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Definition

Sustainability innovation is defined as innovation that makes a positive contribution to sustainable development. It is the creation of new market space, products/services, and processes driven by social or environmental sustainability issues.[1] Unlike eco-innovation, or environmental innovation, sustainability innovation comprises not only the ecological, but also the economic and social dimensions of sustainability. While environmental innovation focuses on new or modified processes, systems and products that avoid or reduce environmental degradation,[2] the effects of sustainability innovation can also be economic and social improvements such as changes in productivity, employment or income distribution.[3]. The usage of the term “sustainability innovation” is ambiguous as it can be understood in several ways. It can be interpreted as innovation directed explicitly at a sustainability goal, as innovation processes which try to adhere to sustainability targets during product development, production and use but do not have sustainability issues as their primary target, or as innovation processes not linked to environmental or social goals which are sustainable within the company meaning that it keeps its innovation engine running profitably.[4].

Steger et al. point out that both terms “sustainability” and “innovation” are poorly defined but endowed with positive connotations as they are often used to mean “problem solvers” showing a way out of crises where an immediate course of action is not obvious.[5] Furthermore, in the literature the term “sustainable innovation” is often used with the same meaning as “sustainability innovation”. It is helpful here to note the subtle but important distinction Belz and Peattie make between “sustainable” and “sustainability” marketing.[6] The adjective “sustainable” can be used to mean durable or long-lasting (as in the third interpretation above) whereas “sustainability innovation” shows a more explicit relation to the sustainable development agenda.

Characteristics

Technological and Social Sustainability Innovations

Soft innovation mainly concerns product innovation and product differentiation. The emphasis upon product differentiation means that economic analysis designed for exploring static models in differentiated markets can be brought to bear upon dynamic questions relating to innovation. Innovation in terms of new product launches in such markets may reflect either movements towards equilibrium or changes in the equilibrium. Two main types of soft innovation are defined: [7] the first involves changes in products in the creative industries; the second relates to aesthetic innovation in goods and services that are primarily functional in nature. Soft innovation and technological innovation are interrelated [7] Much existing literature on innovation has taken a particularly technological or functional viewpoint at to what sort of new products and processes are to be considered innovations.[8] While innovation that encompasses the artistic, formal (as in the contrast between form and function), intellectual or aesthetic, has largely been ignored in the mainstream literature on innovation. Many improvements in aesthetic goods are the result of new technological products and processes – the iPod and other portable music players have changed the way we consume music, and have increased demand for downloads. Equally, demand for new products may be a result of aesthetic innovations: demand for DVD players is in part dependent on the quality of films available. Traditional models of innovation tend to assume (often implicitly) that innovation must be vertical-all buyers will prefer the new product to the old at a given price because it is inherently better than the old product. But this ignores two other possibilities: horizontal innovation where some consumers may prefer the new and other consumers the old even when the new is priced similar to the old; and vertical innovation which doesn't involve an improvement in quality but may involve a lower price. Soft innovation may include both the above possibilities.

Sustainability Innovation as Radical Innovation

Innovation is one of the central determinants of structural change. According to their impact on structural change, two types of innovation can be distinguished: lower impact, incremental innovation which introduces small improvements in an already established technology or social structure, and high-impact, radical innovation (Schumpeter’s Basisinnovation) which causes sudden, far-reaching changes of the status quo (discontinuous development.[9]

Sustainability innovation is considered to belong to the second type as it is increasingly acknowledged that focusing on incremental innovation along an established trajectory is not sufficient to achieve the goals of sustainability and radical technological or systemic change is needed [10]. New technological paradigms arising out of radical (breakthrough) innovation are more likely to offer innovative solutions to existing sustainability issues as they have a much bigger learning curve potential compared to incremental modifications of mature technologies approaching the end of their learning curve.Cite error: The <ref> tag has too many names (see the help page). Society's choices, and the preferences that inform them, are path dependent, meaning that choices we have made in the past affect current preferences and options, and the choices we will make now and in the future. As a result, we may become "lock in" in the sense that certain options that might have been possible or even likely, if we had made different choices in the past, may no longer be feasible or desirable. This idea of path dependence or "lock-in" has been applied most frequently to technologies, since they both influence and are influenced by the social, economic and cultural setting.[11]

