Beyond Innovation 101: Green Process, Green Product, Green Profits
by James Van Doren
“Innovation” is on the lips of every executive. Companies are exploring incremental innovation, breakthrough innovation, disruptive innovation—but the most successful are looking through a different lens. These companies are taking advantage of green innovation.
We’ve been hearing about sustainability for some time. You can’t open a business magazine without seeing some article or another discussing sustainability, sustainable value, climate change, or carbon footprints (or all of the above). It isn’t just that sustainability is the right thing to do in terms of community, people, and planet—it’s more and more evident that sustainability is the right thing to do in terms of profits.
The Carbon Disclosure Project (CDP) recently released a report looking at the Global 500 index, which is comprised of the world’s largest companies. What they found may surprise some. Between January 2005 and May 2011, the companies that were leaders in carbon disclosure or performance yielded twice the average financial return compared to the index as a whole. Skeptics might ask, “At what cost?” Well, the costs may have been high, but the rate of return was even higher. Based on the information provided, approximately 60% of carbon emission reduction efforts paid for themselves in three years or less. It goes against the prevalent misconception that sustainability is often an investment with little measurable return.
But sustainability has become much more than simply reducing your carbon footprint. It’s about sustainable products that offer an entrée into new markets and larger product lines. According to a 2007 report from market research firm Penn Schoen Berland, US consumers doubled their spending on sustainable products and services to $500 billion. And companies like Wal-Mart, Nike, Coca-Cola, and a host of others are finding ways to greatly expand both top- and bottom-line growth from sustainable products. This probably doesn’t come as a surprise, since those companies have been vocal about their efforts to capitalize on sustainable value. But wait—there’s more.
More, as in green processes and green business model innovation. Looking past products and services, a wide variety of organizations are taking cost-cutting and efficiencies to a whole new level, and even reevaluating the business they are in. And they are doing this by going green. For example, a 2010 FastCompany article reports that Best Buy is exploring a new business model that will capitalize on the growth of electronic vehicles. This may be good news considering the struggles of a variety of brick and mortar retailers. The same article highlights how Maersk Line, an international shipping company, is poised to save $1 million by reducing carbon emissions through slower shipping. You read right: slower shipping. It may seem completely counterintuitive, but will save them 3,500 tons of fuel per year.
Unfortunately, the cold reality is that, politically, the world is an unstable place. More and more, individuals and companies are feeling the crunch of reduced access to resources, which can be due to increased demand in other countries, simple scarcity, or other market impacts. It may be that the most available space for doing so is sustainability, as many companies are finding it can create stability in their supply chain, reduce resource costs, and woo fickle consumers. And it can increase profits. It seems like the smartest and most profitable companies are finding that they can do really, really well simply by doing “good.”
For those who want to learn more, CWRU’s Weatherhead School of Management offers truly world class programs in Innovation and Strategy, and Creating Sustainable Value. Whether it is a program about commercializing your innovation, business model innovation, or in measuring risks and returns from sustainability, there are a wide variety of one- and two-day classes to choose from. Participants who take four class days can even earn a certificate.