'How can innovation drive sustainable business models' report for 'From Vision to Action' at TUJ
Session Outputs for February 17, 2020
B2C businesses are starting to understand that consumers are looking for sustainable products, regardless of whether they have to pay a premium. In some markets, such as housing, that premium can even be seen as an indication of greater quality.
To make sustainable products, though, companies need to innovate the way they conceive of, source, produce, package, deliver, and market their new offerings. In our broad-ranging roundtable exploration of how innovation can be a driver of sustainable business models, several themes and concerns were the focus:
Any innovative product brought to market must perform the same as the existing, less sustainable alternative
It is important for companies that are improving the sustainability of their supply chains, production, and delivery to educate customers about the value of their actions
At the same time, and perhaps seemingly counter-intuitively, many companies that are adopting more sustainable business models (i.e. Muji, LUSH, method) do not focus directly on their sustainability credentials when marketing their products individually, trying instead to embody the values in their total brand identity while selling the product for what it does as a product (see the first point)
While it is good when individual companies make an effort to be more sustainable in its products or services, yet the system within which an industry operates must change for meaningful improvements to come about
And though there is growing evidence of changes in customer behavior that favor sustainable offerings, businesses still worry first about how much customers will embrace changes in their products and services
Tellingly, during our Temple University Japan session, concerns around the consumer/market side of the innovation equation were more often highlighted than were the steps that it would take internally for a company to empower individuals, teams, departments and divisions to actually launch innovative projects to create greater sustainability.
It can be a daunting task to create an understanding of the internal challenges in being innovative and becoming sustainable in and of itself, but clearly, for now—at least in the Japanese markets, as represented by our sample participants—the first order of any forward-looking organization is to recognize that the market has new expectations, or to anticipate that consumers are likely to reveal them soon. And, for any business that is looking to operate internationally, where the market situation on the ground in many regions is changing rapidly, it is essential to see this with unclouded eyes today.
Session presentation: How can innovation be a driver of sustainable business models?
Our full session synopsis:
The Business Perspective: How companies approach innovation
In our February Fireside Chat, we spoke first with Chika Maruta, Communications Manager of LUSH Japan. Chika introduced LUSH's philosophy around innovating to tackle sustainability issues:
LUSH aims to minimize the amount of packaging, and in particular plastics, used in their products
Their packaging supplier also has a system to collect used packaging and recycle them into new packages
Lush don't speak much outright about the sustainability of their products—this is essentially built into the design of the product
They aim to use natural ingredients as the base for most of their products, such as natural fruits
They work very closely with suppliers to ensure that they meet the sustainability standards they have put in place as an organisation
Following LUSH, an automotive executive discussed the actual impact of innovation when looking at an individual electric automobile offering, in light of current conditions in the energy market. They took the Nissan Leaf and Toyota Mirai as case studies, based on available data.
As a driving experience, electric cars are a great leap forward, with less noise and less physical exhaustion for the driver, and models like the LEAF have been able to extend their range of 400 km per charge
Yet there is only a 10 percent reduction in carbon emissions in countries such as Japan or Poland, due to the vast majority of the energy powering the car being produced in these nations from fossil fuels. The benefit of an electric car increases substantially in markets where renewables figure more prominently in the energy mix, such as France or Germany.
Toyota's hydrogen-powered car, the Mirai, is promising, but at the equivalent of $80,000, the business case for it (from a consumer perspective) is not yet strong
While progress on the LEAF’s range of 400 km is certainly an improvement, the car itself is far from sustainable. Energy mix of where it's driven is a significant issue, as mentioned above. Also, there's no model yet in place for improving the circularity of the car at the end of life. This is principally because there is no business model for this type of system.
The system needs to be remade overall, particularly around enhancing the circularity of the car. Companies are starting to look at services models, but this doesn't eliminate the need to reduce the cost and negative impact of the production of the car, the "hardware". For example, mining for rare materials for the battery is extremely "dirty" and needs to be changed. Even if you significantly extended the battery life, as Tesla is working on, this doesn't solve the problem.
