Sustainability as Disruptive Innovation

I had a profound moment some years ago when I was doing a site visit to a precious metal plater in southeast Massachusetts, which at that time was the center of silver and gold jewelry and home goods manufacturing in the U.S.  Precious metal plating involves the use of cyanide baths, metals, and a variety of toxic substances, which typically requires treatment to meet wastewater discharge requirements.  The owner of the business was standing in a small room off the main plating area pointing to the floor where a drain had been plugged with concrete.  He then told how they had figured out how to run their plating operations with zero discharge of any regulated wastewater and that he had stood in the very same place and handed the facility’s wastewater discharge permit back to the state regulatory agency saying they wouldn’t need it any more.  Unbelievable!

Before stepping into the zero discharge facility, I had been in a number of plating facilities that had focused on optimizing processes and every one of them was very proud of their 10%, 20% or even greater reductions in metal concentrations in their wastewater discharges.  All impressive, but every single one of them missed seeing what was really possible.  What I saw at the zero discharge facility wasn’t new technology, although there were some pieces of equipment that weren’t typical for a plating operation.  This was a case of new thinking and innovation in conceptualizing the production process from the point of view of what it would take to eliminate discharges rather than comply with increasingly stringent regulatory requirements.  It was a response to what had become an increasingly untenable cost structure where regulatory compliance was a significant drag on profits in an industry that was just beginning to feel the effects of globalization.

Since that moment, I’ve been impressed again and again how some companies pursue innovation in trying to address sustainability challenges. 

I was chatting with Joel Makower when he mentioned that I should read Clayton Christensen’s book, The Innovator’s Dilemma.  This book and subsequent work of Christensen and his colleagues on disruptive innovation have had a profound effect on how I view sustainability, particularly, why the adoption of sustainability into business processes is painfully slow.

Christensen was trying to figure out why market leading companies were getting displaced by small upstarts that somehow managed to innovate in ways that led them to grow their businesses beyond what the market leading companies seemed able to do.  His theory posited that market leading companies are likely to pursue innovations that serve the interests of their best and most profitable customers at the higher end of the cost curve.  The resulting “sustaining innovations” were incremental improvements for a customer base that was looking for narrow technical benefits—bigger, faster, better quality, etc.—and that was willing to pay for them.  This left an opening for upstart companies to serve the lower cost niches of the market with new products that offer benefits that the middle and top end don’t particularly want and that (usually) cost less and (at least initially) are limited in scope of benefits and quality.  If there are sufficient benefits, the new version of the market potentially grows beyond the existing market displacing the former market leaders.  Think cell phones displacing landlines, smartphones and tablets becoming ubiquitous over desktop and even laptop computers, and big-box discount retailers that leap ahead of smaller full-service stores.

What does disruptive innovation have to do with sustainability?  There are at least two ways in which the concept might be useful.  One is the obvious development of new technologies and services that meet a lower tier market need.  Aqueous cleaning systems have replaced solvent-based cleaning in a number of areas; flash water heating systems are replacing traditional hot water tanks; and the end is near for standard incandescent bulb as CFLs and now LEDs become common in households and commercial applications.  The potential for further disruptive innovations applicable to eco-efficiency and eco-effectiveness is limitless.

The second is a little more interesting and, I think, may raise critical issues for sustainability practitioners and observers alike.  For most organizations, sustainability is a “newcomer” to an existing organizational structure.  In many cases, it is an extension of on-going environmental, health, and safety efforts, sometimes with corporate philanthropy thrown into the mix.  It may have a new name and even a new VP title, but peel back the new veneer and it’s the same old structure; worse, sustainability may take on some of the baggage that legacy EHS programs carry (“enviro cop,” “guilt tripping nag,” and “cost center”).

In this sense, the grafting of sustainability onto existing organizational structures is a lot like the sustaining innovations that satisfy the needs of the best and most profitable customers; in this case the innovations are things (e.g., creating a supply chain code of conduct, instituting an audit system, measuring carbon emissions and pursuing reductions) that organizational leaders perceive as needed to remain a preferred supplier with their best and most profitable customers.  In light of Christensen’s theory, it suggests that most organizations that are fiscally successful will pursue sustainability efforts that are “sustaining” rather than disruptive.  Where organizations are “hungry” is where disruptive approaches to sustainability are likely to be found.

Some of the companies that pursue sustainability as a potentially disruptive innovation include:

Patagonia’s had a long list of sustainability-related innovations from introducing recycled polyester in premium outdoor products to converting all of its cotton fabrics to certified organic fiber.  In both cases, Patagonia had to work closely with suppliers across all supply chain levels.  Those relationships led to further innovations including its Common Threads program which began as an effort to collect used polyester products that were then shipped to Teijin for recycling back into polyester manufacturing.  The program has since grown into a multi-dimensional effort that encompasses all Patagonia products and includes repair services that extend product life, reuse of garments in good condition through resale, recycling into new fabric, and remanufacturing into new products.

Nike has long made innovation a core business strategy and organized internally to support innovation in materials, manufacturing, and design.  They recently pioneered Flyknit, a knitting process for shoe uppers that engineers in strength and support while reducing the waste that otherwise would occur from the traditional cut and sew methods that have been the mainstay of shoemaking.  Nike has also entered into a collaboration with NASA, U.S. Agency for International Development (USAID), The U.S. Department of State to promote innovations in materials and manufacturing that address social, environmental, and economic problems through specific challenges around waste, water, and green chemistry.

Interface introduced the concept of selling carpet in tile form rather than broadloom, which allowed for the easy replacement of damaged and stained areas without replacing the entire carpet.  Since the mid1990’s, Interface’s long-term goal of eliminating environmental impacts has transformed the way they think about product and manufacturing and business systems.  A significant outcome has been innovations that have led to the introduction of carpet tiles with half the mass of typical products, while maintaining all performance characteristics, the development of methods to incorporate recycled content into yarns and to recover each component of a carpet tile including the yarns and the backing and recycle them into new components, and the introduction of patterns and colors that avoid the need for precise color or pattern matching and facilitate long-term use of carpet tile products.

Patagonia, Nike, and Interface are not alone and my hope is that they will be joined by a growing number of other companies that see an opportunity in reinventing how sustainability can help their business.