Analysis of Entrepreneurial Process

Successful entrepreneurship occurs when creative individuals bring together a new way of meeting needs and a market opportunity. This is accomplished through a patterned process, one that mobilizes and directs resources to deliver a specific product or service to customers using a market entry strategy that shows investors financial promise of building enduring revenue and profitability streams. Sustainability adds to the design of a product and operations by applying the criteria of reaching toward benign (or at least considerably safer) energy and material use, a reduced resource footprint, and elimination of inequitable social impacts because of the venture’s operations, including its supply-chain impacts.

Entrepreneurial innovation combined with sustainability principles can be broken down into the following five key pieces for analysis. Each one needs to be analyzed separately, and then the constellation of factors must fit together into a coherent whole. These five pieces are:

• Opportunity
• Entrepreneur/team
• Product concept
• Resources
• Entry strategy

Successful ventures are characterized by coherence or “fit” across these pieces. The interests and skills of the entrepreneur must fit with the product design and offering; the team’s qualifications should match the required knowledge needed to launch the venture. The market opportunity must fit with the product concept in that there must be demand in the market for the product or service, and of course, early customers (those willing to purchase) have to be identified. Finally, sufficient resources, including financial resources (e.g., operating capital), office space, equipment, production facilities, components, materials, and expertise, must be identified and brought to bear. Each piece is discussed in more detail in the sections that follow.

Systems Thinking

Perhaps the most fundamentally distinctive feature of those engaged with sustainability innovation is the notion of systems thinkingAn approach to entrepreneurial innovation that views business ventures as interdependent with complex living and nonliving systems including the natural world as well as conventional business ties to markets, customers, and vendors.. Systems thinking does not mean “systems analysis,” which implies a more formal, mathematical tool. Nor is systems thinking one-dimensional, as we shall see. Systems thinking is best illustrated by contrasting it to linear thinking, the approach historically associated with business decision making. Linear thinking assumes businesses create and sell, each business focusing on its own operations. Supplier or customer activities are relevant only to the extent that understanding them can generate greater sales and profitability. This linear approach frames business activity as making and selling products that customers use and throw away. Therefore, conventional linear thinking in business ignores consideration of the product’s origins; the raw materials and labour input to make it; and the chemical, engineering, and energy-consuming processes required to convert raw materials into constituent components and the ultimate finished product. In addition, it does not consider the effects of the product’s use and the impacts when it is discarded at the end of its useful life.

In contrast, systems thinking applied to new ventures reminds us that companies operate in complex sets of interlocking living and nonliving systems, including markets and supply chains and natural systems. These natural systems can range from the atmosphere, to a wetlands area, to a child’s immune system. Remember systems thinking can apply to new ventures whether the firm sells products or provides services. If the venture is a service business, conventional business thinking can obscure the fact that service delivery involves information technology including hardware, software, servers, and energy use (heating and cooling). Service businesses may use office buildings and have employees who travel daily to the office and deliver services using truck fleets. Thus, service businesses and their related supply chains also can benefit from the application of sustainability thinking and systems thinking. In sum, every venture rests within and is increasingly buffeted by shifts in natural and commercial systems that may be influenced through the direct or indirect reach of its activities.

Taking a systems perspective reminds us we are accustomed to thinking of businesses in terms of discrete units with clear boundaries between them. We forget that these boundaries exist primarily in our minds or as legal constructs. For example, we may view a venture or company as a discrete entity. By extension we perceive a boundary between the firm and its suppliers and customers. Yet research suggests that the most successful business innovations arise from activities that cross category boundaries. Thus if one’s mental map imposes boundaries, options may be unnecessarily constrained. In fact, given the dominance of linear thinking in business, systems thinking can give you an advantage over your more narrowly focused competitor. Your linear-oriented competitor may target incremental improvements to existing processes and shortchange research and development investments in longer-term goals—and then be surprised by unanticipated innovations in the industry. However, because you perceive the larger systems in which the venture is embedded, you can anticipate opportunities and be poised to act. Not only does the broader systems view lead to more opportunities, enabling you to adapt your competencies, it also holds the potential of producing outcomes that better serve the needs of customers and employees, your community, and your shareholders.

Sustainability applied to new ventures incorporates systems thinking. If you think only about the fish or the single stream, you miss what makes the river alive; you miss what it feeds and what feeds it. Similarly, your venture is part of a set of interlocking and interdependent systems characterized by suppliers and buyers as well as by energy and material flows. The more you are aware of these systems and their relationships to your company, the more rigour you bring to product design and strategy development and the more sophisticated your analysis of how to move forward.

Another advantage of systems thinking is its invitation to jettison outdated ideas about the environment. The environment has, in the past, been considered “out there” somewhere, separate and apart from people and businesses. In reality, the environment is not external to business. Indeed, it is coming to comprise an integral new set of competitive factors that shape options and opportunities for entrepreneurs and firms. For ventures to successfully launch and grow in the twenty-first century, it is essential to understand this more expansive systems definition of the new competitive conditions.

When systems thinking guides strategy and action, the collision between business and natural systems becomes a frontier of opportunity. Systems thinking can encourage and institutionalize the natural ability of companies to develop—not through small adaptations but through creative leaps. The companies discussed in this section demonstrate these tactics in action. For example, AT&T shows how a company can work from a systems view to optimize benefits across multiple systems. Shaw Industries underwent a profound strategic reorientation when it redesigned its products—carpets—not in the traditional linear make-use-waste model but in a new circular strategy. Shaw now takes back carpets at the end of their use life, disassembles them, and remanufacturers them as new carpets. This is a radical rethinking of the value of a product. Coastwide Lab offers an example of a systems view that helped a smaller company generate systems solutions for customers, not just products. All three sustainability-inspired strategies indicate a stepped-up understanding of the broader systems in which the business operates. Systems thinking allowed each company to recognize new opportunities in its competitive terrain and to act on them in innovative ways that greatly improved its competitive position.

Pfizer

In 2002, pharmaceutical firm Pfizer won the US Presidential Green Chemistry Challenge Award for Alternative Synthetic Pathways for its innovation of the manufacturing process for sertraline hydrochloride (HCl). Sertraline HCl is the active ingredient in Zoloft, which is the most prescribed agent of its kind used to treat depression. In 2004, global sales of Zoloft were $3.4 billion. Pharmaceutical wisdom holds that companies compete on the drug primarily and on process secondarily, with “maximum yield” as the main objective. Green chemistry adds a new dimension to this calculus: Pfizer and other pharmaceutical companies discover that by thinking like a molecule and applying green chemistry process innovations, they see their atom economy exponentially improve.

With Pfizer, the company saw that it could significantly cut input costs. The new commercial process offered dramatic pollution prevention benefits, reduced energy and water use, and improved safety and materials handling. As a result, Pfizer significantly improved worker and environmental safety while doubling product yield. This was achieved by analyzing each chemical step. The key improvement in the sertraline synthesis was reducing a three-step sequence in the original process to a single step.Stephen K. Ritter, “Green Challenge,” Chemical & Engineering News, 80, no. 26 (2009): 30. Overall, the process changes reduced the solvent requirement from 60,000 gallons to 6,000 gallons per ton of sertraline. On an annual basis, the changes eliminated 440 metric tons of titanium dioxide-methylamine hydrochloride salt waste, 150 metric tons of 35% hydrochloric acid waste, and 100 metric tons of 50% sodium hydroxide waste. With hazardous waste disposal growing more costly, this represented real savings now and avoided possible future costs.

By redesigning the chemical process to be more efficient and produce fewer harmful and expensive waste products, producing sertraline generated both economic and environmental/health benefits for Pfizer. Typically, 20% of the wholesale price is manufacturing costs, of which approximately 20% is the cost of the tablet or capsule with the remaining percentage representing all other materials, energy, water, and processing costs. Using green chemistry can reduce both of these input costs significantly. As patents expire and pharmaceutical products are challenged by cheaper generics, maintaining the most efficient, cost-effective manufacturing process will be the key to maintaining competitiveness.

As mentioned earlier, E-factor analysis offers the means for streamlining materials processing and capturing cost savings. An efficiency assessment tool for the pharmaceutical industry, E-factor is defined as the ratio of total kilograms of all input materials (raw materials, solvents, and processing chemicals) used per kilogram of active product ingredient (API) produced. A pivotal 1994 study showed that as standard practice in the pharmaceutical industry, for every kilogram of API produced, between 25 and 100 kilograms or more of waste was generated—a ratio still found in the industry. By the end of the decade, E-factors were being used more frequently to evaluate products. Firms were identifying drivers of high E-factor values and taking action to improve efficiency. Multiplying the E-factor by the estimated kilograms of API produced by the industry overall suggested that, for the year 2003, as much as 500 million to 2.5 billion kilograms of waste could be the by-product of pharmaceutical industry API manufacture. This waste represented a double penalty: the costs associated with purchasing chemicals that are ultimately diverted from API yield and the costs associated with disposing of this waste (ranging from $1 to $5 per kilogram depending on the hazard). Very little information is released by competitors in this industry, but a published 2004 GlaxoSmithKline life-cycle assessment of its API manufacturing processes revealed approximately 75 to 80% of the waste produced was solvent (liquid) and 20 to 25% solids, of which a considerable proportion of both was likely hazardous under state and federal laws.

For years, the pharmaceutical industry stated it did not produce the significant product volumes needed to be concerned about toxicity and waste, particularly relative to commodity chemical producers. However, government and citizen concern about product safety and high levels of medications in wastewater combined with the growing cost of hazardous waste disposal is changing that picture relatively quickly. With favourable competitive conditions eroding, companies have been eager to cut costs, eliminate risk, innovate, and improve their image.

