Radical Innovation for Sustainability: The Power of Strategy and Open Innovation
Introduction
“We feel the world needs something else than oil based, fossil-based resources and we also feel we should limit our impact on the environment in terms of greenhouse gas emissions” (Interviewee M)
Corporate sustainability has continuously risen on the business agenda as companies have sought to address the environmental and social problems to which they are intrinsically entangled (Bansal, Hoffman, 2012, Hart, Milstein, 2003, Whiteman et al, 2013). While sustainability was traditionally seen as a cost of doing business (Porter and van der Linde, 1995), sustainability oriented innovation (SOI) positions this as a business driver that can simultaneously improve performance and offer a source of competitive advantage (Hall, Wagner, 2012, Hart, Milstein, 2003). Many companies have embraced incremental innovations in the form of ‘end-of-pipe’ technical additions or ‘eco-efficient’ optimization of current organizational processes (Adams et al, 2015, Carrillo-Hermosilla et al, 2010). While successful in helping firms avoid unnecessary waste and costs, such innovations alone fail to address the root causes of global problems (Hart, Milstein, 2003, Whiteman et al, 2013). Encouragingly, some corporate frontrunners, alongside sustainability driven start-ups (Hockerts and Wüstenhagen, 2010), have called for the integration of radical product innovation for sustainability at the core of business strategies (Dangelico et al, 2013, Hart, Milstein, 2003). Yet radical product SOI remains understudied (Hansen and Große-Dunker, 2013) with scholars often failing to differentiate between radical and incremental forms of innovation (Dangelico, 2015).
SOIs are defined as “realized ideas that improve environmental and/or social performance compared with the current situation” (Arnold and Hockerts, 2011, 394). SOI concerns the efficient use of resource inputs, the creation of improved products and services, and the formation of new business models: all of which are aligned to traditional business principles (Nidumolu et al., 2009). Debates of whether or not it pays to be ‘green’ (Wu and Pagell, 2011) are now fast being replaced by the question of how to most effectively innovate to maximize the value of meeting sustainability demands (Wagner, 2007). Contemporary management literature gives preliminary insights to these new discussions (see Adams et al, 2015, Klewitz, Hansen, 2014, for systematic literature reviews), including an initial understanding of specific factors for SOI success (Dangelico, 2015, De Medeiros et al, 2014, Driessen et al, 2013).
As the need for radical SOI becomes increasingly apparent (Tukker and Butter, 2007), companies require insight into the mechanisms that may enhance their radical innovation activities for new sustainable products. Important differentiators of SOI are the degree of novelty and the scope of intended environmental and/or social performance improvement. Research suggests that innovations seeking radical improvements in sustainability performance have a number of outstanding issues such as high complexity, uncertainty and insufficient financial returns (Geels et al, 2008, Hall, Wagner, 2012) making them less attractive for investment. What is missing is a coherent picture of the practices within the radical innovation process for sustainability, including an explicit examination of how these practices connect to corporate strategy (Arnold, Hockerts, 2011, Boons, Lüdeke-Freund, 2013).
Our paper addresses this gap and investigates a case of radical SOI for new products within one multinational firm from the life sciences industry called DSM. By inductively exploring this case, our study gives insight into how corporate sustainability strategy influences SOI through the execution of five organizational practices: (1) technology super-scouting throughout the value chain; (2) search heuristics that favor radical sustainability solutions; (3) integration of sustainability performance metrics in product development; (4) championing the value chain to build demand for radical SOI; and (5) harnessing the benefits of open innovation. We believe these insights into the specifics of the innovation processes contribute to our understanding of radical SOI, but also add to discussions of strategic influence within the traditional innovation management literature.
We begin our paper with a brief review of the literature on radical SOI and the influence of strategic context. Next, we describe the exploratory qualitative case study approach and our research procedure. We then present our case findings and a process model of radical product SOI. This is followed by discussion of the implications of our findings for research on SOI and traditional product innovation. Finally, we draw conclusions, offer limitations of the study and provide directions for future research.
