Alternative Energy Source Development Andrea Larson Darden Business School, University of Virginia July 17-19, 2003 Florida Atlantic University’s Fort Lauderdale Campus

The Ingenuity Project Approach: INNOVATION AT THE NEXUS OF BUSINESS AND NATURAL SYSTEMS Methods: Interdisciplinary/Collaborative Research Publications Curriculum development Workshops, conferences MBA program Executive program Distribution of teaching materials Purpose: Integration of Sustainability Issues Into Management Education

Methods: Interdisciplinary/Collaborative

Research

Publications

Curriculum development

Workshops, conferences

MBA program

Executive program

Distribution of teaching materials

Innovation, Entrepreneurship and Natural Systems FUEL CELLS ENERGY MODULE COURSE CONTENT

Fuel Cell Material Useful in Courses On … Strategy Environment Innovation Entrepreneurship

Strategy

Environment

Innovation

Entrepreneurship

Perceptions and/or Assumptions Environment is “out there” – separate Social Responsibility Ethics Costs and Compliance Altruism Externality Luxury for Good Times Only Big Companies Can Afford Only Small Companies Can Do Risk Liability Regulation

Course Topics Entrepreneurship (Schumpeterian) Innovators and innovations Future products and services Opportunity Competitive Advantage Business and individual leadership

Entrepreneurship (Schumpeterian)

Innovators and innovations

Future products and services

Opportunity

Competitive Advantage

Business and individual leadership

Sustainable Business: Opportunity and Value Creation The search for sustainability can lead to innovation that yields cost savings, new designs, and competitive advantage. Like the quality gurus who called for zero defects, the early adopters of the sustainability perspective may seem extreme in calling for waste-free businesses in which the nonproduct outputs become inputs for other products or services. But sustainability’s zero-waste goal offers a critical, underlying insight: environmental and social issues offer opportunities for businesses.

The search for sustainability can lead to innovation that yields cost savings, new designs, and competitive advantage. Like the quality gurus who called for zero defects, the early adopters of the sustainability perspective may seem extreme in calling for waste-free businesses in which the nonproduct outputs become inputs for other products or services. But sustainability’s zero-waste goal offers a critical, underlying insight: environmental and social issues offer opportunities for businesses.

Sustainable Business: Opportunity and Value Creation Sustainable business is environmentally and socially aware business strategies and operating practices that guide firms to a cleaner, healthier, more equitable (and hence more stable world) - AND offer an avenue to profitability and competitive advantage. Sustainable business entrepreneurs understand that sustainability (or “triple bottom line”) opportunities represent a wide open frontier for creativity, innovation, and the creation of value.

Sustainable business is environmentally and socially aware business strategies and operating practices that guide firms to a cleaner, healthier, more equitable (and hence more stable world) - AND offer an avenue to profitability and competitive advantage.

Sustainable business entrepreneurs understand that sustainability (or “triple bottom line”) opportunities represent a wide open frontier for creativity, innovation, and the creation of value.

Evolution of the Sustainability Focus in the late 1990s Parallels the Evolution of Quality Programs in the early 1980s Resistance and lack of understanding at the outset Seemingly unrealistic goals (zero defects, now zero waste/emissions) become standard operating practices Initiatives lead to product and process innovations (not just incremental improvements) Both movements require – leadership and an educated and engaged workforce Success extends efforts into value chain management and further improvements and innovation Sustainable business movement is best understood in relation to the quality movement and sustainability builds logically from the platform of successful quality programs. Parallels to quality include:

Resistance and lack of understanding at the outset

Seemingly unrealistic goals (zero defects, now zero waste/emissions) become standard operating practices

Initiatives lead to product and process innovations (not just incremental improvements)

Both movements require – leadership and an educated and engaged workforce

Success extends efforts into value chain management and further improvements and innovation

The Evolution of Corporate Response to Environmental Concerns: 1980s, 1990s and Beyond Peripheral to strategy Focus on the firm Pursuing incremental change Returns to stockholders Integrated into strategy Wider focus on networks of firms across the value chain Positioned for breakthrough innovation Triple bottom line Waste streams to landfills (linear) Piecemeal analysis Waste is inevitable and costly Opportunities in product recovery and remanufacturing (cyclical) Systems thinking Waste can be minimized Waste is a resource Cost burden Altruism Focus on compliance End-of-pipe filters and treatment Side issue Reactive management Isolated activity Profit or Environment Innovative, anticipatory, entrepreneurial management Organization-wide frameworks, tools, and programs Profit and Environment and Equity Opportunity for efficiency Operational excellence and strong financial performance Focus on competitiveness and strategic advantage Product and process design criteria include the environment Quality initiatives encompass environment Managerial Mindset Definition of the Issues Perception of Waste Strategic Orientation 1980 2000