After implementing the green chemistry award-winning process as standard in sertraline HCl manufacture, Pfizer’s experience showed that green chemistry–guided process changes reduced E-factor ratios to ten to twenty kilograms. The potential to dramatically reduce E-factors through green chemistry could be significant. Other pharmaceutical companies that won Presidential Green Chemistry Challenge Awards between 1999 and 2010—Lilly, Roche, Bristol-Meyers Squibb, and Merck—reported improvements of this magnitude after the application of green chemistry principles. Pfizer was awarded the prestigious UK environmental Crystal Faraday Award for innovation in the redesign of the manufacturing process of sildenafil citrate (the active ingredient in the product Viagra).

Thinking like a molecule applied through use of green chemistry’s twelve principles fits easily with existing corporate Six Sigma quality programs whose principles consider waste a process defect. “Right the first time” was an industry quality initiative backed strongly by the US Food and Drug Administration. Pfizer’s Dr. Berkeley (“Buzz”) Cue (retired but still actively advancing green chemistry in the industry), credited with introducing green chemistry ideas to the pharmaceutical industry, views these initiatives as a lens that allows the companies to look at processes and yield objectives in a more comprehensive way (a systems view), with quality programs dovetailing easily with the approach and even enhancing it.

Dr. Cue, looking back on his history with green chemistry and Pfizer, said, “The question is what has Pfizer learned through understanding Green Chemistry principles that not only advantages them in the short term, but positions them for future innovation and trends?”^[7] This is an important question for entrepreneurs in small firms and large firms alike. If you think like a molecule, overlooked opportunities and differentiation possibilities present themselves. Are you calculating the ratio of inputs to outputs? Has your company captured obvious efficiency cost savings, increased product yield, and redesigned more customer and life-cycle effective molecules? Are you missing opportunities to reduce or eliminate regulatory oversight by replacing inherently hazardous and toxic inputs with benign materials? Regulatory compliance for hazardous chemical waste represents a significant budget item and cost burden. Those dollars would be more usefully spent elsewhere.

Green chemistry has generated breakthrough innovations in the agriculture sector as well. Growers face a suite of rising challenges connected with using traditional chemical pesticides. A primary concern is that pests are becoming increasingly resistant to conventional chemical pesticides. Sometimes, pesticides must be applied two to five times to accomplish what a single application did in the 1970s. Pests can reproduce and mutate quickly enough to develop resistance to a pesticide within one growing season. Increased rates of pesticide usage deplete soil and contaminate water supplies, and these negative side effects and costs (so-called externalities) are shifted onto individuals while society bears the cost.

AgraQuest

AgraQuest is an innovative small company based in Davis, California. The company was founded by entrepreneur Pam Marrone, a PhD biochemist with a vision of commercially harnessing the power of naturally occurring plant defence systems. Marrone had left Monsanto, where she had originally been engaged to do this work, when that company shifted its strategic focus to genetically modified plants. Marrone looked for venture capital and ultimately launched AgraQuest, a privately held company, which in 2005 employed seventy-two people and expected sales of approximately $10 million.

AgraQuest strategically differentiated itself by offering products that provided the service of effective pest management while solving user problems of pest resistance, environmental impact, and worker health and safety. AgraQuest provides an exemplary case study of green chemistry technology developed and brought to market at a competitive cost. The company is also is a prime example of how a business markets a disruptive technology and grapples with the issues that face a challenge to the status quo.

Winner of the Presidential Green Chemistry Challenge Small Business Award in 2003 for its innovative enzymatic biotechnology process used to generate its products, AgraQuest employed a proprietary technology to screen naturally occurring microorganisms to identify those that may have novel and effective pest management characteristics.^[8] AgraQuest scientists travelled around the world searching out promising-looking microbes for analysis. AgraQuest scientists gathered microbe samples from around the world, identifying those that fight the diseases and pests that destroy crops. Once located, these microorganisms were screened, cultivated, and optimized in AgraQuest’s facilities and then sent in powder or liquid form to growers. In field trials and in commercial use, AgraQuest’s microbial pesticides have been shown to attack crop diseases and pests and then completely biodegrade, leaving no residue behind. Ironically, AgraQuest’s first product was developed from a microbe found in the company’s backyard—a nearby peach orchard. Once the microbe was identified, company biochemists analyzed and characterized the compound structures produced by selected microorganisms to ensure there were no toxins, confirm that the product biodegraded innocuously, and identify product candidates for development and commercialization.

The company, led by entrepreneur Marrone, has screened over twenty-three thousand microorganisms and identified more than twenty product candidates that display high levels of activity against insects, nematodes, and plant pathogens. These products include Serenade, Sonata, and Rhapsody biological fungicides; Virtuoso biological insecticide; and Arabesque biofumigant. The market opportunities for microbial-based pesticides are extensive. The booming $4 billion organic food industry generates rising demand for organic-certified pest management tools. As growers strive to increase yields to meet this expanding market, they require more effective, organic means of fighting crop threats. AgraQuest’s fungicide Serenade is organic certified to serve this expanding market, and other products are in the pipeline.

The US Environmental Protection Agency (EPA) has streamlined the registration process for “reduced-risk” bio-based pesticides such as AgraQuest’s to help move them to market faster. The Biopesticides and Pollution Prevention Division oversees regulation of all biopesticides and has accelerated its testing and registration processes. The average time from submission to registration is now twelve to fourteen months rather than five to seven years.

Since the products biodegrade and are inherently nontoxic to humans, they are exempt from testing for “tolerances”—that is, the threshold exposure to a toxic substance to which workers can legally be exposed. This means that workers are required to wait a minimum of four hours after use before entering the fields, whereas other conventional pesticides require a seventy-two-hour wait. The reduction of restricted entry intervals registers as time and money saved to growers. Therefore, AgraQuest products can act as “crop savers”—used immediately prior to harvest in the event of poor weather. To growers of certain products, such as wine grapes, this can mean the difference between success and failure for a season.

AgraQuest deployed exemplary green chemistry and sustainability innovation strategies. The opportunity presented by the problems associated with conventional chemical pesticides was relatively easy to perceive, but designing a viable alternative took real ingenuity and a dramatic diversion from well-worn industry norms. Thinking like a molecule in this context enabled the firm to challenge the existing industry pattern of applying toxins and instead examine how natural systems create safe pesticides. Marrone and her team have been able to invent entirely new biodegradable and benign products—and capitalize on rising market demand for the unique array of applications inherent in this type of product.

As the science linking cause and effect grows more sophisticated, public concern about the human health and environmental effects of pesticides is increasing.^[9] Related to this is an international movement to phase out specific widely used pesticides such as DDT and methyl bromide. Moreover, a growing number of countries impose trade barriers on food imports because of residual pesticides on the products.

In this suite of challenges facing the food production industry, AgraQuest found opportunity. The logic behind AgraQuest’s product line is simple: rather than relying solely on petrochemical-derived approaches to eradicating pests, AgraQuest products use microbes to fight microbes. Over millennia, microbes have evolved complex defence systems we are only now understanding. AgraQuest designs products that replicate and focus these natural defence systems on target pests. When used in combination with conventional pesticides, AgraQuest products are part of a highly effective pest management system that has the added benefit of lowering the overall chemical load released into natural systems. Because they are inherently benign, AgraQuest products biodegrade innocuously, avoiding the threats to human health and ecosystems—not to mention associated costs—that growers using traditional pesticides incur.

NatureWorks

In a final example, NatureWorks, Cargill’s entrepreneurial biotechnology venture, designed plastics made from biomass, a renewable input. The genius of NatureWorks’ biotechnology is that it uses a wide range of plant-based feedstocks and is not limited to corn, thus avoiding competition with food production. NatureWorks’ innovative breakthroughs addressed the central environmental problem of conventional plastic. Derived from oil, conventional plastic, a nonrenewable resource associated with a long list of environmental, price, and national security concerns, has become a major health and waste disposal problem. By building a product around bio-based inputs, NatureWorks designed an alternative product that is competitive in both performance and price—one that circumvents the pollution and other concerns of oil-based plastics. As a result of its successful strategy, NatureWorks has shifted the market in its favour.

NatureWorks LLC received the 2002 Presidential Green Chemistry Challenge Award for its development of the first synthetic polymer class to be produced from renewable resources, specifically from corn grown in the American Midwest. At the Green Chemistry and Engineering conference and awards ceremony in Washington, DC, attended by the president of the US National Academy of Sciences, the White House science advisor, and other dignitaries from the National Academies and the American Chemical Society, the award recognized the company’s major biochemistry innovation, achieved under the guidance and inspiration of former NatureWorks technology vice president Patrick Gruber.

Gruber was an early champion of sustainability innovation. As an entrepreneur inside a large firm, he led the effort that resulted in NatureWorks’ bio-based plastic. Together with a team of chemical engineers, biotechnology experts, and marketing strategists, Gruber spearheaded the effort to marry agricultural products giant Cargill with chemical company Dow to create the spin-off company originally known as Cargill Dow and renamed NatureWorks in January 2005. Gruber was the visionary who saw the potential for a bio-based plastic and the possibilities for a new enzymatic green chemistry process to manufacture it. He helped drive that process until it was cost-effective enough to produce products competitive with conventional products on the market.

NatureWorks’ plastic, whose scientific name is polylactic acid (PLA), has the potential to revolutionize the plastics and agricultural industries by offering biomass-based biopolymers as a substitute for conventional petroleum-based plastics. NatureWorks resins were named and trademarked NatureWorks PLA for the polylactic acid that comprises the base plant sugars. Besides replacing petroleum as the material feedstock, PLA resins have the added benefit of being compostable (safely biodegraded) or even infinitely recyclable, which means they can be reprocessed again and again. This provides a distinct environmental advantage, since recycling—or “down-cycling”—post-consumer or postindustrial conventional plastics into lower-quality products only slows material flow to landfills; it does not prevent waste. Manufacturing plastic from corn field residues results in 30 to 50% fewer greenhouse gases when measured from “field to pellet.” Additional life-cycle environmental and health benefits have been identified by a thorough life-cycle analysis. In addition, PLA resins, virgin and post-consumer, can be processed into a variety of end uses.

