Sustainability as an opportunity to innovate
Júlia Menezes Profeta - Julho 09
This paper was written for the “Development and Sustainability” Class from the International Program of Management (IPM-FGV) and discusses the intrinsic relation within innovation and sustainable development, questioning the current economic model and “business as usual”. The concept of innovation has to include in its definition the matter of being sustainable, considering all challenges of the world’s further social and environmental development. Moreover, corporations must see the Global Challenges as opportunities to innovate and create value, using therefore the open innovation model. That is, considering the other stakeholders into the innovative process.
Summary
Introduction
1. Limited World
2. Sustainable Development
3. Opportunities and ways to value creation
4 – Innovation agents
References
Appendix A
Introduction
There is nothing more up to date then talking about innovation. We are living in an era where technology reigns, where the product’s life cycle are getting always shorter, where to be competitive you have to be different. The current crisis though brings another necessity: innovation in mindsets and in business models. Although the term “innovation” has been lately widely spread and praised, people and corporations are still accommodated and seek always for the easiest way, instead of the best way, of achieving value, as this is the main goal of the today’s economic model.
So, value is the first word that should be discussed. When a company is about to do its IPO there is a long process of valuation, even when we talk about investing in everything else, like a house, car etc. The value of our acquisitions is not actually what it cost to be built, but what is it going to generate as benefits in the coming months, years. So is it with innovations: they will only have real value if they have a future perspective of sustainable value creation, that is, through out time.
Innovation is no doubt the key-word to business survival, and through knowledge and innovation humanity developed itself to the levels we live today. Ten thousand years separated the agricultural from the industrial revolution; and only 200 years later the second rupture in the civilization’s development process happened giving place to the information society, where the brain is the main factor of differentiation and not the physical strength or the power of engines anymore. It can be seen a rearrangement of the production factors in order to keep pace with the macro-tendencies in which hiper-competition is sustained by knowledge multiplication through technological (innovation) explosion. But has this economic development, or growth, brought life quality improvement to the world population?
Thus, this paper will discuss the intrinsic relation within innovation and sustainable development, questioning the current economic model and business as usual. The concept of innovation has to include in its definition the matter of being sustainable considering all challenges of the world’s further social and environmental development.
1. Limited World
Until the 1980’s, men lived as the world was unlimited. There was always somewhere unexplored to where the developed countries could go and find all resources they needed (mainly human and natural). Not only that, but it was thought that this would never affect them, as they were many kilometers apart. But it was then seen that reality was different, that the ecological truth was that the globe is one single ecosystem interconnected. The crisis begun on October 2008 was perfect to show that the world is interconnected in more ways then it could be imagined. Consequences affect all continents.
This mentality of taking care of “my side alone” must be destroyed; otherwise we will face the commons tragedy. Natural resources in the world are limited and the earth has a limited capacity of renewing some of them. Many other aspects of the system are not even used, but totally destroyed by human activities. It is acknowledged then that the post-modern world is much more complex and sets much more complicated issues to be dealt with. And crisis must be faced as a synonym for opportunity. Not only the financial crisis, but mainly the natural disasters, epidemics, social conflicts and wars as well. These are alarms to push human creativity in order to solve these issues. More than issues, they are global challenges to save civilization. Restructuring economy, restoring natural support systems, eradicating poverty, stabilizing population and climate and restoring hope are main issues that can be and must be seen as inspiration for new business models and innovations in order to provide life continuity.
2. Sustainable Development
As recently said by the psychologist José Ernesto Bologna, founder and president of Ethos/SHN, in the 2009 Ethos International Conference, Sustainable Development is the utopia that must be taught in schools now and that has to lead the all actions of the world’s population. Once it is included in the common mindset, changes will be possible.
Thus, understanding what sustainable development (SD) is, 5 wide topics must be considered: integrating preservation and development, satisfying basic human needs and aspirations, meeting equality and social justice, promoting cultural diversity and self-social determination and maintaining ecologic integrity. The World Commission on Environment and Development (WCED) defines SD as being the development that meets the present need without compromising the next generation’s ability of meeting their own needs, and more than that “meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations for a better life.”
Translating these main issues into more practical corporate guidelines, the WCED (1987) orients to:
(1) revive growth
(2) change growth’s quality
(3) meet essential needs of work, food, energy, water and sanitation
(4) garantee a sustainable population level
(5) preserve and improve resources
(6) reorient technology and manage risks
(7) conciliate environment and economy in decision making
(8) reorient international economic relations
(9) make development more participative
This can be combined with the point of view of the Lisbon Principles, that raise 6 main aspects:
• Responsibility – the ones who have access to resources carry responsibility for what is done to them.
