www.hbr.org
Why Sustainability Is
Now the Key Driver of
Innovation
by Ram Nidumolu, C.K. Prahalad, and
M.R. Rangaswami
Included with this full-text Harvard Business Review article:
1 Article Summary
The Idea in Brief—the core idea
3 Why Sustainability Is Now the Key Driver of Innovation
Reprint R0909E

Why Sustainability Is Now the Key Driver of
Innovation
The Idea in Brief
• Sustainability isn’t the burden on bottom
lines that many executives believe it to be.
In fact, becoming environment-friendly
can lower your costs and increase your
revenues. That’s why sustainability should
be a touchstone for all innovation.
• In the future, only companies that make
sustainability a goal will achieve com-
petitive advantage. That means rethink-
ing business models as well as products,
technologies, and processes.
• Becoming sustainable is a five-stage
process, and each stage has its own
challenges. Here’s how to tackle them
and emerge from the recession ahead of
the pack.
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
page 1

Why Sustainability Is
Now the Key Driver of
Innovation
by Ram Nidumolu, C.K. Prahalad, and
M.R. Rangaswami
There’s no alternative to sustainable develop- panies and consumer activists, and sometimes
ment. between consumer activists and governments.
Even so, many companies are convinced that It resembles a three-legged race, in which
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
the more environment-friendly they become, you move forward with the two untied legs
the more the effort will erode their competi- but the tied third leg holds you back. One
tiveness. They believe it will add to costs and solution, mooted by policy experts and envi-
will not deliver immediate financial benefits. ronmental activists, is more and increasingly
Talk long enough to CEOs, particularly in tougher regulation. They argue that volun-
the United States or Europe, and their con- tary action is unlikely to be enough. Another
cerns will pour out: Making our operations group suggests educating and organizing
sustainable and developing “green” products consumers so that they will force businesses
places us at a disadvantage vis-à-vis rivals to become sustainable. Although both legisla-
in developing countries that don’t face the tion and education are necessary, they may
same pressures. Suppliers can’t provide green not be able to solve the problem quickly or
inputs or transparency; sustainable manufac- completely.
turing will demand new equipment and pro- Executives behave as though they have to
cesses; and customers will not pay more for choose between the largely social benefits of
eco-friendly products during a recession. developing sustainable products or processes
That’s why most executives treat the need to and the financial costs of doing so. But that’s
become sustainable as a corporate social re- simply not true. We’ve been studying the sus-
sponsibility, divorced from business objectives. tainability initiatives of 30 large corporations
Not surprisingly, the fight to save the planet for some time. Our research shows that sus-
has turned into a pitched battle between tainability is a mother lode of organizational
governments and companies, between com- and technological innovations that yield both
harvard business review • september 2009 page 3

Why Sustainability Is Now the Key Driver of Innovation
bottom-line and top-line returns. Becoming past two decades. These standards are more
environment-friendly lowers costs because stringent than most countries’ laws, particu-
companies end up reducing the inputs they larly when they apply to cross-border trade.
use. In addition, the process generates addi- It’s tempting to adhere to the lowest en-
tional revenues from better products or en- vironmental standards for as long as possible.
ables companies to create new businesses. However, it’s smarter to comply with the
In fact, because those are the goals of corpo- most stringent rules, and to do so before
rate innovation, we find that smart companies they are enforced. This yields substantial
now treat sustainability as innovation’s new first-mover advantages in terms of fostering
frontier. innovation. For example, automobile manu-
Indeed, the quest for sustainability is al- facturers in the United States take two or
ready starting to transform the competitive three years to develop a new car model. If
landscape, which will force companies to GM, Ford, or Chrysler had embraced the
change the way they think about products, California Air Resources Board’s fuel con-
technologies, processes, and business models. sumption and emissions standards when
The key to progress, particularly in times of they were first proposed, in 2002, it would be
economic crisis, is innovation. Just as some two or three design cycles ahead of its rivals
internet companies survived the bust in 2000 today—and poised to pull further ahead by
to challenge incumbents, so, too, will sustain- 2016, when those guidelines will become the
able corporations emerge from today’s reces- basis of U.S. law.
