Mega-Trend: Sustainability

Can Sustainability Be a Driving Force for Disruptive Innovation?

The sustainability mega-trend is shaping consumer expectations. The “greenness” of products is taken as a given and brands are expected to tackle the issue by turning their attention towards finding exciting new sources of value, unlocking creative ways to eliminate waste, and converting from a linear towards a circular economy.

When identifying emerging consumer and industry trends such as the sustainability trend, we at LHBS like to summarize our findings in short Snapshots that highlight best practice examples of brands that get it right. In our recent report on sustainability we investigated why it is important and how brands can harness value from acting eco-friendly.

LHBS // Snapshot // Sustainability: Ecology & Economy

What Does “Acting Sustainably” Mean for Organizations Today?

Consumer expectations and behaviors have not only evolved when it comes to the utilization and waste of products. The sharing economy, peer-to-peer consumer behavior and valuing access over ownership have drastically influenced business practices. Traditional, linear business processes and the “take, make, waste” model look increasingly profligate when consumers are made aware of and can practice less-harmful actions, like leasing or renting services instead. Why own a car when you can rent it by the minute? Why buy a new phone every year when you can repair your old one?

That is how new ideas, collaborations and even whole business models are transforming industry and consumer behaviors. The sustainability trend is prompted by poverty, climate change, water and food supply chain challenges, giving a lot of possibilities to innovators.

Can Sustainability-led Innovations Be Industry Disruptions?

As the term Disruptive Innovation is thrown around more frequently, a lot of new products whose creation was motivated by sustainability-led thinking seem to be disruptions at first sight. Product and process improvements resulting in greener usage, faster access to, or less harmful production are changing how businesses and consumers prioritize sustainability. But are those new technologies, processes and product features truly disruptive?

Usually, market-leading companies will only pursue innovative ideas when they serve the firm’s interest and that of their most profitable customers. This behavior results in sustaining innovations that leave “white spaces” or opportunities for startups to serve more cost-conscious niches of the market with disruptive innovations.

Examples like Uber and Tesla are often taken as a staple for disruptive innovations that transformed consumer behavior and made it less harmful to the environment. Sure, they changed industries and introduced new business models, but did they disrupt all incumbents? The answer is no.

Neither Uber nor Tesla really qualify as disrupters because they do not show some of the main characteristics that disruptive companies all share. These include 1) targeting “overserved”, low-end foothold consumers or creating a new market, 2) creating asymmetric motivation (meaning that the disrupter wants to enter the market and existing players not fighting it), 3) improving the quality as fast as consumer expectations change while retaining low cost, 4) creating new value networks, and 5) disrupting all incumbents (without an existing player exploiting the opportunity).

Five Characteristics of Disruptive Innovations

For more on that topic head over to Harvard Business Review. An interesting article written by Clayton Christensen, author of The Innovator’s Dilemma, discusses what disruptive innovation really means.

From this point of view, a lot of organizations, just like Uber and Tesla, pursue an approach to sustainability that can be categorized as sustaining innovations rather than disruptions. The needs of the most profitable customers are satisfied by introducing “add-on” products, like a code of conduct for the firm’s supply chain or extending the on-going social efforts. A lot more examples for sustaining innovations can be found in the before-mentioned Snapshot.

So, does that then mean that disruptive innovation cannot be motivated by sustainability-led thinking? No, it just means that examples are a little harder to find. Sustainability can step in as a main driver for disruption when organizations start to not only take the interests of the highest-paying customers into account to make existing products better, faster, simpler… but are inspired to solve environmental issues (like resource scarcity, air and water pollution, or climate change, etc.) starting by targeting new market footholds. Sustainability then becomes part of their business strategy — instead of just being an “add-on” for their most valued customers — and can result in technologies that have the potential to disrupt whole industries.

What are Examples for Disruptive Innovations Driven by Sustainability?

In order to make the concept easier to understand, we tried to find an example of a disruptive product that shows the difference compared to Tesla, plus an innovative idea coming from another industry.

As we established, Tesla does not qualify as industry disrupter because it’s not showing the characteristics needed. Its product doesn’t target low-end markets, it’s not creating asymmetric motivation, it’s not on the low end of the price spectrum but premium, it’s not creating new value networks, and incumbents are exploiting the electric car idea as well.

However, there is a vehicle designed with sustainability in mind that does fulfill these requirements. NEVs (Neighborhood Electric Vehicles) are low speed electric cars resembling a golf cart that are built for a maximum speed of 40 km/h to bring people from A to B within a neighborhood. They are creating a new market of “neighborhood vehicles”, are not being fought by existing players (yet), are much cheaper than normal cars, but manufacturers are adding features found in conventional cars. Hence, NEVs are a disruptive innovation giving a green alternative to normal cars.

Neighborhood Electric Vehicle

An example coming from outside the car industry is Mosaic. Mosaic is a crowdsourcing venture capital model that connects investors with individual solar projects. Since it enables low-end consumers to fund their own solar energy projects, existing players are not motivated yet to fight its business model, it creates a new value network, and it is open to adapt as quickly as people come up with new ideas for solar projects, it can be classified as disruptive innovation.

What’s to Come for Disruptive Innovations in Sustainability?

As environmental challenges will remain an issue in the future, there are going to be continuous incentives for innovations, giving the opportunity to disrupt industries with new ideas to save resources, clean up waste, and encourage people to join the green movement. Ideas creating not only a positive impact on the environment but also rewarding customers financially are most likely to entail disruptions. It will be exciting to see which sustainability-led innovations are yet to come to disrupt existing industries.

Want more? Head over to our website and check out our market reports & presentations.

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