Framing Innovation for Sustainability Greening of Industry Conference October 1215 San Francisco, CA

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Framing Innovation for SustainabilityGreening of
Industry ConferenceOctober 12-15San Francisco,
CA

• Andrea Larson
• Darden Graduate School of Business Administration
• University of Virginia
• Charlottesville, VA
• larsona_at_darden.virginia.edu

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Why Is This Hard?

• Radical Ideas
• Conceptual Clarity Lacking
• Barriers to Understanding
• Right Questions?

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Confusion About How To Think

• No established field or single functional area
• Economics is the intellectual foundation of
  market/capitalist economies
• Economists fold environment into existing models
• Environment and Sustainability

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ALTERNATIVE QUESTIONS

• HOW DO THE WAYS IN WHICH WE THINK DETERMINE THE
  POSSIBILITIES WE SEE?
• HOW MIGHT WE THINK IN NEW WAYS ABOUT THE ISSUES?

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Empirical DataGrounded Theory on Innovation3
Lenses
Innovation for Sustainability
Entrepreneurial Innovation
Science
Stakeholder Networks
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Schumpeterian Entrepreneurship
Innovation

• Substitution Through New
• Processes
• Products
• Technologies
• Markets
• Organizing modes
• and New Combinations

NOT incremental improvements to existing products
and systems
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Entrepreneurship Creating the Future Through
Innovation
Conventional Economy (mirrored in business school
curricula)
Entrepre-neurial Sector
Sustainability Innovation
Wind turbine technology Fuel cells Hybrid
cars Non-toxic materials (plastics) Organic
food Green building design
Zero emissions Zero waste Reverse
logistics Cradle to cradle logic Buy function,
not product Markets in natures services
Past
Future
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The changes are different in kind, not just in
degree.
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Natural System Issues

• 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

• Air Pollution
• Global climate change
• Stratospheric ozone depletion
• Urban air pollution
• Acid deposition
• Outdoor pollutants
• Indoor pollutants

Major Environmental Problems

• Water Pollution
• Sediment
• Nutrient overload
• Toxic chemicals
• Infectious agents
• Oxygen depletion
• Pesticides
• Oil spills
• Excess heat

• Human Health
• Childhood diseases
• Cancer
• Asthma
• Immune system deficiencies
• Reproductive system problems
• Endocrine system disruptions

• Waste Production
• Solid
• Hazardous
• Molecular

Source Adapted from Living in the Environment,
Tenth Edition, G. Tyler Miller, Jr., 1998
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Population Growth
16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
Billions of people
Black Death - the Plague
2-5 million years
8000
6000
4000
2000
2000
2100
Time
B.C.
A.D.
Hunting and Gathering
Agricultural Revolution
Industrial Revolution
Source Living in the Environment, Tenth Edition,
G. Tyler Miller, Jr., 1998
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(No Transcript)
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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
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Unlike natural systems, modern human societies
process resources in a linear fashion, creating
wastes faster than they can be reconstituted into
usable resources.
6 Product
94 Waste
On average 94 of the raw materials used in
creating a product ends up as waste only 6 ends
up in the final product.
Source National Academy of Engineering
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Pressures on the Corporation
Global Wealth Distribution, Poverty, Health Issues
Distrust of Corporations
Stockholders
Governments (local, state, national, internatl)
NGOs
Competitors (Entrepreneurs, Innovators)
Corporation
Customers
Science Knowledge

• Impacts of industrial activity
• Implications of current trends

Citizen Groups
Costs
Employees
Communications (internet, transparency demands)
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Changing Conditions for Business
Demand for Natural Resources (population,
consumption, technology)
1900
1970
Material cost, availability Waste
disposal Regulation Health issues Fines
Liabilities Insurance Bank credit Risk Fiduciary
responsibility Audits
Innovation and Entrepreneurship
The Economy
The Economy
Corporation
Public opinion NGOs Media Intl
agreements Science knowledge
Shareholder activism Customer demand Recruitment
and retention Communications technology
and Internet
Natural Resources (services, assimilative
capacity)
Adapted from TNS
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I remember when there was no damn environment
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Terrarium
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Unlike natural systems, modern human societies
process resources in a linear fashion, creating
wastes faster than they can be reconstituted into
usable resources.
6 Product
94 Waste
On average 94 of the raw materials used in
creating a product ends up as waste only 6 ends
up in the final product.
Source National Academy of Engineering
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Changing Character of Environmental Issues in the
Last 25 Years
Local Specific Short Delay Low Complexity Society
Impact Low
Global Diffuse Long Delay High Complexity Societa
l Impact High
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WHAT HAS CHANGED?