Since modern technological systems are deeply embedded in institutional structures, Unruh introduces the notion of a Techno-Institutional Complex (TIC),[12] to capture the idea that lock-in occurs through combined interactions among technological systems and governing institutions. A technological system is an inter-related set of components connected in a network that includes physical, social and informational elements. For such a system, lock-in is intensified by network externalities (network effect) arising from systemic relations among technologies, infrastructures, interdependent industries and users. These positive externalities, which act to reinforce the dominance of the system, arise because both physical and informational networks grow in value to users as they become larger and more interconnected. In addition, institutions evolve to reinforce the technological system, both in terms of formal rules, such as regulatory structures, and informal constraints, such as codes of behaviour.

For instance, Unruh argues that current carbon-based energy and transportation systems in industrialized countries form locked-in techno-institutional complexes, hence the term carbon lock-in.[13] The electricity generation TIC forms an example where institutional factors, driven by the desire to satisfy increasing electricity demand and a regulatory framework based on reducing unit price, feed back into expansion of the technological system, most recently by rapid building of gas-fired power stations. In the UK, regulatory drivers to promote the expansion of renewable energy, including the Non-Fossil Fuel Obligation from 1990 to 1998, and the Renewables Obligation since April 2002, have not so far been strong enough to overcome this carbon lock-in. In part, this is because other institutional drivers have acted to reinforce the advantage of current large-scale centralized generators. For example, NETA (the New Electricity Trading Arrangements), introduced in April 2001, designed to correct perceived imperfections in the wholesale electricity market, has reduced prices, but also reduced the output of smaller generators. In addition, connection charges are higher for decentralized generation technologies, such as Micro combined heat and power (micro-CHP), which connect to local distribution networks, rather than national transmission systems. Similarly, hydrogen-based systems, which some have promoted as the long-term alternative to carbon, face regulatory barriers in terms of perceived safety concerns, and lack of incentives for companies to create the large-scale infrastructure which would be needed. In such ways, institutional factors act to reinforce the lock-in of the current carbon-based technological system.[14]

From the corporate perspective

Well-documented market failures exist in the case of low-carbon innovation, which cause firms to invest less in R&D relative to the socially optimum level: the positive externality or knowledge spillover effects of R&D, and the negative externality from pollution (or both of them occurring in a joint market failure) . Knowledge spillover diminishes private incentives for R&D as private firms cannot fully capture the value of their investment in R&D, part of which spills over to other parties, e.g. technology producers and users. If private firms and individuals do not pay the external costs of environmental damage, there is little demand for pollution abatement technologies and therefore low incentives for firms to invest in developing them. Another barrier to sustainability innovation is the increasing returns to already established technologies due to network effects, learning-by-doing and economies of scale.

An observation with important implications is that technology development is an inefficient process. It is also one that is difficult if not impossible for central authorities to direct successfully. First, technology is not free. Technology must be deliberately induced at cost to the innovators. The costs are high because of the high failure rate of new innovations. Second, history points to a very low success rate of centralized efforts in regard to technology planning. Because uncertainty and experimentation are inherent to the process, successful technology development depends heavily on decentralized decision-making structures and processes of information exchange. Markets and informal information networks among technology suppliers and users are important to the processes of weeding out inferior technologies, selecting superior alternatives and learning how to improve these. Studies of technological change repeatedly stress the importance of the firm as the key organizational entity in carrying innovation forward. Nonetheless, it has been found that radical solutions rarely arise from firms with existing interests in the same market. Radical innovations are, instead, most often introduced by firms new to the market or by new constellations of firms. Moreover, while firms are the key organizational entities, the process of developing new solutions involves interactions between demand and supply, technology producers and users, private and public R&D and knowledge and competencies internal and external to the firm.

