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MIT Sloan School Working Paper 5148-15

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Jason Jay and Marine Gerand

This work is licensed under a Creative Commons Attribution-

NonCommercial License (US/v4.0)

http://creativecommons.org/licenses/by-nc/4.0/

July 10, 2015

The electronic copy of this paper is available for download without charge from the

Social Science Research Network Electronic Paper Collection at:

http://ssrn.com/abstract=2629683


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1

Accelerating the Theory and Practice of

Sustainability-Oriented Innovation

DRAFT: JULY 10, 2015

Authors:Jason Jay, Ph.D. Marine Gerard, MSMS

Senior Lecturer & Director, Sustainability Initiative Research Associate

MIT Sloan School of Management MIT Sloan School of Management

[email protected] [email protected]

Additional Collaborators:

Nicholas Ashford, MIT

Matthew Swibel, Lockheed Martin

Research Sponsorship1

1 The Sustainability Initiative at MIT Sloan is grateful for the generous financial support of Lockheed

Martin for this research, which we received via the MIT Energy Initiative.


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Table of Contents Table of Contents .......................................................................................................................................... 2

Audience and Purpose ................................................................................................................................... 4

Acknowledgements ....................................................................................................................................... 4

Executive Summary ...................................................................................................................................... 50. Introduction ..................................................................................................................................... 11

1. Conceptualizing Sustainability-Oriented Innovation (SOI) ............................................................ 13

1.1. A Quick Overview of the Concept of “Sustainable Development” ............................................. 13

1.2. Innovation, Economic Growth & Sustainable Development ....................................................... 13

1.3. The Multiple Dimensions of SOI ................................................................................................. 15

1.3.1. Orientations: Sustainability-Relevant (SRI), Sustainability-Informed (SII) and

Sustainability-Driven Innovation (SDI) .............................................................................................. 16

1.3.2. Types: Technological, Organizational, Institutional, Social ................................................. 19

1.3.3. Natures: Sustaining vs. Disrupting & Degrees of Innovation: Incremental vs. Radical ....... 242. The Sustainability-Oriented Innovation Process: How does SOI happen? ..................................... 27

2.1. From Linear to Systemic Views of the Innovation Process ......................................................... 27

2.1.1. “Greening Goliaths versus Emerging Davids” ..................................................................... 29

2.2. Actors, Stakeholders & Key Steps of the SOI Process ................................................................ 30

2.3. Major Obstacles to SOI & Critical Success Factors ..................................................................... 37

3. Incubating and Accelerating Innovation ......................................................................................... 43

3.1. Concept of a Center of Excellence (COE) ................................................................................... 43

3.1.1. Mission and Motivation ........................................................................................................ 43

3.1.2. Key Activities ....................................................................................................................... 44

3.2. Structure & Process of the COE ................................................................................................... 45

3.3. MIT as a potential Center of Excellence for SOI ......................................................................... 47

4. Generating Innovation for Sustainability: an Evaluation & Selection Framework ........................ 49

4.1. Challenges & Methodology to Elaborate an SOI Evaluation Framework ................................... 49

4.2. Tentative SOI-Evaluation Framework ......................................................................................... 51

4.2.1. Alignment with COE Priorities ............................................................................................. 53

4.2.2. Suitability .............................................................................................................................. 54

4.2.3. Scalability .............................................................................................................................. 54

4.2.4. Sustainability ......................................................................................................................... 56

4.3. Limitations of the Evaluation Framework.................................................................................... 60

4.4. Alternative Pathways .................................................................................................................... 62

5. Conclusion & Areas for Further Research ...................................................................................... 65

References ................................................................................................................................................... 67


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APPENDICES ............................................................................................................................................. 79

A. Sustainable development – Definition & objectives ...................................................................... 81

B. Sustainable Business Model Archetypes (Bocken et al. 2013) .......................................................... 82

C. Demand and Supply Sides of the Innovation Process ........................................................................ 83

D. Complex and dynamic view of the innovation process (adapted from Laws, Susskind et al.’s workon Public Entrepreneurship Networks, 2001) .......................................................................... 83

E. Principles of effectuation, adapted from Sarasvathy (2008) ............................................................... 84

F. Key Activities of a SOI-focused Center of Excellence ....................................................................... 85

G. Review of Different Innovation Evaluation Methodologies .............................................................. 86

H. USAID DIV ........................................................................................................................................ 93

I. EIT KIC InnoEnergy............................................................................................................................ 96

J. UN Sustainable Development Goals (defined as part of the post-2015 agenda) ................................ 98

K. GRI Categories and Aspects (G4 Guidelines) .................................................................................... 99

L. SPI Composition (down to indicator-level) ...................................................................................... 100M. Typology of SOIs according to the nature of produced technological change and the level of

impacts to the system (Carrillo-Hermosilla et al., 2010) ....................................................... 101

N. Value Mapping Tool for Sustainable Business Modelling and Thinking (Bocken et al. 2013, 2015)

............................................................................................................................................... 102

List of Tables and Figures

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Audience and PurposeThe purpose of this paper is to provide a broad understanding of the concept and process of

sustainability-oriented innovation (SOI). It provides a useful starting point for people aiming to

invest human, financial, and other resources in innovations that improve the world. While we

build on the best available scholarship, our academic contribution is primarily one of synthesis

and simplification. Academic and practitioner readers who are savvy either in innovation andentrepreneurship or in sustainability will find it most useful, as a bridge between these two

fields. Our ideal readers might include:

• An entrepreneur wanting to understand sustainability as a business opportunity

• A financier aiming to invest in an SOI to diversify the portfolio

• A corporate R&D group seeking to integrate sustainability into its innovation process

• A corporate strategy or venture capital group considering strategic investments in SOI

• A corporate sustainability group looking to support top-line growth through innovation

• A public agency willing to craft regulations and policies to spur SOI

• Graduate students considering entry into any of these roles

Our goal is to provide the basis for a common language and understanding of the intersection

between sustainability, technology and innovation, business, and regulation.

It is divided in four parts. The first two parts give the reader an overview of the territory and

characteristics of SOI, and the process through which it happens. Having identified both the

stakes and challenges associated with SOI, the third part makes the case for building Centers of

Excellence dedicated to increasing the success rate of SOI. Finally, the fourth part reflects on

what dimensions and questions might be considered to evaluate SOIs in their early stages in

order to guide improvements or select among different SOI proposals. Ultimately, we propose a

high-level decision framework that can be the starting point for further research and refinement.

AcknowledgementsThe Sustainability Initiative at MIT Sloan is grateful for the generous financial support ofLockheed Martin for this research, administered by the MIT Energy Initiative, and to Matt

Swibel in particular: for his helping to define the research project and goals, and to clarify our

contribution to the field. The authors also thank Richard Adams (Surrey Business School),

Nicholas Ashford (MIT Technology Policy Program), Nancy Bocken (Cambridge University andTU Delft), Dennis Costello (Braemar Energy Ventures), Erik Hansen (Leuphana University),

Steven Haraguchi, (MIT Innovation Initiative), Steve Kennedy (Erasmus University), Totti

Könnölä (Comillas Pontifical University), Ingo Michelfelder (TU Berlin) and David Miller(Clean Energy Venture Group) for their precious oral and written feedback and participation in a

group review session, halfway through the project. Finally, we would like to thank the

participants in the spring 2015 MIT Sloan class on Sustainability-Oriented Innovation for theircomments on earlier drafts of the concept paper. Errors, omissions, or failures of clarity – in our

ideas and presentation – are purely ours, given the valuable input we received.


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Executive Summary

The surge of industrial capitalism has successfully lifted billions out of poverty, extended humanlives, and connected a global community. Our societies now confront existential questions about

ecological safety and social equity that arise with that success. The challenge of sustainability –

carving out “a safe and just operating space for humanity” on a planet with finite resources

– is the defining issue of the 21st century.