• HUMAN ACTIVITY NOW INFLUENCES THE DYNAMICS OF
  NATURAL SYSTEMS
• ATMOSPHERE
• OCEAN FISHERIES, CORAL REEFS
• HYDROLOGIC SYSTEMS
• HUMAN IMMUNE SYSTEM
• CHILDHOOD ASTHMA AND CANCERS
• ANIMAL, INCLUDING HUMAN, REPRODUCTIVE SYSTEMS

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FRAMEWORKS GROUNDED IN SCIENCE

• Industrial Ecology
• Earth Systems Engineering and Management
• The Natural Step
• Natural Capital
• Green Chemistry
• Cradle to Cradle Design
• Natures Services
• Biomimicry
• Ecological Economics

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Entrepreneurial Innovation
An iterative process of interactions with
prospective stakeholders that results in a
stakeholder network from which the new
product/process/technology emerges.
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What Field Data Show

• Entrepreneurial innovation is a process
• It is typically led by an outsider-insider
  entrepreneur
• Sustainable innovation is generated through
  stakeholder network processes (led by an
  outsider-insider entrepreneur)
• The network brings in requisite additional
  outsider perspectives to stimulate innovation
• Stakeholder networks open to change, willing to
  experiment, motivated to create the future as
  opposed to staying within current possibilities

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Innovation
An iterative process of interactions with
prospective stakeholders that results in a
stakeholder network from which the new
product/process emerges.
Prospective Stakeholders
Collaborative Ties
Health Experts
Govt Policy Advisors
Innovation
Company
Environmental Groups
Community Groups
Capital Know-how Materials Design ideas Other
inputs
Add Stakeholders (those with a stake, people who
will be influenced or can provide creative input)
Scientists
Traditional Entrepreneurial Innovation Process
Sustainable Innovation Process
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• What are the most useful ways to think about the
  future of business given the changing
  relationship between human activity and natural
  systems?

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NEW DEFINITIONS OF THE FIRM

• The essence of the firm is the competitive
  claims made of it by diverse stakeholders.
  (Venkataraman)
• value creation is best understood as
  participating in a deal that satisfies multiple
  stakeholders over time. (Freeman)

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Empirical DataGrounded Theory on Innovation3
Lenses
Innovation for Sustainability
Entrepreneurial Innovation
Science
Stakeholder Networks
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Redefining the Challenge

• Human activity is changing the dynamics of
  natural systems
• Consequently environment and sustainability
  are not just additional business factors to be
  folded in
• They are one and the same with prosperity
• This challenge is about the definition of
  capitalism and the purpose of the firm

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CONCLUSIONS

• Food for thought
• A need to change our conceptualizations
• This is not about greening
• This is about an entirely different relationship
  of the species to natural systems
• This is not about the environment
• This is about the definition of prosperity

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History repeats itself

• but each time the price goes up.

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Kirzner (1973)

• So long as our decision-makers continue to
  believe that the alternative courses of action
  made available to them by the market are what
  they believed them to be yesterday, we are
  powerless to account for any plan made today
  being different from that made yesterday.
• PLANS ARE BEING MADE DIFFERENTLY. HOW DO WE
  ACCOUNT FOR THESE NEW, SUSTAINABLE INNOVATION
  IDEAS, PRODUCTS, SERVICES, TECHNOLOGIES, AND
  MARKETS?

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Sources of Entrepreneurial Opportunities

• Inefficiencies (Hayek, 1945)
• Significant changes in social, political,
  demographic, and economic forces outside the
  control of the individual (Kirzner 1973, 1997)
• Inventions and discoveries that produce new
  knowledge (1-3, Drucker, 1985)
• Information distribution varies (Sarasvathy,
  1998)
• Different abilities to identify or pursue
  opportunities (Drucker, 1985)
• Alertness and Discovery (Kirzner 1973, 1997)
• Imagination (Shackles 1982)
• Seeing opportunities as opposed to risks and
  obstacles (Shane Venkataraman, 1999)

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• In the morning, the sun rises
• In the evening, it sets.

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Mid-1400 A.D. Western Europe

• Raised the possibility that the Earth was round

1492 Columbus sailed to test the theory
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500 A.D. Gupta Empire in India

• Concluded the earth was spherical and rotated on
  an axis