Citation
Lenssen, G. (2013), "Strategic innovation for sustainability: honouring the lifetime achievements of Professor Nigel Roome, Chairman of the Academic Board of ABIS, in research on Sustainable Development and Innovation", Corporate Governance, Vol. 13 No. 5. https://doi.org/10.1108/CG-07-2013-0092
Publisher
:Emerald Group Publishing Limited
Strategic innovation for sustainability: honouring the lifetime achievements of Professor Nigel Roome, Chairman of the Academic Board of ABIS, in research on Sustainable Development and Innovation
Article Type: Guest editorial From: Corporate Governance, Volume 13, Issue 5
This Special Issue is inspired by the 2012 Colloquium of ABIS – The Academy of Business in Society, which was hosted by IMD in Lausanne, Switzerland, and chaired by Francesco Szekely, Sandoz Family Foundation Professor of Global Leadership and Sustainability.
The event brought together over 250 representatives from ABISs expanding international network of universities, business schools, corporations and NGOs. Its primary goal was to enrich collective understanding of how sustainability-driven innovation can inspire the transformation of business models, systems and processes into more sustainable trajectories of growth, profitability and shared value creation. The main conclusions from the colloquium have been discussed in three thought leadership pieces by Professors Aileen Ionescu-Somers and Francesco Szekely of IMD[1].
Context
A sense of renewed urgency has entered the public debate around the sustainability of a range of economic, industrial and social systems, both at global and more localised levels. Turbulence and uncertainty have gravely affected financial markets, leading to a collective crisis of confidence that has already seen elected governments ousted from office. Recent demonstrations of public discontent have highlighted widespread anger about economic inequality and perceived failures of political and corporate leadership, as well as deep-rooted fears about social and economic exclusion.
Equally serious concerns exist regarding the sustainability of the planets ecosystem. The rapid industrialisation of emerging economies has placed unprecedented pressures on natural resources, and driven fossil fuel use to record levels. The past decade has witnessed disturbing upward trends in extreme weather events, desertification, volatility in food supply and commodity prices, and the disappearance of polar ice, among others.
Increasingly, international bodies are promoting innovation as a vital means of mitigating such risks and generating solutions to the most pressing challenges of sustainable globalisation. The Rio+20 Earth Summit (June 2012) convened world leaders from business, politics and civil society to debate the Green Economy (in the context of Sustainable Development and Poverty Reduction). The European Union has stated that its Horizon 2020 agenda, to be launched in early 2014, will seek to harness industrial capabilities and public spending in research and innovation to deliver “smart, sustainable and inclusive growth” to its member states (European Commission, 2011).
The corporate world is also embracing innovation as a vehicle for sustainable enterprise in the twenty-first century. The World Business Council for Sustainable Developments Vision 2050 (World Business Council for Sustainable Development, 2010) report underlined the potential for market development and value creation for companies willing to invest in new technologies, products and services around such issues. IBMs “Smarter Planet” and Unilevers “Sustainable Living Plan” are leading examples of global firms putting sustainability at the very heart of business strategy and development.
Over the last decade, therefore, the approach towards sustainable enterprise has transformed gradually from a focus on avoiding or minimising negative impacts towards a more anticipatory and forward-looking approach, characterised by innovation and proactive scenario planning. One might understand this as a way to develop organisational resilience in the face of change.
This transformation is partly due to increasing awareness that “managing negative externalities” and compliance with regulation is simply not an adequate approach to achieving sustainability. It is also partly due to a growing recognition that current production and consumption systems are themselves unsustainable, and that action to remedy this is needed sooner rather than later to ensure that all actors in the systems continue to benefit from them.
Innovation itself is a term that is sometimes simplistically employed to designate “something new”. However, in the context of the urgent challenges described above, it is important to note that everything that is “new” cannot necessarily be placed within the realm of strategic innovation for sustainability.
Thinking about strategic innovation for sustainability requires organisations to develop a deep understanding of the systemic challenges we face, and to address the interrelated factors that may change the way we do business, the way we consume products and services, and the way we interact with others and with institutions.
Sustainable enterprise
The last 20 years have witnessed a flurry of new concepts and fashionable ideas like CSR, corporate citizenship, business ethics, triple bottom line, globally responsible business, and more. Entire cottage industries, university departments and NGOs have been created around these. Beyond fashion and superficial or partial analysis, these phenomena reveal that not only the societal impacts of business are viewed through an increasingly critical lens, but also that the entire context of business has dramatically changed.
