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Innovating for Sustainability and Demarketing for Sustainability

Rajan Varadarajan

DiDepartment of Marketing

University Distinguished Professor, Distinguished Professor of Marketing and Ford Chair in Marketing

Mays Business School at Texas A&M University

College Station, Texas

USA [email protected]

Annual Conference of ANPAD - National Association of Graduate Programs in Business Administration - Marketing and Strategy Divisions

(September 14, 2015. Belo Horizonte, Brazil)

Environmental Sustainability: My Publications and Work in Progress

•  Varadarajan, Rajan, “Innovating for Sustainability: A Framework for Sustainable Innovations and a Model of Sustainable Innovations Orientation,” Journal of the Academy of Marketing Science (forthcoming).

•  Varadarajan, Rajan (2014), “Toward Sustainability: Public Policy, Global Social Innovations for Base-of-the-Pyramid Markets, and Demarketing for a Better World,” Journal of International Marketing, 22 (2), 1-20.

•  Varadarajan, Rajan, “Toward Sustainability: Corporate Sustainability Responsibility, Consumer Sustainability Responsibility and Government Sustainability Responsibility,” in N. K. Malhotra (Ed.) Review of Marketing Research, Volume 13 (forthcoming).

•  Varadarajan, Rajan, “Sustainability and Marketing: Chasms, Conundrums and Paradoxes,” (work in progress).

Innovating for Sustainability: A Framework for Sustainable Innovations and a Model of Sustainable

Innovations Orientation Agenda – Part I: Innovating for Sustainability

•  Provide an overview of the importance of environmental sustainability as an organizational imperative and the potential for organizations to be able to increase their market footprint while decreasing their environmental footprint by developing sustainable innovations capabilities.

•  Propose a definition of sustainable innovation and present a framework for sustainable innovations.

•  Propose a definition of sustainable product innovation and present an exposition of the sustainable innovations framework in specific reference to sustainable product innovations.

•  Propose a definition of organizational sustainable innovations orientation and present a conceptual model and propositions delineating the relationships between certain antecedents and outcomes of sustainable innovations orientation.

•  Address implications for practice and future research.

Agenda – Part II (Time Permitting): Demarketing for Sustainability

Innovating for Sustainability Google Search: Cosmetics with Natural Ingredients Brazil

1,080,000 Results (0.36 seconds)

Innovating for Sustainability Google Search: Plastics from Ethanol Brazil (About 244,000 Results. 0. 45 seconds)

Sustainable Development Principles

Regeneration Capacity Principle / Replenishment Capacity Principle

Rates of use of various renewable resources should not exceed the capacity of the Earth to replenish them.

Assimilation Capacity Principle

Rates of emission of various wastes should not exceed the natural assimilative capacities of the ecosystems into which they are emitted.

Creating Sustainability versus Slowing Rate of Unsustainability

Regeneration Capacity Principle / Replenishment Capacity Principle:

Pertains to rates of use of various renewable resources.

Meeting the various needs of humanity, however, entails use of both renewable and nonrenewable resources.

•  Creating sustainability for renewable resources

•  Slowing rate of unsustainability of nonrenewable resources (Ehrenfeld 2005)

Sustainability Requires Simultaneous Reconciliation of Three Imperatives

•  Ecological Imperative: Stay within the biophysical carrying capacity of the planet.

•  Economic Imperative: Provide an adequate material standard of living for all.

•  Social Imperative: Provide systems of governance that propagate the values that people want to live by (Robinson and Tinker, 1997)

Robinson, J., and Tinker, J., (1997), “Reconciling Ecological, Economic, and Social Imperatives: A New Conceptual Framework,” in Schrecker, T. (Ed.), Surviving Globalism: Social and Environmental Dimensions. London: Macmillan, New York: St. Martin’s Press.

Sustainability Challenge: Decoupling Quality of Life from Quantity of Consumption

“Sustainable development requires an economy directed at improving the quality of life, decoupled from the quantity of consumed resources.” (Schmuck and Schulz, 2002, p. 6)

“The challenge of sustainable development is the reconciliation of society's development goals with the planet's environmental limits over the long term.” (Anon)

How Important Is It for Big Businesses to Make Major Investments in Sustainability Initiatives?

“Of the world’s 100 largest economic entities, 63 are corporations, not countries. Great power creates great expectations: society increasingly holds global businesses accountable as the only institutions strong enough to meet the huge long-term challenges facing our planet. Coming to grips with them is more than a corporate responsibility. It’s essential for corporate survival.” (McKinsey Quarterly, July 2009)

Book excerpt: Strategy for Sustainability: A Business Manifesto by Adam Werbach

How Committed are Big Businesses to Sustainability?