Sustainability Innovation as a Corporate Strategy

The most prevalent approach to sustainability taken by companies has been to treat it as an issue of corporate social responsibility without incorporating its principles in the company’s core business processes. However, corporate commitments to sustainability-driven management are strengthening according to the results of a collaborative study conducted in 2010 by the MIT Sloan Management Review and the Boston Consulting Group based on a survey of business executives.[15] 54% of the respondents considered pursuing sustainability-related strategies necessary for their companies to be competitive. 32% of the organizations had developed a clear business case for addressing sustainability whereas for 62% sustainability was found to be a permanent issue on top management’s agenda. The greatest benefits to companies in addressing sustainability were found to be improved brand reputation, reduced costs due to energy efficiency and increased competitive advantage. Instead of being a burden on the company’s bottom line, sustainability begins to be seen as a source of competitive advantage, which should therefore be treated as a frontier for innovation. A Harvard Business Review article[16] proposes a five-stage process for companies to become sustainable:

1. Viewing compliance as opportunity for innovation – Companies gain a substantial first-mover advantage by complying with the most stringent environmental standards and participating in shaping emerging norms that have not been officially enforced yet.

2. Making value chains sustainable – Corporations save costs by introducing operational innovations throughout the supply chain which lead to greater eco-efficiency, i.e. increase energy efficiency, reduce emissions and generate less waste. Particularly useful in this regard are tools such as life cycle assessment.

3. Designing sustainable products and services – At this stage firms can gain advantage over their competitors by developing sustainable offerings or redesigning existing ones to make them eco-friendly. Belz and Peattie define sustainable products and services as “offerings that satisfy customer needs and significantly improve the social and environmental performance along the whole life cycle in comparison to conventional or competing offers”.[17] Skilled sustainability branding is of crucial importance when launching sustainable products to make sure that they are not perceived by consumers as “greenwashing”.

4. Developing new business models – The next challenge for companies on the way to sustainability is to find novel ways of capturing and delivering value. To do this, companies can explore how they can meet customers’ needs differently by providing them with solutions rather than products and how partners can enhance the value of their offerings. New business models have the potential to change value-chain relationships significantly.

5. Creating next-practice platforms – At this stage, company executives look beyond a single market and begin to question the assumptions behind doing business today through the lens of sustainability. The goal is to innovate by changing existing paradigms, for example by synthesizing business models and technologies to develop cross-industry platforms that will allow managing energy and resources in radically different ways (e.g. smart grids at the intersection of the power and communications industries).

User Perspectives

Sustainability innovation has been predominantly driven by the customer and is a market pull, it’s not a technology push[18]. Users can play a significant role both in creating of sustainability innovations and in their further implementation and distribution. Success or failure of the the whole innovation process will depend on how the users accept the product or service and whether they want to participate in the development of this new product or service.[19]

Following Eric Von Hippel, many companies nowadays are starting to implement this strategy of use-oriented innovations. According to Javier Carillo-Hermosilla et al. “users may be the first to develop many new industrial and consumer products”.Cite error: A <ref> tag is missing the closing </ref> (see the help page). Therefore the concept of the lead user method can be expanded on by focusing on sustainable lead users.[20] The study of Benjamin Diehl and Ulf Schrader states that “…aiming at accelerating sustainable consumption, innovations of products and services in the field of sustainability have to meet or even exceed exciting standards concerning usability, convenience, affordability and amortization”.[21] Therefore the role of the companies that develop innovations in the field of sustainability becomes extremely important and sustainable innovations are considered not as optional activities but as “strategic necessities”. Continuing with the study of Benjamin Diehl and Ulf Schrader, sustainable innovations could develop a great potential to educate environmentally responsible generation of consumers and give an opportunity to the companies to act on highly competitive markets. “Especially in the context of sustainability, consumer citizens qualify themselves very much - with regards to their capabilities and basic motivation - as sustainable lead-users…”.[22]