sion to upset the status quo. By treating Enterprises that focus on meeting emerging
sustainability as a goal today, early movers norms gain more time to experiment with
will develop competencies that rivals will materials, technologies, and processes. For
be hard-pressed to match. That competitive instance, in the early 1990s Hewlett-Packard
advantage will stand them in good stead, be- realized that because lead is toxic, govern-
cause sustainability will always be an integral ments would one day ban lead solders. Over
part of development. the following decade it experimented with
It isn’t going to be easy. Enterprises that alternatives, and by 2006 the company had
have started the journey, our study shows, go created solders that are an amalgam of tin,
through five distinct stages of change. They silver, and copper, and even developed chemi-
face different challenges at each stage and cal agents to tackle the problems of oxidiza-
must develop new capabilities to tackle tion and tarnishing during the soldering
them, as we will show in the following pages. process. Thus HP was able to comply with the
Mapping the road ahead will save companies European Union’s Restriction of Hazardous
Ram Nidumolu (ram@innovastrat time—and that could be critical, because the Substances Directive, which regulates the use
.com) is the founder and CEO of clock is ticking. of lead in electronics products, as soon as it
InnovaStrat, a Santa Cruz–based firm took effect, in July 2006.
that helps companies design and Stage 1: Viewing Compliance as Contrary to popular perceptions, conform-
implement sustainability strategies Opportunity ing to the gold standard globally actually
and new business models. The first steps companies must take on the saves companies money. When they comply
C.K. Prahalad (ckp@bus.umich.edu) long march to sustainability usually arise from with the least stringent standards, enterprises
is the Paul and Ruth McCracken Distin- the law. Compliance is complicated: Environ- must manage component sourcing, produc-
guished University Professor of Strate- mental regulations vary by country, by state tion, and logistics separately for each market,
gy at the University of Michigan’s Ross or region, and even by city. (In 2007 San because rules differ by country. However, HP,
School of Business and a member of Francisco banned supermarkets from using Cisco, and other companies that enforce a
the board of directors of the World Re- plastic bags at checkout; San Diego still single norm at all their manufacturing facili-
sources Institute. M.R. Rangaswami hasn’t.) In addition to legal standards, enter- ties worldwide benefit from economies of
(mr@sandhill.com) is the founder of prises feel pressured to abide by voluntary scale and can optimize supply chain opera-
the Corporate Eco Forum, a global or- codes—general ones, such as the Greenhouse tions. The common norm must logically be
ganization of senior executives, and Gas Protocol, and sector-specific ones, such the toughest.
the cofounder of the Sand Hill Group, as the Forest Stewardship Council code and Companies can turn antagonistic regulators
a San Francisco–based strategic the Electronic Product Environmental Assess- into allies by leading the way. For instance, HP
management, investment, and ment Tool—that nongovernmental agencies has helped shape many environmental regula-
advisory firm. and industry groups have drawn up over the tions in Europe, and it uses the resulting
page 4 harvard business review • september 2009

Why Sustainability Is Now the Key Driver of Innovation
brownie points to advantage when necessary. aim is usually to create a better image, but
In 2001 the European Union told hardware most corporations end up reducing costs or
manufacturers that after January 2006 they creating new businesses as well. That’s partic-
could not use hexavalent chromium—which ularly helpful in difficult economic times, when
increases the risk of cancer in anyone who corporations are desperate to boost profits.
comes in contact with it—as an anticorrosion Companies develop sustainable operations
coating. Like its rivals, HP felt that the indus- by analyzing each link in the value chain. First
try needed more time to develop an alter- they make changes in obvious areas, such as
native. The company was able to persuade supply chains, and then they move to less ob-
regulators to postpone the ban by one year vious suspects, such as returned products.