The Change in Perspective on Environmental/Social Issues Innovative, anticipatory, entrepreneurial Reactive Yes, but only with frameworks, tools, and programs Technology solutions Core Peripheral Strong financial performance Doing good Cost competitiveness and strategic advantage Compliance Efficiencies Cost burden Operational excellence Rhetoric Sustainability View Traditional Thinking

Innovative, anticipatory, entrepreneurial

Reactive

Yes, but only with frameworks, tools, and programs

Technology solutions

Core

Peripheral

Strong financial performance

Doing good

Cost competitiveness and strategic advantage

Compliance

Efficiencies

Cost burden

Operational excellence

Rhetoric

Key Questions to Be Addressed in the Course WHY the Concern? WHAT Does It Mean? HOW Are Firms Implementing?

WHY the Concern?

WHAT Does It Mean?

HOW Are Firms Implementing?

Student Learning Objectives: Gain perspective and insight into a rapidly expanding arena of entrepreneurship and innovation Explore the why, what, and how of “sustainable” business Understand the history and context for sustainability ideas and practices Comprehend and apply frameworks, concepts, and terms Learn from multiple examples of firms integrating sustainability principles into strategy/operations

Gain perspective and insight into a rapidly expanding arena of entrepreneurship and innovation

Explore the why, what, and how of “sustainable” business

Understand the history and context for sustainability ideas and practices

Comprehend and apply frameworks, concepts, and terms

Learn from multiple examples of firms integrating sustainability principles into strategy/operations

Methods: Discussion and analysis Articles, book chapters Case studies Technical notes Mini-lectures Guest speakers Videos Student reports Final Papers

Discussion and analysis

Articles, book chapters

Case studies

Technical notes

Mini-lectures

Guest speakers

Videos

Student reports

Final Papers

Frameworks and Concepts Schumpeterian innovation Entrepreneurship Environmental management and sustainable innovation EI=P x A x T Earth Systems Engineering and Management Industrial Ecology The Natural Step Natural capitalism Cradle to cradle Green chemistry Nature’s services Biomimicry Precautionary principle

Schumpeterian innovation

Entrepreneurship

Environmental management and sustainable innovation

EI=P x A x T

Earth Systems Engineering and Management

Industrial Ecology

The Natural Step

Natural capitalism

Cradle to cradle

Green chemistry

Nature’s services

Biomimicry

Precautionary principle

5 Schumpeterian Forces of Creative Destruction Discovery of… New technologies New products New markets New processes New organizational forms

Discovery of…

New technologies

New products

New markets

New processes

New organizational forms

Schumpeter Entrepreneurship as “New Combinations” Existing technology + new processes New technology applications + new organizational forms Enhanced products + new processes + expanded markets New technology + new markets

Existing technology + new processes

New technology applications + new organizational forms

Enhanced products + new processes + expanded markets

New technology + new markets

Entrepreneurship: A Frontier of Innovation Time Orientation – Past & Present Time Orientation – Present & Future The Traditional Economy The Entrepreneurial Economy New Paradigm… Schumpeter’s “creative destruction” New technologies, products, markets, processes, organizational forms

Schumpeter’s “creative

destruction”

New technologies, products, markets, processes, organizational forms

PAST PRESENT FUTURE Conventional Products, Services (power, transportation, materials, food, shelter) Wind turbines Fuel cells Hybrid cars Biodegradable plastic Organic food Buy function, not product Reverse logistics Zero waste Zero emissions Markets in nature’s services Creating the Future Through Innovation New Products

Sustainable Business Innovation and the Traditional Economy Traditional Economy Entrepreneurial Sector Sustainable Business Subsector

The Impact of the Entrepreneurial Sector The force of one period’s entrepreneurs becomes the next generation’s business paradigm, therefore entrepreneurship trends can be seen as a leading indictor of business change

The force of one period’s entrepreneurs becomes the next generation’s business paradigm, therefore entrepreneurship trends can be seen as a leading indictor of business change

Entrepreneurship “ At the core of entrepreneurship is the question of why and under what conditions opportunities for [Schumpeterian] innovation and creativity exist.” – Venkataraman, 1997

“ At the core of entrepreneurship is the question of why and under what conditions opportunities for [Schumpeterian] innovation and creativity exist.”

– Venkataraman, 1997

Population Growth Source: Living in the Environment, Tenth Edition, G. Tyler Miller, Jr., 1998 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Billions of people Black Death - the Plague Hunting and Gathering Agricultural Revolution Industrial Revolution 2-5 million years 8000 6000 4000 2000 2000 2100 Time B.C. A.D.

