Strategy. Innovation. Brand.
Are Green Companies More Innovative?
Mashing up green and innovation.
By now, you probably know that I like to mash things up in the pursuit of innovation. Mashup thinking is also a good way to do research and discover interesting correlations.
With that thought in mind, I decided to mash up Boston Consulting Group’s compilation of the world’s most innovative companies with Interbrand’s list of the Best Global Green Brands. Both studies identify 50 companies in rank order. Both tables are compiled annually; I used the 2013 list.
I first merged the lists and found that 74 unique companies occupy the 100 total slots. I divided these companies into three lists. Here’s how they break down:
- 26 companies – the “greenovators” — appeared on both lists; that’s 35.1% of the 74 unique companies. (These companies are listed in alphabetical order below).
- 24 companies (32.4%) appear on the innovation list but not the green list.
- 24 companies (32.4%) appear on the green list but not the innovation list.
The degree of overlap increases as you go up the scale. Looking at the top ten companies on each list reveals a much higher degree of correlation than is found throughout the rest of the list. On the innovation list, eight of the top ten companies also appear on the green list (not necessarily in the top ten). Similarly, on the green list, seven of the top ten companies also appear on the innovation list.
So, there’s a high degree of correlation between being green and being innovative. There are at least four plausible explanations here:
- Innovative companies are forward thinking and, thus, also interested in being green.
- Green companies need to innovate in a number of ways to reduce their environmental footprint. The innovation spills into other areas as well.
- The two lists are actually measuring the same thing.
- Some third factor is causing many companies to be both green and innovative.
We clearly don’t have enough evidence to reach a conclusion as to cause-and-effect. However, the second hypothesis seems the most logical to me. To be green, a company needs to change its business processes. In other words, it needs to innovate. It seems logical that stimulating innovation in one area of a business would have ripple effects on other areas.
Additional findings are also intriguing:
Car companies dominate the greenovator group – of the 26 companies that appear on both lists, nine are car manufacturers (34.6%). It’s the single largest industrial segment in the list. Why would car companies lead the way? It could be that green is a good marketing tool. It could be that car companies learned their lesson in the 2008 meltdown. It could be that government mandates for higher gas mileage lead to green innovation.
Some non-green companies disappoint me – three of my favorite companies are Amazon, Apple, and Google. Only Apple makes the greenovator list. Similarly, UPS makes the green list but FedEx doesn’t. Why wouldn’t these companies want to be seen as green? That’s disappointing.
These are great brands – I recognize all of the 74 unique companies. Indeed, I’m fairly familiar with most of them. These are valuable brands and I’m sure that being seen as leader in innovation or green or both only burnishes their reputation. In fact, I think my next mashup may be a three-way: brand value mashed up with innovation mashed up with green.
In the meantime, if you can help me sort out whether green causes innovation or vice-versa, I’m all ears.
Greenovators: Apple, BMW, Cisco, Coca-Cola, Daimler/Mercedes, Dell, Ford, GE, Honda, HP, Hyundai, IBM, Intel, KIA, Microsoft, Nestlé, Nike, Nissan, Nokia, Philips, Samsung, Shell, Siemens, Sony, Toyota, VW
Innovative, Not Green: Amazon, Audi, BASF, Bayer, Boeing, BP, Dow, Exxon Mobil, Facebook, Fast Retailing, Fiat, GM, Google, Lenovo, LG Electronics, P&G, Renault, Softbank, Target, Tencent, Tesla, Unilever, Virgin, Wal-Mart.
Green, Not Innovative: 3M, Adidas, Allianz, Avon, AXA, Canon, Caterpillar, Citi, Colgate, Danone, H&M, IKEA, J&J, Kelloggs, L’Oreal, McDonald’s, Panasonic, Pepsi, Santander, SAP, Starbucks, UPS, Xerox, Zara.
Sustainability and Innovation
Nice axe!
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.
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