“Sustainable development” is a term that is much older, stemming from the first report of the Club of Rome on the limits to growth (Meadows et al., 1972) and the Brundtland report (Brundtland, 1987). It emphasises the limits of the planets resources and the intergenerational responsibility for the wellbeing of future generations.
We want to integrate the above in an overarching concept of sustainable enterprise (Lenssen, 2013).
A sustainable company is responsive to both the demands and challenges of the markets (traditional view) as well as to the environmental, societal, cultural and political contexts in which the company develops its business models and pursues its value creation strategies.
In this way, it optimises both competitiveness and social capital with internal and external stakeholders by constantly adapting and innovating its value propositions through its business portfolio of products and services.
It pays attention to the medium- and long-term developments within the political, social and natural environments on which it depends for resources and to the externalities of its business model.
It is concerned about its reputational capital and the trust and legitimacy it needs in order to keep transaction costs low and to benefit from a favourable license to operate.
An industry sector view of strategy ensures that the company is well positioned by creating new sustainable products and services, by reconceiving the value chain in search for shared value between the firm and society, by facilitating local clusters and by partnering in the industry sector with other companies, civil society and government. Michael Porter has succesfully coined this “CSV (Creating Shared Value)” (Porter and Kramer, 2011).
Inherent in this view is that companies need to transform themselves both by sustainable product innovation and in parallell by business process innovation. Product and process innovation are part and parcel of a transformation towards sustainable enterprise.
A resource-based view of strategy ensures that sustainable value propositions are generated through the development of unique knowledge, relationships and capabilities. Research in strategic management has consistently shown that unique knowledge, relationships and capabilities are key to creating sustainable comparative advantage. Embedding sustainability strategies is essential, particularly in sustainable relationships with all stakeholders and especially with investors and shareholders, but also with staff, customers, suppliers and with social and political actors in the external environment. But equally important is the development of organisational and managerial capabilities to generate and underpin these strategies.
Managing a sustainable enterprise has become increasingly complex given the dramatic changes in the context of business in the last 20 years, driven by the following transformations:
Globalisation has heralded new opportunities for companies, but it has also caused new complexities in the global supply chains, global competition, cross-cultural settings and clashes of values and norms, weak governance environments, challenges to the power and legitimacy of “big business” and anti-globalisation movements.
The ICT revolution has transformed the way in which business is done and managed, but it has also made the global critical village possible, which brings new risks to companies. Global interconnectedness makes news travel ever faster. Social, environmental and political issues can emerge and spread quickly, covered by increasingly soundbite-driven media, both traditional and new. Local missteps can endanger reputational capital – but progressive approaches to risk management can create opportunities as well for nimble companies. At the same time, ICT harbours enormous potential and opportunities in the transition to a sustainable economy and sustainable enterprise.
Macro trends such as climate change, resource depletion, environmental destruction, demographic and geopolitical change, talent shortages, and increasing rich-poor divides between and within societies will affect business models in the medium- to long-term and will create new winners and losers. Companies are faced with the choice of taking leadership and staying ahead (thereby creating first-mover advantages or risking first-mover disadvantages), or following leaders and innovators with the inverse advantages and risks.
These context transformations affect all business functions: strategy, procurement, marketing, finance, accounting, human resource management, product development, R&D and operations management. It will also affect the economics of the business models and the valuation of equities through risk assessment and risk mitigation, and will change the competitive context of entire industries by the bets companies are likely to make to take advantage of changing circumstances.
Firms are well advised to take a strategic approach to the challenges of sustainability, in order to identify threats and opportunities as well as their own strengths and weaknesses in the face of these. Resources need to be allocated, relationships need to be built, capabilities need to be developed and new knowledge needs to be harnessed. This requires sound judgement and decision-making.
Challenges of innovation
According to Prof. Nigel Roome, ABIS Academic Chair (ETAN, 2001):
Past research has indicated that sustainability-driven innovation leading to new business models, or to innovations that change production and consumption systems, represents “innovations in how businesses innovate”. It moves beyond traditional understandings of business innovation that result in new technologies and products driven by the demands for competitiveness.
The notion of the “triple bottom line” (“TBL” or “3BL”) developed by John Elkington (1998) described companies taking account of economic, social and environmental performance, consistent with the original concept of sustainable development that environmental considerations should be integrated into business choices. But this does not really help us to achieve sustainable development. Two approaches evolve as a consequence:
1. companies integrate environmental and social considerations into their business choices; or
2. companies accept that there are environmental limits (boundary conditions) and seek to place their activities within those limits – companies thereby integrate themselves into the constraints of the systems in which they operate.