2 Accepting this challenge will require significant

innovation to break through real and perceived tradeoffs – between performance and impact,

profit and purpose, economic development and environmental protection. It will come in the

form of technological innovation of course, but also organizational, institutional, and social

innovation. This multi-faceted, multi-stakeholder, sustainability-oriented innovation (SOI)

involves transforming the tensions of sustainability into a creative force of positive change.

While sustainability and “shared value” have tremendous potential as a source of innovation for

business and societal prosperity (Porter and Kramer, 2011), SOI is still an emerging field of

study. This paper makes a contribution by providing answers to the following questions:

(1) SOI Definition. What are the characteristics of SOI, and how does it differ from

conventional modes of innovation?

(2) SOI Process. How does SOI occur? Who is involved, at which stages, and in what

capacities? What are some major barriers and critical success factors?

(3) SOI Incubation. How can SOI be incubated and accelerated to reach broad diffusion?

(4) SOI Evaluation. How can we evaluate the quality and potential of an SOI a priori in

order to guide and prioritize subsequent investments and efforts?

Part 1 begins by comprehensively mapping the territory of sustainability-oriented innovation. To

overcome the lack of conceptual consensus around SOI, and its plethora of working definitions,

we propose a single unifying framework (Figure 1). It distinguishes SOI across:

(1) Three sustainability orientations: sustainability-relevant, -informed and -driven

(2) Four dimensions of innovation: technological (product, process, and infrastructure),

organizational (business model), institutional, and social

(3) Two natures of innovation: sustaining and disrupting

(4) Two rates of change: incremental and radical

Within this landscape, we focus on commercially relevant SOIs – new products, services, and business models that meet real customer needs in the marketplace. We see these as most likely to

become financially and economically sustainable, to reach a scale appropriate to global

sustainability challenges, and to spur additional innovations in a sustainable direction.

Nevertheless, many of the commercially-relevant technological and organizational innovations

2 See Raworth, 2012 for her synthesis of “safe operating space” in the ecological literature with social justice from a poverty alleviation and international development perspective.


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we have examined3 require institutional and social innovations to tackle the rebound effects

associated with their widespread adoption. That is, the sustainability-oriented innovation process

requires a systemic, multi-dimensional approach.

Figure 1: Sustainability-Oriented Innovation Dimensions (adapted from Ashford & Hall 2011)

Part 2 digs deeper into the SOI process by identifying the relevant stakeholders, roles, and

processes involved. We acknowledge that the ‘conventional’ innovation process, while initially

conceived in linear terms, has steadily evolved toward a systemic process—one of dynamic

interaction between users and producers, incumbents and startups, each with competing

considerations (Carrillo-Hermosilla et al., 2010). Part 2 shows that because SOI involves theadditional objective of solving a public problem on top of a private one, and has higher risks

(particularly its “directional” risk 4), SOI requires the collaboration of an even more diverse, and

potentially more antagonistic, set of stakeholders than its conventional counterpart. We discuss

the specific case of collaboration between corporations and start-ups in detail.

As such, our proposed representation of the SOI process (Figure 2) involves five main roles:

(1) Private-problem holders—including both customers/users who hold private needs and

corporate problem holders who hold strategic priorities

(2) Public-problem holders—the main add-on actor to conventional forms of innovation

(3) Innovation champions—entrepreneurs and intrapreneurs(4) Knowledge holders

(5) Infrastructure holders

3 Examples reviewed include Uber, Patagonia, Sanergy, Tesla X, IBM, FedEx, Hubway, Better Place,

Zipcar, Xerox, Interface, etc. 4 “Connected with the uncertainty of the ultimate environmental and social impacts of SOI” (Hansen and

Klewitz, 2012).


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These five actors and stakeholders also intervene across four major iterative phases:

(1) Recognition of existing private and public needs

(2) Problem definition, and confrontation of these needs versus existing infrastructure and

knowledge/solutions

(3) Solution generation and selection

(4)

Solution delivery and diffusion

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Moving through this process means overcoming four specific barriers to SOI’s success:

definition and evaluation; design duality; governance; and innovation process management. This

leads us to conclude Part 2 by proposing a necessary, but not sufficient set of conditions for SOI

success. This includes the development of:

(1) User-system-design thinking methodologies

(2) Economic tools to size the market potential of any SOI

(3) Environmental and social evaluation tools to characterize (and potentially reward) thenonconventional benefits of SOI

(4)

Interdisciplinary

5

education and training modules(5) Appropriate infrastructures to foster further cascading SOI6.

5 Across science and technology, business and management, sustainability and systems thinking, and

communication and leadership. 6 Physical, legal and regulatory, and financial infrastructures.


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Part 3 then proposes a global network of Centers of Excellence (COEs) dedicated to increasing

the success rate of SOI. COEs would use the vast array of entrepreneurial talent and resources in

universities to stimulate the generation of new SOIs, and support their development and

diffusion. COEs are envisioned and aimed to facilitate the collaboration between all SOI actors:

entre- and intrapreneurs, corporations, universities, government agencies and regulators, civilsociety organizations, and investors. We describe some specific activities and research projects

for COEs, including the development and dissemination of: interdisciplinary knowledge; SOI

process knowledge; design and evaluation tools; and mediation/communication/leadership skills.

We present MIT as an example COE, showing how MIT could leverage its existing capacities

across engineering, management, urban planning, and other disciplines, to become a COE for

sustainability-oriented innovation.

When incubating and accelerating SOIs – whether in a university-based COE, corporate lab, or

venture capital portfolio – a critical challenge is evaluation and decision making about

investment. While evaluating SOI is extremely difficult, especially before it is finalized anddelivered7, Part 4 lays out a tentative evaluation framework (Figure 3) to be used both ex-ante as

a diagnostic of an SOI’s potential, and ex-post to periodically assess, review, and improve upon

the SOI’s performance. The framework is composed of four major dimensions: alignment of the

SOI with COE objectives; suitability; scalability; and sustainability. It also lists key elements and

questions that should be considered under each dimension. We identify alternative options for

SOI evaluation and guidance—including more qualitative methodologies (e.g., Value Mapping

tool, qualitative LCA) and sets of heuristics (e.g., Design for Environment principles, Simple

Rules)— because of their simplicity and pragmatism in the SOI process. We do not, however, go

as far as proposing specific metrics and indicators. These would have to be defined for the

specific SOI context. There are other limitations to our framework that we detail in section 4.3.

Among these, we remind that using a ‘relative’ approach (i.e., improvements relative to the next

best alternative) is more realistic than trying to quantify the innovation’s ‘sustainability’ in

absolute terms.

7 Due in part to the multi-dimensionality of sustainability targets, the dispersion of innovation

sustainability effects (i.e., “directional risk”), and the great amount of scientific uncertainty.


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Figure 3: SOI Evaluation Framework (Dimension & Aspect levels)


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Finally, Part 5 carves out spaces for further investigation, including:

(1) Conducting more in-depth case studies in order to refine our SOI process model, and

derive best practices for the generation and delivery of solutions

(2) The examination and engagement of existing Centers of Excellence focused on

sustainability and SOI to validate our proposal for COEs at MIT and beyond (in terms of

structure, stakeholders to be involved, processes and activities to be held)(3) The refinement of our evaluation framework and its adaptation, including the selection of

metrics and reference values for specific use contexts; and also the development of

Simple Rules for different SOI decision-making contexts (e.g., corporate R&D

departments selection among SOI projects, VCs investment decisions, SOI champions’

decisions about potential partners, etc.)