In 2005, NatureWorks CEO Kathleen Bader and Patrick Gruber were wrestling with several questions. NatureWorks’ challenges were operational and strategic: how to take the successful product to high-volume production and how to market the unique resin in a mature plastics market. NatureWorks employed 230 people distributed almost equally among headquarters (labs and management offices), the plant, and international locations. As a joint venture, the enterprise had consumed close to $750 million dollars in capital and was not yet profitable, but it held the promise of tremendous growth that could transform a wide range of markets worldwide. In 2005, NatureWorks was still the only company in the world capable of producing large-scale corn-based resins that exhibited standard performance traits, such as durability, flexibility, resistance to chemicals, and strength—all at a competitive market price.

The plastics industry is the fourth largest manufacturing segment in the United States behind motor vehicles, electronics, and petroleum refining. Both the oil and chemical industries are mature and rely on commodities sold on thin margins. The combined efforts of a large-scale chemical company in Dow and an agricultural processor giant in Cargill suggested Cargill Dow—now NatureWorks—might be well suited for the mammoth task of challenging oil feedstocks. However, a question inside the business in 2005 was whether the company could grow beyond the market share that usually limited “environmental” products, considered somewhere between 2 and 5% of the market. Was PLA an “environmental product,” or was it the result of strategy that expected profound market shifts?

NatureWorks brought its new product to market in the late 1990s and early 2000s at a time of shifting market dynamics and converging health, environmental, national security, and energy independence concerns. These market drivers gave NatureWorks a profound edge. Oil supplies and instability concerns loomed large in 2005 and have not subsided. Volatile oil prices and political instability in oil-producing countries argued for decreasing dependence on foreign oil to the extent possible. The volatility of petroleum prices between 1995 and 2005 wreaked havoc on the plastics industry. From 1998 to 2001, natural gas prices (which typically tracked oil prices) doubled, then quintupled, then returned to 1998 levels. The year 2003 was again a roller coaster of unpredictable fluctuations, causing a Huntsman Chemical Corp. official to lament, “The problem facing the polymers and petrochemicals industry in the U.S. is unprecedented. Rome is burning.”^[10] In contrast, PLA, made from a renewable resource, offered performance, price, environmental compatibility, high visibility, and therefore significant value to certain buyers for whom this configuration of product characteristics is important.

Consumers are growing increasingly concerned about chemicals in products. This provides market space for companies who supply “clean materials.” NatureWorks’ strategists knew, for example, that certain plastics were under increasing public scrutiny. Health concerns, especially those of women and children, have put plastics under suspicion in the United States and abroad. The European Union and Japan have instituted bans and regulatory frameworks on some commonly used plastics and related chemicals. Plastic softeners such as phthalates, among the most commonly used additives, have been labeled in studies as potential carcinogens and endocrine disruptors. Several common flame retardants in plastic can cause developmental disorders in laboratory mice. Studies have found plastics and related chemicals in mothers’ breast milk and babies’ umbilical cord blood samples.^[11]

Consumer concern about chemicals and health opens new markets for “clean” materials designed from a sustainability innovation perspective. In addition, international regulations are speeding up growth in the market. In 1999, the European Union banned the use of phthalates in children’s toys and teething rings and in 2003 banned some phthalates for cosmetics. States such as California have taken steps to warn consumers of the suspected risk of some phthalates. The European Union, California, and Maine banned the production or sale of products using certain polybrominated diphenyl ethers (PDBEs) as flame retardants. In 2006, the European Union was in the final phases of legislative directives to require registration and testing of nearly ten thousand chemicals of concern. The act, called Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH), became law in 2007 and regulates the manufacture, import, marketing, and use of chemicals. All imports into Europe need to meet REACH information requirements for toxicity and health impacts. Companies are required to show that a substance does not adversely affect human health, and chemical property and safe use information must be communicated up and down supply chains to protect workers, consumers, and the environment.

These drivers contributed to the molecular thinking that generated NatureWorks’ corn-based plastics. The volatility of oil prices, growing consumer concerns about plastics and health, waste disposal issues, and changing international regulations are among the systemic issues creating a new competitive arena in which bio-based products based on green chemistry design principles can be successfully introduced.

Given higher levels of consumer awareness in Europe and Japan, NatureWorks’ plastic initially received more attention in the international market than in the United States. In 2004, IPER, an Italian food market, sold “natural food in natural packaging” (made with PLA) and attributed a 4% increase in deli sales to the green packaging.^[12] NatureWorks established a strategic partnership with Amprica SpA in Castelbelforte, Italy, a major European manufacturer of thermoformed packaging for the bakery and convenience food markets. Amprica was moving ahead with plans to replace the plastics it used, including polyethelene terephthalate (PET), polyvinyl chloride (PVC), and polystyrene with the PLA polymer.

In response to the national phaseout and ultimate ban of petroleum-based shopping bags and disposable tableware in Taiwan, Wei-Mon Industry (WMI) signed an exclusive agreement with NatureWorks to promote and distribute packaging articles made with PLA.^[13] In other markets, Giorgio Armani released men’s dress suits made completely of PLA fiber and Sony sold PLA Discman and Walkman products in Japan. Because of growing concerns about the health impacts of some flame-retardant additives, NEC Corp. of Tokyo combined PLA with a natural fiber called kenaf to make an ecologically and biologically neutral flame-resistant bioplastic.” ^[14]

The US market has been slower to embrace PLA, but Walmart’s purchasing decisions may change that. In fact, NatureWorks’ product solves several of Walmart’s problems. Walmart has battled corporate image problems on several fronts—in its treatment of employees, as a contributor to “big box” sprawl, and in its practice of outsourcing, among others. Sourcing NatureWorks’ bio-based, American-grown, corn-based plastic not only fits into Walmart’s larger corporate “sustainability” effort but addresses US dependence on foreign oil and supports the American farmer.

The spectrum of entrepreneurial activities in the sustainable materials arena is wide. While some entrepreneurs are early entrants who are reconfiguring product systems, others take more incremental steps toward adopting cleaner, innovative materials and processes. However, incremental changes can be radical when taken cumulatively, as long as one constantly looks ahead toward the larger goal.

Many companies, within the chemical industry and outside, now understand that cost reductions and product/process improvements are available through green chemistry and other environmental efficiency policies. Documented cost savings in materials input, waste streams, and energy use are readily available. In recognition of the efficiency gains to be realized, as well as risk reduction and regulatory advantages, most firms acknowledge the benefits that result from developing a strategy with these goals in mind. In addition, companies know they can help avoid the adverse effects of ignoring theses issues, such as boycotts and stockholders’ resolutions that generate negative publicity.

However, the efficiency improvement and risk reduction sides of environmental concerns and sustainability are only the leading edge of the opportunities possible. Sustainability strategies and innovative practices go beyond incremental improvement to existing products. This future-oriented business strategy—geared toward new processes, products, technologies, and markets—offers profound prospects for competitive advantage over rival firms.

As the molecular links among the things we make and macro-level issues such as health, energy independence, and climate change become more widely understood, companies that think strategically about the chemical nature of their products and processes will emerge as leaders. A “think like a molecule” approach to designing materials, products, and processes gives entrepreneurs and product designers an advantage.

GE

In June 2005, GE CEO Jeff Immelt announced GE’s new sustainability strategy, “Ecomagination,” at a press event with Jonathan Lash, executive director of the environmental nonprofit organization World Resources Institute. Ecomagination, said Immelt, aims to “focus our unique energy, technology, manufacturing, and infrastructure capabilities to develop tomorrow’s solutions such as solar energy, hybrid locomotives, fuel cells, lower-emission aircraft engines, lighter and stronger materials, efficient lighting, and water purification technology.”^[18]

Specifically, GE announced it would more than double its research investment in cleaner technologies, from $700 million in 2004 to $1.5 billion by 2010. GE also pledged to improve its own environmental performance by “reducing its greenhouse gas emissions 1% by 2012 and the intensity of its greenhouse gas emissions 30% by 2008, both compared to 2004 (based on the company’s projected growth, GE says its emissions would have otherwise risen 40% by 2012 without further action).”^[19]

GE’s 2005 strategy was driven to a large degree by the cultivation of weak ties. Characteristic of many large firms active in eco-efficiency, GE had long viewed itself as a leader in environmental productivity improvements because it built energy-efficient airplane engines and other smaller systems and appliances that dramatically reduced resource and electricity use. However, these were design improvements that lacked the broader sweep of a systems view. To bring in new thinking and develop a new competitive stance, GE’s senior management aggressively sought perspectives from atypical sources.^[20]

The Ecomagination story begins in 2003 and 2004 when three-year strategic plans drawn up by GE’s business unit CEOs were presented to corporate CEO Jeff Immelt. These showed market opportunities in green-friendly products across all the units. Core customers were asking for products designed to address escalating resource scarcity and pollution pressures. Clean water and clean energy featured prominently. Immelt had received periodic inquiries publicly (as shareholder petitions) and privately how GE would respond in an increasingly resource-constrained world. What was GE’s position on environmental issues? Did it have a position?

A project to research the questions and trends was assigned and scoped out. GE assembled a team to interview thought leaders and experts outside the company in a variety of sectors. Academic experts in many fields, futurists, other business leaders, and leading NGOs were systematically interviewed as part of the information gathering that ultimately informed top management.

Through this process, topics were identified as relevant to GE’s markets and offerings. In 2004, GE hosted by-invitation-only meetings of top GE decision makers and a subset of outside experts to look at trends in water and energy concerns five to ten years out. Major customers, the dozen top executives at GE including the CEO, and a select group of outside expert advisors were present at the meetings from beginning to end, an attendance record unusual in the corporate world. In total, over one hundred experts inside and outside GE were consulted, forty leading companies studied, and multiple internal GE seminars and brainstorming sessions convened to discuss mega trends influencing GE’s future businesses.

GE found it was already seeing $10 billion annual revenues from existing green technologies and services. The relative value of this activity was unexpected. Rather than being something foreign or new, GE was already seeing high returns from existing green technology innovations. This perspective, when combined with the outside expert feedback on likely trends, confirmed for GE management that their efforts should be redoubled to generate revenues of at least $20 billion by 2010, with application of more aggressive targets thereafter.