This second way of thinking becomes very important in a resource-constrained world. However, it does not simply follow from some kind of triple bottom line, but from a rather radical rethink of business – and for this reason, it constitutes strategic innovation in ways that TBL thinking does not. Elkingtons notion was useful at the time to draw attention to the social and environmental costs of the unbridled pursuit of economic performance through profit maximisation. In reality, though, there is only one bottom line – namely, the bottom line of profit generation through the creation of value and the search for competitiveness within our understanding of the constraints of the planet. This is dependent on the accomplishment of sustainable business models, sustainable relationships with stakeholders, and sustainability-driven innovation, as is already evident.
Business model innovation has promise because it has the potential to generate new growth curves rooted in sustainable conditions. However, business model innovations are themselves among the most complex forms of conventional business innovation, since they imply rethinking value propositions to the actors involved and require their engagement in all elements of innovation and change. They do not take conventional product structures and systems for granted. Or, put another way, they are not easily analysed using established business logic and the conventional business case that seeks improvements compared to the existing value proposition. This is even more challenging when the focus of a new business model includes sustainability for the reasons rehearsed above.
Figure 1 From environmental management to sustainable development: vision, actors and innovation complexity
Figure 1 (Roome, 2004) attempts to clarify how the distinctions between conventional business innovation and strategic innovation for sustainability break new ground. The focus falls on the upper right quadrant: understanding why and how this strategic innovation occurs and what managerial skills and organisational competences underscore this innovative practice and experimental performance.
Figure 1 shows four axes. The left side shows the gradation from sustainability as weak environmental management, through economic/environmental win/win solutions, to strong sustainable development. On the top axis, the vision of change moves from products and processes, through supply-chain or link sets of technologies (as found in automobiles – tyres, engines, design, etc.) to socio-ecological systems such as nutrition, energy, communications, household services and health. The bottom axis shows the scope of actors engaged in the process of innovation: these move from regulators, customers and neighbours through members of supply-chains through to all actors involved or potential involved or interested in production-consumption systems. The right side of Figure 1 shows the level of complexity of innovation. This complexity moves from a mostly internal focus on technological innovation to an internal and external approach to innovation that blends technological, managerial and social innovation.
The three main positions companies can adopt are also set out in the spheres:
1. conventional;
2. environmentally proactive; and
3. responsible enterprise in a sustainable society.
The move from “conventional” to a “proactive” orientation requires a firm to commit to the learning or quality approaches that accompany the integration of environmental concerns into their existing business processes. For most companies this represents a management innovation. It can lead to win-win gains – for example, environmental resource reduction leading to financial savings, or the launch of successful green products as a new source of competitiveness.
The move toward deeper sustainability shifts the companys vision of change from products and supply-chains and product-sets and “win-win” gains, toward new business models that reshape socio-ecological systems. Unilever has just begun this type of process as it embarks on its “Sustainable Living Plan”.
While it is still possible for a company to engage in product and supply-chain innovation and change, the ambition that the company is working towards is more informed by ideas about new business models or systems. This requires a strong commitment to strategic sustainability and the intense engagement between the company and other actors through multi-actor platforms or combined social and business innovation to promote ideas and actions for change. While this approach might seem extreme, it was the approach taken by the first organisations to adopt the principles outlined in Agenda 21 (United Nations, 1992) back in 1992 (Roome and Bergin, 2006).
It is also wholly consistent with the basis and insights provided by the Brundtland Report that envisioned the move toward sustainable forms of economic and social development as a process that would engage actors in society in working together in new ways that crossed conventional sectoral, disciplinary and functional boundaries and through that would require innovative and new approaches to leadership (see, for example, DAmato and Roome, 2009).
Contents of this Special Issue
It is in this context that this Special Issue brings together an interdisciplinary set of perspectives, focusing on a variety of the many interrelated aspects of the systemic change that is required. It has become increasingly important to rethink the entire business model, i.e. the strategic dimensions, the operational intricacies, the critical success factors, the international dimensions, and the reporting challenges.
We therefore start with two papers that attempt to broaden our understanding of what strategic innovation for sustainability means and how it can be conceptualised.
The first paper, by Szekely and Strebel, sketches the full spectrum of where a company may find itself in terms of sustainable innovation, and identifies some of the main challenges that most companies face in innovating for sustainability. Their insights help us understand the importance of companies engaging with the wider context in which they operate and spanning boundaries that they are not accustomed to cross.