“There is a widespread view, particularly among environmentalists and liberals, that big businesses are environmentally destructive, greedy, evil and driven by short-term profits. I know — because I used to share that view.

But today I have more nuanced feelings. ...

The embrace of environmental concerns by chief executives has accelerated recently for several reasons. Lower consumption of environmental resources saves money in the short run. Maintaining sustainable resource levels and not polluting saves money in the long run. And a clean image — one attained by, say, avoiding oil spills and other environmental disasters — reduces criticism from employees, consumers and government.

What’s my evidence for this? Here are a few examples involving three corporations — Wal-Mart, Coca-Cola and Chevron — that many critics of business love to hate, in my opinion, unjustly.” (Diamond, Jared, “Will Big Business Save the Earth,” New York Times, December 6, 2009).

Our Beaker Is Starting to Boil But, We Are Horrifyingly Nonchalant

“Some research in social psychology suggests that our brains are not well adapted to protect ourselves from gradually encroaching harms. We evolved to be wary of saber-toothed tigers and blizzards, but not of climate change — and maybe that’s also why we in the news media tend to cover weather but not climate. The upshot is that we’re horrifyingly nonchalant at the prospect that rising carbon emissions may devastate our favorite planet.” (Nicholas D. Kristof, “Our Beaker Is Starting to Boil,” New York Times, July 16, 2010).

http://www.nytimes.com/2010/07/18/opinion/18kristof.html?src=me&ref=general

Sustainability Imperative and Sustainable Innovations

Premise of the Paper: Sustainable innovations by firms, both incremental and transformational, can make a major contribution toward the goal of environmental sustainability, as an integral element of a multi-pronged effort by:

•  nations and consortia of nations,

•  governments and non-governmental organizations,

•  firms and consortia of firms,

•  consumers and collectives of consumers, and other entities

Innovating for Sustainability: Sustainable Innovations •  Eco-innovations

•  Eco-friendly innovations

•  Environmental innovations

•  Green innovations

•  Greenovations

•  Sustainable innovations

•  Sustainability driven innovations

•  Sustainability driving innovations

•  Sustainability enhancing innovations

•  Sustainability oriented innovations

Innovating for Sustainability: Sustainable Innovations Most innovations that are commonly referred to as sustainable innovations are not sustainable innovations in the strictest sense.

They tend to be innovations which cause less harm to the environment over the life cycle of the product compared to existing products, processes, or practices for which they are substitutes.

Life Cycle of a Product

•  Raw Materials Extraction

•  Production

•  Distribution

•  Use or consumption

•  Disposal

Innovating for Sustainability: Sustainable Innovations

Sustainable innovations encompass innovations that are:

•  Sustainability enhancing in the domain of renewable resources: Innovations that contribute toward achieving sustainability in the domain of renewable resources.

•  Unsustainability alleviating in the domain of nonrenewable resources: Innovations that contribute toward slowing the rate of unsustainability in the domain of nonrenewable resources.

•  Sustainability enhancing in the domain of renewable resources and unsustainability alleviating in the domain of nonrenewable resources.

“If you wish to converse with me, define your terms.” (Voltaire) “There was a hint of this new science in Socrates’ maddening insistence on definitions, and in Plato’s constant refining of every concept. Aristotle’s little treatise on definitions shows how his logic found nourishment at this source. “If you wish to converse with me,” said Voltaire, “define your terms.” How many a debate would have been deflated into a paragraph if the disputants had dared to define their terms! This is the alpha and omega of logic, the heart and soul of it, that every important term in a serious discourse shall be subjected to strictest scrutiny and definition. It is difficult, and ruthlessly tests the mind; but once done, it is half of any task.”

Source: Durant, W. The Story of Philosophy. New York, NY: Pocket Books, 1961. p. 59.

Definitions of Key Constructs Key Constructs

•  Sustainable innovation

•  Sustainable product innovation

•  Sustainable innovation orientation

•  Sustainable innovation capabilities

Proposed definitions of key constructs are based on dictionary definitions, marketing literature definitions, and strategy literature of definitions of:

•  Sustainability

•  Innovation

•  Product

•  Capabilities

Sustainable Innovation: Definition

Sustainable innovation is a firm’s implementation of a new product, process, or practice, or modification of an existing product, process, or practice that significantly reduces the impact of the firm’s activities on the natural environment.