Clean Edge, a research and advisory firm, estimated in 2006 that global markets for three of GE’s identified technologies—wind power, solar photovoltaics, and fuel cells—would grow to more than $100 billion within 10 years, from some $16 billion in 2006. This figure did not include clean-water technologies, in which GE has also invested heavily. A previous study predicted that the market for world water treatment technologies will reach $35 billion by 2007.^[21]

Weak ties influenced GE’s strategy formation in several ways. First, the ties helped GE design metrics to measure the current and potential values of some of its “green” technologies. One of GE’s weak ties was to GreenOrder, a New York–based consultancy specializing in sustainable business. According to GreenOrder, GE identified 17 products representing about $10 billion in annual sales as part of the Ecomagination platform on which it planned to build. In doing so, the company undertook intensive processes to identify and qualify current Ecomagination products, analyzing the environmental attributes of GE products relative to benchmarks such as competitors’ best products, the installed base of products, regulatory standards, and historical performance. For each Ecomagination product, GE created an extensive “scorecard” quantifying the product’s environmental attributes, impacts, and benefits relative to comparable products.^[22] Doing this analysis was one of the key roles played by GreenOrder.

Because of these metrics, GE’s corporate Global Research Center doubled its R&D spending on Ecomagination products and associated services. Business units are required to focus on enhanced internal environmental performance and new product offerings. By October 2005, a senior vice president and officer of the corporation was appointed who reported directly to the CEO and took responsibility for the quantitative tracking of business units’ progress to both “walk the talk” internally and drive new product ideas.

The firm’s strategy change was driven by a historically unprecedented search for new information that used many weak ties to gain emerging perspectives and new science data. This process gave senior management a broader view of global resource trends and allowed the company to gauge how it could best leverage its assets and capabilities to both profit from and contribute to solutions.

In contrast to many firms that are low-key about their environmental activities (to avoid criticism of falling short of the ideal), Jeff Immelt put GE out on a limb. The company, already criticized for environmental transgressions such as that in the Hudson River,In 2002 the EPA dredged 2.65 million cubic yards of sediment—enough dirt to fill an area the size of ten football fields to a height of 145 feet—which is expected to cost GE about $460 million. The dredging is aimed at removing polychlorinated biphenyls (PCBs) dumped into the river from GE plants in Hudson Falls, New York, and Fort Edward, New York, from 1947 to 1977, before PCB use was banned.^[23] There is reasoned debate, on the “greenness” of some of the technologies that GE is putting forward (nuclear power, “clean” coal, etc.). No company with a brand as well known as GE’s can afford to not deliver. Time will tell how successful GE’s strategy will be, but a company such as GE does not make such a significant and public move without a thoroughly reasoned strategy. The GE example shows the formative role that weak ties can play in a company’s strategic transformation.

IKEA

Global home furnishings retailer IKEA was stunned by claims in the 1990s that one of its most popular products—the Billy bookcase—was off-gassing formaldehyde at levels above German government safety standards. The resulting crisis for this company led to IKEA’s search for ways to prevent such an issue from happening in the future. After talking with different environmental groups and receiving much criticism but little concrete direction, IKEA turned to The Natural Step (TNS), an environmental educational organization headquartered in Stockholm, Sweden. Karl Henrik Robèrt, founder of TNS and an oncologist who became an environmental health activist because of children’s inexplicably rising cancer rates, was repeatedly invited to talk with IKEA’s senior management team and train them in TNS process. By teaching the group about overlooked market conditions that would increasingly impinge on IKEA’s worldwide practices, Robèrt catalyzed the group to commit to the first step of designing a green furniture line offering—and this weak tie ultimately helped IKEA develop its overarching sustainability strategy.

“Fixing” the company after its regulatory embarrassment seemed enormous to senior executives. But the basic environmental education and criteria for designing both products and strategy offered by TNS educational framework allowed the senior executives to see a path forward. The major learning point is that without seeking outside perspectives from the very groups that had been most critical of the corporation, IKEA would not have found Dr. Robèrt and TNS ideas that were eventually integrated into the company’s strategy.

Working with Robèrt helped IKEA leaders see their industry from the outside; thereafter, they viewed steps transitioning toward “sustainable business” as noncontroversial. IKEA leaders were simply adapting to new scientific and health research data and integrating that data with their strategic choices. In their earliest experience with TNS, that meant certain chemicals known to be toxic to cells (causing cell mutation) would not be used in any production steps required to make residential household furniture. The solution of removing unsafe materials fit with IKEA’s corporate purpose of improving the lives of its customers.

The first concrete product that resulted from this solution was IKEA’s “eco-furniture” line, but the perspectives on materials and IKEA’s strategic positioning went far beyond one product line. IKEA continued to set some of the highest environmental strategy standards in the industry. As one of the first adopters of sustainability standards, IKEA has set the bar that others seek to match. The company’s initial corporate environmental action plan was called Green Steps, which was based on four intended actions/conditions posed as questions:

1. Is the company systematically reducing its dependency on mining and nonrenewable sources?
2. Is the company reducing the use of long-lasting, unnatural substances?
3. Is the company reducing its encroachment on nature and its functions?
4. Is the company reducing unnecessary use of resources?

To ensure this policy is followed, IKEA trains all employees and regularly provides them with clear and up-to-date environmental information. The company also established an internal Environment Council, and all business plans and reports describe environmental measures and costs pertaining to the Green Steps.

IKEA does not manufacture its own products but commands a large international supply chain. The IKEA Group has nearly 220 stores in 33 countries. Nearly 1,600 suppliers manufacture products for IKEA. IKEA’s purchasing is carried out through 43 trading service offices around the world. IKEA mainly sources from European countries, but purchases from developing countries and countries in transition are rapidly increasing. A limited part of the supply comes from the industrial group of IKEA, Swedwood, which has 35 factories in 9 countries.

IKEA has taken steps to work with and educate current and potential suppliers on its environmental specifications and expectations. In this way, the company is shifting the industry standards, as captured in “The IKEA Way on Purchasing Home Furnishing Products” (IWAY). This guiding document supports the IKEA vision and business idea, outlining in great detail its expectations and procedures for suppliers. IWAY is administered and monitored by IKEA of Sweden Trading Services Office and by a global compliance group.^[24]

IKEA has won many environmental business awards and is a leader in setting high standards for its products, particularly environmental standards. As one of the early adopters of a green strategic approach to how it conducts business, IKEA now enjoys brand recognition as the company that not only sells low cost, well-designed home furnishings but clean and safe products as well.

These examples illustrate senior managers responding to a changing business environment by establishing weak ties to outsiders who provide content on a new strategic direction for the company. These managers took advice from sources considered unconventional—even threatening—and used it for their companies’ financial and strategic gain. In these cases, we see three types of weak ties: to professional experts, to NGOs, and to an environmental educational organization.

There is no way to predict what outside source will offer weak tie benefits to your venture. However, a good way to find such sources is to identify the pool of weak ties from among your insider strong-tie group to relevant outsider voices. As noted, environmental groups and other NGOs are not homogeneous; some are more willing and able to work with entrepreneurs and companies than others. Certain leaders and their organizations are well established and widely respected. You need to research the topics that represent opportunities for your venture and then identify individuals and organizations with whom conversation may be fruitful. Ideally, you want to start weak tie conversations with individuals and groups aligned with sustainability solutions who do not take issue with your proposed or existing practices. You need a set of weak ties willing to join with you over time to help inform strategy.

In summary, if entrepreneurs do not seek outsider perspectives on the shifting state of the competitive game, they will be blinded to forces that hold, sometimes, the overnight potential to undermine the venture’s efforts. On the positive side, access to emergent perspectives and new scientific data on sustainability issues holds promise of strategic advantage. Access to this information enables discerning entrepreneurs to gain relative to competitors because information flows from weak ties bring tighter cohesion between a firm’s strategic thinking and the shifting conditions that shape market opportunities. Weak ties are a bridge to innovation, competitive differentiation, and new market opportunities.^[25] Using weak ties for sustainability innovation can be understood as a parallel to adaptation in biology. As the complexity of business decisions and market dynamics grows, the effective use of weak ties can mean the difference between learning and not learning, at the individual, corporate, and supply-chain levels. We would argue that in the twenty-first century, it is essential to seek better information drawn from wider sources logically linked to a firm’s social and environmental footprint to adapt intelligently.

Walden Paddlers

Walden Paddlers represented a sustainability-oriented company from its inception. Paul Farrow built his company and core VAN from scratch. One day, on vacation in Maine, he made a back-of-the-envelope calculation that the economics of recycled plastics made into recreational kayaks was a market opportunity— £35.40 per pound of plastic sold for more than four hundred dollars at retail. Farrow saw the possibility for a higher quality product at a lower price to the user, and a profitable company. The question he pondered was whether he could create a new market space for kayaks made from used milk bottles. All he knew at that point was that he had a business idea worth exploring. He knew nothing about kayaks (except enjoying them for recreation) or recycled plastic, but he knew a little about plastics manufacturing.

The project began as many sustainability initiatives do. He talked with people he expected to understand his vision, experts in plastics and material science. He was summarily informed by materials specialists from preeminent Boston-area academic establishments that no one could make high-performance plastic for recreational kayaks from recycled materials. It was common knowledge; the composition of recycled plastics made it impossible. The recycled resins, appropriate for down-scaling into speed bumps or perhaps waste cans, would not yield high-performance, aesthetically attractive kayak hulls. The industry lacked equipment to handle the new material and specifications. In conclusion, it could not be done.

Challenging the received wisdom of experts requires reaching beyond them to more open-minded fellow travelers, those with less invested in existing knowledge, objectives, and methods. With only his aspiration of earning a living doing something he believed in and that would help protect the natural environment, and a vague picture of using recycled resins to create a kayak of some sort (for a market that might or might not exist), Paul Farrow kept talking to people about his idea and gathering data. He sought the advice of materials science experts who would take his ideas seriously. He conducted research on the prospective customer segment and communicated through his extended family and network of friends that he had this crazy idea. He found a few receptive individuals who will talk with him and consider the possibilities.

