressures facing business. Many management scholars and consultants have argued that these new demands offer terrific opportunities for progressive organizations, and innovation is one of the primary means by which companies can achieve sustainable growth.1 Companies that ignore these pressures, the argument goes, do so at their own peril. But the reality is that managers have had considerable difficulty dealing with sustainable development pressures. In particular, their innovation strategies are often inadequate to accommodate the highly complex and uncertain nature of these new demands.
A strategy that integrates the goals of innovation and sustainable development is needed. In contrast to conventional, market-driven innovation, sustainable development innovation (SDI) must incorporate the added constraints of social and environmental pressures as well as consider future generations.2 SDI is therefore usually more complex (because there is typically a wider range of stakeholders) and more ambiguous (as many of the parties have contradictory demands). Furthermore, sustainable development pressures can be driven by science that has yet to be accepted fully by the scientific, political and managerial communities. Amid such uncertainty, sustainable development innovation is often difficult and risky. Nevertheless, faced with increasing pressure to consider sustainable development, many organizations have revised their business models, and these changes are often highlighted in corporate sustainability reports and Web pages.3 For instance, DuPont Co. has publicly stated that, by 2010, it will reduce its greenhouse gas emissions by two-thirds while holding its annual energy use to 1990 levels.
Achieving such goals requires investments in innovation, and that has been an alluring argument for improving both environmental and economic performance — the so-called win-win situation. Some observers assert that sustainable development can generate a round of what the economist Joseph Schumpeter called “creative destruction,” offering opportunities for new entrants and potential threats for incumbent businesses. Others have advocated radical new technologies, products, processes, business models and environmental innovations to change the present unsustainable industrial patterns. According to that argument, competency-enhancing incremental innovation is insufficient to meet sustainable development pressures. Instead, competency-destroying radical innovation is needed, and it will likely create new capabilities that will ultimately challenge current business practices.
Those arguments aside, few companies have been investing heavily in sustainable development innovation.
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1. S. Hart, “A Natural-Resource-Based View of the Firm,” Academy of Management Review 20, no. 4 (1995): 986–1014; M.E. Porter and C. Van Der Linde, “Green and Competitive: Ending the Stalemate,” Harvard Business Review 73 (September–October 1995): 120–134; H. Vredenburg and F. Westley, “Innovation and Sustainability in Natural Resource Industries,” Optimum: the Journal of Public Sector Management 27, no. 2 (1997): 32–49; S.L. Hart and M.B. Milstein, “Global Sustainability and the Creative Destruction of Industries,” Sloan Management Review 41 (fall 1999): 23–34; and P.M. Senge and G. Carstedt, “Innovating Our Way to the Next Industrial Revolution,” MIT Sloan Management Review 42 (Winter 2001): 24–38.
2. The World Commission on Environment and Development, “Our Common Future” (New York: Oxford University Press, 1987).
3. K. Funk, “Sustainability and Performance,” MIT Sloan Management Review 44 (winter 2003): 65–70; S. Sharma and H. Vredenburg, “Proactive Corporate Environmental Strategy and the Development of Competitively Valuable Organizational Capabilities,” Strategic Management Journal 19, no. 8 (1998): 729–753; A. Pablo, S. Sharma and H. Vredenburg, “Corporate Environmental Responsiveness Strategies: The Importance of Issue Interpretation and Organizational Context,” Journal of Applied Behavioral Science 35, no. 1 (1999): 87–108; and H. Vredenburg and F. Westley, “Sustainable Development Leadership in Three Contexts: Managing for Global Competitiveness,” Journal of Business Administration (special issue 2002): 239–259.
4. For an overview of Monsanto’s history, see www.monsanto.com.
5. S.L. Hart, “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review 75 (January–February 1997): 66–76.
6. R.B. Shapiro and J. Magretta, “Growth Through Global Sustainability: An Interview With Monsanto’s CEO, Robert B. Shapiro,” Harvard Business Review 75 (January–February 1997): 78–88.
7. D. Charles, “Lords of the Harvest: Biotech, Big Money and the Future of Food” (Cambridge, Massachusetts: Perseus Books, 2001); and W. Leiss, “In the Chamber of Risks: Understanding Risk Controversies” (Montreal: McGill-Queen’s University Press, 2001).
8. P. Lucas, “Meet the Kinder, Gentler Monsanto,” Journal of Business Strategy 22, no. 5 (2001): 26–27.
9. R.B. Shapiro, “The Welcome Tension of Technology: The Need for Dialogue About Agricultural Biotechnology,” Business Leaders: Thought and Action CEO Series, no. 37, Center for the Study of American Business, Washington University in St. Louis (February 2000): 1–6.
10. J.A. Schumpeter, “The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest and the Business Cycle” (Cambridge, Massachusetts: Harvard University Press, 1934); and J.A. Schumpeter, “Capitalism, Socialism and Democracy” (New York: Harper & Row, 1942).
