Organising for Products that Last Kristina Lauche Kristian Peters Hans Wortmann

Why sustainability matters - Kristina Lauche Challenges of integrating sustainability and how to address them - Kristian Peters & Hans Wortmann We gratefully acknowledge the support of the Research Program ‘Integral Product Creation and Realization’ of the Netherlands Ministry of Economic Affairs.

Why sustainability matters Kristina Lauche, Radboud University

“Volkswagen AG to be Removed from the Dow Jones Sustainability Indices”

=> Sustainability as reputational risk management

Sustainability as a management topic

“AIR FRANCE KLM is pleased to confirm its leading position as best airline on the Dow Jones Sustainability Index for the tenth consecutive year.” “KLM’s Corporate BioFuel Programme helps many companies to achieve environmental goals and accelerates the growth of sustainable aviation.”

•  Pressure from numerous stakeholders: firms expected to take ownership of externalities they generate

•  External forces : –  Regulation –  Corporate Social Responsibility reports –  Investor relations

•  Internal drivers: Sustainability strengthens employee identification => performance

•  Reduces transaction cost in the long run

Drivers for Sustainability

Implementation slow •  Internal resistance (Fenwick 2007) •  Missing translation of strategic goals into operational

practices (Haugh and Talwar 2012) •  Sustainability initiatives often lack sense of urgency

(Slawinski and Bansal 2012) –  Relevance needs to be fought for –  Effects often not directly visible –  Requires specialist knowledge –  Conflicts with short term financial goals –  Not woven into the fabric of organisational practice

Integrated approach needed Economic

Costs Market potential

Revenues Fit with existing knowledge

base Time (to market)

Ecological Energy consumption

Materials consumption Toxicity potential

Biodiversity Emissions (air, water, soil)

Risk potential

Social Employees Customers

Local & national community

International community Future generations

CRADLE-TO-GRAVE

Supplier assessment Organization’s production/services

Customer use / disposal

You cannot do sustainability in isolation

“Our head of the sustainability group was going to give a presentation on how well everything works with our suppliers in China. I told him

that it is not true.”

From chain to network •  Other partners needed to

accomplish transformation •  Benefit often not where the

investment is made •  NGOs and local

communities as pressure groups

=> Diverse institutional settings

Selling sustainability internally

Change processes towards sustainability frequently start as local initiatives that need to be ‘sold’ internally and create momentum for change (Howard-Grenville 2007)

Creating momentum

Initiation of sustainability

practice

Emergence / pockets of sustainability practices

Internal actors take up personal

responsibility

Creating commitment

of local group

Upscaling and maintenance of sust. practices

Learning loop

Practices become

embedded

Practice fades out

Practice remains local

Institutionalising practices

Blazevic, Lauche, Janssen, van Riel (2015)

Challenges of integrating sustainability and how to address them Kristian Peters and Hans Wortmann Rijksuniversiteit Groningen

IoP-IPCR project: DoSym Slurrypumps

Domes-cappliances

Centrifugalpumps(liquids)

Documentsystems

Electricalswitchinggear

Hotwaterandhea-ngboilers

Vanenburgso,ware

FME/LMN

Universityof

Groningen

B2B

B2C

B2B

B2B

B2B

B2B

TypeofBusiness

The problem

Given today’s importance of sustainability, and the ‘green’ intentions of many manufacturers, why do many manufactures still find it difficult to improve the environmental sustainability of products?

Two alternative business perspectives

Market perspective

Capability perspective

P of Planet

P of Profit

Question to the audience Market

To what extent is sustainability an important selling point?