Your VAN can take form from unexpected locations. Reminded by his wife that he had a brother-in-law attending Rensselaer Polytechnic Institute in New York state, Farrow made some phone calls. His brother-in-law had taken a course on materials with a nationally known professor. Through persistence, several phone calls later Farrow connected with the professor, who had recently started a company with one of his former engineering students, Jeff Allott. Allott, now a product designer for the company General Composites, was coincidentally a paddle sports enthusiast and was intrigued by Farrow’s plan. Allott was also anticipating that the company’s government contracts would taper off soon, and General Composites needed to diversify. Allott liked designing an unprecedented material that the experts had deemed impossible to create. Why not create a high-performance, aesthetically attractive, inexpensive recreational kayak from recycled milk bottles? Why can’t positive expectations for health, ecology, community, and financial gains be optimized simultaneously?

This was a typical entrepreneurial endeavour during which Farrow repeatedly heard “no” in response to his questions Eventually he received a “maybe” from a more imaginative individual who could see the new market space. The pattern of “no” and a few “maybes” repeated itself with manufacturers, national retailers, distributors, and component suppliers. From his innumerable rejections, Farrow had collected valuable information about how to implement his vision that he used to refine and recalibrate his plan. In this learning process Farrow’s VAN identified itself in a self-selection, self-organizing fashion typical of new enterprises.

Each node in the network was a person with close knowledge about how to implement the proposal. Each suggested ways forward and was willing to collaborate with untested strategy, design protocols, product ideas, and market segment definitions that had unknown but possibly significant returns. Farrow also tapped into each individual’s sense of competitive challenge, fun, and creativity posed by accomplishing something the so-called experts said was impossible. The results of the process were a set of innovations, an award-winning kayak, and a profitable company.

This story teaches the necessity of carefully selecting VAN participants whose goals are aligned with yours. The first manufacturer to sign on was Hardigg Industries. Its manufacturing manager was curious about working with the new recycled plastic resins and driven by the economic pressure of unused plant capacity. This seasoned manager was also interested in the prospect of a growing a new customer base in recycled plastic molding. In fact, Hardigg’s management was so motivated to try new approaches in recycled plastics that it contributed capital to the start-up by agreeing to generous terms that acknowledged the start-up’s cash-strapped condition. Hardigg invested $200,000 in new equipment and drew up a flexible, informal contract based on shared returns and aligned future interests should the venture take off.

The start-up’s next phase illustrates how sustainability innovations are created. Extensive experimentation with different plastic compounds and resin colours followed. There were adjustments to the equipment to modulate temperatures and vary cooling times and methods. Farrow, along with the manufacturer and the designer, spent many hours testing, analyzing, discussing, and retesting. It was a microcosm of any implementation situation characterized by innovation and entrepreneurial process: learn as you go, draw from the creativity and imagination of your partners, collaborate, adapt and incorporate new knowledge along the way, and allow the feedback and events to shape the path and even the destination.

Entrepreneurs need to keep searching for allies to fill in the VAN gaps. The right mix of recycled plastic had to be developed to match the materials specifications of the product and the high heat demands of the molding equipment. Turned down by multiple plastic recyclers, Farrow finally found a Connecticut recycler who was trying to build his business and had a reputation for being open to new ideas. That recycler joined the emerging VAN and experimented with different collected plastics, testing a variety of pellets for melt consistency, texture, and colour. More weeks of prototype experimentation unfolded, involving Paul Farrow, Jeff Allott, the recycler, and the head of manufacturing at Hardigg designing and redesigning incrementally but ultimately successfully to produce the first kayak.

Now Farrow had to address how to sell the kayak. What was the least expensive and most leveraged way to test the market? Attracted to the idea of selling more environmentally responsible kayaks, leading national sports equipment retailers were open to Farrow’s product ideas. Through extensive discussions with retailers like REI, Eastern Mountain Sports, L. L. Bean, and others emerged optimal pricing strategies at wholesale and retail, creative in-store marketing, and colourful packaging for the customer to protect the kayak when it is placed on a vehicle roof rack. The collaborative retailers literally told Farrow what decisions to make on pricing, marketing, and packaging to optimize sales.

A successful VAN process will elicit energy and initiative from those self-selected to be involved because they know that business, the environment, and communities are not separate. Explicit sustainability strategies attract committed people and release their creativity. Dale Vetter, an operations expert and Farrow’s friend and former business colleague, was drawn into the business bringing operating skills that complemented Farrow’s finance know-how and general management experience. Vetter’s creative redesign of the transport system that moved the kayaks from the manufacturer to Walden’s tiny warehouse and office headquarters outside Boston resulted in dramatically improved logistics efficiencies and reduced labour costs. The kayak seat supplier was persuaded by Farrow and Vetter to take back its packaging, ultimately saving itself money when it discovered a method to recycle its packaging materials. This allowed Walden to avoid expensive Boston-area waste disposal fees.

Farrow has downplayed the challenges of creating his company, yet in its time Walden Paddlers implemented an early model of sustainability innovation that functioned under an innovative corporate structure. The company was one of the earliest documented virtual corporationsSee also extensive literature on “network organizations”^[26] and continued to innovate in materials, product design, transportation system, vendor relations, and wholesale buyer collaborations. Farrow was a sincere, informed, and modest yet passionate catalyst. Each VAN participant got hooked on his vision, and Farrow worked to ensure their economic interests were aligned. Both vision and potential returns were critical.

VAN participants, along with Farrow, heard discouraging comments throughout the start-up’s early stages. Farrow laughed as he said, “You have to get used to hearing ‘no.’ Your attitude has to be, ‘so what’? So you hear ‘no’ repeatedly.”^[27] Farrow’s casual way of talking about the implementation process masked his determination, persistence, and willingness to learn and adapt and to compromise when economic necessity required. The perfect would not shut out the good. His attitude was contagious and created the required commitment to make this idea fly. He commented on the people who said “no” to him: “Those people just have less imagination. But those aren’t the ones you want to work with. Do people think I’m a little odd in my passion for the vision? Sure, but you keep talking to people until you find the right partners who believe and will work hard to make the impossible happen.”

The Walden Paddlers case shows how you may need to create and inspire your VAN while you are on the journey. If there are no precedents, the VAN literally creates what it is doing as it goes forward. Farrow had only one requirement needed to build a company: a vague idea backed by some rough financial calculations. He needed a materials specialist to design the first kayak from recycled plastic because he knew nothing about designing kayaks and even less about materials science. He needed manufacturers with knowledge of molding equipment. He needed operations capability, administrative processes for health benefits and hiring, transportation services, and retail and wholesale outlets. Yet within eight years, he had built a virtual corporation before “virtual” or “network” organizations were recognized as legitimate forms for business. He defied conventional wisdom on materials design and sold high-performance, aesthetically attractive, 100% recycled and recyclable recreational kayaks through nationally known retailer chains. In addition, he sold his company at an undisclosed price, gave himself time off to build a vacation home with his wife and three sons, then took on a new corporate sustainability challenge with a small, growing company. How did he do it? It was important that he didn’t accept the notion that his vision could not be realized. He formed his VAN of like-minded others and together they made it real.

What else can we learn from this case? Farrow questioned the conventional business wisdom—a common practice among entrepreneurial individuals. Their commitment to the unproven premise can be intense, and they may appear they will vision into action and results. However, implementation needs and invites collaborators.

Another lesson from the Walden Paddlers’ example is that it took patience to allow solutions to emerge and evolve from the network participants’ contributions. All participants had to be open to learning and finding the right “partners” willing to go outside their comfort and expertise zones to invest time and resources in a new idea. Don’t be surprised if it takes time to find willing partners. There are too many powerful influences at work that cause people and firms to be insular.

Finally, you don’t need extensive resources, just enough to get to the next step. At every stage, the VAN became more closely aligned, tapping into its growing collective wisdom, imagination, and resources. The most underrated resource for breakthrough ideas might be the network of people you already know inside your firm or the network you can build outside through your company’s supplier and customer relationships.

Creativity and imagination drawn from people who initially may be considered outsiders can be pivotal to a company’s success. These individuals and their institutions can come to have a strong stake in the outcome, and they have the knowledge to generate paths forward that otherwise would remain latent. In Paul Farrow’s case, there were no vertically integrated functions; he was building from the ground up. Within an established firm, some functional activities in the VAN are typically incorporated into the formal boundaries of the organization (e.g., design, product development, manufacturing, marketing, sales). Others lie outside with suppliers and buyers or other key allies. Implementation requires you to ignore conventional corporate boundaries and view the VAN as a lateral web of information and material flows through which ideas and resources can be mobilized. There is no reason not to tap into this potential power.

United Technologies Corporation

United Technologies Corporation (UTC), despite its large size and dominance in mature markets with mature products, remains remarkably innovative, including its leadership in sustainability strategy. In the 1990s, UTC CEO George David announced the company’s goal of reducing its environmental footprint by a factor of ten. Explicitly committed to sustainability from the top, UTC was ahead of its time for an aerospace and building products and services firm. Management has since driven resource use efficiency programs through the business units and transitioned into new product designs that provide the power and performance people want for vehicles and operations while delivering on sustainability’s positive health, ecological, and overall natural system robustness agenda.

Its disciplined process of bringing innovative ideas to market explains UTC’s success over the years. The keys to UTC’s success were highly motivated VANs formed across business units and with outside customers and supply-chain participants that drove the new ideas to successful commercialization. These VANs are at the leading edge of solving problems with technology and market receptivity and are characterized by creative and innovative participants who bring extra dedication to sustainability ideas.

