Wed, Oct 21, 2009
Why do some companies boom while others fizzle? The short answer is companies will fizzle if they aren’t attracting new customers while retaining their current clients. In a recent Wall Street Journal article “Restaurants Burned by Deep Discounts” companies learned that innovation beat out discounts, because discounts aren’t enough to entice customers that weren’t interested in visiting the business in the first place.
The first thought that typically comes to mind is that innovation is a long and expensive process. Most executives act like they have to choose between the social benefits and goodwill created by developing a sustainable product or process as they tend to be distracted by its perceived high costs. An overlooked option is to create a sustainable product or process while being profitable. The bottom line is that becoming environmentally friendly will ultimately lower a company’s costs because the organization will end up reducing their inputs by putting into place economies of scale that help to increase profits per product.
In September 2009, business gurus Ram Nidumolu, C.K. Prahalad, and M.R. Rangaswami detailed the 5 stages that companies experience on their journey to be sustainable in their Harvard Business Review article “Why Sustainability Is Now the Key Driver of Innovation.” An earlier Padosa post, addressed several of the salient points in the HBR article. We are going to take the liberty to heavily draw from this article again as we feel there are several valuable points the authors make about why sustainability initiatives will help your organization remain competitive and drive profit.
Stage 1 Compliance
- In the first step it is important to familiarize yourself with your region’s environmental regulations. One county can ban plastic bags in supermarkets while their neighbors are free to use as many plastic bags as they want. Example: Whole foods, and Zabars, are supermarkets that have added a fully recycled and environmentally safe bag, which customers buy and keep instead of wasting paper and plastic bags every time they just re-use the one they bought.
- Along with government regulated codes, be prepared to follow general voluntary codes. Even if it isn’t mandatory for companies in your industry, it is probably in your best interest to fall in line with what voluntary codes the competition is following, as it is better then falling behind your competitors. Example: In an attempt to promote equal representation, the European Transparency Initiative has been adopted by over 15,000 lobbyists. This provides a stricter regulation of lobbying in the EU. This code of conduct states that lobbyists abide by six core rules of identifying themselves, and their intentions. By doing so these companies have built a stronger reputation and remained competitive. As a result of these new practices and regulations a new industry standard is created.
Stage 2 Value Chains
- At this stage it is vital to both reduce the consumption of non-renewable resources and to reduce waste Example : In Kings County, Washington an effort to reduce waste has led companies to reduce, reuse, recycle, and redesign. These companies have chosen to reduce the amount of materials they use to package by reusing refillable containers to transport products. They now recycle discarded packaging materials and they redesigned their packaging. Instead of using boxes, they use strapping and instead of using pallets they use slip sheets. Even the change on shipping pallets to slip covers has reportedly saved Amway Service Center $109,000 annually by using less cargo space, reducing fuel consumption and saving money on pallet purchase, storage, and disposal costs.
- Enterprise carbon management, carbon and energy footprint analysis, and life-cycle assessment are all tools to help companies to identify sources of waste in their supply chains. Identify your company’s greatest sources of waste and take action. Example: Toyota has chosen to conduct an Eco-VAS based on the concept of life cycle analysis to perform an assessment of environmental impact covering a wide range of items. These items include fuel efficiency, emissions and noise during vehicle use, the disposal recovery rate, the reduction of substances of environmental concern, and CO2 emissions throughout the entire life cycle of the vehicle from production to disposal. This process allowed Toyota to view the entire life of their products, which enables them to understand what is most important to the company and to its customers.
Stage 3 Products and Services
- Do lots of research and understand your consumers’ concerns and your product’s life cycles before implementing changes. Clients don’t care how much you change your product if it doesn’t affect them.
- Once you realize what is important to your consumer, plan for the future. Combine your marketing efforts with your innovative prowess to control the market in the future. Example: Comcast used Twitter to communicate with its clients and to understand what affects them. When a Stanley Cup broadcast was abruptly cut off in April, many Comcast subscribers didn’t bother with the hassle of calling a Comcast center. They Tweeted about the problem and within minutes found out that a lightning storm in Atlanta had caused a power outage during the game. In this way Comcast found a way to effectively and efficiently connect with their customers.They were successful at finding out what was important to them and they adapted their customer service strategy to meet their needs.
Stage 4 New Business Models
- If it isn’t broken DO fix it by exploring different alternatives to the current ways of doing business. All too often companies get stuck in a rut of inefficiency and are too closed minded to make a change.
- Question how things currently work and continue to look for a smarter way of doing things. Be in a state of continuous improvement. Example: Ben and Jerry’s has opted to use propane , butane and other coolants that don’t trap heat in the atmosphere as much as Freon and other conventional refrigerants. By making the switch, they use less energy to drive refrigeration and thus found a way to be gentler on the environment. There was nothing wrong with the way conventional refrigerators worked, but Ben and Jerrys looked beyond the status quo in order to find a more efficient and environmentally friendly cooling system.
Stage 5 Next Practices
- Work towards the future by envisioning it now. Understand that cutting edge technology today leads to future norms.
- Stay current on technology and environmental concerns. The best way to stay ahead of your competitors is to be innovative and plan ahead. Example : Synaptics Incorporated has reported solid earnings in a weak economy by investing in innovation. Synaptics made many of the touch applications that were originally cutting edge technology. Now these applications are the norm. Much of their technology has been used by Apple’s iPod, and their mouse touch-pads are used by most laptops. Through its success in innovation, Synaptics Incorporated has become an industry leader.
Innovation is an excellent means for companies to distinguish themselves, remain competitive, and increase revenue. Sustainability was once thought of as a goodwill practice. Now it is regarded as a key driver for innovation. Committing to sustainability initiatives appears to be a good use of resources that will hopefully yield fruitful results.
By Dan Eng. Dan can be reached at DanEng1987@Yahoo.com.