– Not important – A little bit important – Of average importance –  Important – Very important

Drivers

New markets

Expectation of improvement of corporate reputation and image

Environmental regulations and policies

Competitive advantage

Order qualification

Cost reduction

Risk management

Market demand and market stakeholder pressures

Market

Case study results Market Driver General trend DoSym Co’s

Cost reduction Highly optimized already In contrast, it usually increases costs

Corporate reputation /image

Customers are mostly interested in price and quality

Environmental regulations

Oftentimes still very limited

Market demand / pressure

No or very little demand for sustainable products Or only for specific types of sustainability No Greenpeace , No Milieudefensie …

Competitive advantage / benefits

Competitive disadvantage Competitors are not doing it as well

Perspective Capability

Environmental capabilities

ENPD, green R&D and green

production

Environmental skills and

knowledge of employees

Environmental management systems and procedures Environmental

vision and top management involvement

Green supply chain and other

stakeholder network

embeddedness

Environmental capabilities

Environmental products

Competitive advantage/

success

Aligned

Market

0,00

1,00

2,00

3,00Externalanalysis

VisionandstrategyTargets

Measuring

Includedinnormaldesignprac-ces

Valueproposi-on

Strandardiza-on,modularityand

Materialconsump-on

Energyconsump-onLowimpactresources

Life-meop-miza-on

Evalua-on

Audi-ngofsuppliers

Supplychainengagement

Reverselogis-cs

Productownership

Financialmodel

Re-use

Ambi-on Current MaturityLevel5

MaturityLevel4 MaturityLevel3 MaturityLevel2

MaturityLevel1

DoSym Capability Maturity Tool 0-Incomplete 1-Ad-hoc 2-Controlled 3-OpLmized

1b. Formulate an environmental vision and strategy on the highests level of the organisation

None Environmental strategy for the next generation of products

Long term vision and environmental strategy

Vision and environmental strategy, goals, roadmap and tactical decisions for long term innovation

0-Incomplete 1-Ad-hoc 2-Controlled 3-OpLmized20. Evaluate the environmental performance throughout life cycle phases (extraction, manufacturing, distribution, usage, end of life)

Not evaluated Ad-hoc with a small sample and a few metrics

Periodically with a large sample and a few metrics

Continually with a large sample and a large set of metrics

0-Incomplete 1-Ad-hoc 2-Controlled 3-OpLmized

22. Ensure supply chain engagement and cooperation on environmental issues throughout the life cycle (suppliers, distributors, customers)

None Little contact and hardly any cooperation

Structural contact and some cooperation to improve environmental performance at different life cycle stages

Continually and open communication and close cooperation to improve the overall environmental performance at all life cycle stages

Case study results

ENPD, green R&D

and green production ++ ++ + + + - Green supply chain

and other stakeholder

network

embeddedness

+ + - - - -

Environmental vision

and top management

involvement

++ ++ + + + -

Environmental

management systems

and procedures

++ + + + + +

Environmental skills

and knowledge of

employees

+ + - - - -

Strategy

Current strategy is focused on short term operational excellence results à No room for long term innovations à no affordable new environmental technology

High costs Negative effect

Green SCM

No existing reverse logistic in place à Collecting used products is inefficient

High costs Negative effect

Business model

Selling newly manufactured parts and products is more profitable than selling used/remanufactured parts and products à Focus of NPD in on designing new products

Lower incomes

Negative effect

Business model

Selling remanufactured products is more profitable than selling newly manufactured products

Higher income

Positive effect

Capability

Study results

Environmental capabilities

Environmental products

Competitive advantage/

success

Market/competition Rules & regulations

Other pressures

Market

Positive feedback Negative feedback

Capability

“Vicious Circle”

Conclusions Economic advantage is a key driver for investing in environmental products Existing capabilities can prevent companies to capture the economic value of environmental products

–  Business models, structures, strategy, incentive system, etc. Investments in a bundle of (new) environmental capabilities are required

–  Our maturity tool helps companies to design and develop organizations for products & services that last

Interactive Discussion

Statements: 1.  Every company becomes part of the circular

economy 2.  Every company that becomes a part of the

CE, should adopt a fitting business model 3.  In order to adjust the business model, a

positive financial business case is required

Book for Practitioners

Expected early 2016 •  Guidelines •  Cases •  Link between

sustainability and CSR •  Internal change process •  Network approach

Duurzame innovatie: organisatie, implementatie,

successen

Wortmann, Peters, Lauche