Sustainable Product Innovation: Definition

Sustainable product innovation is a firm’s introduction of a new product or modification of an existing product whose environmental impact during the lifecycle of the product, spanning resource extraction, production, distribution, use, and post-use disposal, is significantly lower than existing products for which it is a substitute.

Sustainable Innovations: Types

•  Resource Use Reduction Innovation

•  Resource Use Elimination Innovation

•  Resource Use Substitution Innovation

Resource Use Reduction Innovation

Innovation that lowers the environmental impact of a product by achieving greater productivity in the use of a resource used as an input:

•  A1.1 Reduction in the amount of use of a renewable resource

•  A1.2 Reduction in the amount of use of a nonrenewable resource

Sustainable Innovations: Types

•  Resource Use Reduction Innovation

•  Resource Use Elimination Innovation

•  Resource Use Substitution Innovation

Resource Use Elimination Innovation

Innovation that lowers the environmental impact of a product by eliminating the use of a resource as an input:

•  A2.1 Elimination of an ecologically harmful ingredient from a product

•  A2.2 Elimination of a filler ingredient from a product

•  A2.3 Elimination of the need to use a complementary product

Sustainable Innovations: Types •  Resource Use Reduction Innovation •  Resource Use Elimination Innovation •  Resource Use Substitution Innovation Resource Use Substitution Innovation Innovation that lowers the environmental impact of a product by substituting a resource used as an input with another resource:

•  A3.1 Substitution of a nonrenewable resource with a renewable resource

•  A3.2 Substitution of an ecologically more harmful nonrenewable resource with an ecologically less harmful nonrenewable resource

•  A3.3 Substitution of a less abundant nonrenewable resource with a more abundant nonrenewable resource, subject to the substitution not having a negative impact on the overall sustainability profile of the product.

•  A3.4 Substitution of a raw material mined from below ground (below ground mining) with a raw material mined from above ground (above ground mining) -- reuse of a resource extracted during the post use or post consumption stage of the life cycle during the production, out bound logistics, or use/consumption stage.

Sustainable Innovations: A Conceptual Framework

A.  Sustainable Innovation Type

1. Resource Use Reduction Innovation •  A2.1 •  A2.2 2. Resource Use Substitution Innovation •  A2.1 •  A2.2 •  A2.3 3. Resource Use

Elimination Innovation

•  A3.1 •  A3.2 •  A3.3 •  A3.4

1. Upstream Supply Chain

2. Production

3. Downstream Supply Chain 4. Use/

Consumption

5. Post Use/ Post Consumption

B. Sustainable Innovation Opportunity Arena (Opportunity Stage)

Sustainable Innovations: A Conceptual Framework

A.   Sustainable Innovation Type 5

1. Resource Use Reduction/Efficiency Innovations1 •  A1.1 •  A1.2 2. Resource Use Elimination Innovations2 •  A2.1 •  A2.2 •  A2.3

3. Resource Use Substitution Innovations3

•  A3.1 •  A3.2 •  A3.3 •  A3.4

1. Upstream Supply Chain 2. Production 3. Downstream

Supply Chain 4. Use/ Consumption

5. Post Use / Post Consumption4

B. Sustainable Innovation Opportunity Stage 5

1Innovations that lower the environmental impact of a product by achieving greater productivity in the use of a resource used as an input. A1.1: Reduction in the amount of use of a renewable resource. A1.2: Reduction in the amount of use of a nonrenewable resource 2Innovations that lower the environmental impact of a product by eliminating the use of a resource as an input. A2.1: Elimination of an ecologically harmful ingredient from a product. A2.2: Elimination of a filler ingredient from a product. A2.3: Elimination of the need to use a complementary product 3Innovations that lower the environmental impact of a product by substituting a resource used as an input with another resource. A3.1: Substitution of a nonrenewable resource with a renewable resource. A3.2: Substitution of an ecologically more harmful nonrenewable resource with an ecologically less harmful nonrenewable resource. A3.3: Substitution of a less abundant nonrenewable resource with a more abundant nonrenewable resource, subject to the substitution not having a negative impact on the overall sustainability profile of the product. A3.4: Substitution of source of raw material from below ground mined with above ground mined -- reuse of resources extracted during the post use/consumption stage during the upstream supply chain, production, downstream supply chain, and/or use/consumption stages. 4 Innovation types A1.1 through A3.4 are primarily pertinent in reference to innovation opportunity stages B1 to B4. Although they may have some potential during stage B5, the primary focus of sustainable innovations during the post use/post consumption stage is value recovery. That is recovery of resources through above ground mining for use as inputs during stages B1 to B4 of the focal product (shown in the figure by dotted arrows from B5 leading into B1 to B4), and/or for other products (shown as a solid arrow from B5). 5 The scope of certain sustainable innovation opportunities are likely to be limited to a specific innovation type in a specific innovation opportunity stage (e.g. cell “A1.2, B2” – non-renewable resource use reduction innovation during the production stage). However, as illustrated with arrows from cell “A1, B1” to other cells, the scope of certain other sustainable innovation opportunities are likely to span multiple innovation stages and/or innovation types.

