WHY SUSTAINABILITY IS NOW THE KEY DRIVER OF INNOVATION

by Nidumolu, Prahalad, Rangaswami

Even though many companies are convinced that sustainability would lead to less profits, the
authors think that there is no alternative to sustainable development.
There are two streams of literature on this subject: the first is about increasing regulation to
force companies to become sustainable, the second suggests educating and organizing
consumers so that they will force businesses to become sustainable.
The authors study proves that companies benefit from creating sustainable environments.
Becoming environment-friendly lowers costs because
companies end up reducing the inputs they use. In addition, the process generates additional
revenues from better products or enables companies to create new businesses, as innovations
new frontier. Enterprises that have started the journey, our study shows, go through five
distinct stages of change and face different challenges.
STAGE 1: Viewing Compliance as Opportunity- The central challenge is to ensure that
compliance with norms becomes an opportunity for innovation, anticipating and shaping
regulations. For instance, HP in 1990 started to create sustainable PC in order to anticipate the
regulations upon toxic and cancerogenous materials and, thus, being ahead of its competitors.
STAGE 2: Making Value Chain Sustainable- Sustainability is usually focused on
reinforcing the brand image, but could lead to cost cutting or to create new businesses. These
two last factors could be very helpful in difficult economic times, when companies need to
boost profits. In this stage the companies should focus on modifying the value chain in order
to increase the efficiency of the process. One obvious way to do that is empowering the
supply chain, collaborating with suppliers and increasing their environmental sensibility
introducing incentives. One other practice could be an improvement of the operation,
reducing the dependence on fossil fuels, even letting people work from home ( like IBM).
Last, firms could reuse efficiently returned product to recapture some of their lost value.
STAGE 3: Designing Sustainable Products and Services- At this stage executives start
waking up to the fact that many consumers prefer ecofriendly offerings, and that their
businesses can score over rivals by being the first to redesign existing products or develop
new ones. This can be obtained by developing eco-friendly packaging and by using
techniques such as biomimicry to monitor the volume of energy consumed to manufacture a
product. To design sustainable products, companies have to understand consumer concerns
and carefully examine product life cycles. They must learn to combine marketing skills with
their expertise in scaling up raw-materials supplies and distribution. As they move into
markets that lie beyond their traditional expertise, they have to team up with
nongovernmental organizations.
STAGE 4: Developing New Business Models- The central challenge is to find novel ways of
delivering and capturing value, which will change the basis of competition. The ways to do
that are: developing new delivery technologies that change value-chain relationships in
significant ways; creating monetization models that relate to services rather than products;
devising business models that combine digital and physical infrastructures.
STAGE 5: Creating Next-Practice Platforms- Next practices change existing paradigms. To
develop innovations that lead to next practices, executives must question the implicit
assumptions behind current practices. This is exactly what led to todays industrial and
services economy. Sustainability can lead to interesting next-practice platforms like:
platforms that will enable customers and suppliers to manage energy in radically different
ways; developing products that wont need water in categories traditionally associated with it,
such as cleaning products; designing technologies that will allow industries to use the energy
produced as a by-product.