so that it could complete trials on organic and Supply chains. Most large corporations in-
trivalent chromium coatings. This saved it duce suppliers to become environment-
money, and HP used the time to transfer the conscious by offering them incentives. For
technology to more than one vendor. The ven- instance, responding to people’s concerns
dors competed to supply the new coatings, about the destruction of rain forests and
which helped reduce HP’s costs. wetlands, multinational corporations such
Companies in the vanguard of compliance as Cargill and Unilever have invested in
naturally spot business opportunities first. technology development and worked with
In 2002 HP learned that Europe’s Waste farmers to develop sustainable practices in
Electrical and Electronic Equipment regula- the cultivation of palm oil, soybeans, cacao,
tions would require hardware manufacturers and other agricultural commodities. This has
to pay for the cost of recycling products in resulted in techniques to improve crop yields
proportion to their sales. Calculating that and seed production.
the government-sponsored recycling arrange- Some companies in the West have also
ments were going to be expensive, HP teamed started laying down the law. For example, in
up with three electronics makers—Sony, October 2008 Lee Scott, then Wal-Mart’s CEO,
Braun, and Electrolux—to create the private gave more than 1,000 suppliers in China a
European Recycling Platform. In 2007 the directive: Reduce waste and emissions; cut
platform, which works with more than 1,000 packaging costs by 5% by 2013; and increase
companies in 30 countries, recycled about the energy efficiency of products supplied to
20% of the equipment covered by the WEEE Wal-Mart stores by 25% in three years’ time. In
Directive. Partly because of the scale of its like vein, Unilever has declared that by 2015 it
operations, the platform’s charges are about will be purchasing palm oil and tea only from
55% lower than those of its rivals. Not only sustainable sources, and Staples intends that
did HP save more than $100 million from most of its paper-based products will come
2003 to 2007, but it enhanced its reputa- from sustainable-yield forests by 2010.
tion with consumers, policy makers, and Tools such as enterprise carbon manage-
the electronics industry by coming up with ment, carbon and energy footprint analysis,
the idea. and life-cycle assessment help companies
identify the sources of waste in supply chains.
Stage 2: Making Value Chains Life-cycle assessment is particularly useful: It
Sustainable captures the environment-related inputs and
Once companies have learned to keep pace outputs of entire value chains, from raw-
with regulation, they become more proactive materials supply through product use to re-
about environmental issues. Many then focus turns. This has helped companies discover, for
on reducing the consumption of nonrenew- instance, that vendors consume as much as
able resources such as coal, petroleum, and 80% of the energy, water, and other resources
natural gas along with renewable resources used by a supply chain, and that they must
such as water and timber. The drive to be be a priority in the drive to create sustainable
more efficient extends from manufacturing operations.
facilities and offices to the value chain. At this Operations. Central to building a sustain-
stage, corporations work with suppliers and able supply chain are operational innovations
retailers to develop eco-friendly raw materials that lead to greater energy efficiency and
and components and reduce waste. The initial reduce companies’ dependence on fossil fuels.
harvard business review • september 2009 page 5

Why Sustainability Is Now the Key Driver of Innovation
Take the case of FedEx, which deploys a fleet tribution hubs in California and Cologne,
of 700 aircraft and 44,000 motorized vehicles Germany. It uses hybrid vans that are 42%
that consume 4 million gallons of fuel a day. more fuel efficient than conventional trucks
Despite the global slowdown, the company is and has replaced more than 25% of its fleet
replacing old aircraft with Boeing 757s as part with smaller, more fuel-efficient vehicles. Fol-
of its Fuel Sense program, although it will lowing some other pioneers, FedEx recently
postpone ordering new ones until 2010. This turned its energy-saving expertise into a stand-
will reduce the company’s fuel consumption alone consulting business that, it hopes, will
by 36% while increasing capacity by 20%. It is become a profit center.