See also

References

  1. ^ Little, A. D. (2005). The Innovation High Ground: How Leading Companies are Using Sustainability-Driven Innovation to Win Tomorrow's Customers. Retrieved from http://www.arthurdlittle.com/uploads/tx_extthoughtleadership/ADL_Innovation_High_Ground_report_03.pdf
  2. ^ Kemp, R., Arundel, A., & Smith, K. (2001). Survey indicators for environmental innovation. Towards Environmental Innovation Systems, Towards Environmental Innovation Systems, cited in Horbach, J. (op. 2005). Indicator systems for sustainable innovation: With 22 figures and 9 tables. Heidelberg ;, New York: Physica-Verlag; Springer.
  3. ^ Horbach, J. (op. 2005). Indicator systems for sustainable innovation: With 22 figures and 9 tables. Heidelberg ;, New York: Physica-Verlag; Springer.
  4. ^ Blowfield, M., Visser, W., & Livesey, F. (2007). Sustainability Innovation: Mapping the Territory. University of Cambridge Programme for Industry Research Paper Series 2, 44, 1–19.
  5. ^ Steger, U., Achterberg, W., Blok, K., Bode, H., Frenz, W., Gather, C., (2004). Sustainable Development and Innovation in the Energy Sector.
  6. ^ Belz, F., & Peattie, K. J. (2010). Sustainability marketing: A global perspective (Reprinted.). Chichester: Wiley.
  7. ^ a b Soft innovation:Towards a more complete picture of innovative change, NESTA: 2009
  8. ^ Soft Innovation: Economics, Product Aesthetics, and the Creative Industries, Paul Stoneman: 2010
  9. ^ Huber, J. (2004). New technologies and environmental innovation. Cheltenham, UK [u.a.]: Elgar.
  10. ^ Nill, J. a. R. K. (2009). Evolutionary Approaches for Sustainable Innovation Policies: From Niche to Paradigm? Research Policy, 38, 668–680.
  11. ^ Rip and Kemp, 1998; Kemp, 2000
  12. ^ Gregory C. Unruh, 2000, 2002
  13. ^ Unruh, G. C. (2000). Understanding carbon lock-in. Energy policy, 28(12), 817–830.
  14. ^ Foxon, T. J. (2002, September). Technological and Institutional 'Lock-In' as a Barrier to Sustainable Innovation. International Summer School on Innovations for Sustainable Development: Institutions, Incentives and Economic Policy, Seeon, Germany, 7-11 September 2002, Seeon, Germany.
  15. ^ Haanaes, K. e. a. (2010). Sustainability: The ‘Embracers’ Seize Advantage. 2010 Sustainability and Innovation Global Executive Study and Research Project.
  16. ^ Nidumolu, R., Prahalad, C., & Rangaswami, M. (2009). Why Sustainability Is Now the Key Driver of Innovation. Harvard Business Review, 87(9), 56–64.
  17. ^ Belz, F., & Peattie, K. J. (2010). Sustainability marketing: A global perspective (Reprinted.). Chichester: Wiley.
  18. ^ Liddle, S., & El-Kafafi, S. (2010). Drivers of sustainable Innovation Push, Pull or Policy. World Journal of Enterprenuership, Management and Sustainable Development, 6(4), 293–305.
  19. ^ Carrillo-Hermosilla, J., Río González, P. d., & Könnöla, T. (2009). Eco-innovation: When sustainability and competitiveness shake hands. Houndmills, Basingstoke ;, New York, NY: Palgrave Macmillan.
  20. ^ Cite error: The named reference Carrillo-Hermosilla, J., Río González, P. d., & Könnöla, T. (2009). Eco-innovation: When sustainability and competitiveness shake hands. Houndmills, Basingstoke ;, New York, NY: Palgrave Macmillan. was invoked but never defined (see the help page).
  21. ^ Diehl, B., & Schrader, U. Consumer Citizens as Leading Innovators - Enhancing Value Creation Potential through Consumer-Consumer-Interaction. In A. Klein & V. Thoresen (Eds.), Sixth International Conference of The Consumer Citizenship Network. Proceedings of the Sixth International Conference of The Consumer Citizenship Network (pp. 256–263). Berlin, Germany.
  22. ^ Diehl, B., & Schrader, U. Consumer Citizens as Leading Innovators - Enhancing Value Creation Potential through Consumer-Consumer-Interaction.
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