Green Innovation As A Source Of Competitive Advantage

Published by MBA Skool Team, Published on April 12, 2012

With depleting natural resources, and environmental challenges mounting it comes upon businesses to take up the lead and do their bit for protecting the environment. After all, businesses are the ones that are responsible for consuming the maximum of natural resources be it through paper consumption or fuel consumption. In today’s times it is perfectly right to say that a part of your business monitoring dashboard is blank if you do not measure environmental and social metrics.

Noted Management Guru, Peter Drucker has said that the “sole objective of a firm is to make profit”.  Managers by the very nature, hence continuously look at profit maximization.  Going green on the other hand is moreover looked at as a cost overhead that no firm wants to take up. The purpose of this essay is to elucidate that how focusing on green innovations can lead to a source of competitive advantage for firms, thereby making going green a profit centre rather than a cost centre. Thus leading to a keen interest for all stakeholders involved (especially the CFO) who now see the green initiatives as an opportunity rather than as a burden.

Here are five major reasons for businesses to invest in Green innovations –

  1. Reduce costs - Reduce usage of natural resources and thereby reducing costs.
  2. Reduce dependency - Look at substitutes for natural resources and thereby reducing dependency on natural resources.Is our business to dependent in natural resources? How will rising fuel prices affect your business? These are questions that should be discussed by the top management in the company.
  3. Attract Customers - Help customers reduce their environment impacts and thereby attracting more customers to your green brands by making them feel good about using your products.That is, differentiating your brand based on its reduced environmental impact. Greater transparency of your processes can make environmental groups easily find out - quantitatively, the damage that your business is doing to the environment. Such negative publicity can very well create a irreversible damage to your brand reputation.
  4. Attracting Talent - Your employers want you to be green – employees would love working for a company which is doing something good for this planet. If your company is reducing emissions, planting trees, reducing fuel consumption – then this good work will surely be appreciated by your employees who would feel proud to be a part of a “sustainable” company.
  5. Government Incentives - Government is providing stimulus to going green in form of tax initiatives

So what is the best time to focus on Green innovations?

Now! The best time to focus on green innovations is right now. In times of downturns and recessions when your competitors are being conservative, that is the time for your company to focus on green innovations. If you would have observed the Tour De France, the toughest part in these races is going uphill, but this is also the time when the races are won, strong performers capitalise on these difficult times to come with winning strategies and beat their competitors. Similarly now with the global economic environment looking grim, this is the best time companies can focus on green innovations that will help them gain a competitive advantage during better times.

Six Guidelines for businesses to Get Leaner and Greener

  1. Start off - Just start, do not worry about the size of your green initiatives. Many small projects will eventually add up and contribute to making a huge difference in the organization. Example - As a start, entertainment park Walt Disney World Resort has started turning off or dimming its “icons” at Disney theme parks like Cinderella Castle, Tree Of Life, Mickey’s Sorcerer Hat and Spaceship Earth during non-operational hours to save energy and reduce costs. The effect of this small initiative has resulted in savings of thousands of dollars for Disney, which made them follow this practice across their entertainment parks.
  2. Automate - While the easiest way to go green is to educate your employees and ask them to use less of paper and to use energy resources more wisely. The best way would be to automate things and prevent wastage of resources. Example - use motion detectors to turn off lights when people are not present in a particular area, enable double side printing, auto switch of workstations when not in use for a long time.
  3. Partnerships - Find partners and service providers who want to reduce your costs and explore profiting sharing. Example – Nirma partnered with Sintex to transport Nirma detergent in Sintex water tanks which were anyways going empty. Thus by filling the Sintex tanks with Nirma detergents, the transportation cost was shared between the two businesses. Thus achieving savings in transportation costs and also reducing the fuel consumption by both their businesses.
  4. Measure - Set short term goals and measure their effectiveness. If you do not find tangible ways to measure the benefits that your innovations and green practices are bringing about then it would lead to lack of focus and a lack of understanding of where
  5. Reinvest - Reduce costs and continue reinvesting in making your work processes leaner greener. Example – You can start up with small things like switching from normal lighting to CFL lighting which consumes lesser energy. If this leads to financial benefits as lesser energy is consumed, do not stop there. Can you now look at moving to LED lights which do not have mercury and consume even lesser energy than CFL?
  6. Green Mantra - follow the green mantra of– “Recycle, Reduce, Reuse”, across your business processes.

There is a need for businesses to dissect their value chain and observe which part of their businesses consume most of the natural resources. An entire Life Cycle Analysis of products and find areas of improvement at each stage. This will help them focus on the right part of their value chain which needs to be optimized. Companies need to do a heat scan as to where natural resources are being utilized and their costs. Managers need to then prioritize and focus on issues of major concern that take up the most environmental footprint in their business processes.

Creating New Businesses by Going Green

As has been the theme of this article thus far, firms need to pursue green innovations to gain a competitive advantage. Below illustrated are examples of firms which have had a strategic focus on their green initiatives and have made green a vital part of their future strategy, thereby creating new products and revenue streams by going green.