UNLIKE NATURAL SYSTEMS, MODERN HUMAN SOCIETIES PROCESS RESOURCES IN A LINEAR FASHION, CREATING WASTES FASTER THAN THEY CAN BE RECONSTITUTED INTO USABLE RESOURCES. On average 94% of the raw materials used in creating a product ends up as waste; only 6% ends up in the final product. 6% Product 94% Waste Source: National Academy of Engineering

Changing Character of Natural Resource Challenges in the Last 25 Years Local Specific Short Delay Low Complexity Society Impact Low Global Diffuse Long Delay High Complexity Societal Impact High

Major Environmental and Resource Problems Air Pollution Global climate change Stratospheric ozone depletion Urban air pollution Acid deposition Outdoor pollutants Indoor pollutants Noise Water Pollution Sediment Nutrient overload Toxic chemicals Infectious agents Oxygen depletion Pesticides Oil spills Excess heat Biodiversity Depletion Habitat destruction Habitat degradation Extinction Food Supply Problems Overgrazing Farmland loss and degradation Wetlands loss and degradation Overfishing Coastal pollution Soil erosion Soil salinization Water shortages Groundwater depletion Loss of biodiversity Waste Production Solid waste Hazardous waste Major Environmental Problems Source: Living in the Environment, Tenth Edition, G. Tyler Miller, Jr., 1998 Human Health Childhood diseases Cancer Asthma Immune system deficiencies Reproductive system problems Endocrine system disruptions

Air Pollution

Global climate change

Stratospheric ozone depletion

Urban air pollution

Acid deposition

Outdoor pollutants

Indoor pollutants

Noise

Water Pollution

Sediment

Nutrient overload

Toxic chemicals

Infectious agents

Oxygen depletion

Pesticides

Oil spills

Excess heat

Biodiversity Depletion

Habitat destruction

Habitat degradation

Extinction

Food Supply Problems

Overgrazing

Farmland loss and degradation

Wetlands loss and degradation

Overfishing

Coastal pollution

Soil erosion

Soil salinization

Water shortages

Groundwater depletion

Loss of biodiversity

Waste Production

Solid waste

Hazardous waste

Human Health

Childhood diseases

Cancer

Asthma

Immune system deficiencies

Reproductive system problems

Endocrine system disruptions

Changing Conditions Natural Resource Services (amount, quality, assimilative capacity) Public opinion NGOs Media International protocol 1900 Demand for Natural Resources (population, consumption, technology) The Economy 1970 Innovation and Opportunity Innovation: Creating New Competitive Space The Economy Customer demand Recruitment and retention Material cost, availability Waste disposal Regulation Health issues Fines Liabilities Insurance Bank credit Risk Corporation

66% (or 2/3rds) of U.S. oil imports are used for transportation 80% of global warming pollution is from use of fossil fuels 10% of global carbon dioxide pollution is from the U.S. 99% of total U.S. oil use is U.S. oil imports

"Only few megatrends exist that are of special importance to the future of the automotive industry. Sustainable mobility is one of them, and fuel cells are a key technology for it." Prof. Klaus-Dieter Voehringer, President of the Shareholder Committee of XCELLSIS and President of Research and Technology of DaimlerChrysler

Fuel Cells “UTC Fuel Cells: Innovation Inside a Large Firm” “Fuel Cell Technology and Market Opportunity” Case Teaching Note Earth Systems Engineering and Management Climate Systems FUEL CELLS ENERGY MODULE COURSE CONTENT

Fuel Cells

“UTC Fuel Cells: Innovation Inside a Large Firm”

“Fuel Cell Technology and Market Opportunity”

Case Teaching Note

Energy Module Corporate Response Earth Systems Engineering & Management Teaching Materials Articles on ESEM, video Telework at AT&T Atlantic Energy Fuel Cell Technology and Market Opportunity UTC Fuel Cells – Innovation Inside a Large Firm Teaching Note Telework Emissions trading systems Fuel cells Corporate Transparency Regulation Efficiency Bank Credit & Insurance Health National Security Risk Management Competition Fiduciary Responsibility Climate Changes Glaciers melting Extreme weather Flooding Drought Warming 2004 HYBRID VEHICLES Multimedia Case

Teaching Materials

Articles on ESEM, video

Telework at AT&T

Atlantic Energy

Fuel Cell Technology and Market Opportunity

UTC Fuel Cells – Innovation Inside a Large Firm

Teaching Note

Telework

Emissions trading systems

Fuel cells

Climate Changes

Glaciers melting

Extreme weather

Flooding

Drought

Warming

Expected U.S. Fuel Cell Market Growth Source: Freedonia Group 2002 U.S. Fuel Cell Market Size 2006 2010 $3.3 billion $23 billion

Case Discussion Entrepreneurship Framework Analysis Team Opportunity Product Resources Strategy UTCFC Evaluation Pre-1997 and 2002 Corporate Environmental Policy: Beyond Compliance to Innovation