Section snippets
Radical product SOI
Innovation has long been part of corporate strategy, recognized as a potential source of sustained growth for firms (Schumpeter, 1934) through changes in products, processes, business models and/or organizational structures (Dewar and Dutton, 1986). More recently, new product innovation has been recognized as a key way in which firms can make progress on sustainability performance while simultaneously improving marketplace competitiveness (Dangelico, 2015, Hart, Milstein, 2003, Nidumolu et al,
Methods
Our paper is an inductive inquiry employing a qualitative case study research strategy to investigate the on-going process of a radical product SOI within DSM, a well-known corporate frontrunner in sustainability. We identified DSM as a company with a bold organizational sustainability strategy, offering the opportunity to develop new and novel insights into its influence on the firm’s process of radical innovation (Eisenhardt, 1989).
DSM is a global public limited company (listed on NYSE
Case findings
Sustainability is a core value of DSM (Internal document, 2012a). The company is led by a strong CEO/Chairman with a clear and public vision that the company should help tackle the sustainability challenges facing the global society: “It’s not only about growing the profits and share price…but at the same time [we] have the responsibility to improve it (the planet) in such a way that our children can continue to build on it, too. It’s a kind of stewardship, which I really enjoy” (Steffen, 2011,
A process model of radical product SOI
Extant literature has shown radical product SOI to be a difficult process with high degrees of uncertainty and risk (Hall and Wagner, 2012). Management scholars have sought to help managers by identifying organizational capabilities and practices for success (De Medeiros et al, 2014, Slater et al, 2014). Yet these studies commonly fail to distinguish between incremental and radical innovation (Dangelico, 2015), and moreover treat the innovation process as a ‘black box’ by quantitatively
Conclusions, limitations and future research
Our paper is the first to provide an empirically grounded understanding of how a multinational firm’s corporate strategy influences the outcome of radical innovation activities through a set of mechanisms encapsulated in Figure 1. Critically, by explicitly choosing sustainability as a strategic driver for new business, DSM was able to develop and launch a radical new bio-based product that enabled a value chain shift away from petrochemicals. Specifically, our case study identifies five
Acknowledgements
This study was made possible by a grant from the Dutch Ministry of Economic Affairs: Grant number IPCR1101. We thank the Ministry for their interest and support for this work. Our special thanks to the people from DSM/Reverdia for participating in this research and specifically to Feike Sijbesma (CEO), Marcel Wubbolts (Chief Technology Officer), Rob Kirschbaum (VP Open Innovation) and Will van den Tweel (General Manager, Reverdia) for their support. Finally we would like to express our
Steve Kennedy is an Assistant Professor at Rotterdam School of Management, Erasmus University. His work focuses on how corporate sustainability strategies are translated into successful innovation and the formation of future-ready sustainable business models. His doctoral thesis on the challenges of operationalizing sustainability at the local level was highly commended at the Emerald/EFMD Outstanding Doctoral Research Awards 2010. He currently teaches courses in corporate sustainability and
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Steve Kennedy is an Assistant Professor at Rotterdam School of Management, Erasmus University. His work focuses on how corporate sustainability strategies are translated into successful innovation and the formation of future-ready sustainable business models. His doctoral thesis on the challenges of operationalizing sustainability at the local level was highly commended at the Emerald/EFMD Outstanding Doctoral Research Awards 2010. He currently teaches courses in corporate sustainability and climate change strategy. Email: [email protected]
Gail Whiteman is Professor of Sustainability and Climate Change at Lancaster University where she is the Director of the Pentland Centre for Sustainability in Business. She is also the Professor-in-Residence at the World Business Council for Sustainable Development (WBCSD). In 2011, Professor Whiteman was a Global Finalist in the Aspen Institute’s high-profile ranking of Faculty Pioneers in sustainability. She is widely published in top management and ecology journals including the Academy of Management Journal, Journal of Management Studies, Nature, Organization Studies, Business Strategy and the Environment, Journal of Management Inquiry and Journal of Business Ethics. Email: [email protected]
Jan van den Ende is Professor of Technology and Innovation at Rotterdam School of Management, Erasmus University and holds the International Chair of Management, LUISS Universita Guido Carli, Rome, Italy. His research interests include firm-internal and -external idea management, control of new product development projects, design management and sustainability oriented innovation. Professor van den Ende has published in numerous journals including Journal of Management Studies, Organization Studies, Harvard Business Review, Journal of Product Innovation Management, Research Policy, and IEEE Transactions on Engineering Management. Email: [email protected]