Ultimately, by providing a unifying definitional framework for the concept of SOI, mapping a

picture of the SOI process and stakeholders, and drafting an evaluation tool to guide the solution

generation and delivery process, we have laid the ground for future sustainability-oriented

Centers of Excellence. We have also provided insights for potential SOI stakeholders withexpertise in business and innovation, hopefully motivating them to play their role in this

collaborative network. Overcoming conventional thinking, incumbent technologies, and barriers

to collaboration will not be easy. Under this unifying framework of SOI, however, our hope is

that we can use each other’s expertise and experience to redirect business-as-usual, and

transform tensions of sustainability into a new creative force of transformation and development.


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0. Introduction

The surge of industrial capitalism has successfully lifted billions out of poverty, extended human

lives, and connected a global community. Our societies now confront existential questions about

ecological safety and social equity that arise with that success. The challenge of sustainability –carving out “a safe and just operating space for humanity” on a planet with finite resources

– is the defining issue of the 21st century. Ecologists have identified some essential planetary

boundaries that we are crossing at our peril (Steffen, Richardson, Rockström et al., 2015;

Rockström et al., 2009; Wackernagel et al., 2002). The UN is migrating from the Millenium

Development Goals to a set of Sustainable Development Goals as the signpost of social progress.

The World Economic Forum has begun mapping economic, environmental, geopolitical,

societal, and technological “Global Risks” (World Economic Forum, 2014). NGOs are

combining these insights into frameworks like the “Oxfam Doughnut” (Raworth, 2012), to

redefine progress in terms of tackling both poverty and environmental harm.

In this context, countries, states, and cities are contemplating metrics of sustainable human well-

being as alternatives to GDP (a prominent example being the Social Progress Index (Porter,

Stern, & Artavia Loria, 2013)). Corporations and financial markets are slowly working toward

integrated reporting of social, environmental, and economic performance, increasingly

understanding the complex and dynamic interdependencies between these dimensions (e.g.,

Sustainability Accounting Standards Board, Global Reporting Initiative, and Global Impact

Investing Rating System).

A significant body of literature has emerged that argues that achieving these sustainability

goals will require significant multi-faceted innovation: technological of course, but alsoorganizational, institutional and social innovation8. Technological innovation, usually top-of-

mind, includes examples such as innovations in smart grid technologies that allow intelligent

energy management in buildings and infrastructure. As important, however, are the

organizational, institutional and social innovations that encourage shifts in our collective habits

of production and consumption, and enable these new technologies to diffuse more rapidly

(Ashford & Hall, 2011). Only the combination of these complementary innovations has the

potential to lead towards a more sustainable economy and society (Sterman, In Press). Examples

of these include innovations in utility companies’ organizational layout to shift them from

exclusively producing kilowatt-hours to providing energy management services (organizational);

innovations in the incentive and regulatory schemes to encourage utilities to save energy

(institutional); and innovations in cultural norms and habits to shape consumers’ preferences for

low-energy activities (social).

8 This categorization builds upon the work of Ashford and Hall (2011) and is detailed in Part 1.


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For any actor seeking to promote such innovation – be it a government, corporation, civil society

organization, individual, or a coalition among these – there are major challenges as well as

important gaps in the current state of knowledge:

(1) How should we define sustainability-oriented innovation (SOI)? What are its

characteristics (versus more traditional innovation)?

(2)

How/ by what process(es ) does it occur? Who is involved, at which stages, and in whatcapacities? What major barriers confront it? What are critical success factors?

(3) How can SOI be incubated and accelerated?

(4) How can we evaluate the impacts and the quality of a sustainability-oriented innovation,

as well as evaluate its potential a priori in order to guide and prioritize investments and

efforts?

These are the questions this paper seeks to address. The aim is to provide an overview of the

main issues associated with sustainability-oriented innovation via a review of the existing

literature, and to propose a framework for Centers of Excellence destined to incubate and

accelerate sustainability-oriented innovations. The first four sections in this paper directly followthe flow of questions listed above (Part 1: the definition of SOI, Part 2: the process via which

SOI occurs and its characteristics versus the more traditional innovation process, Part 3: the

structure and activities of Centers of Excellence dedicated to incubating and accelerating SOI,

Part 4: a framework to support the evaluation and selection of SOI projects). Lastly, Part 5

delineates areas for further research.


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1. Conceptualizing Sustainability-Oriented Innovation (SOI)

1.1. A Quick Overview of the Concept of “Sustainable Development”

"Sustainable development is development that meets the needs of the present

without compromising the ability of future generations to meet their own needs. Itcontains within it two key concepts: the concept of ‘needs’, in particular the

essential needs of the world’s poor, to which overriding priority should be given;

and the idea of limitations imposed by the state of technology and social

organization on the environment’s ability to meet present and future needs".

(Brundtland, 1987)

“Sustainability is the possibility that humans and other life will flourish on Earth

forever. Reducing unsustainability, although critical, will not create

sustainability.” (Ehrenfeld & Hoffman, Flourishing: A Frank Conversation About

Sustainability, 2013)

Sustainable development hopes to merge and ‘co-optimize’ economic, social and

employment, and environmental considerations. At a high level, the economic goal is to meet

the basic needs of all humans by ensuring the provision of essential goods and services. The

social goal is to provide adequate earning capacity to all humans – via meaningful, rewarding,

and safe employment for those capable of working, and other mechanisms, like safety nets, for

the others (to reduce the levels of income and social inequality). The environmental goal is to

keep human activities (economies) within the Earth’s carrying capacity. Inspired by the

reflections of Costanza (2008), Meadows et al. (2004), and Scharmer (2013), we add a fourth

and final ‘cultural’ goal for sustainable development, to represent the qualitative dimension ofwell-being: the reconnection with self, with others and with nature (see Appendix A for details

on the vision and goals of sustainable development).

1.2.

Innovation, Economic Growth & Sustainable Development

The essential challenge of sustainable development, and the imperative for innovation, is

that these multiple goals exist in tension and conflict with one another , given our industrial-

age technological and institutional foundation. For instance, today, our ecological footprint –

which measures the area (in hectares) required to supply the ecological goods and services we

use – outstrips our biocapacity – the land actually available to provide these goods and services.

In fact, “our demand for renewable ecological resources and the goods and services they provide

is now equivalent to more than 1.5 earths” (WWF, 2014). Similarly, in their most recent analysis,

Steffen, Richardson, Rockström et al. (2015) conclude that “anthropogenic perturbation levels of

four [out of nine] of the Earth system processes/ features (climate change, biosphere integrity,

biogeochemical flows, and land-system change) exceed the proposed planetary boundaries,”

pushing us outside of the “safe operating space” for global societal development.


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We can also see these tensions and trade-offs play out at the more micro-level of particular

products. In an effort to address ecological footprint, some companies have brought to market

“green” or “environmentally friendly” cleaning products with less efficacy and higher cost.

Others have produced energy efficient cars with weaker acceleration. These solutions are

valuable in creating choice in the marketplace, and an avenue for consumer expression of

sustainability ideals. Their scale – and therefore impact – is, however, limited by the size of a“responsible consumerism” market niche (Olson E. , 2013). Most importantly, they reinforce the

experience of trade-off, instead of using innovation to break trade-offs.

Even successful technological solutions that are more eco-efficient may help slow this

overshoot of the biocapacity, but they may also bring trade-offs and harmful side effects

and thus will not be sufficient (WWF 2014; Sterman, In Press). Therefore, focus on innovation

will have to expand beyond the domain of technology to include organizational, institutional and

social innovations9, in order to break the link between economic development and the use of

resources10

(Alakeson & Sherwin, 2004) and establish the development paradigm presented in

section 1.1. Consistently, in this paper, we define innovation, in its broadest sense, as theprocess encompassing the ideation, development and diffusion of a solution to any existing

problem.

