Last reviewed 17 August 2012
There is a growing realisation that many sectors need radical change to address challenges like climate change, resource scarcity and poverty. Companies need breakthrough innovations — new products or services that shift the market for superior sustainability outcomes — to help create a brighter future. David Bent reports.
What is breakthrough innovation?
Sustainable business is moving from risk to opportunity, and that means innovating products and services. Let’s start with some examples:
Cafédirect introduced fair trade coffee to the UK. The mainstream changed to followed suit.
Nissan has developed the Leaf electric car. It has been heralded as the first of many.
ZipCar, the world’s leading car sharing network, was profitable for the second half of 2011. You no longer need to own a car to use a car.
They are all breakthrough innovations for a brighter future, by which we mean:
a product or service to customers which creates:
a new market or shifts an existing one
superior sustainability outcomes.
Why is it important to sustainability?
Breakthrough innovation is needed for two reasons: so companies can be successful in a world shaped by sustainability issues; and to create a brighter future for us all. Breakthrough innovation is not the only thing needed for either of those two things to happen, but it is vital to both.
Sustainability is a term that covers many issues and can have many meanings. Fundamentally, a sustainable society can meet the needs of people today without compromising the ability of people tomorrow to meet their needs. It covers the economic (growth and jobs), the social (equality and poverty) and environmental (climate change and biodiversity). There was a time when companies could ignore these issues, but no longer.
Leading companies realise that their financial success relies on a sustainable society. They can see issues eroding the foundations of their current business models — through energy and commodity price rises, worries on security of supply, demands on transparency, and more. Incremental innovations are not enough.
This explains why companies have moved on from their past focus on compliance, risk or efficiency. For a while now, leading companies have been looking to the opportunities that the sustainability agenda presents. They recognise that to realise these opportunities they need innovation. For many companies this has meant improving their existing products and services through incremental innovation, perhaps with an “eco” product line.
But the leading companies are looking beyond incremental; they want to produce innovation that disrupts the status quo and will help them fully realise the opportunity presented by the sustainability agenda.
Breakthrough innovations do more than help companies succeed. Change in market-based economies happens partly through new products and services, shifting consumer behaviour, investment patterns, what competing companies sell and much more. The growth of Cafédirect, for instance, has improved the lives of coffee producers and made fair trade a quality mark for consumers.
The systems we all rely on — such as food, energy and finance — are stuck and need many interventions to shift to a sustainable path. Ultimately, the business need for breakthrough innovations overlaps with the societal need for a brighter future. Activities that take global society in the wrong direction will be more expensive, more regulated, criticised and more difficult to maintain. Activities that contribute to a sustainable future will become more profitable. Markets will only endure where they deliver superior sustainability outcomes.
Companies attempting breakthrough innovation are laying the foundations for their own success, and for a brighter future for us all.
How can you make it happen?
The fundamental insight is that big companies can do breakthrough innovation by making at least part of the organisation act like an entrepreneur. You can combine three recommendations to make that happen.
1. Have a balanced portfolio of activities
Some innovation activity should be aimed at the incremental sustainable innovations that will capture the low-hanging fruit such as energy efficiency. At least some resources need to be devoted to creating and protecting the more radical ideas that will create new markets or shift existing ones in a more sustainable direction (top right in the matrix).
2. Embed breakthrough innovation in your culture
This is far easier to say than to do. One way is to look at your culture through four lens:
the purpose (your values, or how you define the business you are in)
people (skills and experiences of your employees)
networks (the internal and external connections)
procedures (the hard-wiring of budgets and incentives).
There is something you can do for each.
The most important aspect is purpose, which answers the question “what is sustainability?”. You must set direction, and provide permission for breakthroughs, by articulating how sustainability issues affect the future success of the company, and vice versa. This understanding will inform the judgments on the contribution to a sustainable future of concepts in your portfolio.
There are many different ways of understanding sustainability, including Triple Bottom Line and the Five Capitals Model. We have found that companies can use the Sustainable Economy Framework (developed with Aviva and the UK Technology Strategy Board) to turn generic broad brushstrokes into commercially relevant specifics.
Whatever you use, it should articulate how the company can succeed by delivering social value within environmental limits, and do so in a way that will be relevant in the future.
Other ways of embedding purpose include the following.
Define the business you are in so you can thrive in a changing world. IBM’s is “packaging technology for business use”, not “selling computers”, which is why it has survived 100 years, unlike any other “technology” company.
Articulate how the company can succeed by delivering social value within environmental limits. Unilever’s Sustainable Living Plan is the plan for how Unilever will succeed by meeting society’s needs for health and nutrition, particularly in developing economies. This articulation is driving lots of innovation throughout the business.
Set very ambitious targets. InterfaceFLOR’s Mission Zero — to eliminate any negative impact on the environment by 2020 — requires them to push breakthrough concepts.
When it comes to your procedures it is vital that performance metrics should be appropriate to the idea’s maturity — early on it is about learning (eg each iteration of forecasts is more accurate); only later focus on revenues.
3. Have formal structures that protect breakthrough ideas
Companies say that they have lots of ideas but then struggle. Day-to-day business drags attention, time and resources away from breakthrough innovations, which are more difficult and more risky than incremental changes. So companies need formal structures that protect and foster breakthrough innovations. We have found 10 such structures; here are a few examples.
Bupa has used internal competitions to engage staff in all their global business units in sustainability challenges. People across the world submit applications to receive match funding to implement their idea. Successful applicants are taken through a face-to-face ideas development process, which might lead to full execution.
Procter and Gamble has established an innovation fund to finance the development of disruptive innovations and of new businesses. The fund specialises in high-risk, high-reward ideas. It does initial concept, design, engineering and qualification work, and then hands over successful ideas to the appropriate business unit.
Sony used hothousing to explore how technology can enable sustainable lifestyles in the future in a project called “Futurescapes”. The project brought together a range of internal and external experts to explore the potential contribution that technology can make in shaping a better, more sustainable future. The intense sessions, well away from the daily grind but with a clear relevance to Sony’s future success, has created a pipeline of innovations.
Marks & Spencer has a conscious collaboration with Oxfam that allows M&S customers to take their unwanted clothes to M&S stores instead of throwing them away. The partnership gives M&S greater trust from customers and more assets to use.
Unilever has recently launched an open innovation on-line platform to gather and assess ideas from outside the company to bolster sales from new products and improve environmental practices. Unilever is asking for ideas from universities, engineering and design companies, and environmental groups around the world.
Advantages and possible disadvantages of breakthrough innovation
No one can guarantee that a breakthrough innovation process will work. That is why it should only be part of your portfolio. There is a risk of people having hobby horses; you will need a strong process to stop concepts.
The risk of inaction is large. In the words of a Nike CEO, “the long-term potential of virtually every major company in the world is threatened”. Devoting some resources to breakthrough innovations can create a path for your company to being successful in a sustainable world.
Breakthrough innovations are new products or services that both shift the market and create superior sustainability outcomes. Think Cafédirect. You too can make it happen by having part of your organisation act like an entrepreneur:
Have a balanced portfolio of activity.
Embed in your culture.
Have formal structures that protect breakthrough ideas.
Companies need breakthrough innovations to succeed; we all need those breakthroughs to help create a sustainable world.
About the author
David Bent is Deputy Director at non-profit Forum for the Future. He runs Forum’s Sustainable Business Practice, which helps leading companies like Unilever and O2 go further on sustainability issues like climate change and poverty. Forum for the Future works globally with business and government to create a sustainable future.