Sustainable Product Innovations: An Exposition of the Sustainable Innovations Framework

Innovation Type Description and Illustrative Examples

A.  Resource Use Reduction Innovations Reductions in the quantities of various renewable and nonrenewable resources used during the life cycle of a product – extraction, production, distribution, use/consumption and disposal.

1. Product Technology Innovation More resource efficient new technology

Example: Film based cameras versus digital cameras

2. Product Miniaturization Innovation More resource efficient new technology or current technology

Example: Evolution of music storage devices and players from vinyl

records and record player, to cassette tapes and cassette player, to

compact discs (CDs) and CD player, to even more compact music

players with built in hard drives for storage of music (e.g. the iPod)

3. Product Convergence Innovation Development of new products that subsume in a single product a number of erstwhile distinct standalone products

Example: Smart phones which incorporate in a single device the features

of multiple devices (e.g. phone, digital camera, music storage and

playback, information storage and retrieval, and sending and receiving e-

mails).

* Inductive approach ** Innovations pursued with positive sustainability outcomes (lowering environmental impact) as an explicit objective. *** Innovations whose positive sustainability outcomes (lowering environmental impact) are serendipitous, but nevertheless important from the standpoint of evaluation as a potential avenue for sustainable innovations in the context of other products.


4. Product Versa/lity Innova/on Vacuum cleaners that can be used on carpet, hardwood and 4led floors in place of vacuum cleaners specifically designed for use on carpets versus hard surfaces.

5. Complementary Product Elimina/on Elimina4on of consump4on of /demand for complementary product during use stage of life cycle of Innova/on product

Example: Vacuum cleaners with canisters whose contents can be directly emp5ed into a waste basket, in place of vacuum cleaners that require use of disposable bags for capture and storage of dirt and dust.

6. Complementary Product Use Amount Reduc4on in consump4on of/demand for complementary product -‐-‐ Use amount reduc4on during Reduc/on Innova/on use stage of life cycle of product

Examples: Single rinse formula4ons of laundry detergents. Cold water formula4ons of laundry detergents (About three-‐quarters of the energy use and greenhouse-‐gas emissions from washing a load of laundry result from hea4ng the water) Automobiles designed for greater fuel efficiency, less frequent oil change (e.g. intervals of 15,000 miles rather than intervals of 5,000 miles), and using longer las4ng parts, components and subassemblies (e.g. spark replacement, 4re replacement, etc. Printers (copiers) designed to print (copy) on both sides of the paper.


7. Product Substitution Innovation Video conferencing as a substitute for travel by plane, train or car for face-to-face business meetings

8. Variable Use Amount Innovation Reduction in consumption of/demand for core product during use stage of life cycle of product

Example: Paper towel rolls with perforations that facilitate use of smaller amounts (e.g. one-half of regular size sheet in a roll) of paper towel

9. Product Upgrade vs. Replacement Reduction in quantities of various resources used by replacing only certain Innovation components and subassemblies to upgrade a product

Example: As an alternative to full product replacement, designing a product such that it can be upgraded or its useful life extended by replacing subsystems or modules (Guiltinan 2009)

10. Frugal Innovation Compared to products developed in and targeted at customers in developed markets, the substantially lesser amounts of various materials used in innovations developed in emerging markets in response to the distinctive needs of customers in these markets result in positive sustainability effects.

11. Reverse Innovation Frugal innovations developed in emerging markets, subsequently introduced in developed markets resulting in positive sustainability effects.


12. Product Digitization Innovations

(a) Digitization of Information Products Innovations that enable accessibility and consumption of products in digital form

in place of information products in analog form (analog versus digital versions of encyclopedias; books printed on paper versus e-books stored and read on devices such as the Amazon Kindle and Apple iPad)

(b) Digitization of Information Attributes Digitization of information attributes of non- information products such as:

Online access to monthly billing statements for charge cards and utility services and online bill payment, in

lieu of statements printed on paper and mailed to customers.

