5 Ways to Grow Revenue with Green Innovation
Most businesses have focused their sustainability work on reducing their environmental impact and lowering their resource costs. These bottom-line initiatives, many of them highly innovative, are critical to staying viable and competitive while benefiting society and the environment. They’ll grow profits, for a while anyway. But, they are not a path to continued growth or advantage. The re-engineering, quality and IT movements showed that improved efficiency doesn’t drive long-term value creation.
To consistently grow the bottom-line, sustainability innovation needs to drive the top-line. Innovation that successfully builds new products, services, businesses and customers drives advantage and value. One only need look at the success that Toyota had with the Prius and the huge bet GM is making on the Volt to see the opportunity that environmental innovation at the top-line offers to companies. Similarly, companies like Unilever are pursuing top-line growth from socially responsible innovations like making more nutritious food products.
Top executives now say that innovation is their top growth priority and addressing sustainability issues are critical to their success. In large sample size surveys conducted this year, 84 percent of executives told McKinsey that innovation is extremely or very important to their companies’ current growth strategy, 93 percent of CEOs told Accenture that sustainability issues will be critical to their future success and 95 percent of those CEO’s said sustainability considerations should be fully integrated into their strategy and operations.
How do you leverage sustainability to innovate for top-line growth if your company is already a good innovator or you want to build your innovation capability to take advantage of this opportunity? There are some approaches that may already exist in your set of innovation capabilities that you will need to lean on especially hard for top-line sustainability innovation to succeed. And, you will undoubtedly need to develop others to the take full advantage of the sustainability opportunity.
Here are a few to start with:
1. Stick to your evaluation criteria and don’t add sustainability to them. If you want more than a demonstration or niche market product, forget about using an environmental or socially responsible benefit as part of your evaluation criteria. Recent research shows that mainstream customers won’t favor a more sustainable product if it doesn’t offer equal or better value along existing dimensions like price and performance (subject of an upcoming article). The best innovators aren’t marketing sustainability benefits or trying to educate customers to value them.
LED lights, for example, are being bought and sold based on the reduction in their total operating cost (longer life, lower maintenance and energy cost) despite their higher capital cost. The elimination of mercury used in fluorescent lighting, the near elimination of electricity converted to heat (90 percent) rather than light in incandescent bulbs and the reduction of fossil fuel use, air pollution and climate effects in going to LED lighting are great benefits but don’t figure into the buyer’s decision making or the marketer’s message. Employees and shareholders will value sustainability benefits and should be sold on them but only after the innovation is proven in the marketplace on its own, non-sustainability merits.
2. Look intently at challenging orthodoxies and leveraging discontinuities. My colleague Peter Skarzynski at the innovation consultancy Strategos wrote about the four “lenses” of innovation in his book Innovation to the Core (co-authored with Rowan Gibson). Sustainability innovation will depend heavily on two of them: challenging deeply held beliefs about what drives success inside your company and industry (“orthodoxies”) and identifying and analyzing unnoticed patterns that could substantially change industry or competitive rules (“discontinuities”).
3. Create revolutionary rather than evolutionary innovations. As sustainability affects multiple points in the supply and value chains of many industries, there is opportunity for you to innovate in ways that will change customer expectations, competitive advantage and industry economics. Compare that with incremental innovation (another thin blade added to a razor) that changes none of those things. While far reaching in its impact, revolutionary innovation can still be done in core or adjacent markets but can more easily open up markets and customer bases beyond them. Started from their commitment to social responsibility, Unilever’s innovations to greatly increase nutritional value in food products has the potential to be truly revolutionary.
4. Develop or use sustainability analysis capabilities. To leverage sustainability for revenue growth, you obviously need to understand the sustainability issues inside your company, industry, customers and suppliers. Many companies that have tackled sustainability-based cost and efficiency measures at the product level have developed these capabilities. If your company’s sustainability work has focused primarily on reducing energy use, emissions, and risk, you may need to develop new skills or hire people to, for example, do lifecycle analysis, inject thinking on new technologies that improve the sustainability of products like yours and create scenarios around how your industry will evolve through the lens of sustainability. For many companies, this will require new hiring and contracting but also a more robust involvement in open innovation and partnerships to incorporate expertise beyond what you can quickly acquire.
5. Get buy-in from the top. Nearly three-quarters of Fortune 500 companies have formally bought into sustainability as evidenced by their public initiatives and reports. Most of this buy-in is impact, cost and efficiency related; far fewer companies understand, talk about or are committed to using the sustainability imperative for top-line innovation and growth. As with any innovation program, top leadership has to understand the value of pursuing a stream of innovation activity and be ready to say yes when good investment opportunities are presented. Sustainability at the top line is a newer and, some would say, harder sell. The general case must be pre-sold before specific investments are proposed.
You’ll need a well developed innovation capability to pull off these and other approaches key to successful top-line sustainability innovation. If your company’s innovation skills aren’t where you want them to be yet, leveraging the sustainability opportunity will accelerate their development and ultimately, your growth.
Steve Goldstein is managing partner of Growth Advisors, a catalyst, strategy advisor and implementation partner for companies that want to leverage sustainability to innovate and grow. This post appeared originally on the Growth Advisors Blog.
Image CC licensed by Flickr user Micky.!