How to Build Your Company's Sustainability Cred
How to Build Your Company's Sustainability Cred
It's pretty well accepted now that sustainability is not the key purchase criteria for most customers. Few are going to buy a product or service because it's greener than a competitor's or made by more equitably treated employees if it costs more or doesn't perform as well.
Of course, there are product and service "eco-niches" supported by customers who will buy green despite poorer performance and price. But, with competitors continually strengthening the value of what they provide while increasingly making their offerings more sustainably, eco-niches will come and go
But here's the flip side: Sustainability is a key consideration in attracting and retaining employees. And, it has become an increasingly important factor to shareholders of companies that have significant sustainability risks
So what's the solution? Should you make your operations more sustainable, building your green-cred with employees and shareholders while passing on developing poor returning, eco-niche products and services? Perhaps, but that's a bar many will hurdle soon, if they haven't already in your industry. E&Y's recent survey found that 65 percent of executives planned to invest to "develop new products and services" in response to climate change.
A more compelling approach is to grow your revenue with new products and services by leveraging sustainability taking one or more of the paths I've described below. None of these will put you in a position of trying to sell products to customers based on how green they are or responsibly they are made. All will strengthen the credible link between your company and sustainability that your employees and shareholders care about.
Here are the paths you can follow:
1. Innovate for Sustainability: Improve your customers' sustainability performance.
This path is ideal for B2B businesses that sell equipment to reduce their customers' operating costs by cutting their use of resources and environmental impact in the process. GE has built a $7 billion business selling wind turbines this way. Diversey, a multi-billion dollar leader in industrial cleaning products and services, has introduced innovations that allow it to clean beverage plants and lower operating costs by using 30 percent less water and 60 percent less energy. P&G does the same thing on the consumer side, reducing customer energy costs with cold water washing machine detergents.
Key to success taking this innovation path is to understand your customers' sustainability challenges well enough to develop solutions that help address them in a way that either lowers their costs and or improves their performance.
"Innovating for" is clearly the busiest path for top line sustainability innovation and growth now. And with good reason -- there are tremendous efficiency improvement opportunities available. But, if your product or service has little opportunity to change a customer's sustainability, following this path will not yield the opportunity to benefit them or advantage you.
2. Innovate in Sustainability: Better meet existing market needs or meet unserved or underserved needs using more sustainable product and process solutions.
Many associate environmental and socially responsible solutions with higher operating, capital or product costs. While investments are usually required to commercialize any innovation, sustainability solutions can take enormous costs out of company operations and processes and can provide improved product or service performance benefits. These can lead to discontinuous changes in the cost-performance relationship that will allow new products to grab greater share of existing markets or open new markets.
New, less toxic and environmentally harmful household cleaners, for example, are taking share from traditional ones because they improve personal health. Sales of long-lasting LED lights are growing because the cost savings achieved from not having to regularly replace light bulbs in hard to reach locations outweighs the high purchase cost of these LEDs. This benefit is made possible because designers used their understanding of how sustainable materials and technology could greatly extend bulb life.
Market demand drove $5 billion Eastman Chemical Company to develop its Tritan copolyester, a hard plastic for food and beverage container applications that had higher heat resistance than other solutions used at the time. Consumers wanted to be able to run their reusable plastic water bottles, baby food containers and other houseware items in the dishwasher and have them be resistant to odors, tastes and stains.
Several years in development, Eastman introduced Tritan in 2007 to meet these performance requirements with a solution that was free of bisphenol A (or BPA). At the time of Tritan's introduction, BPA had just begun to receive more scrutiny for potential health issues but the research was not yet clear and no consensus had been reached amongst consumer and government agencies. In the next couple of years as companies including Thermos, CamelBak, and Evenflo adopted the Tritan innovation for its performance benefits, the testing on BPA made its risks better understood and states banned its use in kids' products. Eastman's "Innovate in Sustainability" got the jump on competitors developing BPA free solutions coming later from an "Innovate for Sustainability" path
Key to "Innovating in" is the ability to build and combine deep knowledge of market needs with a well-considered understanding for the cost and performance trade-offs that exist with more sustainable product and process solutions.
3. Innovate with Sustainability: Develop or acquire innovations working with outside parties -- suppliers, researchers, licensors, startups and other corporations.
As with any relatively new area of innovation, companies should look to collaborate with a wide range of external sources to accomplish their "Innovate for" and "Innovate in Sustainability" goals.
Venture and corporate investment in cleantech continues high and quite promising, largely for sustainable energy and other resource solutions. GE, which built its $7 billion wind turbine business after acquiring it for $200M in 2002 from Enron, is now investing another $200M through a different type of "Innovate with Sustainability" initiative: an open-to-all idea generation contest. Its "ecomagination Challenge" is soliciting ideas for smart grid innovations from businesses, entrepreneurs and students through an online submission process. It will award $50,000 to $100,000 prizes to the best ideas and consider an equity investment or cooperative development agreement with the winners.
Between outright acquisition of innovations and open innovation contests to find new ideas, companies driving for top line sustainability innovation are reaching out to suppliers to develop potential solutions. As an example, Coca-Cola, PepsiCo and Nestle are working to source bio-plastics for their beverage containers. Bottles made from these plant-based materials hold the promise of fully degrading in compost piles after only a few months.
Those dedicated to growing their revenue through sustainability innovation must realize what competencies and technologies they lack to develop "Innovate for" or "Innovate in Sustainability" products and services. If they don't have the ability in-house, and most companies don't have the full range of what is needed, they must find others to "Innovate with" to remain competitive.
These three paths to top-line sustainability innovation can focus your plans and action. Increasingly, all three will be needed to successfully leverage sustainability for innovation and revenue 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 Margaret Anne Clarke.