Electronic boarding pass on mobile phone in lieu of boarding pass printed on paper

Online reservations and purchase of service products (e.g. air travel) for future consumption


B. Resource Substitution Innovations Substitution of nonrenewable resource ingredients with renewable resource ingredients, scarce nonrenewable resource ingredients with relatively more abundant nonrenewable resource ingredients and ecologically more harmful resource ingredients with ecologically less harmful resource ingredients

C. Resource Use Elimination Innovations Elimination of specific ingredient products (e.g. ecologically harmful ingredients) during the production stage of the life cycle of the product

Example: Phosphate free formulation of detergents

D. Packaging Innovations

1. Reduction in Amount of Materials Used Various materials used for packaging

2. Change in Materials Used From non-biodegradable to partially biodegradable or fully biodegradable packaging materials.

3. Inc. in Percent of Specific Materials Used Increase in percent or recycled paper products used as packaging material content

4. Elimination of Packaging Elimination of paper/cardboard packing for deodorants and antiperspirants and incorporating all product-related information in the product container

Sustainable Innovations Orientation: Definition Procedure Employed: Reviewed

•  Dictionary definitions of orientation

•  Definitions of innovation orientation in literature

•  Definitions of other orientation constructs in marketing and strategy literature. For example:

–  Customer orientation

–  Competitor orientation

–  Entrepreneurial orientation

–  Knowledge orientation

–  Learning orientation

–  Market orientation

–  Strategic orientation

–  Technological orientation

Innovation Orientation: A Definition in Literature

“A multidimensional knowledge structure composed of a learning philosophy, strategic direction, and trans-functional beliefs that, in turn, guide and direct all organization strategies and actions, including those embedded in the formal and informal systems, behaviors, competencies, and processes of the firm to promote innovative thinking and facilitate successful development, evolution, and execution of innovations.” (Siguaw, Simpson and Enz 2006, p. 560)

Sustainable Innovations Orientation: Definition

Behavior Focused Definition A firm’s relative level of involvement in intra-organizational and inter-organizational activities within specific organizational functions and spanning multiple organizational functions in the development of new products, processes and practices, and modifications of existing products, processes and practices, with the goal of lowering the impact of its activities on the natural environment.

Amount of a specific property in an object •  Sustainable

•  Innovations

•  Orientation

Sustainable Innovations Orientation: Definition Behavioral Pre-disposition Focused Definition

Pre-disposition: Organizational Commitment to Act / Intention to Act / Propensity to Act

A firm’s relative level of commitment to involvement in intra-organizational and inter-organizational activities within specific organizational functions and spanning multiple organizational functions in the development of new products, processes and practices, and modifications of existing products, processes and practices, with the goal of lowering the impact of its activities on the natural environment.

Amount of a specific property in an object

•  Sustainable

•  Innovations

•  Orientation

Sustainable Innovations Orientation: A Conceptual Model

Questions

1.  What explains the general predisposition of firms to be sustainable innovations oriented?

2.  What explains heterogeneity across firms in their sustainable innovations orientation?

3.  What are the outcomes or consequences of sustainable innovations orientation?

2013 KPMG Survey of Corporate Responsibility Reporting: Major Findings

Evidence of a sustainable innovations orientation in a growing number of firms, worldwide. Corporate responsibility (CR) reporting has evolved into a mainstream business practice worldwide over the last two decades, including in geographic regions and industry sectors that until recently lagged behind.

The debate concerning whether or not companies should publish a CR report is over. Instead, firms should focus on what should be reported, and how.

•  For the 4,100 companies across 41 countries surveyed, the Corporate Responsibility reporting rate was 71%.

•  For the world’s largest 250 companies, the Corporate Responsibility reporting rate was 93%.

KPMG (2013). The KPMG Survey of Corporate Responsibility Reporting 2013. KPMG.com/sustainability.

Sustainable Innovations Orientation: Model Development

(Re: Question 1)

•  What explains the general predisposition of firms to be sustainable innovations oriented?

OR

•  What explains sustainable innovations orientation in a growing number of firms, worldwide?

Institutional Theory Explanation

Sustainable Innovations Orientation: Conceptual Model (Re: Question 1)

Sustainable Innovations Orientation

Institutional Pressures • Coercive Pressures • Mimetic Pressures • Normative Pressures

Institutional Theory

•  Institutional pressures (coercive, mimetic, and normative pressures) lead firms to adopt similar strategies, structures, and processes (DiMaggio and Powell 1983).