Innovation, however, has not always been considered in such a broad, multi-dimensional

way. Traditionally, it has been constrained to the domains of science and technology, the spheres

of government and corporate research, and the objectives of competitiveness and economic

growth. In 1985, Porter argued that innovation strengthened competitiveness (for countries as

well as for sectors and individual companies), contributing to the profitability and long-term

continuity of the firm. And quickly, the goal became to generate as many innovations as possible

(essentially in the form of product and process innovations) in order to create and/or satisfy

market demand and generate more revenues, profits and growth (Audretsch, 1995).

Just as the concept of sustainable development gained traction, and expanded beyond mere

economic growth, the literature also started rethinking the innovation paradigm to incorporate

more sustainability concepts and dimensions and align the objectives of both growth and

development. As Dryzek noted in 1997, the concept of sustainable development would surely be

lost “unless it could be demonstrated that environmental conservation (and social prosperity)

9 According to Leeuwis et al. (2014), these include “arrangements” (or innovations) in incentive systems,

market organization, land-tenure systems, policies, formal and informal rules, and values.

10 Many, like Jackson (2009), refer to this objective as shifting from ‘relative decoupling’ (i.e., thereduction in the ecological footprint per unit of economic activity) to ‘absolute decoupling’ (i.e., the

dematerialization of economic activity to the point where increasing level of activity does not produce

any increase in ecological footprint). In our opinion, however, that last objective of ‘absolute decoupling’

seems vain in the long run. According to the first and second laws of thermodynamics, humans have basic

material and energetic needs and thus some irreducible mass and energy requirements (before even

taking into account the satisfaction of their desires). Thus, our capacity for dematerialization ‘absolutely’

is not infinite. A better question (goal?) is whether we have the capacity to get ourselves with the Earth’s

carrying capacity.


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were obviously good for business profitability and economic growth everywhere, not just that

these competing values can be reconciled.” With this objective in mind, the literature evolved to

the point where sustainability became recognized as an innovative and potentially

transformational force that generates new products and processes that challenge existing

practice (Blum-Kusterer & Hussain, 2001); leads to internal organization improvements,

competitive advantage, and profitability; better environmental and social performance; andsatisfaction of increasing stakeholder pressure, legal requirements, and reputation concerns

(Dunphy, Griffiths, & Bern, 2003). The influential article Creating Shared Value (Porter and

Kramer, 2011) represents a culminating point in portraying sustainability as a driver of business

innovation and profitability.

Today, however, sustainability-oriented innovation is still an emerging field. “Many

sustainable innovations are directed at the improvement of technological processes and to lower

costs of production” (Bos-Brouwers, 2010a). Many firms, even those with aggressive and visible

sustainability strategies, place primary emphasis on operational changes that reduce cost and

risk, without attending to the top-line revenue growth possible through SOI. While a promisingfirst step, these incremental innovations are unlikely to solve the sustainability challenge. A

more systemic approach to innovation is required in order to break out of self-defeating

feedback loops (such as rebound effects) and enter scalable and self-sustaining ones. We now dig

deeper into defining the notion and ramifications of the concept of sustainability-oriented

innovation (SOI).

1.3.

The Multiple Dimensions of SOI

The characteristics of SOI will vary depending on the context, i.e.,which actor or organization is

being studied, whose goals are considered primary, in which industry and/or geographical area is

the focus of study. In this paper, we do not limit ourselves to studying private (entrepreneurial,

corporate) or public (governmental, institutional, civil, cultural) SOI. We do not focus on a

specific industry or sector either – further research, notably by the envisioned Centers of

Excellence, can apply and cater our models and conclusions to more specific contexts. Rather

the one constraint that we pose is for the SOIs under consideration to be commercially-relevant

(i.e., involving the voluntary purchase of services and products in the marketplace). First,

innovations that are commercially-relevant are most likely to become financially and

economically sustainable, scale and attract/ generate cascading innovations. Essentially,

without successful diffusion in society, sustainability-oriented innovations are meaningless

(Boons and Lüdeke-Freund, 2013; Hall and Clark, 2003). Second, while this constraint may

prevent us from tackling purely institutional and social innovations (and thus bound our systemic

thinking), it allows us to focus on a more micro-, meso-level at which we can define ownership

of different roles and activities of the innovation process. Third, despite a seeming bias towards

the role of private commercial actors, we will consider the systemic interactions that occur in


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the SOI process11

, thereby following Smith et al. (2005) and Rotmans and Kemp (2001)’s advice

to pay attention to the dynamics within the entire “regime” of innovation (Rotmans & Kemp’s

term).

With that in mind, figure 1 below represents the main dimensions along which SOI might vary:

the sustainability orientation of innovators (1.3.1); the different types of innovation (1.3.2); andfinally the different natures and degrees/rates of innovation (1.3.3).

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1.3.1. Orientations: Sustainability-Relevant (SRI), Sustainability-Informed (SII) and

Sustainability-Driven Innovation (SDI)

There is currently a lack of conceptual consensus on SOI, embodied by the plethora of

working definitions12

. Reflecting the original environmental concerns that motivated the

emergence of SOI, many authors proposed “environmentally orientated terms such as eco-

innovation, environmental innovation, and green innovation” (Kennedy, Whiteman, & van den

Ende, 2013). Progressively, in order to encompass more of the social dimension, other authors

began using the term ‘sustainability,’ defining terms such as “sustainability-related innovation,

sustainability-driven innovation or simply sustainable innovation” (ibid.). However, the problem

11 Considering entrepreneurs, corporate innovators, research and academic institutions, the financial

sector, the public sector, and the civil society sector.12 See Carrillo-Hermosilla, et al. (2010) and Adams, Jeanrenaud et al. (2012) for comprehensive literature

reviews and a summary of all definitions on the topic.


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with this last term “sustainable innovation” is that it might lead to a confusion between the

purpose of the innovation (i.e., innovation for sustainability) and its nature or quality (i.e.,

innovation process which is sustainable within the company – “merely a statement that the

company has an innovation renewal process that keeps its innovation engine running profitably”

(Blowfield, Visser, & Livesey, 2007)).

This paper uses the term sustainability-oriented innovation (SOI) as an umbrella term (in line

with the NBS SOI literature review (Adams, Jeanrenaud et al. 2012)) and further distinguishes

between three different orientations to sustainability by innovators: sustainability-relevant

innovation (SRI), sustainability-informed innovation (SII) and sustainability-driven

innovation (SDI).

First, we define sustainability-relevant innovations (SRI) as “environmentally beneficial

normal innovations” to use Kemp and Foxon’s words (2007). They are innovations in which

sustainability is a “gratis side effect.” An example of such innovation could be the Uber on-

demand car service. The Uber business model first and foremost originated from a willingness todisrupt the existing taxi market, satisfy customer demand for more reliable and efficient on-

demand car service and perform well along the economic dimension. A positive sustainability

effect could be that consumers purchase fewer cars because of the enhanced quality and

reliability of mobility services. However, sustainability is clearly not at the core of the

company’s model. And consequently, the innovation may have rebound effects on the

environment13

(e.g., consumers may now prefer Uber over far more sustainable methods such as

public transportation) as well as neglect the social sustainability and governance dimension of

the model (e.g., Uber’s aggressive approach to direct and indirect competitors have been widely

criticized). It still remains to be seen how the new UberPool ridesharing offering, designed to

have more positive environmental effects and launched in the summer of 2014, will perform

(Sustainly, 2014).