also introducing Boeing 777s, which will re- Workplaces. Partly because of environmen-
duce fuel consumption by a further 18%. tal concerns, some corporations encourage
FedEx has developed a set of 30 software employees to work from home. This leads to
programs that help optimize aircraft sched- reductions in travel time, travel costs, and
ules, flight routes, the amount of extra fuel on energy use. One-tenth of the corporations in
board, and so on. The company has set up our sample had from 21% to 50% of their
1.5-megawatt solar-energy systems at its dis- employees telecommuting regularly. Of IBM’s
Sustainability Challenges, Competencies, and Opportunities
STAGE 1 STAGE 2 STAGE 3 STAGE 4
Viewing Compliance Making Value Chains Designing Sustainable Developing New
as Opportunity Sustainable Products and Services Business Models
CENTRAL CHALLENGE CENTRAL CHALLENGE CENTRAL CHALLENGE CENTRAL CHALLENGE
To ensure that compliance To increase efficiencies To develop sustainable offer- To find novel ways of deliver-
with norms becomes an op- throughout the value chain. ings or redesign existing ones ing and capturing value,
portunity for innovation. to become eco-friendly. which will change the basis of
COMPETENCIES NEEDED competition.
COMPETENCIES NEEDED >> Expertise in techniques COMPETENCIES NEEDED
>> The ability to anticipate and such as carbon management >> The skills to know which COMPETENCIES NEEDED
shape regulations. and life-cycle assessment. products or services are most >> The capacity to understand
unfriendly to the environment. what consumers want and to
>> The skill to work with other >> The ability to redesign
figure out different ways to
companies, including rivals, to operations to use less energy >> The ability to generate real
meet those demands.
implement creative solutions. and water, produce fewer public support for sustainable
emissions, and generate less offerings and not be consid- >> The ability to understand
INNOVATION OPPORTUNITY waste. ered as “greenwashing.” how partners can enhance the
>> Using compliance to induce >> The capacity to ensure that >> The management know-
value of offerings.
the company and its partners
suppliers and retailers make how to scale both supplies
to experiment with sustain- INNOVATION OPPORTUNITIES
their operations eco-friendly. of green materials and the
able technologies, materials,
manufacture of products. >> Developing new delivery
and processes. technologies that change
INNOVATION OPPORTUNITIES
value-chain relationships in
>> Developing sustainable INNOVATION OPPORTUNITIES
significant ways.
sources of raw materials and >> Applying techniques such
components. as biomimicry in product >> Creating monetization
development. models that relate to services
>> Increasing the use of clean
rather than products.
energy sources such as wind >> Developing compact and
and solar power. eco-friendly packaging. >> Devising business models
that combine digital and
>> Finding innovative uses for
physical infrastructures.
returned products.
page 6 harvard business review • september 2009

Why Sustainability Is Now the Key Driver of Innovation
320,000 employees, 25% telecommute, which into a profitable business, but the change in
leads to an annual savings of $700 million in attitude signals that the company is more
real estate costs alone. AT&T estimates that it concerned about preventing environmental
saves $550 million annually as a result of tele- damage and reducing waste than it is about
commuting. Productivity rises by 10% to 20%, cannibalizing sales.
and job satisfaction also increases when Cisco, for example, had traditionally regarded
people telecommute up to three days a week. the used equipment it received as scrap and
For example, at the health-care services pro- recycled it at a cost of about $8 million a year.
vider McKesson, the group that reported Four years ago it tried to find uses for the
the highest job satisfaction in 2007 consisted equipment, mainly because 80% of the re-
of 1,000 nurses who worked from home. turns were in working condition. A value-
Returns. Concerns about cutting waste in- recovery team at Cisco identified internal
variably spark companies’ interest in product customers that included its customer service
returns. In the United States, returns reduce organization, which supports warranty claims
corporate profitability by an average of about and service contracts, and the labs that
4% a year. Instead of scrapping returned provide technical support, training, and prod-
products, companies at this stage try to re- uct demonstrations. In 2005 Cisco designated
capture some of the lost value by reusing the recycling group as a business unit, set
them. Not only can this turn a cost center clear objectives for it, and drew up a notional
P&L account. As a result, the reuse of equip-
ment rose from 5% in 2004 to 45% in 2008,
and Cisco’s recycling costs fell by 40%. The
unit has become a profit center that con-
tributed $100 million to Cisco’s bottom line
in 2008.