•  Firms enhance or protect their organizational legitimacy by conforming to the expectations of institutions and stakeholders (Berrone and Gomez-Mejia 2009).

Institutional Theory •  Coercive Pressures: Pressures to conform that are exerted on an

organization by other organizations upon which it depends for critical resources, and by institutions that uphold the cultural expectations of the society in which it functions.

•  Mimetic Pressures: Pressures experienced by an organization to model itself after other organizations in its field when faced with uncertainty over goals, technologies, means-ends relationships, etc.

•  Normative Pressures: Pressures faced by an organization to comply with the collective norms shared by other organizations in its field, in their attempts to define the conditions and methods of their work (Heugens and Lander 2009).

Institutional Theory Explanation of Sustainable Innovations Orientation

Sustainable innovations orientation, as a dimension of firm behavior, becomes embedded in the collective cognitions of managers due to institutional pressures exerted on firms.

Institutional Theory Explanation of Sustainable Innovations Orientation

•  Perception among managers that sustainable innovations can have a positive influence on firm performance (environmental, economic, and/or social performance) confers legitimacy to sustainable innovations orientation.

•  Prominent firms engaging in sustainable innovations confers legitimacy to sustainable innovations orientation.

•  Sustainable innovations being acclaimed in the mass media confers legitimacy to sustainable innovations orientation.

•  When firms monitor the actions of their competitors to assess threats posed by the actions, under conditions of uncertainty over goals, and means-ends relationships, they react by engaging in mimetic behavior.

•  Firms are more likely to engage in mimetic behavior when they see industry leaders engaging in sustainable innovations.


(Re: Question 2)

•  Why are some firms more sustainable innovations oriented than others?

OR

•  What explains heterogeneity across firms in their sustainable innovations orientation?

Industry Factors •  Rela4ve environmental impact of industry (P5)

•  Sustainability ini4a4ves of firms in upstream supplier industries (P6)

•  Sustainability ini4a4ves of firms in downstream customer industries (P7)

•  Size of end users customer base (P8)

Firm Factors •  Size (P1) • Globalization (P2) •  Reputation (P3) •  Slack (P4)


Institutional Pressures • Coercive Pressures • Mimetic Pressures • Normative Pressures

Sustainable Innovations Orientation: A Conceptual Model (Re: Questions 1 and 2)

Firm Reputation •  In Customer Interfacing Dimensions: Reputation for innovation

Reputation for product quality

Customer trust in brand name

•  For Progressive Organizational Practices

•  For Environmental Performance

Sustainable Innovations Orientation: Firm Effects (Re: Question 2) Firm Size

P1: Sustainable innovations orientation will be greater in larger firms than in smaller firms.

Firm Globalization

P2: Sustainable innovations orientation will be greater in more globalized firms than in less globalized firms.

Firm Reputation

P3: There will be an inverted U-type relationship between firm reputation and sustainable innovations orientation.

Organizational Slack

P4: Sustainable innovations orientation will be greater in firms with higher levels of organizational slack than in firms with lower levels of organizational slack.

Sustainable Innovations Orientation: Industry Effects (Re: Question 2)

Relative Environmental Impact of Industry

P5: Sustainable innovations orientation will be greater in firms competing in industries whose activities cause greater environmental degradation than firms of comparable size competing in industries whose activities cause lesser environmental degradation.

Sustainability Initiatives of Firms in Upstream Supplier Industries

P6: Sustainable innovations orientation will be greater in firms competing in industries in which firms in upstream supplier industries are more extensively involved in sustainability-related initiatives.

Sustainability Initiatives of Firms in Downstream Customer Industries

P7: Sustainable innovations orientation will be greater in firms competing in industries in which firms in downstream customer industries are more extensively involved in sustainability-related initiatives.

Size of End Users’ Customer Base

P8: Sustainable innovations orientation will be greater in firms competing in industries with a relatively larger end users customer base than in firms competing in industries with a smaller end users’ customer base.

Theory

Theory

•  Explanation of a phenomenon.

•  Statement of what causes what and why.

Theory

•  Relationships that specify why one (or more) constructs affect other constructs.

•  When (under what conditions -- moderators) and how (the process by which -- mediators) given outcomes are affected. (MacInnis 2011, p. 141)


(Re: Question 3)

What are the outcomes or consequences of sustainable innovations orientation?