  1. P&G Tide Cold Water – P&G has shown strong commitment of going green and investing in green innovations to gain a competitive advantage. The management agenda is to create $20 billion worth of "sustainable innovation products" in the next five years. And the first in line of these green innovations has already hit the markets and is doing remarkably well. The product P&G Tide Cold Water is a detergent that consumers can use to clean their clothes using cold water. P&G observed that customers used lot of energy to heat water as otherwise the detergent did not clean the clothes well. With P&G Tide Cold Water, consumers can get the same cleaning effect in cold water that would otherwise be provided in heated water.
  2. Tennant ec-H2O – Tennant, a cleaning solution company whose focus on creating environmentally friendly products resulted in ec-H20. Tennant’s ec-H2O harnesses electrolysis for use in cleaning applications by combining it with micro bubbles of oxygen to create a revolutionary cleaning agent, all while using up to 70% less water than traditional automatic scrubbers. Thus this resulted in a product that not only worked better but also was environmentally more sound and was low cost than other competitor products. Ec-H2O with annual sales of $140 million is infact a case in point on the success of green innovations.
  3. Toyota Prius –Toyota Prius empowered consumers and made them feel a part of the environment solution in their hybrid cars. They showed car users on a dashboard exactly how much mileage they consume, this makes drivers conscious of their fuel usage habits and helps to adjust them to compete for better mileage. By showing the driver how his use of the gas and brake pedals affect gas mileage; it continually reminds the driver that fuel efficiency is as dependent on the driver as it is on the technology. And by showcasing high mileage as it is being achieved, it continually shows the driver how much more efficient and environmentally friendly the Prius is in comparison to conventional automobiles. Car owners understood that driving a Prius provided a public benefit. At the same time, the Prius did not compromise quality, functionality, or safety. Ratings of the vehicle consistently rank it high on all the factors that are important to car buyers, including comfort and driving experience. Also Toyota understood that Prius owners want to show others that they are using a hybrid car and doing their bit for the environment. Thus they provided a distinctive design for the Toyota Prius that helped it distinguish easily from non-hybrid Toyota models.

One thing that managers need to keep in mind when creating green products is that consumers will not compromise on the basic needs that they desire from the products, even if the products are green. In other words consumers will not accept an inferior product just because it is green. So, if your detergent does not clean clothes (basic need) , or your car does not provide a smooth ride (basic need), then consumers would not accept it, just because it is green product. Thus when creating green products, managers need to focus first on satisfying the basic utility that the consumer desires and then making him feel good by demonstrating the fact that the product he has chosen is so much more environment friendly than others available in the market.

Using Technology to Go Green

Companies across spend 3-5% of their revenues on content and document management. Centralizing printers by Xerox for Dow Chemicals helped save $30 million over a 5 year period. Such benefits that technology can provide to businesses both financially as well as environmentally need to be a strong focus on the CIO’s agenda. By adding power usage within the company to the CIO’s expenses budget, one can make CIOs focus on how power can be better utilized optimally within the organization.

Technology has also been used by companies to optimize their transportation costs and thereby reduce fuel usage. Auxiliary Power Units used by Walmart transport carriers allow truckers to turn off engines when they are sleeping or stopped for deliveries. This improved overall fleet efficiency by 8% for Walmart and had a payback period of 2 years. Also by using the right tire pressure or filling tires up with nitrogen has helped save 2% of fuel costs for Walmart. Walmart improved fleet efficiency by 6% through making friction reducing, fuel efficient tyres.

United Airlines has launched paperless flights with iPad decks. Now pilots will use iPads to scan through instruction manuals than browsing through numerous amount of paper work. The iPad’s which will replace the rating manuals, navigation charts, reference handbooks, flight checklists, logbooks and weather information in a pilot's flight bag will provide not only green benefits but also savings in fuel consumption for the airline and ease of usage for the pilots The paperless flights using IPads will save nearly 16 million sheets of paper a year which is equivalent to more than 1,900 trees not cut down. Saving 326,000 gallons of jet fuel a year which reduces greenhouse gas emissions by 3,208 metric tons. Thus illustrating how technology can be used very simply to create large benefits both financially and environmentally for organizations.

Back home, the RajyaSabha will also embrace iPads and eliminate usage of paper. MPs can now load their speeches, carry debate notes, articles and other voluminous data on their iPads instead of paper sheets.

How Should Companies Encourage Green Innovations

  1. Display at the end of every month the contribution of each business unit to the green initiatives. This will help drive internal competition amongst managers to create a culture of being lean and being green thereby using lesser environmental resources.
  2. Allocate funds separately to your green vision and products every year. Unless that happens you will never go green. So irrespective of the fact that there is a downturn or there is a boom, there have to be funds specifically allocated to your green initiatives which need to be focused upon in the year.
  3. Link green initiatives and environmental savings to employee performance metrics. Thereby linking compensation to employees

If your focus is just on reducing environmental impact, then there is something wrong. You need to re-look at your plan. Your focus should be how does my business reduce environmental impact and thereby gain a competitive advantage. By doing this you would pursue green innovations not just as an agenda imposed upon you but as a business driver and as a differentiator for your business. Green innovations would then be looked as profit centres rather than cost centres through the lens of the shareholders. Get leaner, profitable and help the environment – who will not agree to this case? Thus managers will strongly pursue green innovations and not look at it at just a one shot activity done to produce a “Sustainability Report” but as a means of gaining a competitive advantage.

This article has been authored by Amit Kaundinya from XIMB.

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