Entrepreneurship Framework Analysis

Team

Opportunity

Product

Resources

Strategy

UTCFC Evaluation

Pre-1997 and 2002

Corporate Environmental Policy: Beyond Compliance to Innovation

Conversion Efficiency of ICE (Internal Combustion) Vehicles is 20-25% (with CO 2 emissions) compared to 55% Conversion Efficiency of FC (Fuel Cell) vehicles (with water and heat as the only emissions)

Total Relative Emissions from Vehicles Sulfur Dioxide Nitrogen-Oxygen Compounds Volatile Organic Compounds Source: http://www.sandiegometro.com/1999/sep/coverstory.html 1.2 1.0 0.8 0.6 0.4 0.2 Gasoline Engine Natural Gas Engine Hydrogen Fuel Cell Electric Methonol Fuel Cell Electric

Fuel Cells Advantages Smaller engine unit size More interior space, better visibility Improved ride, handling, stability Quiet Skateboard chassis Twice the efficiency of ICE Pure hydrogen fuel -> zero emissions Integration of fuel cell with electronics (steering, braking, etc) Reduced reliance on oil imports Competition in energy, pricing Obstacles Durable on-board hydrogen storage technology (300 miles) Interim fuels Refueling infrastructure Chicken-egg challenge

Advantages

Smaller engine unit size

More interior space, better visibility

Improved ride, handling, stability

Quiet

Skateboard chassis

Twice the efficiency of ICE

Pure hydrogen fuel -> zero emissions

Integration of fuel cell with electronics (steering, braking, etc)

Reduced reliance on oil imports

Competition in energy, pricing

Obstacles

Durable on-board hydrogen storage technology (300 miles)

Interim fuels

Refueling infrastructure

Chicken-egg challenge

Small R&D Shop Cost Center Market-facing High-growth Profit Center Challenge to UTC

Two Separate but Interlinked Corporate Arenas of Activity Environmental Management Sustainability Innovation

Environmental Management

Sustainability Innovation

Sustainability as a Next Step in Total Quality Management Safety = zero injuries JIT = zero inventory TQM = zero defects Sustainability = zero waste and zero emissions

Safety = zero injuries

JIT = zero inventory

TQM = zero defects

Sustainability = zero waste and zero emissions

A Framework for the Process of Entrepreneurship Entrepreneur Opportunity Product Concept Resources Strategy

Environmental Impact Model Number of people (P) Number of units of resources used per person (A) Environmental degradation and pollution per unit of resource used (T) Environmental impact of population (I)  =  Source: Living in the Environment, Tenth Edition, G. Tyler Miller, Jr., 1998

Sustainable Business: Opportunity and Value Creation Sidestepping the need for sustainability may prove difficult. Population growth rates and related higher levels of waste guarantee environmental concerns will grow in importance. The government and the public are increasingly concerned with the extent and severity of air, water, and soil contamination and the implications of natural resource consumption and pollution for food production, drinking water availability, and public health. As environmental and social problems increase, public health concerns are likely to drive new approaches to pollution prevention and new regulations encompassing previously unregulated activities. As concerns and regulations increase, so will the market power of sustainable businesses.

Sidestepping the need for sustainability may prove difficult. Population growth rates and related higher levels of waste guarantee environmental concerns will grow in importance. The government and the public are increasingly concerned with the extent and severity of air, water, and soil contamination and the implications of natural resource consumption and pollution for food production, drinking water availability, and public health. As environmental and social problems increase, public health concerns are likely to drive new approaches to pollution prevention and new regulations encompassing previously unregulated activities. As concerns and regulations increase, so will the market power of sustainable businesses.

From Patagonia, Tom’s of Maine, Ben and Jerry’s, The Body Shop to … Interface Mitsubishi Electric Scandic Electrolux (Frigidaire) IKEA Xerox AT&T Weyerhauser Alcoa Ford UTC Allied Signal 3M Collins Pine Visteon Automotive Systems Suncor Harley-Davidson Johnson & Johnson Royal Dutch/Shell Conoco BP Shaw

Interface

Mitsubishi Electric

Scandic

Electrolux (Frigidaire)

IKEA

Xerox

AT&T

Weyerhauser

Alcoa

Ford

UTC

Allied Signal

3M

Collins Pine

Visteon Automotive Systems

Suncor

Harley-Davidson

Johnson & Johnson

Royal Dutch/Shell

Conoco

BP

Shaw

Lens Adjustment Engineered world Systems: Cells to atmosphere/biosphere

Engineered world

Systems: Cells to atmosphere/biosphere

Sustainable Business: Opportunity and Value Creation The ideas of sustainable business are positive, visionary, and strategic. Companies that do not develop capabilities in sustainability will risk becoming less competitive as the more innovative firms committed to sustainability forge ahead.

The ideas of sustainable business are positive, visionary, and strategic. Companies that do not develop capabilities in sustainability will risk becoming less competitive as the more innovative firms committed to sustainability forge ahead.