STAGE 5 When they create environment-friendly
Creating Next- value chains, companies uncover the mone-
Practice Platforms tary benefits that energy efficiency and waste
reduction can deliver. They also learn to build
CENTRAL CHALLENGE mechanisms that link sustainability initiatives
To question through the sus-
tainability lens the dominant
to business results, as the Cisco example
logic behind business today. shows. As a result, environmental concerns
take root within business units, allowing
COMPETENCIES REQUIRED
executives to tackle the next big challenge.
>> Knowledge of how renew-
able and nonrenewable
resources affect business Stage 3: Designing Sustainable
ecosystems and industries.
Products and Services
>> The expertise to synthesize At this stage executives start waking up to
business models, technolo -
gies, and regulations in dif- the fact that a sizable number of consumers
ferent industries. prefer eco-friendly offerings, and that their
businesses can score over rivals by being the
INNOVATION OPPORTUNITIES
>> Building business
first to redesign existing products or develop
platforms that will enable new ones. In order to identify product innova-
customers and suppliers to tion priorities, enterprises have to use compe-
manage energy in radically
different ways.
tencies and tools they acquired at earlier
stages of their evolution.
>> Developing products that
won’t need water in catego- Companies are often startled to discover
ries traditionally associated which products are unfriendly to the environ-
with it, such as cleaning ment. When Procter & Gamble, for example,
products.
conducted life-cycle assessments to calculate
>> Designing technologies
that will allow industries to
the amount of energy needed to use its prod-
use the energy produced as a ucts, it found that detergents can make U.S.
by-product. households energy guzzlers. They spend 3%
of their annual electricity budgets to heat
harvard business review • september 2009 page 7

Why Sustainability Is Now the Key Driver of Innovation
water for washing clothes. If they switched three years and more than $20 million to
to cold-water washing, P&G reckoned, they develop the Green Works line, delaying the
would consume 80 billion fewer kilowatt- launch twice to ensure that all five original
hours of electricity and emit 34 million fewer products performed as well as or better than
tons of carbon dioxide. That’s why the com- conventional options in blind tests.
pany made the development of cold-water Clorox had to tackle several marketing
detergents a priority. In 2005 P&G launched issues before launching Green Works. It de-
Tide Coldwater in the United States and Ariel cided to charge a 15% to 25% premium over
Cool Clean in Europe. The trend has caught conventional cleaners to reflect the higher
on more in Europe than in the United States. costs of raw materials. Green Works products
By 2008, 21% of British households were are still cheaper than competing products,
washing in cold water, up from 2% in 2002; in which carry a 25% to 50% markup over
Holland the number shot up from 5% to 52% synthetic ones. After much discussion, the
of households. During the current recession marketing team chose to put the Clorox logo
P&G has continued to promote cold-water on the Green Works line to signal that it
products, emphasizing their lower energy performs as well as conventional Clorox prod-
costs and compact packaging. If cold-water ucts. The company persuaded the Sierra
washing catches on worldwide, P&G will be Club—a leading environmental group in the
able to cash in on the trend. United States—to endorse Green Works.
Likewise, Clorox was surprised to learn Although it sparked controversy among ac-
that household cleaning products are the tivists, this partnership strengthened Clorox’s
second biggest environmental concern—after credentials, and in 2008 the company paid
automobiles—in the United States. Its market nearly $500,000 to the Sierra Club as its share
research also showed that 15% of consumers of revenues from the line. Finally, Clorox
treat health and sustainability as major struck special arrangements with retail chains
criteria when making purchase decisions, and such as Wal-Mart and Safeway to ensure that
25% to 35% take environmental benefits into consumers could easily find Green Works
consideration. products on shelves.