Next, sustainability-informed innovation (SII) is defined here in line with what Blowfield,

Visser, & Livesey (2007) described as “innovation processes, which do not have sustainability

issues as their primary target (e.g. the innovation process for a fast-moving consumer goods

company producing new consumer products), but which try to adhere to sustainability targets

during their development, production and use.” A good example here is the apparel brand

Patagonia which aims to engineer and design products in the most environmentally-responsible

ways. More specifically, Patagonia uses environmental life cycle analysis (LCA) and other

sustainability-related key performance indicators (KPIs) to evaluate and guide its innovation

process and decide which products end up on the shelves. This process notably led to the recentlaunch of their Yulex and wool wetsuit, the first wetsuit made out of a plant-based alternatives to

13 Note that SII and SDI are maybe not just as likely, but certainly quite likely as SRI, to have rebound

effects or other ‘unintended’ consequences. System effects are extremely complex and hard to predict and

private enterprise can only do so much to limit consumer choice (hence the need to consider all types of

innovation in conjunction). Careful a priori evaluation can help minimize negative unintended

consequences but might not eliminate them.


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the traditionally-used petrochemical-based materials. Yet, as indicated in Patagonia’s mission

statement14

, the raison d’etre of the company is still to produce the best quality outdoor wear in

the market, albeit in the most environmentally-responsible way. And while Patagonia clearly

aims to improve the social and environmental profiles of their new and existing products, this

approach is also a way for the company to differentiate itself and tap into new customer

segments and markets (Hansen, Grosse-Dunker & Reichwald, 2009). So we classify thisinnovation as sustainability-informed.

Finally, sustainability-driven innovation (SDI) is innovation explicitly directed at a

sustainability goal. While the innovating entity will aim to attach an economic opportunity to the

innovation – economic sustainability is a dimension that we integrate in the sustainable

development agenda – the innovation here occurs first and foremost to solve a societal and/or

environmental problem. An example of sustainability-driven innovator is Sanergy, which aims to

build a sustainable sanitation system in the urban slums of Kenya. Sanergy designs and builds

low-cost toilet units and sells them to local entrepreneurs who become franchise partners. The

franchisees maintain the unit and in exchange earn an income by charging for usage of the toilet.Sanergy collects the waste at the end of every day and transports it to a centralized facility,

where it’s converted to energy and organic fertilizer. From there, Sanergy sells the fertilizer to

local Kenyan farms at a far more reasonable price than the petrochemical-based alternatives

available. Thanks to a business model innovation at the service of its primary sustainability

mission, between 2012 and 2014, Sanergy was able to open 415 toilet units, offering almost

20,000 people access to affordable, clean sanitation and creating approximately 500 jobs in the

process (Saleh, 2014).

These three categories of SOI – the two last ones in particular – aim to produce “an improvementof a product, technology, service, process, management technique or business model, which, in

comparison to a prior version and based on a rigorous and traceable analysis, has a positive neteffect” on the sustainability of the system (Klewitz & Hansen, 2011) [our emphasis]. Going back

to our initial definition of sustainable development, we insist on the fact that the goal ofsustainable development is to co-optimize the three dimensions of (1) competitiveness

(economic sustainability), (2) environment and (3) employment/ social, or in Porter andKramer’s terms “create shared value,” and not simply to do well in the economic dimension and

then reduce the amount of harm done to the two other dimensions. So while we defined thesethree sub-types of sustainability-oriented innovation, it should be very clear that the ambition is

to set the bar high (i.e., aim for sustainability-driven innovation) and generate economically-sound innovations that produce environmental and social benefits, both in the short- and long-

term15

. Note that the focus of the envisioned Centers of Excellence dedicated to increasing the

14 Patagonia’s mission statement is: “Build the best product. Cause no unnecessary harm. Use business to

inspire and implement solutions to the environmental crisis.” 15

We recognize that due to thermodynamic and entropy laws, the goal of “doing as little harm as

possible” may be more realistic. Nonetheless, we insist on the “co-optimization” aspect. This is not to say

that it’s possible to always generate triple-win solutions, but rather to emphasize that the environmental

and social dimensions should not always (never?) be subordinated to the economic one when there is a

trade-off or compromise to be made.


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success rate of sustainability-oriented innovation will, de facto, be biased towards SII and SDIwhere sustainability is intentionally integrated as part of the thinking and decision process.

Nonetheless, it is important to be aware of the existence of SRI to have a view of the fulllandscape of SOI and avoid blindspots, especially as there are multiple pathways of innovation –

anticipatory/ intentional ones but also bespoke/ emerging ones such as ‘bricolage’ (Baker and

Nelson, 2005).

1.3.2. Types: Technological, Organizational, Institutional, Social

As argued previously, technological innovation will be necessary but not sufficient for

sustainable development. Indeed, it is only one of the four types of innovation that have to be

considered (if we adopt Ashford & Hall’s perspective (2011)). We provide a brief overview of

these four main innovation types – technological, organizational, institutional and social – and

specifically address how each innovation type might be geared towards sustainability16

.

Figure 2 below represents the different types of innovation based on our adaptation of Ashford &

Hall (2011). The following sub-sections detail this categorization.

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1.3.2.1. Technological Innovation

Ashford (2011) defines technological innovation as “the first commercially successful

application of a new technical idea (or an invention).” Innovation should be distinguished frominvention or ideation (the development of a new technical idea), and from diffusion (the

subsequent widespread adoption of an innovation beyond those who developed it). Yet note thatthe term “innovation process” is commonly used to refer to the ensemble: {ideation, innovation

"# Note: the point here is not to debate which innovation is ‘good’ or ‘bad’ and ‘better’ or ‘worse’ than the

other. The assumption is that all four types of innovation will be required in order to significantly move

the needle for sustainable development. Our interest therefore lies more into how each innovation type

might be able to help the sustainability agenda.


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and diffusion}, as is the case in this paper. Technological innovation spans a very broad arrayof solutions and can further be divided into: product innovation, process innovation, and

infrastructure innovation17.

Product innovations (at least, sustainability-oriented ones) are significant improvements of the

environmental and/or social performance of existing goods and services (i.e., an existing product – its composition, design, operation, quality and/or function – is changed in an incremental or

radical way18

), or the development of new goods/ services with better environmental and/orsocial performance. Taking the example of ‘sustainable mobility,’ some core product innovations

include the hybrid (e.g., Toyota Prius) or the electric vehicle (e.g., Tesla’s models S and X ).Customers or end-users will usually play a central role in product innovations

19. As

Nidomolu, Prahalad & Rangaswami (2009) put it: “To design sustainable products, companieshave 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 anddistribution. As they move into markets that lie beyond their traditional expertise, they [may

also] have to team up with nongovernmental organizations.” Also interesting, a company’s

product innovation may result in a process innovation for the user

20

, so that there is a blurring ofthe lines between the different innovation types depending on the level of analysis we adopt.

Process innovations “occur when an improvement is made in the way a product is manufactured

without significantly changing the final product” (Ashford & Hall 2011). They happen at thelevel of the production process of a product or the delivery of a service (ibid.). A sustainability-

oriented process innovation might be the introduction of sustainability criteria in procurement policies, the design and implementation of more resource efficient, less polluting and/or safer

production processes, etc. Going back to our ‘sustainable mobility’ example, consider the process of telecommuting. Nidomolu, Prahalad & Rangaswami (2009) describe IBM ’s and

AT&T ’s promotion of telecommuting (i.e., encouraging employees to work from home) whichreportedly boosted employees productivity and satisfaction (less time spent travelling), reduced

energy use and emissions, and resulted in financial savings (lower travel and real estate costs).Similar to what was noted before, some process innovations may result in product innovations by

users of the new processes. For instance, as part of its FuelSense program, FedEx completelyreviewed its routing and delivery system (mostly process innovations) and turned the energy-

saving expertise it acquired into a stand-alone consulting business (service innovation).

17 Under the original Ashford & Hall categorization, technological innovation encompasses ‘product

innovation,’ ‘process innovation,’ ‘product-service innovation’ and ‘system innovation.’ Whileacademically rigorous, it seems to us, from our case studies and real-life examples, that clustering

‘product-service innovation’ under organizational innovation and ‘system innovation’ under institutional

and social innovation makes more practical sense. 18

We review the difference between ‘incremental’ and ‘radical’ degrees of change in 1.3.3.19 We discuss the resulting advantages and challenges in 2.4. 20

E.g., a software product that enables visualization of energy consumption across a portfolio of buildings

(as those made by IBM, Schneider-Electric, etc.) and which enables the process innovation of strategic

energy management at client companies.