The company’s alternative power products business unit, UTC Power, faced a challenge, however. UTC’s goal for that unit was to shift the market paradigm for power generation in stationary applications and transportation. The issues for large power consumers are straightforward. Customers want energy efficiency and reliability, lower bills, and protection from grid outages. They need system resiliency to assure ongoing operations and customer satisfaction in case of weather or other disruptions. For example, supermarket chains, hotels, and hospitals experienced the impact of Hurricane Katrina and the human and financial losses when their doors had to be closed.

UTC Power has a portfolio of solutions that offers power generation solutions in a variety of new technology combinations. However, when you are working with new products and new markets, a paradigm shift requires extraordinary effort. In UTC Power’s case, you see examples that build on the company’s competencies in technology innovation and management of massive supply chains to form VANs with more creativity than the norm. Jan van Dokkum, president of the UTC Power business, described the unique VAN situation as follows: “We carefully analyze the market for opportunities to improve emissions and efficiency. We then work closely with UTRC [UTC Research Center], buy standard, volume-produced equipment, optimize the system, and, finally, work with the customer to deliver high levels of service.”^[28]

UTC’s PureComfort heating and cooling energy system is a good example. The PureComfort system offers the customer three features in one: electrical power, heating, and cooling. The system operates either off the electrical grid or connected to it and thus can serve as a cheaper and more reliable ongoing operating power source, even when the grid goes out. Highly motivated existing VANs at UTC drive conventional products and markets effectively, but for a new product and new markets plus a sustainability focused change, there are extra drivers, particularly once the product goes to market. The PureComfort system project began under the leadership of the corporate UTRC, working with autonomous business units Carrier and UTC Power. The group brainstormed combining their expertise to produce new products for new markets. They looked for ways to improve building system efficiencies by using the “waste” from power generating equipment (i.e. microturbines or reciprocating engines) as a “fuel” for heating and cooling equipment. They collected the hot exhaust from the supplier-produced microturbines and ran it to a Carrier double-effect absorption chiller, which produces hot and cool water. They found the flow rate temperature ideal to generate cold or hot water, thus creating three-in-one equipment producing on-site electricity, hot water, and cold water for refrigeration.

The A&P supermarket chain installed a PureComfort system in its store in Mount Kisco, New York. A&P chose the highly efficient heating, cooling, and power system because it leads to energy savings and ultimately reduces the store’s dependence on the grid. The new rooftop unit uses underground-supplied natural gas to generate electricity for the store. Then it generates cold water, runs it to refrigerator “chillers,” and provides heat when needed. The UTC PureComfort unit produces combined power, heating, and cooling at greater than 80% efficiency rates compared to approximately 33% from the electric grid. Distance monitoring by UTC Power means the company’s service people will be at the A&P store to fix a problem before the people at A&P even realize one exists.

Meeting customers’ multiple cooling, heating, and power needs with an innovative integrated, reliable on-site system solution at a cost reduction from existing options addressed UTC Power’s strategic goals to deliver new products and new revenues. At the same time these offerings provided very low emissions, reduced customers’ energy costs, lowered grid dependence, and assured standby power supply. While it would not have necessarily called its strategy “green,” and its sales force is not necessarily hearing the term “sustainability” from its customers, UTC Power nonetheless has incorporated the core ideas into its strategy. These products provide safer, cleaner, and more reliable power sources than the alternatives available, at commensurate prices that are less expensive when full costs are considered.

However, the issue was not whether the PureComfort system met buyer needs or satisfied sustainability requirements; it did. The challenge was whether customers’ standard way of meeting power needs—paying for electricity from the grid—could change to a solution that required new purchase practices and economic calculations and different impacts on the company’s profit and loss statement and balance sheets.

Breakthroughs happen when VAN teams can tap into an intangible creativity source in sustainability agendas: the energy, the extra little bit of horsepower, or a passion for the technology and market changes. UTC Power experienced this type of breakthrough in its work with the city of London and the Ritz Carlton hotel chain in San Francisco. In each situation, the VAN participants were well known for being creative, innovative, and willing to spend extra time to find solutions. New competitive space and successful positioning in that space were realized by firms working with other firms also positioned in the same market frontier.

The catalyst for this creativity is the process dynamics of UTC Power’s technology design to achieve clean, safe, reasonably priced products combined with supply-chain partners that want to save money and assure performance but also have an absolute commitment to creating sustainability solutions through redesign of products and procedures. This means there is more continuity and commitment in teams because participants are passionate about seeing their ideas come to fruition. VAN participants will go the extra distance. When innovators talk with other innovators about how to implement sustainability innovations, results are achieved.

UTC Power uses its internal, highly disciplined product development process and committed working relationships with buyers and original equipment manufacturers to accelerate learning and feedback and to improve its power products. UTRC also employs an innovation effort, working with the business units that have identified UTC technologies for new, market-ready products and markets. The PureComfort system process started with a small, multi-divisional group looking at opportunities at the intersection of power, heating, and cooling.

Brainstorming engineers, who did not usually work together, found the intersection of power, heating, and cooling rife with possibilities and developed a second product, known as the PureCycle 200 system. Together they altered standard Carrier industrial cooling equipment by converting it to run “backward”; instead of using electricity to produce cooling, the system uses waste heat to produce electricity. The system uses field-tested Carrier technology to provide turnkey, zero-emission, reliable, low-cost electricity from various industrial heat sources. The electricity can be used on-site where it is produced or sold to the electric utility grid. Customers might make money by offsetting traditional fossil fuel electricity generation. The payback and savings depend on the geographic location in the United States and the price of the displaced energy.

It is not necessarily easy building new types of supply-chain relationships to implement sustainability innovations. In UTC Power’s case, cross-business unit sales and service provisions had to be tightly coordinated, and getting electric utilities to buy excess power from buyers has been an uphill battle. Even with these challenges, a major obstacle is in developing trust with the end users, specifically the facility leader who makes the purchase decision and who is paid to be conservative. It is a tough sell because the system (though not the components) is new. It is mechanical and therefore may need servicing. Facility managers fear the unit will fail, and they have to be educated about the system, which takes time. Finally, having the system installed may seem “inconvenient,” as it can disrupt current operations during the switch.

Thus the value proposition has to be communicated effectively. UTC Power has developed economic models that show payback time frames for equipment installed in different geographic locations according to size of facility, electricity rates based on different fuel sources, and seasonal demand. In addition, a turnkey service contract is offered that monitors units from UTC centers in Charlotte or Hartford where operators have the technological ability to locate errors. As UTC Power continued to refine its extensive supply-chain coordination, more new opportunities for innovation emerged.

Fuel price volatility, changing and more violent weather patterns, deregulation, supply interruptions, and rolling blackouts and brownouts in the Northeast and California have generated considerable interest in distributed (nongrid, noncentralized), on-site, clean and reliable electricity, heat, and cooling power sources. To capture this interest while overcoming the natural resistance of cautious buyers is still a challenge. UTC Power and UTC are addressing this challenge by creating an “all in service” solution. Through a long-term contract, a customer avoids the up-front cash cost and spreads it over time, thereby better matching the cost with the energy savings.

Another value proposition involves public health. An important sign of change that should be noted by all managers is occurring in UTC Power’s urban bus transportation markets. Buyers such as the city of London and AC Transit in Oakland, California, are building previously externalized health costs into their purchase decisions. A regional public transit authority, AC Transit considers the cost of respiratory and other air-pollution-related illness resulting from diesel gasoline combustion, particularly from buses. Incorporating more of the full system costs into the equation shifts the price-performance calculation for conventional bus drivetrains compared with fuel cell systems. The price of the latter looks more attractive when adjusted downward by health cost savings due to reduced particulate matter and other air pollutants from transportation.

Through product take-back, UTC Power is getting a handle on design for disassembly. The company’s team must determine what parts are recoverable and recyclable and the economics of re-manufacturing the leased units brought back for repair or at the end of their useful life. Extending this concept to field-installed stationary fuel cell power units, UTC Power found that the reverse logistics and reuse/recycling of materials and parts could actually make money. The notion of leasing transportation or stationary power plant fuel cell stacks has engaged UTC Power even more closely with its suppliers and buyers along the value chain to source recyclable materials and components. Successful supply-chain coordination within the company and outside is important to the success of any leasing solution and to the systems redesign for disassembly and recyclability.

Because new ideas that challenge existing ways of operating require early adopters, innovators initially work with and sell to other innovators. UTC Power is building new markets through cooperation with forward-thinking internal UTC executives and staff in other business units, and combining that synergy with eager corporate buyers trying to solve urgent problems (e.g., harsh storms in tropical geographies, zero-downtime requirements for electrical power) or open-minded municipalities searching for creative cost-cutting measures.

Conclusion

As we noted at the outset of this section, VANs are necessary to implement sustainability strategies. VANs provide the horsepower to implement projects. They are the means to translate vision into competitive products or services. Whatever your business is, catalyzing VANs is essential to put your nascent strategy into action. The following are strategies for working with VANs:

• Start with a compelling vision.
• Don’t take “no” for an answer; find people whose values align with yours.
• Work with innovators in other fields.

Since by definition you will forge a new path, you will hear “no” a lot. Don’t stop there: seek those who understand the bigger vision and are inspired by the prospect of inventing the way forward with you. Source participants from your existing suppliers or find new ones inspired by your green strategic vision and the multiple gains, including financial, that would come to participating organizations that develop new capacities. Collaborate closely with other innovators in other functions or fields. Since differentiation is a moving target, call upon your VANs to help you continuously redesign and improve, moving individual participants in and out of the constellation of skill sets and leadership attributes you need. Implementing strategy requires innovative approaches to your existing relationships, tapping into the latent creativity that is there.