Theoretical Explanation

•  Resource Based View of the Firm

•  Capabilities Based View of the Firm

Sustainable Innovations Orientation: A Conceptual Model (Re:

Question 3)

Posited Relationship between Sustainable Innovations Orientation AND

•  Sustainable process innovations performance (+)

•  Sustainable product innovations performance (+)

•  Environmental performance (+)

•  Employees’ performance (+)

•  Marketing performance (-/+; an empirical issue)

•  Financial performance (-/+; an empirical issue)

Sustainable Innovations Orientation: Can Firms Do Well by Doing Good?

Sustainable Innovations Orientation and Marketing Performance & Sustainable Innovations Orientation and Financial Performance

Superior Marke/ng Performance and Superior Financial Performance Over the Long-‐term (Mental Model of Theory-‐in-‐Use)

“ITC has craVed innova4ve business models that simultaneously build economic, environmental, and social capital — the pillars for sustainable and inclusive growth for the na4on. The problem is that markets seldom reward such an approach, since the uni-‐dimensional focus is on financial wealth crea4on and quarterly results rather than sustainable growth in the long run. My argument is that when consumers and civil society begin to recognise the sustainability of companies, and when their consumer franchise is directed to those companies in terms of preference of products and services, then investors would automa4cally be aYracted. Investors will then ins4nc4vely gravitate towards this larger consumer franchise and thereby to socially responsible corpora4ons.” (Deveshwar -‐-‐ Chairman of ITC Limited, 2013)

Sustainable Innovations Orientation and Marketing Performance & Sustainable Innovations Orientation and Financial Performance

Findings of Global Survey

•  Percent of respondents indica4ng a willingness to buy green products: 40%

•  Percent of respondents who had actually bought green products: 4%

•  Gap between consumers’ actudes toward sustainable products and actual behaviors: 36%

UN Report on Advancing Sustainable Lifestyles through Marke4ng and

Communica4ons (United Na4ons Environment Programme 2005)

The Holy Grail for Marketers: Overcoming barriers to sustainable consumption while making a profit.

Sustainable Innovations Orientation and Marketing Performance & Sustainable Innovations Orientation and

Financial Performance

Who Benefits from Individual Consumers Engaging in Pro-environmental Behavior?

Persuading consumers to engage in environmentally responsible behaviors presents a challenge due to the fact that beneficiary may not always be the consumer who engages in pro-environmental behavior, but other consumers, the society at large, or the planet Earth (Grinstein and Wathieu 2012).

Sustainable Innovations Orientation: A Conceptual Model (Re: Question 3)


Environmental Performance

• Reduction in CO2 emissions, energy consumption, water consumption and waste disposed

• Reduction in amount of material used in product and packaging

• Increase in substitution of nonrenewable energy with renewable energy

• Increase in substitution of nonrenewable materials with renewable materials

Marketing Performance Mean change for the product portfolio of the firm in: • Market share. Sales growth rate. Customer

satisfaction. Customer loyalty


•  Return on sales. Return on investment. Tobin’s q

Employees’ Performance • Organizational commitment. Job satisfaction

Sustainable Process Innovations Performance

Sustainable Product Innovations Performance

• Number and percent of firm’s present products enhanced with sustainable innovations during a specified time frame

• Number of ecologically superior new products introduced during a specified time frame

Outcomes of Sustainable Innovations Orientation

All else being equal, a high level of sustainable innovations orientation over an extended period of time will result in a firm accumulating greater amount of sustainable process and product innovations related resources and capabilities.

•  Resources: Stocks of available factors that are controlled or owned by the firm.

•  Capabilities: Capacity of a firm to deploy resources, usually in combination, using organizational processes to achieve a desired end (Amit and Schoemaker 1993, p. 35).

Sustainable Innovations Capabilities: Definition

Ability of a firm to integrate, build, and reconfigure internal and external sustainability–related resources to develop new products, processes, and practices, and modify existing products, processes, and practices, and thereby significantly reduce the impact of its activities on the natural environment.

Sustainable Innovations Orientation and Asset Stocks Accumulation

Imitability of Asset Stocks Length of time that competitors would take to imitate, and the cost they would incur to imitate is a function of the characteristics of the process of accumulation of specific asset stocks by the focal firm.

Time Compression Diseconomies Diseconomies associated with attempting to duplicate an asset stock accumulated over time by one firm by another firm over a shorter period of time (Dierickx and Cool 1989).

Maintaining a given rate of R&D spending over a particular time interval on sustainable innovations (i.e., a certain level of sustainable innovations orientation over a period of time) resulting in a larger increment to the stock of R&D know-how compared to maintaining twice the rate of spending over half the time interval.