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Infrastructure innovations21

are the most far-reaching type of technological innovation. Theyare necessary for the re-conception and reordering of entire production and consumption chains.

Still building on our example of ‘sustainable mobility,’ the development and installation ofcharging stations constitutes an essential infrastructure innovation for the electric or plug-in

hybrid vehicle’s adoption and diffusion. One company attempting radical innovation in this

infrastructure was Better Place, which aimed to “separate car ownership (user) from batteryownership (Better Place) to make the battery a changeable item” through a network of battery-swap stations (Boons and Lüdeke-Freund, 2013; Johnson and Suskewicz 2009). The commercial

failure of Better Place is, however, an important warning signal – that infrastructure investmentsare expensive and complex both socially and technically. This complexity creates delays that

private capital has a hard time bearing (Chafkin, 2014). A more successful example of mobilityinfrastructure innovation is the Hubway bike sharing system which provides more than 1,300

bikes at 140 stations throughout the Boston metro area, combined with a mobile-accessibleelectronic tracking system to help match supply and demand. Each element taken individually

(e.g., the bikes and wireless communications infrastructure) is not particularly novel. Instead, theinnovation resides in the infrastructure model (i.e., allocation of roles and responsibilities across

public and private sector actors for the design, financing and implementation of the project).

While very important, product, process and infrastructure innovations cannot by themselvessolve all the overarching sustainability challenges. For instance, reduction in waste via better

product recycling requires product innovation (e.g., making the product easier to decompose inits parts), process innovation (e.g., making the sorting and recycling of parts possible at the waste

treatment plant), infrastructure innovation (e.g., setting up a recycling plant in adequate locationand with adequate capacity), organizational innovation (e.g., establishing a product take-back

program by the retailer and/or manufacturer), and institutional and social innovation (e.g.,educating and/or incentivizing consumers to bring back their products for recycling).

Furthermore, many technological innovations focus on the eco-efficiency of consumption –

reducing the energy, water, or material required for each unit of consumption. A simple exampleis the hybrid-electric car, which uses relatively less fuel per vehicle-mile traveled (VMT). Eco-

efficiency faces limits, however, in achieving reductions in absolute resource consumption andwaste production. This is because rebound or takeback effects occur when the money saved

through efficiency gets deployed toward increased consumption elsewhere (Sterman, 2012). Eco-efficient innovations also do little to address socio-economic sustainability concerns such as

decreasing levels of employment22

. Therefore many of the product and process solutionsenvisaged will therefore only be successful in achieving their ultimate goals if accompanied

by other (non-technological) innovations that tackle rebound effects (i.e., ‘unintended’

consequences) in adjacent areas.

$" Or system innovations in Ashford and Hall’s terms.

22 Indeed, whether environmentally-oriented product and process innovations turn out to positively impact

employment growth remains to be proven. Recent papers (Peters & Licht 2014; Horback & Rennings

2013; Rennings et al. 2004) conclude that while environmentally-oriented product innovations may

positively contribute to employment growth (more so in manufacturing than in services),

environmentally-oriented process innovations show mixed results (with cleaner process technologies

showing positive effects on employment but not end-of-pipe oriented ones).


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1.3.2.2. Organizational (including Business Model) Innovation

We now focus on organizational innovation – which can both complement technological

innovation or be considered on a stand-alone basis. Ashford (2011) defines organizationalinnovation as “novel changes in and among various organizational aspects of a firm’s functions,

such as R&D, product development, marketing, environmental and governmental affairs,

industrial relations, worker health and safety, and customer and community relations.” In line

with Girotra & Netessine (2014), we expand the above definition of organizational innovation to

include business model innovation (and thereby product-service innovation). That is, we

consider organizational innovation any innovation at the level of the delivery or the ‘need

fulfillment’ model23

. An example of such innovation for ‘sustainable mobility’ is the Zipcar

model of car sharing. Zipcar’s success relies on a product innovation as well as on a business

model innovation consisting in the dissemination of car ‘pick up’ points throughout the city, with

convenient ‘on the go,’ ‘by-the-hour’ renting options. The rest of the business relied on existing

structures and technologies (cars, parking spots, RFID, Internet and mobile technologies, etc.)

Product-service innovations (PSS), which we categorize here as organizational and businessmodel innovation, are critical in most of the literature on SOI. They allow the innovators to

deliver a service or benefit to the customer instead of a product (e.g., Xerox offering photocopyservices rather than selling copy machines, Interface selling modular carpets and maintenance

services). Such innovations are important for sustainability as they offer high prospects of social benefits (usually calling for more human labor) and environmental benefits (usually using less

resources and energy, producing less pollution, and being easier to maintain and recycle). Theliterature

24 typically distinguishes between different product-service combinations, which

Hansen & Grosse-Dunken (2013) categorize as follows: (1) product-oriented PSS, which add aservice to the initial product (e.g., the addition of a product take-back service to generate

economic and environmental value in the product’s end-of-life); (2) use-oriented PSS , based on product rental, leasing or sharing (e.g., carpet leasing with replacement of worn tiles instead of

entire carpets; public washing machines; car or ride sharing, etc.); and (3) result-oriented PSS inwhich the producer only sells a result (e.g. laundered clothes instead of washing machines).

Just like technological innovations, organizational and business model innovations will also

often require complementary types of innovations25

in order to diffuse. We now review whatinstitutions can (and should?) be leveraged and established in order to drive broader and more

radical change for sustainability.

23 It is no longer about delivering new products or services. It is about delivering existing products/

services, produced by existing technologies, to existing markets but in novel ways. Another way to view

business model innovation could be to look at how the ways in which needs are being fulfilled evolve.24

See Baines et al. 2007, Mont 2001, and Tukker 2004.25

Institutional and social ones, on the demand side, to drive adoption and use. Technological ones, on the

supply side, to enable production and delivery.


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1.3.2.3. Institutional & Social Innovation

As mentioned earlier, a full set of innovation types will have to be coordinated in order to make

significant progress towards sustainable development. Motesharrei, Rivas and Kalnay (2014)

reinforce that point when they write: "Technological change can raise the efficiency of resourceuse, but it also tends to raise both per capita resource consumption and the scale of resource

extraction, so that, absent of policy effects, the increases in consumption often compensate for

the increased efficiency of resource use."

Ashford and Hall (2011) define institutional innovation as the counterpart of organizational

innovation in government organizations and social innovation as changes in the preferences of

consumers, citizens and workers and/or changes in the processes by which these preferences are

shaped. On the other hand, Vatn (2008) adopts a broader definition of institutions. Institutions,

he writes, “are the conventions, norms, and formal rules of a society. They are hence both formal

and informal structures … [Their] role is not the least to signal which kind of behavior isexpected … and to support us in undertaking accepted acts. They have the capacity to define

whether the logic of a specific situation or relation should be of individual or of social

rationality.” So, while we still distinguish institutional and social innovation, we think

appropriate to treat them in conjunction (since while some may consider policy mechanisms as

‘institutional innovations’ used to shape societal preferences (i.e., ‘social innovations’), others

may use the term ‘institutions’ as an umbrella term).

Incentives (e.g., taxes and subsidies), regulations and standards (e.g., laws, reporting

metrics), and cultural norms (e.g., shaped and communicated via education, and media and

advertising) are three examples of areas that could be leveraged to achieve sustainability-

oriented institutional and social innovation. Indeed, they can contribute to establishing a

framework in which the market can function in a more sustainability-prone way. They can set

clear and unambiguous goals and targets required by the overarching sustainable development

agenda (Ashford and Hall 2011). And they can contribute to shape the mental models subjacent

to our habits of thoughts and actions26

as individual citizens, workers and consumers, and as

collective societies (Gerard, 2014).