• Scale Matching – natural and social capital assets management must be taken into consideration in decision making at institutional level, in information flows, take ownership and actors into account, and internalize costs and benefits.
• Precaution – pay more attention to the side of caution instead of remediation.
• Adaptative Management – continuously gather and integrate ecological, social and economic info adapting the management is done.
• Full Cost Allocation – internalization of all costs and benefits related to the use of natural and social capital in the production process.
• Participation – include all stakeholders in order to have a full participation.
All these principles lead clearly to new business models, in which also new technologies and new markets have to be developed in order to keep economy and society working.
3. Opportunities and ways to value creation
In Section 1, the global challenges were mentioned and Stuart Hart raises the main global drivers that must be fought in order to achieve sustainability and thus be strategic orientations for value creation. The first set of drivers relates to increasing industrialization and its associated material consumption, pollution, and waste generation. The second set is about the proliferation and interconnection of civil society stakeholders. A third set of drivers includes the emerging technologies that consider new sources of energy, more efficiency, disruptive solutions that could render intensive use of materials industries models obsolete. And, as the fourth set of drivers the increases in population, poverty, and inequity associated with globalization are considered. As he says:
The global challenges associated with sustainability, viewed through the appropriate set of business lenses, can help to identify strategies and practices that contribute to a more sustainable world and, simultaneously, drive shareholder value. (HART, 2003, p. 2)The first set of drivers remembers corporations that efficiency and clean processes reduces drastically costs, for instance. Not only because of less material use, but less pollution that damages the environment and also taxes, fees and fines. A lot has been said by the great names of management about this first set, giving then emphasis to the innovations that address the root causes of pollution and not only minimizing costs (PORTER, 1995). But to achieve a sustainable development there is much more to be considered, and even more important, as it follows. The second set is about considering the civil stakeholders that not only consume products and services, but control what corporations are doing, and with technology, networks and so on have more and more power to go against enterprises and destroy at least their image. The third set is the rise of biomimicry, genomics, information technology, nanotechnology, and renewable energy that presents a huge opportunity for firms – especially those extremely dependent upon fossil fuels, natural resources, and toxic materials – to reposition their internal competencies around more sustainable technologies that will enable cheaper production processes And as fourth, and maybe the most important, that claims for a more inclusive capitalism, a co-responsible capitalism, in order to reduce the gaps between poor and rich, improve life conditions of this mass living in poverty and the huge base of the pyramid that shows itself already as a prominent market, that many corporations are considering and serving.
4 – Innovation agents
Thus, it could be acknowledged in section 3 that seeing the world through the sustainability lenses brings actually many insights and drives corporations focus to aspects that improve their competitiveness and to ways of conducting strategic planning.
These are insights to incentive innovation that should pursue then the open model. As Etzkowitz (2003) defends, open innovation (CHESBROUGH, 2003) is where innovation finds its complete form. Open innovation is bringing the most various players into the process of creating, open it to society, creating integrated models where academy, industry and government interact giving the right balance to the interests involved in each innovation. In this interaction there is a mutual shaping, combining the many different competencies and thus leveraging the efficacy of the innovations created, as each agent cares for one important point of the economic and social development.
Thus, in order to guarantee the economic and social sustainability, there must be a second propeller combining civil society, government and academy, controlling and directing production and innovations.
Figure 1: twin triple propeller
References
CHESBROUGH, H., Open Innovation: The New Imperative for Creating and Profiting from Technology. HBS Press, 2003.
ETZKOWITZ, H., Innovation in Innovation: The Triple Helix of University-Industry-Government Relations. Social Science Information, Vol. 42, No. 3, 293-337. 2003.
HART, S., “Creating Sustainable Value” .Academy of Management Executive, 2003, Vol. 17, No. 2.
PORTER, M; VAN DER LINDE, C., Green and Competitive: Ending the Stalemate. Harvard Business Review. Sep/Oct 1995.
World Commission on Environment and Development (WCED). Available at: http://www.un-documents.net/ocf-02.htm#I
Appendix A
Sustainable Value Framework from Stuart Hart, containing the Global Drivers, strategies to be adopted by corporations and the payoffs.