Leading Sustainable Organizations
What to Read Next
This blog post is the fourth in a four-post series on Sustainability-Oriented Innovation (SOI). See the first post, “A bridge to breakthroughs” for our definition and overview. Our work builds on Accelerating the Theory and Practice of Sustainability-Oriented Innovation by Jason Jay and Marine Gerard. In this post, we look at the SOI decision-making process, the various considerations that must be taken into account, and the tools available for evaluating sustainability potential.
Taking sustainability-oriented innovation from concept to reality requires investment of people’s time, attention, and financial capital. Corporations, venture capitalists, incubators, and aspiring entrepreneurs may be presented with a variety of opportunities for SOI, but how should they choose which projects to invest in? To tackle energy storage, should they invest in a new nanomaterial-based technology or make another attempt at producing lithium-ion batteries at scale? To increase agricultural resilience in Africa, should they invest in a drought-resistant, genetically modified legume crop or a digitally controlled drip irrigation system?
SOI selection decisions depend on the players involved. At large companies, such as 3M, Merck, and Lockheed Martin, corporate development and technology officers assess how well product innovations align with their broader market or capital structure strategy before making significant outlays. Government grant makers at public agencies like the National Science Foundation and Massachusetts Clean Energy Center often use sustainability impact as a key metric in determining who is awarded grants and competition prize money. Sand Hill Road venture capitalists put greater weight on the feasibility of a venture scaling to a $1 billion valuation within five years. All these factors determine whether investments of time and money will succeed at meeting customer needs, enhancing business viability, and making positive impact on social and environmental systems.
We propose an overarching framework to simplify and streamline the complex decision-making process of SOI capital allocation. The framework can help inform decision making by determining how well a particular SOI is suited to solving a particular challenge. It can help people in both the private and public sector determine where they should allocate their human and financial resources. It can help them identify the magnitude of the gap between organizational priorities and the desired impact of their funds, and it can help them evaluate thresholds for scalability. Academic institutions that create SOI Centers of Excellence (CoE) can apply the framework and connect SOI teams with the right partners to create win-win solutions for all the stakeholders.
We designed this new approach to SOI decision making by reviewing 15 different evaluation methodologies. Below is a comparison of these methodologies in terms of scope, scale, and level of granularity. (See Figure 1.)
From this work, we conclude that SOI evaluation warrants four high-level considerations in determining SOI capital allocation:
- alignment to mission
The first step before conducting any evaluation is clarifying investors’ priorities and objectives, which allows you to determine the SOI’s alignment to mission. If you are a prospective employee, this is your personal mission. What kind of legacy do you want to leave? What values guide your career? Does the essential objective and philosophy of the SOI effort match that mission? Would the SOI help you achieve your objectives while diversifying your risks?
Once alignment with mission is determined, the next dimension to be evaluated is suitability. This is the SOI’s capacity to deliver the proposed solution and solve the problem. Suitability covers not only the SOI’s technical viability, which includes the technology readiness level and intellectual property rights, but also the user/stakeholder fit, which assesses private- and public-problem stakeholders’ willingness to pay. Together, both capacities sit at the nexus of product-market fit that any innovation needs to gain traction.
Following suitability is the evaluation of scalability. Traction alone is not sufficient. SOI can only achieve impact on “wicked problems”2 by reaching large and diverse segments of customers. This means evaluating the basic operational issues on supply-chain configurations, sourcing, manufacturing, and distribution channels that are required to scale efficiently and effectively. It also means evaluating the broader resources available. What physical and regulatory infrastructures are currently in place? Can the business replicate its success in one region and expand abroad? Does the management team have the experience and resilience to endure the logistical challenges of growth? These are all important questions that apply to any innovation seeking to scale.
What differentiates SOI from other innovations, however, is the final evaluation of sustainability. This is the last and most central dimension of our proposed SOI-evaluation framework, and what we might think of as the legacy of the innovation. We propose evaluating sustainability along three different dimensions. (See Figure 2.)
First, we must consider the SOI’s likely impact on systems—economic, environmental, and social. How many jobs will the SOI help create or displace? What will be its impact on natural resource depletion, pollution, and regeneration? What opportunities will it create for leveling income inequality and enabling access to critical services?4, 5
Second, we need to evaluate the SOI’s indirect impact on people’s habits of thought and action — what we might call the “usage-system” and culture surrounding the SOI. John Ehrenfeld uses the example of the two-button toilet to illustrate this idea. To save water in the bathrooms of a new green building, install low-flow sinks and toilets that reduce water use in a way that is invisible to the user. Alternatively, the two-button toilet is designed to interrupt the course of habit and force users to consider their resource consumption.
Consider ride-sharing platforms like Uber and Lyft. Their advantages include reducing the number of car purchases, mitigating parking-search driving, and supporting more efficient routing. Unfortunately, they may also have the effect of making ride sharing a more viable option than the use of environmentally friendly trains and bicycles or of stimulating casual employment that can lead to fewer employee protections.
The third dimension relates to the governance of the SOI team itself. In many ways, this is the most essential dimension. The team’s degree of integrity, transparency, and their willingness to include the voices of management is the only way to ensure that sustainability will be an ongoing consideration in the SOI’s deployment.
Like any process of innovation, SOI is highly iterative, requiring continuous monitoring of impact and refinement of design. In the absence of comparable, precise metrics of socioeconomic and environmental impact, many rating systems like the Global Impact Investment Rating System (GIIRS) fall back on what are essentially governance measures. Are their procedures in place to measure and manage sustainability in an ongoing way? Is the SOI team adhering to certain sustainability measurements and protocols? Good governance is essential to ensure the long-term viability of an SOI team’s approach and management protocols.