Examples of institutional and social innovations that might support the development, adoption

and diffusion of electric vehicles or renewable energy technologies include: on the supply-side,

R&D support, new environmental standards and regulations, subsidies and favorable tax

treatment of investments27. And on the demand side, purchasing tax incentives, public-service

$# To use Senge’s (1990) vocabulary. 27

E.g., investments in university research labs, implementation of regulatory caps and/or taxes on carbon

emissions, etc.


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advertising, counter-advertising, and education28

, to alter societal preferences and increase

acceptance of more sustainable consumption practices. Beise and Rennings (2005) and

Mazzucato (2013) go further and focus on the role of regulations to create lead markets (i.e.,

demand) that support and promote the international diffusion of SOIs. Taking the examples of

wind energy and fuel-efficient passenger cars, the former demonstrate how strict regulation – if

and when supported by global demand trends and preferences – shapes diffusion outcomes. Avery interesting and detailed account of all possible forms of policies to promote sustainability-

oriented innovation is available in Carrillo-Hermosilla, del Río González, & Könnölä’s book

Eco-Innovation: When Sustainability and Competitiveness Shake Hands (2009, see Chapter 4).

In conclusion, it has become clear that the secret to sustainability-oriented innovation will in fact be the co-optimization of sustainable development objectives across a set of complementary

types of innovations – technological, organizational, institutional and social29

. It is thecombination and coordination of all these innovations that has the potential to lead to

system changes.

1.3.3.

Natures: Sustaining vs. Disrupting & Degrees of Innovation: Incremental vs. Radical

This final section takes a quick look at two other characteristics of innovation: nature and

degree. While most of the discussion on this topic may be too academic for the purpose of this

paper, reviewing a few notions will help understand (1) which natures and degrees of innovation

have the most potential in terms of progressing towards sustainable development, and (2) which

entities and capacities may be required to achieve such innovation and progress.

The common understanding in the innovation literature is that “incremental innovation involves

a step-by-step co-evolutionary process of change, whereas radical innovations are discontinuous,

and possibly involve the displacement of dominant firms and institutions rather than evolutionarytransformation” (Ashford and Hall 2011). In The Innovator’s Dilemma, however, Christensen

(1997) refers to the former as sustaining innovation and the latter as disrupting innovation. He

argues that both sustaining and disrupting innovation can be incremental, moderate, or radical.

More explicitly, in Christensen’s formulation, “sustaining innovations occur when established

firms push the envelope to continue to satisfy existing consumers with improved products within

the prior but expanded technological trajectory; [whereas] disrupting innovations cater to

different, perhaps not yet well-defined customers with product attributes different from those in

the established producer-consumer networks”30

.

28 E.g., tax incentives for households and businesses to perform maintenance and renovation works in

their energy systems and increase their sourcing of renewable energies, campaigns like the WWF “Seize

Your Power” one, etc.29

While Bocken et al. (2014) do not explicitly refer to ‘institutional innovations,’ their framework

provides another great summary of the concepts and definitions we have discussed so far (Appendix B).30

This quote from Ashford and Hall (2011)’s literature review on innovation.


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In our own words, sustaining innovation in a given field is “more and better” of whatalready exists in that domain whereas disrupting innovation completely transforms the way

things are being done (but by possibly applying an idea that already exists in another context tothat new domain

31). Sustaining vs. disrupting: this is the nature of innovation. Then, the degree

of innovation – incremental, moderate, and radical – indicates the rate of change or the pace at

which innovation occurs.

The reason why it is important to make all these distinctions is that different innovation

processes/ paths will be more likely to generate different natures and degrees of innovation .For instance, “in the case of sustaining innovation, organizational learning is central; [whereas]

in the case of disrupting innovation, … learning … involves breaking with established patternsand creating new architectures of people and artifacts” (Ashford and Hall 2011). And with the

agreement that sustainable development will require disrupting and radical innovations32

to break out of vicious and self-collapsing feedback loops and lead us into sustainable ones, it

becomes important to understand what might be the best paths to generate such nature anddegree of innovation. This will be an essential research mandate of the envisioned Centers of

Excellence: refining our initial understanding of the different SOI paths, processes, challengesand requirements in order to develop the appropriate support modules.

According to Herrmann, Gassmann, et al. (2007), successful disrupting innovations will require:

(i) The ability to transform companies’ core competencies,

(ii) The ability to transform markets,

(iii) The ability to increase companies’ orientation towards technological innovation,

(iv) The willingness of companies to be learning organizations,

(v) The willingness of companies to take risks,

(vi) The willingness of companies to invest in uncertain futures (long-term vision), and

(vii) The detachment of companies from their traditional customer orientation33

.

31 According to Arthur (2009), technologies evolve based on the chaotic and constant recombining of

already existing technologies. In this view, all technological breakthroughs emerge as novel combinations

of existing technological components, which have themselves come into existence through the same

process. So probably, innovation is sustaining if the recombination includes technologies that belong to

the same field, and disrupting if the recombination occurs across different fields to produce an ultimate

technology that changes the way things are being done in that final sector.32

In their literature review of SOI, Kennedy et al. (2013) summarize this argument as follows: “As

incremental [i.e., sustaining in our terms] changes only seek to minimize and repair negative

sustainability affects without necessarily addressing the root causes, they have shown to make little

impact on effectively dealing with environmental and social challenges degradation.” Instead, disrupting

innovations, commonly thought as episodic and ‘frame bending’ (Plowman et al. 2007), will be necessaryto replace the existing parts or entire system (Carrillo-Hermosilla et al. 2010). And so, Kennedy et al.

(2013) define radical [i.e., disrupting in our terms] SOI as “realized novel ideas that create significant

improvement of the environmental and/or social performance of a system while simultaneously

considering its economic sustainability.” This view is also supported by Bos-Brouwers (2010a), Klewitz

& Hansen (2011) and George, McGahan & Prabhu (2012).33 While sustainability-oriented innovations should be designed with customer/ user in mind (to ensure

adoption and diffusion), exclusive customer/user-focus may prevent an innovation from being disrupting.

Or in the words of Herrmann, Gassmann et al. (2007), “The more a company distinguishes itself through


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Yet, while successful disrupting innovation may require each of the seven conditions listed

above, some of these in turn will be more likely to be driven by new market opportunities for

profit and others by regulations. Ashford and Hall (2011) support that view and articulate the fact

that while “co-evolutionary” changes are likely to evolve via changes in what technology

developers and customers/ society produce and demand, “revolutionary” (i.e., disruptingand radical) ones are more likely to be driven by more exogenous influences (e.g.,

government intervention, strong societal pressures, etc.)34

.

KEY TAKEAWAYS:

In conclusion of this first part, sustainability-oriented innovation (SOI) is a complex and multi-

faceted concept that spans a broad range of different innovation types, natures and degrees and

can be oriented for sustainability to different extents. Regardless of these distinctions, an

innovation will only qualify as an SOI as long as it (at least) improves the environmental and/or

social performance compared with the current situation (Arnold & Hockerts 2011) in the short-

and/or long-term. In order to make significant progress in the sustainable development agenda, acombination of different sustainability-oriented innovation types will be necessary to foster the

required systemic changes. Multiple actors and innovators have a role to play. Supported by

dedicated Centers of Excellence, each has to identify where and how it can drive most impact,

given its own willingness, opportunities and capacities. We now examine the actual SOI-process.

traditional customer orientation (in terms of customer-led business), the less likely it will be in a position

to transform its markets” (and thus produce disrupting innovation).%& “Regulation-induced innovation” has been discussed extensively (Ashford, Heaton & Priest, 1979;

Ashford, Ayers & Stone, 1985; Porter & van der Linde, 1995; and Ashford & Hall, 2011).