Asset Mass Inefficiencies Initial level of an asset stock impacts its further accumulation (Dierickx and Cool 1989).

A firm’s higher level of asset stock position (i.e., sustainable innovations capabilities) at a particular point in time will facilitate further asset accumulation at lower cost than a competitor attempting to build from a lower level of asset stock position at the same point in time.

Industry Factors •  Relative environmental impact of

industry (P5) •  Sustainability initiatives of firms in

upstream supplier industries (P6) •  Sustainability initiatives of firms in

downstream customer industries (P7)

•  Size of end users customer base (P8)

Firm Factors •  Size (P1) •  Globalization (P2) •  Reputation (P3) •  Slack (P4)



Environmental Performance

•  Reduction in CO2 emissions, energy consumption, water consumption and waste disposed

•  Reduction in amount of material used in product and packaging

•  Increase in substitution of nonrenewable energy with renewable energy

•  Increase in substitution of nonrenewable materials with renewable materials

Marketing Performance Mean change for the product portfolio of the firm in: •  Market share •  Sales growth rate •  Customer satisfaction •  Customer loyalty


•  Return on sales •  Return on investment •  Tobin’s q

Employees’ Performance •  Organizational commitment •  Job satisfaction

Sustainable Process Innovations Performance

Sustainable Product Innovations Performance

•  Number and percent of firm’s present products enhanced with sustainable innovations during a specified time frame

•  Number of ecologically superior new products introduced during a specified time frame

Institutional Pressures •  Coercive Pressures •  Mimetic Pressures •  Normative Pressures

Drivers of Sustainable Innovations Orientation


Sustainable Innovations Orientation: A Conceptual Model Antecedents of Sustainable Innovations Orientation

•  Institutional theory: Explanation of the general movement of a growing number of firms in the direction of increasing levels of sustainable innovations orientation:

Heterogeneity In Sustainable Innovations Orientation

•  Explanation of heterogeneity in sustainable innovations orientation of firms in the broader context of the general movement of a growing number of firms in the direction of increasing levels of sustainable innovations orientation

–  Firm Characteristics

–  Industry Characteristics


•  Resource Based View and Capabilities Based View of the Firm: Explanation of performance outcomes of sustainable innovations orientation

Sustainable Innovations and the Triple Bottom Line

Triple Bottom Line: 3Ps •  Planet (Environmental Performance)

•  Profit (Economic Performance)

•  People (Social Performance) – Outside the scope of the model

Sustainability: Impact of Population, Affluence and Technology (IPAT)

Sustainability and IPAT

•  IPAT Formula: Impact of human activities on the planet and the natural environment

•  Impact = Population X Affluence X Technology

–  Population: +

–  Affluence: +

–  Technology: - / + (Sustainable Innovations)

•  Population: By 2050, the world’s population is projected to be over nine billion.

•  Affluence: Worldwide, an increasingly larger percent of the population is becoming increasingly affluent.

•  Affluence: Emerging markets are becoming a major market for a growing array of goods and services, as a result of increasing affluence.

•  Affluence: China supplants the United States as the largest market for new cars.

IPAT Identity and Sustainable Innovations

“But note that this rate of zero environmental impact is not achieved by a return to “primitive” conditions, but by an actual technological advance” (Commoner 1972; cited in Chertow 2001, p. 26).

Commoner, B. (1972), “The Environmental Cost of Economic Growth,” in Population, Resources and the Environment. Edited by R. G. Ridker, Washington DC. US Government Printing Office, pp. 339-363.

Managing an Organization’s Environmental Footprint

“Today, managing a company’s environmental footprint is less and less limited to the environmental department. Increasingly, it is the domain of procurement, finance, facilities, fleets, legal, operations, real estate, supply chain, marketing, investor relations, even human resources. Growing numbers of us are recycling, telecommuting, rethinking business travel, turning off lights, rooting out waste, and generally being more conscious of the impacts of the things we do at work. In some companies, such activities are tied to managers’ and executives’ performance evaluations and compensation. Increasingly, these efforts are directed by someone in the C-suite.” (Joel Makower and editors of GreenBiz.com. State of Green Business 2011).

THANK YOU FOR YOUR TIME

COMMENTS, SUGGESTIONS, CRITICISMS AND QUESTIONS WELCOME AND GREATLY APPRECIATED

“We teach best what we desperately need to learn.” (Railroad Bob) (In: Joe Klein, “A Virtual Cycle,” TIME, October 6, 2014, p. 30)

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