A potential solution is to move to “Regenerative Innovation”; this would be embodied in a shift from the kind of capitalism and consumerism that is driven by increasing sales and profit in order to maximize shareholder value, even at the cost of destroying shared natural resources, to a new system that allows companies to pursue innovation that simultaneously restores what is currently being destroyed
Download the electric automobile case study slides here
Breakout on 'Innovating Sustainably'
Discussion groups were given four case studies—an organic hand cleaner, non-dairy ice cream popsicle, a service to bank the "unbanked", and a compostable diaper—and presented with the following scenario*:
Following a business strategy refresh in 2018, your company’s leadership team allocated significant budget toward your company’s sustainable transformation effort
Updating your company’s product/service portfolio has been identified as priority #1, with your brand team tasked with developing a range of new sustainable products or services
You’ve worked with your colleagues in innovation to develop your first breakthrough product, which you hope will firmly establish your company as the category or sector leader
The product will soon be ready to launch and you will be responsible for not only ensuring its successful launch, but also for achieving the Year One sales targets laid out by leadership.
In your pre-launch market research, the product tested well with consumers. Despite that, you know successfully launching this product will not be an easy task!
Groups were then asked to explore: What did they anticipate would be the principal challenges they'd face when launching this new, sustainable product/service? And, what would the main actions be that they’d take to make this innovative new product/service a success?
* All case study material is owned by Read the Air, a Vizane KK initiative.
The key takeaways on the principal challenges and main actions discussed in the breakout session were that:
— A comprehensive system needs to be established—it's about more than developing a sustainable product
— Several elements need to be in place to successfully bring sustainable products and services to market:
A product that performs as promised and ideally exceeds, if possible, the competition. You need to work with R&D on this
A marketing message that resonates with consumers/consumer training
Internal policies put in place and structures designed to find and work with appropriate suppliers
Partnerships with other organizations (e.g. NGOs, associations) that enable certification, credibility and transparency
Specific takeaways from individual cases:
Natural, Fairtrade and vegan hand soap
— Partnerships with NGO's would be necessary to prove to consumers that the product was indeed Fairtrade and vegan, and that the company was truly making the donations that it promises to make with each item sold
Non-dairy Ice Cream bars
— To reach beyond the small consumer segment that demands non-dairy products, you would have to convince the mainstream that not being dairy is a positive for an "ice cream" product, done via a clever and convincing marketing strategy
Banking Indonesia’s “unbanked” farmers
— Marketing partnerships would be required to find previously un-served customers across a complex geography (Indonesia's 14,752 islands)
— Educational infrastructure would have to be put in place to inform farmers of available services, gain their trust, and advise them on new opportunities based on their new access to services
Fully compostable diapers
— Because this product would be at "the nexus of energy, waste management, kids and motherhood," what role would government play? Are there regulations around such a product? Required certifications? And could there be subsidies for addressing waste problems?
— On the business strategy side, this kind of product could be a smart way for a major FMCG company to enter into a market in which it currently does not compete via a highly differentiated product
— Next steps
US online publication Greenbiz provides excellent coverage on how innovation is driving sustainability here. Take a look to find samples of how corporates and startups are working individually and collaboratively to crack hard and persistent problems in production, supply chains, and new business development.
"Who's the biggest force in corporate patents for climate-related innovations?" by Heather Clancy will be of particular interest in Japan, as it explores MSCI findings that the country leads the world in "low-carbon" technologies , as calculated by the number of patents application filed from 2013 to 2017.
Find more materials on innovation and how businesses are embracing sustainability at the 'Vision to Action' Resource Center
Read the Air—Trista Bridges and Donald Eubank are cofounders and principals of Read the Air, a Tokyo-based specialist advisory service that enables companies to put sustainability at the core of their business, for purpose and profit. Read the Air guides commercial enterprises in designing, implementing and executing powerful business strategies that create sustainable business models.
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