The paper by Bocken, Short, Rana and Evans proposes a value-mapping tool for sustainable business modelling. The tool introduces three forms of value (value destroyed, value missed and new opportunities for value creation) and four major stakeholder groups (environment, society, customer and network actors) as part of its analysis.
We then turn our attention to papers that tackle the challenges of integrating strategic innovation for sustainability into specific dimensions of performance measurement and reporting. Various authors urge us to consider how businesses contribute to, preserve and expand the societal commons, or fail to do so.
Bardy and Massaro further this argument by presenting a model that connects performance measurement at the business level to the concept of public goods usage. In this way, they help us understand the interrelatedness of the micro- and macro-economic aspects of sustainability.
Along similar lines, the paper by Bennencourt Gomes de Carvalho Simas, Lengler and António proposes a model to facilitate the integration of sustainable development in the strategy development process of companies by means of the “extended bottom-line” concept.
Edgeman offers us a framework for holistic data-analytics by developing a reliable enterprise assessment of the triple bottom line. He does so by drawing on various models that have been used to establish business excellence and sustainability reporting, such as criteria used by the European Quality Award, the US Baldrige National Quality Award, GRI, and the UN Global Compact.
Sustainable innovation cannot thrive in all circumstances, and we hoped to be able to suggest some of the critical success factors.
The paper by Sur Tetrault Sirsly and Su explains why ownership matters when it comes to sustainable innovation strategies.
Albareda Vivó suggests that understanding the competition-collaboration dynamic is central to fostering sustainable innovation.
Horischs paper offers a specific example of the contextual factors that may influence the success of implementing a particular innovation, i.e. in this case, company internal emission trading schemes. This paper establishes that internal emission trading schemes are mainly successfully applied by companies that are subject to external trading schemes, which create financial incentives via legislative means.
This illustrates the importance of understanding the broader systemic dynamics in which external factors and internal dynamics work together to yield efficient change.
The paper by Hansen and Schaltegger investigates the interaction between pioneers and market leaders that facilitated the introduction of organic cotton within the German clothing retail industry. They conclude that more research should focus on the co-evolutionary dynamics between pioneering companies and incumbents to identify how sustainable innovation penetrates mass markets.
In putting together this Special Issue, we were especially interested in understanding the challenges that surround strategic innovation for sustainability globally. Therefore, we selected three papers that help us explore the way in which it has been managed in some of the worlds most exciting new economies, i.e. China, Brazil and South Africa.
Trifilova, Bessant, Jia and Gosling argue that Chinas extensive economic growth, its strong change imperative and its openness to experimentation, offer us an excellent learning laboratory for understanding strategic innovation for sustainability. The paper describes the operations of six China-based multinationals that are all part of the WWF Climate Savers programme, mapping their maturity level in terms of sustainability-driven innovation.
Spitzeck, Boechat and França Leãos paper draws on two major Brazilian projects within the Odebrecht group in order to design a model of corporate social entrepreneurship. The paper describes how the company transforms external triggers such as socio-environmental risk into sustainability innovations that in turn generate competitive advantages.
Hipkins paper studies the case of nuclear electricity generation in South Africa, and draws cautionary lessons from the failure of this project. He points out the importance of establishing stable relationships between the players of industry, accepting some national specificity of these relationships, which are often affected by differences in knowledge. The need to consider financial risk and cost and to employ sound project management is also emphasised.
We hope that this volume will contribute to advances in business awareness and practice, interdisciplinary research, management development and international thought leadership by highlighting certain important mind-shifts that have to take place in order for us to properly understand, integrate, manage, and report on strategic innovation for sustainability. In doing so, ABIS continues to leverage its unique status as a global interface between business, academia and civil society in pursuit of a more beneficial future underpinned by sustainable enterprise.
Notes
1. See http://www.imd.org/research/challenges/business-context-drivers-aileen-ionescu-francisco-szekely.cfm,
http://www.imd.org/research/challenges/implementation-challenges-aileen-ionescu-francisco-szekely.cfm and
http://www.imd.org/research/challenges/system-leadership-sustainbility-aileen-ionescu-francisco-szekely.cfm
Gilbert Lenssen, Mollie Painter-Morland, Aileen Ionescu-Somers, Simon Pickard
All based at the The Academy of Business in Society, Brussels, Belgium.
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Corresponding author
Simon Pickard can be contacted at: mailto:Simon.Pickard@abis-global.org