This framework for exploring and evaluating SOI is preliminary, but serves as a good starting point for all stakeholders as they begin to shape their SOI agendas.
The Challenge of Impact Measurement
Assessing the economic, environmental, and social impact of an innovation is a daunting task. What frameworks and tools are available to help make informed decisions around SOI? The most granular are the environmental lifecycle assessment (LCA) tools, which seek to quantify the environmental burden of a given product or process, such as carbon emissions. Partly because of ongoing support by the U.S. Environmental Protection Agency (EPA), LCAs are often the default choice for considering sustainability in a quantified manner. The rigorous data-driven approach is a practical way to think about potential environmental impact over time, and is firmly grounded in years of research. Over time, it has spawned an assortment of variations driven by increasing demand from corporations and regulators seeking greater transparency.6
Yet, LCA analyses can be problematic. The core challenge is the expensive and time-consuming process of gathering data across a product value chain. This is why 3M has looked into alternative ways to incorporate lifecycle sustainability into its more than 60,000-product portfolio.7 Because LCA on every SKU is prohibitive, one alternative is using LCA-informed product development tools that encapsulate average data into databases, estimating environmental impact from a product’s bill of materials. Autodesk, Dassault Systemes, and SustainableMinds have all pursued this avenue. As useful as these are for building understanding, they can also lead to a false sense of certainty and precision. This is why a growing body of research has begun to incorporate ranges of uncertainty into LCA results.8 Without this diligence, the reliance on tools risks giving crude estimates and deceivingly neat, round numbers. The social and economic dimensions are rougher still.
Beyond the LCA, other heuristic-based tools, like the EPA Design for Environment, are showing they can match and even beat more complicated methods of analysis across a range of comparable design and process decisions.9 A perfect example is Spoiler Alert, which uses the EPA’s food waste hierarchy to inform its business model innovation. There is no need for the startup to do the agricultural LCA calculations repeatedly because over time, high-leverage points of impact have emerged from the science. These guiding principles streamline their decision-making process around food waste allocation, and save them precious time and resources in business development. Though these qualitative tools are dependent on drawing lessons from tacit knowledge and repetition of quantitative analyses, they can be useful if they are used with caution.
One must look no further than the use of Simple Rules to see the ultimate power and utility of these heuristic-based tools.10 They are essentially boiled-down systems thinking principles — or what Jay Forrester, founder of the field of system dynamics, would call “always be done” principles.11 The Defense Advanced Research Projects Agency (DARPA) uses them to select which innovations to back, while Techstars and ONSET Ventures use them to screen startup companies and help them get off the ground. They should be included in every SOI evaluation toolkit but be continually monitored and refined for optimal efficacy.
Summing Up SOI
This four-part series has shown how corporations and startups can internalize the principles of SOI to achieve societal and commercial victories:
- SOI starts with breaking perceived tradeoffs around performance and going beyond traditional notions of philanthropy and corporate responsibility. Entrepreneurs and Intrapreneurs grasp SOI as a new way of innovating for competitive advantage.
- SOI can be valuable in multiple contexts. Whether sustainability is the main design input, the driving purpose, or a side benefit with substantial reach, innovators use SOI in whatever circumstances best suit their goals.
- SOI requires managing a wider diversity of stakeholders to address the public and private benefits involved. Centers of Excellence, like MIT, can facilitate connections and incorporate diverse input into the SOI process, and thus maximize value creation.
- Successful SOI requires a practical framework for evaluation and decision making to guide investment. Key dimensions include alignment with mission, suitability, scalability, and sustainability. Multiple tools help investors choose where to invest their human and financial capital, and ensure that innovators with the greatest potential are given the resources to succeed.
In the coming years, we anticipate a fundamental shift in perspective from economic growth to social progress for nations, from short-run returns to long-term sustainability for investors, and from profit to purpose as the essence of the corporation. Integral to this transformation is the reorientation of R&D, product development, and strategic investment toward SOI. The ideas here form an initial roadmap for that journey, one that will determine not only the direction of our enterprises, but the future of humanity and the planet. Let us begin!
1. Jay, Jason and Gerard, Marine, Accelerating the Theory and Practice of Sustainability-Oriented Innovation (July 10, 2015). MIT Sloan Research Paper No. 5148-15.
2. Churchman, C. West (December 1967). "Wicked Problems". Management Science 14 (4). doi:10.1287/mnsc.14.4.B141.
3. Jay, Jason and Gerard, Marine, Accelerating the Theory and Practice of Sustainability-Oriented Innovation (July 10, 2015). MIT Sloan Research Paper No. 5148-15.
4. Khavul S. 2010. Microfinance: creating opportunities for the poor? Academy of Management Perspectives 24(3): 58–72.
5. Khavul S, Chavez H, Bruton GD. 2013. When institutional change outruns the change agent: the contested terrain of entrepreneurial microfinance for those in poverty. Journal of Business Venturing 28(1): 30–50.
7. Lande, S. and Coy, D., "3M Approach to Implementing Life Cycle Management," SAE Technical Paper 2000-01-0594, 2000, doi:10.4271/2000-01-0594.
8. Olivetti E, Patanavanich S, Kirchain R (2013) Exploring the viability of probabilistic under-specification to streamline life cycle assessment. Environ Sci Technol 47(10):5208–5216.
11. Sherwood, D. (2002). Seeing the forest for the trees. London: Brealey.