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2. The Sustainability-Oriented Innovation Process: How does SOI happen?

In Part 2, we focus on the sustainability-oriented innovation process. How does SOI happen?

Who are the key drivers and supporters involved in the process? How are they involved and

when? What are the key steps and stages of the process? Building upon the rich literature on the‘traditional’ innovation process, we examine some recent articles and introduce some case

studies relative to SOI in an attempt to compare and contrast the SOI process versus the

traditional innovation process, highlight the distinctive characteristics of SOI, and derive key

learnings as to how SOI might be encouraged and fostered. Table 3 at the end of the section

provides a summary of our key findings.

2.1.

From Linear to Systemic Views of the Innovation Process

Innovation scholars over the past five decades have put forward an evolving conception of theinnovation process. Initially, the concept was conceived in linear terms – spanning “across

several stages, such as problem definition, idea generation, idea evaluation, concept

development, prototype, and market launch, each separated by a gate in which the innovation

projects are evaluated before proceeding further” (Lang-Koetz et al., 2009; Hansen & Grosse-

Dunker, 2013). Gradually however, feedback loops were added on top of the traditional

{invention, development, diffusion} scheme and new actors entered the picture (Appendix D).

The innovation process was no longer perceived as taking place solely in a private or public

R&D center (“technology-push”), but rather became bi- and then multi-directional, with an

increasingly important role granted to the market (“demand-pull”) and to other actors, such as

governmental (e.g., “regulatory-push”) and civil society agents (Appendix C). For instance,Christensen (1997) and Ashford (2011) identified four networks – made up of the different intra-

organizational departments, the supply chains, the competitors and the regulators – as potential

sources of corporate innovation. The integration of these complexities progressively led to the

development of the “evolutionary perspective” of innovation, notably described by Arthur

(1994), and according to which “innovation arises through a systemic process […] of dynamic

interaction between different actors” (Carrillo-Hermosilla, del Rio, & Könnöla, 2010).35

From an economic standpoint, part of the reason even ‘conventional’ innovation involves diverse

private and public actors is that it involves positive externalities: a single company’s investments

in R&D and innovation benefits the entire industry (and beyond) once the new knowledge

spreads. However, “while it can be argued that innovation spillovers may lead companies to

underinvest in R&D, this tends to be compensated for by the effects of first-mover advantages

and patents” (Beise and Rennings, 2005).

%' As an empirical example, Buijs (2003) traces an interesting historical account of the increasing

complexification of the (product) innovation model of the Delft Design School in the Netherlands.


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The inclusion of environmental and social considerations associated with SOI expands the

boundaries of the already complex ‘conventional’ innovation process a step further (Adams,

Jeanrenaud, et al. 2012), and gives rise to a “double externality” problem (Beise and Rennings,

2005). This is because SOI produces positive spillovers in both the innovation and the diffusion

phases. In other words, “While society as a whole benefits from the innovation, the costs are

borne by the innovator alone. Even if the innovation can be successfully marketed, it is difficultfor the innovator to appropriate the profits arising from the innovation if the corresponding

knowledge is easily accessible to imitators and if the environmental [and social] benefits have a

public good character” (ibid., emphasis ours). Not surprisingly, the double-externality problem

reduces incentives for firms to invest in SOIs (ibid.). This creates a need to engage diverse

secondary stakeholders (including public policy makers) to create the conditions that stimulate

and enable SOI. Actors therefore “must reconsider their capabilities, stakeholder relationships,

knowledge management, leadership and culture” (Adams, Jeanrenaud, et al., 2012) to advance

SOI.

In addition, SOI is riskier than ‘conventional’ innovation in two respects (Hansen and Klewitz,2012). “First, SOI can result in products and services which are more expensive than those of its

competitors and thus the market risk associated with innovation is increased, and second,

managing SOI is more resource intensive due to the directional risk connected with the

uncertainty of the ultimate environmental and social impacts of SOI” (ibid., our emphasis). As a

result, SOI needs to involve more and more diverse stakeholders than ‘conventional’ innovation

as collaboration and partnerships can advance the actors’ innovation capacity (i.e.,

overcoming resource constraints, sharing risk, accessing new markets and novel technologies,

bringing products to market, bundling complementary skills and protecting property rights) and

unlock innovation opportunities.

“Given the complexity of sustainability issues, SOI seems even more dependent on

collaboration (Lozano, 2007): it requires knowledge beyond a company’s existing

experience, which is often diverse and distributed (Clarke and Roome, 1999;

Wagner and Llerena, 2008). As knowledge created in networks is more diverse

(Kogut, 2000), networks can thus be a key mechanism for SOI (Halila, 2007;

Jenkins, 2009; Lawrence et al. 2006).” (Hansen and Klewitz, 2012)

This need for diverse and often antagonistic agents to come together in efficient and

effective networks is one of the specific challenges of SOI. Indeed, just as certain goals of

sustainable development exist in tension with one another, their representatives and guardians,

involved in the innovation process, may find it particularly difficult to collaborate.

Understanding how to mediate multi-stakeholder networks to leverage that tension and turn it

into a creative force for innovation will be a key challenge of the envisioned “Centers of

Excellence.” For this to happen, the innovation logic – both in the entre- and intra-preneurial

contexts – must change to become more systemic, dynamic and flexible, proactively leveraging

contingencies and forming partnerships. The effectual logic described by Saravathy (2008)

(Appendix E) could constitute a starting point in this endeavor.


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2.1.1. “Greening Goliaths versus Emerging Davids”

A recurrent debate in innovation theory – and which has permeated to the sustainability-oriented

innovation field – seeks to determine whether incumbent firms or start-ups are the ones driving

innovation. Hockerts and Wüstenhagen’s 2010 article provide a great summary of this debate,

and conclude that it is the compound impact of both ‘Greening Goliaths’ (corporate innovators)and ‘Emerging Davids’ (entrepreneurial innovators) that promotes the sustainable transformation

of industries. The last subsection of their paper is particularly interesting as it traces the ‘co-

evolution’ of Davids and Goliaths, “whereby each side moves the transformation further.”

Briefly said, there are four main evolution stages: “In the first stage, sustainability start-ups

launch the sustainability innovation to the market … They are usually followed quite quickly by

some market incumbents once early growth picks up … As the sustainability transformation of

the market continues, a different type of sustainability start-up company begins to emerge. The

high-growth Davids in this third phase are much more business-like and often backed by more

professional investors … The final and fourth stage of maturity of sustainability entrepreneurship

tends to extend to the mass-market brands that begin to see both a growing competitive threatfrom the start-ups and a market potential for themselves.”

36 Since both entrepreneurial and

intrapreneurial innovators have strengths and limitations to drive SOI, and both are

necessary for sustainability transformation, we include them both in the model and

frameworks presented below.

It is also important to note the myriad ways that incumbent firms and entrepreneurs can interact

so as to accelerate the development and diffusion of innovations. Beyond the development of

more traditional R&D and M&A deals geared towards sustainability objectives (e.g., Google

acquiring the traffic control mobile application Waze and the energy-efficiency start-up Nest),

there has been a significant increase in corporate impact venture capital or sustainability-oriented

corporate venture capital (Feldman et al. 2014, Martin 2014). Some examples include BASF

investing in Renmatrix, which develops a technology that produces bio-based chemicals and

fuels, Shell and Cisco Ventures investing in Husk Power Systems, a biomass electricity

generator for rural households in India, and Adidas’s Hydra Ventures and IKEA’s Green Fund

investing in CRAiLAR Technologies, which provides sustainable, environmentally friendly

fibers and fabrics for use in textiles, cellulose pulp, paper and composites. Complementin

accelerating the theory and practice of ebook

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