Kaiser Permanente

Kaiser Permanente (KP) deliberately adopted a radically incremental approach to implementing its strategy. The company has a sustainability perspective on its corporate purpose (health care) that widens the meaning of “health care” to include not only medical treatment but the broader community health impacts of its facilities and operations and the materials it sources. We examine here one relatively small decision in KP’s broader strategy: the company’s decisions on the use of polyvinyl chloride (PVC), a material of increasing environmental concern. Specifically, we will look at KP’s choices regarding flooring. KP measured everything it did to build the business case for greening each incremental step and discovered there were significant economic benefits to be gained by seemingly minor changes. These incremental decisions have had radical impacts on the company’s success and have facilitated moving forward on other sustainability fronts. This discussion puts KP’s incremental step on flooring in the wider context of green buildings as an important arena for companies to measure the collective impact of seemingly small decisions. We present the business case for greener buildings and the economic and environmental benefits that they generate for companies as an integral part of their strategy. Next, we will discuss SC Johnson’s award-winning product sustainability assessment tool, Greenlist. As SC Johnson (SCJ) evolved its efforts to incorporate sustainability into its corporate strategy, it constructed a powerful tool to measure the range of environmental impacts of chemical inputs into its products. As a result, the company has significantly altered its environmental footprint, improved product performance, and achieved significant cost savings. This tool has had broader catalytic effects on SCJ’s supply chain and competitors. By patenting Greenlist, SCJ hopes to widen the circle even more.

Both of our company examples, KP and SCJ, illustrate the following three radically incremental tactics:

1. Set big goals but take moderate, integrated steps.
2. Measure everything—build your business case.
3. Incorporate knowledge gained back into new product and process design.

Both KP and SCJ illustrate the tactics we advocate: set big goals but take moderate, integrated steps to get there. Both companies have religiously monitored and measured their progress to build the business case for the next ambitious step. Now both are grappling with incorporating the knowledge gained from their earlier successes into future product designs, process designs, or both.

KP is the largest health management organization in the United States, with 8.2 million members and over 500 hospitals and medical buildings under management. KP’s Green Building Committee first met in 2001 to determine priority projects it would take on. Seated at the table were representatives from interior design firms, construction companies, health nongovernmental organizations (NGOs), and architects, along with KP’s national environment health and safety people (labour joined later). KP’s interest focused on identifying an area where the firm could move relatively quickly to eliminate a problematic chemical and thereby make a demonstrable difference for human and community health and ecological wellbeing. The group decided to investigate PVC-free flooring. Given growing research on PVC’s toxicity to humans throughout its life cycle, this choice met the groups’ selection criteria. It was a radically incremental step.

KP does not move precipitously. Prudent spending and sound financial performance enable KP to deliver quality care, convenience, and access and affordability. KP is also dedicated to individual and community health and is science-driven and acutely sensitive to lowering the costs of health care. In this last respect, there is no choice in the health care industry; new drugs and procedures, health care worker shortages, provider consolidation, aging populations, and the rise of chronic health conditions across population segments continually drive costs up. Careful consideration of costs therefore must be part of the equation for procurement and strategic change. Strong core values, however, including resource stewardship and leadership in improving the quality of life of the communities in which it operates, were taken seriously by senior management.

John Kouletsis, director of strategic planning and design, called the organization “fearlessly incremental” in its strategic approach. Though it takes on big issues, the company is meticulous in accumulating quantitative and qualitative evidence to support decisions, especially major changes in purchasing. Company leadership is akin to the old political notion of statesmanship. The belief that what is good for the environment and the community is good for the health maintenance organization (HMO) members and therefore good for KP’s financial success guides strategy. KP employs a systems view of health care, incorporating environmental and community aspects, and this wider perspective on health informs the company’s green strategic decisions.

Jan Stensland was half of the duo in strategic sourcing and technology for KP. Her friendly, easy-going exterior belied intensity, intelligence, and absolute dedication to achieving the multidimensional objectives of her job. She conversed equally comfortably about material costs per square foot, parts per million contaminants, construction specifications, human health, and PVC exposure research. She also tracked internal rates of return for new decisions—for example, alternative flooring technology projects under consideration to renovate dozens of medical buildings throughout California, ten states, and Washington, DC, where thousands of patients and staff would spend time over the next several decades. While health is in the forefront of her mind, her proposals must show how the company will save money or get better spaces for the same cost. The national health care crisis of escalating costs is the elephant in her office, and she stares it down with an optimizing strategy across financial, community, health, and environmental objectives.

Stensland’s team sought ways to influence KP’s suppliers’ research and development (R&D) shops to redesign products so that health care facilities would be more effective measured in terms of patient treatment, disease prevention, and costs. Thus business effectiveness is viewed in a larger social context. Stensland thinks in terms of today and fifteen years out in talks with suppliers, working through negotiations to maximize health benefits and minimize costs for multiple stakeholders.

For example, 16% of KP’s 8.2 million person membership suffers from asthma. The rate of children’s asthma recently has risen to an epidemic level of 27 to 30% in some counties in California. Chronic respiratory and immune systems problems increasingly have been linked to low exposures to different chemical compounds. There are considerable health impacts and significant monies at stake; therefore, suppliers bid with particular attention to KP’s interests. The health care industry often follows KP’s lead. When KP was first among HMOs to move away from PVC gloves due to escalating allergic reactions and their associated costs, the industry followed, opening up opportunities for firms able to provide substitutes. However, that was only KP’s first effort involving PVC.

Stensland described the company’s efforts on non-PVC flooring as an ongoing effort—one piece of a larger puzzle with short-term wins and long-term goals. Thinking this intently about materials takes time but yields good results. The subcommittee assigned to investigate whether substitutes were available for PVC flooring found the inexpensive per-square-foot price of vinyl did not reflect true life-cycle, health, and environmental costs. PVC flooring was discovered to carry high maintenance costs not previously considered because they were not included in the first-cost price of the flooring. True costs are often disguised when budgets are divided between purchasing for new construction or renovation, and ongoing operations once the flooring is installed.

KP conducted pilot projects in several of its medical office buildings and hospitals, administering tests and comparing maintenance budgets in vinyl and non-vinyl flooring buildings, and interviewed the people who cleaned the floors in those facilities. These investigations revealed that up to 80% of flooring maintenance costs could be eliminated with the use of a rubber flooring product (Nora, from Freudenberg Building Systems) and another non-PVC flooring product, Stratica, an ecopolymeric product. The rubber and non-PVC vinyl flooring products were more stain and slip resistant and had improved acoustic properties. But that was not the end of the story.

Qualitative issues related to flooring often translated into significant ongoing expenses. “Slips, trips, and falls” are major problems in buildings and an early indicator of problems with flooring. Accidents require expensive settlements awarded to employees and visitors to buildings. Stensland analyzed the square footage costs across buildings and examined data for two years running. The company’s new attention to, and differences across, various flooring materials uncovered two KP locations where rubber flooring was installed and for which data showed zero slips, trips, and falls. Furthermore, data from nurses revealed the harder vinyl floors generated more complaints and work absences by nurses who are on their feet all day. Non-PVC rubber flooring improved conditions for nurses and accomplished the environmental and health strategic goals. Analyzes were conducted at multiple facilities. The magnitude of the flooring issue was significant for the company and its contract suppliers; in 2005, the company managed sixty-four million square feet of flooring. By 2015, it expects to have eighty-four million square feet under management.

However, that doesn’t solve the problem of flooring replacement in existing facilities. With regularly scheduled replacement of flooring in the more than five hundred medical buildings in the system, could PVC be eliminated there as well in a variety of areas? KP turned to the Collins and Aikman Corporation (C&A), its carpet supplier, and required that C&A develop a non-PVC carpet backing (the underlayer of carpeting contained most of the materials of concern), preferably at the same price. The manufacturer brought the new offering back to KP six months ahead of schedule. An equivalently priced new carpet backing whose performance exceeded the PVC-backed carpet was now available not just for KP but for all the manufacturer’s customers. The new material used post-consumer recycled polyvinyl buterol, the film used on safety glass for windshields that protects car passengers from broken glass in accidents. An enterprising engineer had discovered he could use the discarded sticky “waste” compound found at recyclers and brought it back into the materials stream for new applications.

By asking suppliers for alternative, safer products, KP—because of its size—has been driving the market toward products that reduce resource use and improve health conditions by eliminating chemical hazards and lowering maintenance expenses. Incremental steps are taken toward sustainability goals, pulling markets and supply chains along in what ultimately constitutes radical change: the substitution of a new, better product design for the old.

There are other examples. Refrigerants used in medical facility chiller systems have had the same problems as refrigerants in general use. When contracts for refrigerants came up for reconsideration, KP put bidders on notice that any problematic chemical in use or being phased out by 2008 could not be used in chillers. York Incorporated, an award-winning firm for its product efficiency and advanced technical designs, won the bid, producing new chillers with benign refrigerants in a unit that was 25% more energy efficient than the market standard. Thousands of chillers across hundreds of medical office buildings and hospitals now drive substitution of a radically more effective system for the existing products.

There are other examples of KP’s radically incremental approach. One of the companies selected to provide KP’s elevators produced a super energy-efficient design that addresses KP’s goal for more energy-efficient equipment, helping drive and justify that supplier’s improvements to its product design. Another elevator company had switched from petrochemical-based hydraulic fluids to soy-based fluids and was investigating more sustainable elevator car finish materials. In 2006, KP was talking with furniture and textile manufacturers to provide non-PVC upholstery. By 2005, KP was leading an effort to bring locally grown organic food into its hospitals, supporting local organic markets and working with food service suppliers like Sysco together with local growers to reduce fuel consumption in distribution. The goal is delivery of “clean” foods without chemical additives at reasonable cost to members and patients. The slow food movement, a grassroots and rapidly spreading effort to improve the quality of food through organic practices and limited radius distribution from the growing site, gains momentum when a company the size of KP focuses on locally grown organic produce.The head of Slow Food USA’s office, and founder of Slow Food International, Carlo Petrini views the organic and local food movements that have reinvigorated farmers’ markets and microbreweries across the United States as representative of a new dialogue emerging between traditional knowledge and advancing science knowledge that is creating a new business reality and a different model of business.