11. C. Freeman and L. Soete, “The Economics of Industrial Innovation” (Cambridge, Massachusetts: MIT Press, 1997).
12. D.J. Teece, G. Pisano and A. Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18, no. 7 (1997): 509–533.
13. W. Arthur, “Competing Technologies: An Overview,” in “Technical Change and Economic Theory,” eds. G. Dosi, C. Freeman, R. Nelson, G. Silverberg and L. Soete (London: Pinter Publishing, 1988); M. Katz and C. Shapiro, “Network Externalities, Competition and Compatibility,” American Economic Review 75, no. 3 (1985): 424–440; E. Rogers, “Diffusion of Innovations,” 3rd ed. (New York: Free Press, 1983); J.J. Marshall and H. Vredenburg, “An Empirical Study of Factors Influencing Innovation Implementation in Industrial Sales Organizations,” Journal of the Academy of Marketing Science 20, no. 3 (1992): 205–215; and J.M. Utterback, “Mastering the Dynamics of Innovation: How Companies Can Seize Opportunities in the Face of Technological Change” (Boston: Harvard Business School Press, 1994).
14. P. Anderson and M.L. Tushman, “Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change,” Administrative Science Quarterly 35, no. 4 (1990): 604–633.
15. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail” (Boston: Harvard Business School Press, 1997); R.N. Foster, “Innovation: The Attacker’s Advantage” (New York: Summit Books, 1986); and D. Leonard-Barton, “Core Competencies and Core Rigidities: A Paradox in Managing New Product Development,” Strategic Management Journal 13 (summer special issue 1992): 111–125.
16. R.R. Nelson and S.G. Winter, “An Evolutionary Theory of Economic Change” (Cambridge, Massachusetts: Belknap Press of Harvard University Press, 1982).
17. A. Afuah, “Innovation Management Strategies, Implementation and Profits” (New York: Oxford University Press, 1998).
18. Freeman, “The Economics of Industrial Innovation”; and R. Greenwood and C. Hinings, “Understanding Radical Organizational Change: Bringing Together the Old and the New Institutionalism,” Academy of Management Review 21, no. 4, (1996): 1022–1054.
19. R.E. Freeman, “Strategic Management: A Stakeholder Approach” (Boston: Pitman Publishing, 1984); and M.B.E. Clarkson, “A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance,” Academy of Management Review 20, no. 1 (1995): 92–117.
20. According to Herbert A. Simon, complexity occurs when there are many interacting variables; uncertainty occurs when all the variables might be known, but the outcomes are not. Because of complexity and uncertainty, companies have imperfect information, which in turn hinders effective decision making. See H. Simon, “The Sciences of the Artificial” (Cambridge, Massachusetts: MIT Press, 1969). For a discussion of complexity and innovation, see also H. Gatignon, M.L. Tushman, W. Smith and P. Anderson, “A Structural Approach To Assessing Innovation: Construct Development of Innovation Locus, Type and Characteristics,” Management Science 48, no. 9 (2002): 1103–1122.
21. T.S. Kuhn, “The Structure of Scientific Revolutions,” 2nd ed. (Chicago: University of Chicago Press, 1970). The application of a Kuhnian paradigm to technology is discussed in Dosi, “Technical Change and Economic Theory” and Utterback, “Mastering the Dynamics of Innovation.”
22. P. Christmann, “Effects of ‘Best Practices’ of Environmental Management on Cost Advantage: The Role of Complementary Assets,” Academy of Management Journal 43, no. 4 (2000): 663–680.
23. For a more complete conceptual and empirical treatment of the development of organizational capabilities in collaboration between business and secondary stakeholders in the sustainable development domain, see F. Westley and H. Vredenburg, “Strategic Bridging: The Collaboration Between Environmentalists and Business in the Marketing of Green Products,” Journal of Applied Behavioral Science 27, no. 1 (1991): 65–90; S. Sharma, H. Vredenburg and F. Westley, “Strategic Bridging: A Role for the Multinational Corporation in Third World Development,” Journal of Applied Behavioral Science 30, no. 4 (1994): 458–476; and F. Westley and H. Vredenburg, “Interorganizational Collaboration and the Preservation of Global Biodiversity,” Organization Science 8, no. 4 (1997): 381–403.
24. Analysis and Modelling Group, “An Assessment of the Economic and Environmental Implications for Canada of the Kyoto Protocol,” released November 2000, http://nccp.ca/NCCP/pdf/AMG_finalreport_eng.pdf
25. Suncor’s Australian venture is described in D. Allwright and H. Vredenburg, “A Hill To Die On: Suncor Energy’s Stuart Project (Australia)” (Calgary, Canada: TCPL International Institute for Resource Industries and Sustainability Studies Case Series, Haskayne School of Business, University of Calgary, 2002).
26. Suncor is shifting from oil-sands bitumen extraction to wind-energy production; TransAlta is shifting from coal-burning electricity production to wind; Monsanto has shifted from industrial chemistry to industrial biology.
27. The authors would like to acknowledge an anonymous reviewer for helping them to elaborate this point.
28. D. Zittel, “Hydrogen Safety” at http://www.fuelcellstore.com/information/hydrogen_safety.html
29. T. Koppel, “Powering the Future: The Ballard Fuel Cell and the Race To Change the World” (Toronto: John Wiley & Sons, 1999), 94.
30. R. Henderson and K. Clark, “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly 35 (March 1990): 9–30.
31. J. Hall and R. Kerr, “Innovation Dynamics and Environmental Technologies: The Emergence of Fuel Cell Technology,” Journal of Cleaner Production 11, no. 4 (2003): 459–471.