In 2008 Clorox became the first mainstream By the end of 2008 Green Works had grown
consumer products company to launch a line the U.S. natural cleaners market by 100%,
of nonsynthetic cleaning products. It spent and Clorox enjoyed a 40% share of the $200
A Few Simple Rules
Smart corporations follow these simple rules learn fast, and scale rapidly. Each step is alliances with other businesses, nongovern-
in their effort to become sustainable. broken into three phases: experiments and mental organizations, and governments.
Don’t start from the present. If the start- pilots, debriefing and learning, and scaling. Success often depends on executives’ ability
ing point is the current approach to business, These companies benchmark, but the goal is to create new mechanisms for developing
the view of the future is likely to be an opti- to develop next practices—not merely mimic products, distributing them, and sharing
mistic extrapolation. It’s better to start from best practices. revenues.
the future. Once senior managers establish a Stay wedded to the goal while constantly Use a global presence to experiment.
consensus about the shape of things to come, adjusting tactics. Smart executives accept Multinational corporations enjoy an advan-
they can fold that future into the present. that they will have to make many tactical tage in that they can experiment overseas
They should ask: What are the milestones on adjustments along the way. A journey that as well as at home. The governments of
the path to our desired future? What steps takes companies through five stages—and many developing countries have become
can we take today that will enable us to get lasts a decade or more—can’t be completed concerned about the environment and are
there? How will we know that we are moving without course corrections and major encouraging companies to introduce sustain-
in that direction? changes. Although directional consistency is able products and processes, especially for
Ensure that learning precedes invest- important, tactical flexibility is critical. those at the bottom of the pyramid. It’s easier
ments. Top management’s interest in sus- Build collaborative capacity. Few innova- for global enterprises to foster innovation in
tainability sometimes leads to investments in tions, be they to comply with regulations or emerging markets, where there are fewer
projects without an understanding of how to to create a new line of products, can be devel- entrenched systems or traditional mind-sets
execute them. Smart companies start small, oped in today’s world unless companies form to overcome.
page 8 harvard business review • september 2009

Why Sustainability Is Now the Key Driver of Innovation
million market. Green Works sales weakened agement, the $14 billion market leader in
in the fourth quarter of 2008 because of the garbage disposal, did. Two years ago it esti-
recession, but they rebounded in the first mated that some $9 billion worth of reusable
quarter of 2009. The tailwind has encouraged materials might be found in the waste it carried
Clorox to launch more sustainable products: to landfills each year. At about the same time,
In January 2009 it introduced biodegradable its customers, too, began to realize that they
cleaning wipes, and the following June it in- were throwing away money. Waste Manage-
troduced nonsynthetic detergents, where it ment set up a unit, Green Squad, to generate
will run into rival P&G. value from waste. For instance, Green Squad
To design sustainable products, companies has partnered with Sony in the United States
have to understand consumer concerns and to collect electronic waste that used to end
carefully examine product life cycles. They up in landfills. Instead of being just a waste-
must learn to combine marketing skills with trucking company, Waste Management is show-
their expertise in scaling up raw-materials ing customers both how to recover value from
supplies and distribution. As they move into waste and how to reduce waste.
markets that lie beyond their traditional New technologies provide start-ups with
expertise, they have to team up with nongov- the ability to challenge conventional wisdom.
ernmental organizations. Smart companies Calera, a California start-up, has developed
like P&G and Clorox, which have continued technology to extract carbon dioxide from
to invest in eco-friendly products despite the industrial emissions and bubble it through
recession, look beyond the public-relations seawater to manufacture cement. The process
benefits to hone competencies that will mimics that used by coral, which builds shells
enable them to dominate markets tomorrow. and reefs from the calcium and magnesium in
seawater. If successful, Calera’s technology will
Stage 4: Developing New Business solve two problems: Removing emissions from
Models power plants and other polluting enterprises,
Most executives assume that creating a sus- and minimizing emissions during cement
tainable business model entails simply re- production. The company’s first cement plant
thinking the customer value proposition and is located in the Monterey Bay area, near
figuring out how to deliver a new one. How- the Moss Landing power plant, which emits
ever, successful models include novel ways of 3.5 million tons of carbon dioxide annually.
