When I lived in Ecuador, I climbed many of the highest peaks in the Andes. I carried an ice axe with a carbon steel blade and a shaft made of laminated bamboo. Why bamboo? Because it was very light and very, very strong. Little did I know, I was also using one of the most sustainable products in the world.
Who uses bamboo today? Dell Computer now creates packaging out of bamboo fibers rather than cardboard. Why? Partially because it’s very light and very strong. But mainly because it’s one of the fastest growing, least resource intensive fibers in the world. As with my ice axe, it’s highly sustainable.
Dell’s packaging is a small example of a wave of innovation that’s sweeping the manufacturing world. Companies realize that sustainability is increasingly important to their own survivability. It can also be an important competitive advantage within significant customer segments. Innovating for sustainability can deliver three significant benefits. First, it can reduce costs. Second, it can lead a company into new market segments. Third, those market segments are often willing to pay a premium for sustainable goods, which can mean higher margins.
According to a joint MIT and Boston Consulting Group study, interest in sustainability is growing partially because profits are growing. MIT/BCG have published the study yearly since 2010, when they first identified Sustainability Embracers “who firmly believe that sustainability is necessary to be competitive.” In 2010, 23% of the Embracers were already reporting profits from their sustainability innovations. By 2012, that number had risen to 37%.
To reduce costs, companies are increasingly asking their suppliers to reduce waste and energy use and simplify packaging. Customers — especially in Europe — are demanding sustainability “credentials”. Employees are also pressuring their employers to innovate for sustainability. Ultimately, sustainability may become a differentiator in efforts to recruit top talent.
Companies are also selling sustainability. According to the study, SAP, the huge business-to-business software company now states that its purpose is sustainability. Peter Graf, SAP’s chief sustainability officer, says, “That is why we have started to … help clients optimize their energy requirements and natural resource use across their supply chains.” Helping customers implement Green Manufacturing has to be one of the biggest B2B software opportunities over the next decade.
Dell’s example is one of resource innovation — swapping a less sustainable component (cardboard) for a more sustainable one (bamboo). Many companies are also innovating their business models to achieve greater sustainability and greater benefits from sustainability. The innovations tend to come either in value chain improvements or in market segmentation. Companies that “pull these two levers” are more likely to see profits from their sustainability efforts.
There are still obstacles of course. Companies cite various hurdles: it’s difficult to quantify the benefits, sustainability conflicts with other priorities, it increases administrative costs, and, in some cases, it may increase overall production costs. Still, a growing segment of companies is investing in sustainability. Perhaps the best predictor of success is whether a company has written a formal business case for sustainability. Those that have tend to be the innovation leaders. They are also more likely to report that their sustainability investments are generating profits.
Interestingly, North American companies are not leading this innovation wave. Though Europe is ahead of America, the real leaders are companies in developing countries, especially in Africa. The MIT/BCG study suggest that this may well be “because these regions face significant resource scarcity and population growth challenges.” This may also be an example of “reverse innovation” where innovations in poorer countries are adapted by richer countries rather than vice-versa.