capturing revenues and delivering services The key question is whether Calera’s cement
in tandem with other companies. In 2008 will be strong enough when produced in large
FedEx came up with a novel business model by quantities to rival conventional Portland
integrating the Kinko’s chain of print shops cement. The company is toying with a radical
that it had acquired in 2004 with its document- business model: It will give away cement to
delivery business. Instead of shipping copies of customers while charging polluters a fee for
a document from, say, Seattle to New York, removing their emissions. Calera’s future is
FedEx now asks customers if they would like hard to predict, but its technology may well
to electronically transfer the master copy to upend an established industry and create a
one of its offices in New York. It prints and cleaner world.
binds the document at an outlet there and can Developing a new business model requires
deliver copies anywhere in the city the next exploring alternatives to current ways of doing
morning. The customer gets more time to business as well as understanding how compa-
prepare the material, gains access to better- nies can meet customers’ needs differently.
quality printing, and can choose from a wide Executives must learn to question existing
range of document formats that Fed-Ex pro- models and to act entrepreneurially to develop
vides. The document travels most of the way new delivery mechanisms. As companies
electronically and only the last few miles in become more adept at this, the experience
a truck. FedEx’s costs shrink and its services will lead them to the final stage of sustain-
become extremely eco-friendly. able innovation, where the impact of a
Some companies have developed new mod- new product or process extends beyond a
els just by asking at different times what their single market.
business should be. That’s what Waste Man-
harvard business review • september 2009 page 9

Why Sustainability Is Now the Key Driver of Innovation
Stage 5: Creating Next-Practice •••
Platforms Two enterprisewide initiatives help compa-
Next practices change existing paradigms. nies become sustainable. One: When a com-
To develop innovations that lead to next prac- pany’s top management team decides to focus
tices, executives must question the implicit on the problem, change happens quickly. For
assumptions behind current practices. This is instance, in 2005 General Electric’s CEO, Jeff
exactly what led to today’s industrial and Immelt, declared that the company would
services economy. Somebody once asked: Can focus on tackling environmental issues. Since
we create a carriage that moves without then every GE business has tried to move up
horses pulling it? Can we fly like birds? Can we the sustainability ladder, which has helped the
dive like whales? By questioning the status conglomerate take the lead in several indus-
quo, people and companies have changed it. tries. Two: Recruiting and retaining the right
In like vein, we must ask questions about kind of people is important. Recent research
scarce resources: Can we develop waterless suggests that three-fourths of workforce en-
detergents? Can we breed rice that grows trants in the United States regard social re-
without water? Can biodegradable packaging sponsibility and environmental commitment
help seed the earth with plants and trees? as important criteria in selecting employers.
Sustainability can lead to interesting next- People who are happy about their employers’
practice platforms. One is emerging at the positions on those issues also enjoy working
intersection of the internet and energy man- for them. Thus companies that try to become
agement. Called the smart grid, it uses digital sustainable may well find it easier to hire and
technology to manage power generation, retain talent.
transmission, and distribution from all types Leadership and talent are critical for devel-
of sources along with consumer demand. oping a low-carbon economy. The current
The smart grid will lead to lower costs as well economic system has placed enormous pres-
as the more efficient use of energy. The con- sure on the planet while catering to the
cept has been around for years, but the huge needs of only about a quarter of the people
investments going into it today will soon on it, but over the next decade twice that
make it a reality. The grid will allow compa- number will become consumers and produc-
nies to optimize the energy use of computers, ers. Traditional approaches to business will
network devices, machinery, telephones, and collapse, and companies will have to develop
building equipment, through meters, sensors, innovative solutions. That will happen only
and applications. It will also enable the devel- when executives recognize a simple truth:
opment of cross-industry platforms to man- Sustainability = Innovation.
age the energy needs of cities, companies,
buildings, and households. Technology ven- Reprint R0909E
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already investing to develop these plat- or call 800-988-0886 or 617-783-7500
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