KP’s incremental steps to upgrade facilities add up to radical change. KP has put sustainable building design and construction practices into all new construction and “rebuilds” (KP renovations) through facility templates. These practices incorporate the following:

• Implementing efficient water and energy systems
• Using the least toxic building materials
• Recycling demolition debris, diverting thousands of tons of materials from landfills
• Making use of daylight whenever possible
• Managing storm water to enhance surrounding habitats
• Reducing site development area (e.g., total gross square footage) to concentrate and limit total paving and other site disturbances
• Installing over fifty acres of reflective roofing
• Publishing an Eco Toolkit reference book and providing it to KP capital project team members and more than 50 architects and design alliance partners

KP also incorporates health and ecosystem considerations into national contracts. These considerations include the following:

• Reducing the toxicity and volume of waste
• Increasing post-consumer recycled content
• Selecting reusable and durable products
• Eliminating mercury content
• Selecting products free from PVC and di-2-ethylhexyl phthalate (DEHP)

Successful changes include replacing three DEHP-containing medical products in the neonatal intensive care units with alternatives, ensuring the continued elimination of mercury-containing medical equipment from standards, and negotiating a national recycling contract. KP’s purchasing standards include 30% post-consumer content office paper and mercury-free and latex-free products.

In addition, KP facilities often partner with local community organizations to implement community initiatives. One example is a mercury thermometer exchange at Kaiser Permanente Riverside (CA) Medical Center. A total of 540 pounds of material were collected from 3,000 mercury thermometers. Over 1,200 digital thermometers were distributed.^[29]

KP’s metrics demonstrating the benefits of its sustainability efforts include the following:

• In 2003, KP diverted 8,000 tons of solid waste from landfills.
• In 2003, KP reused or safely redeployed more than 40,000 pieces of electronic equipment, weighing 410 tons and containing 10,500 pounds of lead.
• KP eliminated 27,000 grams of mercury from KP health care operations by phasing out mercury-containing blood pressure devices, thermometers, and gastrointestinal equipment.
• KP phased out one hundred tons of single-use devices in 2003.

The impact of energy conservation measures at KP prevented the creation of more than seventy million pounds of air pollutants annually. The aggregate impact of pollution prevention activities eliminated the purchase and disposal of forty tons of hazardous chemicals. Other activities reported by the company in 2005 are as follows:

• Waste minimization resulting in the recycling of nine million pounds of solid waste
• Electronic equipment disposition resulting in the recycling of 36,000 electronic devices containing 10,500 pounds of lead
• Optimal reuse of products that led to reprocessing 53,851 pounds of medical devices and supplies
• Capital equipment redistribution
• Greening janitorial cleaning products, eliminating exposure risks for employees, lowering costs, gaining system efficiencies, and improving performance
• Recycling and reuse of 8,300 gallons of solvents
• Energy conservation resulting in the recycling of 30,000 spent fluorescent lamps

In conclusion, KP provides an interesting example of the immediate gains to be had through pursing sustainability practices in radically incremental steps. KP’s senior management team works from the premise that human health and environmental health are the same thing. As an institution engaged with human health, it makes sense for KP to be active in resolving a paradox facing the health care industry: that hazardous chemicals used in medical products and buildings have harmful effects on patients and employees. It makes sense to coordinate purchasing across member medical centres and hospitals to ensure improved health conditions for members and the communities in which they live. The opportunities are vast for KP. That means the hundreds of suppliers that provide technical and routine needs for the company and the over 2000 minor and major construction projects under way at any time also can take advantage of new sustainability-inspired market space opportunities. The question is which ones will step up to the challenge and follow KP into the next generation of “good business”?

Radical incrementalism means taking small, carefully selected steps that result in learning that in turn reveals new opportunities. In this case a seemingly small decision on a seemingly innocuous issue—flooring—resulted in larger systemic changes across the company and its supply chains, even sending an urgent signal to the flooring industry. By greening its flooring, KP is improving health by eliminating a questionable material, improving working conditions and health for nurses, and reducing costs by bringing employee absences down and lowering accident liability costs. Putting the pieces together took time; KP staff members measured each step and outcome to evaluate the effects on cost and performance. The results are driving bigger goals. Three years from the start-up of the project, KP made a new-construction standards change: no PVC vinyl flooring would be used in any future facilities. If we consider all the other incremental changes KP is making, the systemic and company benefits are profound. KP’s radically incremental steps are part of its strategy to better support community health while it grows its operations.

We turn next to sustainability ideas applied to facilities. Buildings are not just where your business activities happen. Your facilities—and the decisions you make about resources, energy, materials, and so forth—are a significant investment and can either add to or subtract from your bottom line. They can also add to or subtract from your overall strategy. Buildings and their operating systems are an excellent area in which you can realize the benefits of radically incremental steps.

Among the many industries developing innovative strategies to increase profits and address environmental and related community quality of life concerns, the building sector presents some of the most accessible incremental opportunities that can aggregate into radical returns. Compared to standard buildings, “green” buildings can provide greater economic and social benefits over the life of the structures, reduce or eliminate adverse human health effects, and even contribute to improved air and water quality. Opportunities for reducing both costs and natural system impacts include low-disturbance land use techniques, improved lighting design, high-performance water fixtures, careful materials selection, energy-efficient appliances and heating and cooling systems, and on-site water treatment and recycling. Less familiar innovations include natural ventilation and cooling without fans and air conditioners; vegetative roofing systems that cool buildings, provide wildlife habitat, and reduce storm water runoff; and constructed wetlands that help preserve water quality while reducing water treatment costs.

The building industry and growing numbers of private companies are responding to these opportunities. Valuable economic benefits are being realized in improved employee health and productivity, lower costs, and enhanced community quality of life. Since 2000, adoption of green design and construction techniques has been greatly aided and accelerated by the Leadership in Energy and Environmental Design (LEED) rating system.

LEED is a voluntary green building rating system established by architects, interior designers, and the construction industry through a consensual process during the 1990s. The US Green Building Council (USGBC), a voluntary membership coalition, developed and continues to review the LEED standards. LEED guides building owners, architects, and construction firms to use industry standards and advances in those standards for environmental and health performance across a wide range of building criteria including site design, building materials selection, and energy systems. While each modification and upgrade to the building and site may seem small unto itself, the changes combine to create a dramatically more efficient building system with far lower operating costs and more satisfied owners over the life of the structure. While there is valid criticism about some of the specifications within LEED and its impact on innovation in the materials industry, overall the system has helped green the building industry.The Healthy Building Network criticizes the USGBC and LEED for continuing to include PVC in green building specifications. Others have criticized the LEED process for inhibiting innovation because it freezes the specific definition of “green” in a moment in time. This can mean that unforeseen, even greener, innovations will be left out of the criteria.

Green buildings perform the same functions and serve the same purposes as conventional buildings but with a smaller ecological footprint. They employ optimized and often innovative design features to reduce natural systems impacts throughout a building’s life cycle and all across the supply chain of materials, components, and operations.

Green buildings provide a range of benefits to stakeholders, from developers and owners to occupants and communities. Structural, mechanical, and landscape design elements can maintain comfort and indoor air quality, conserve resources, and minimize use of toxic materials while reducing pollution and damage to local ecosystems. A broad range of green design techniques, technologies, and operational strategies are available to building architects, engineers, and owners. Every building is unique, and there is no single green design formula. However, there are common design objectives and classes of benefits. The potential benefits of green building practices include the following:

• Less disruption of local ecosystems and habitats
• Resource conservation
• Decreased air, water, and noise pollution
• Superior indoor air quality
• Fewer transportation impacts

While they may entail higher up-front costs (but not necessarily) in the long term, green buildings can make up the shortfall.^[30] Careful design choices for particular locations can reduce that difference to zero. Some of the economic benefits they generate include the following:

• Lower capital costs. With careful design, measures such as passive solar heating, natural ventilation, structural materials and design improvements, and energy and water efficiency can reduce the size and cost of heating and cooling systems and other infrastructure. A new bank in Boise, Idaho, was able to take advantage of such considerations to go from an initially planned LEED Silver to an actual LEED Platinum with no added cost.^[31]
• Lower operations and maintenance (O&M) costs. On average, lower energy and water consumption reduces energy demand 25–45% per square foot for LEED buildings versus conventional buildings.^[32] The US Environmental Protection Agency (EPA) reported that office buildings that meet the energy efficiency requirements of the Energy Star program use 40–50% less energy than other buildings.Energy Star is familiar to many people for rating the energy efficiency of appliances, but a separate Energy Star certification system also exists for entire buildings. For the comparison, see EPA, Energy Star and Other Climate Protection Programs 2007 Annual, October 2008, accessed January 11, 2011, http://www.energystar.gov/ia/news/downloads/annual_report_2007.pdf.
• Increased market value. Green buildings can increase market value through reduced operating costs, higher lease premiums, competitive features in tight markets, and increased residential resale value. For instance, a 2008 study of Energy Star and LEED-certified office buildings versus conventional ones found that the green office buildings had higher occupancy rates and could charge slightly higher rents, making the market value of a green building typically $5 million greater than its conventional equivalent.^[33]
• Less risk and liability. Using best practices yields more predictable results, and healthier indoor environments reduce health hazards. Some insurers offer discounts for certified green buildings, and others offer to pay to rebuild to green standards after damage.^[34]
• Increased employee productivity. Green buildings increase occupant productivity due to better lighting and more comfortable, quiet, and healthy work environments. This improvement can be at least equal to buildings’ lifetime capital and O&M costs and is the largest potential economic benefit of green buildings. For example, a survey of employees at two companies that moved from conventional buildings into LEED-certified ones found the new buildings added on average about 40 hours per year per employee in increased productivity.^[35]
• Reduced absenteeism. Lawrence Berkeley National Laboratory calculates that improvements to indoor environments could reduce health care cost and work losses by 9 to 20% from communicable respiratory diseases, 18 to 25% from reduced allergies and asthma, and 20 to 50% from other nonspecific health and discomfort effects, saving $17–48 billion annually.^[36]
• Market perception of quality. Green buildings require careful design attention and the use of best practices and display superior performance.
• Promotion of innovation. Green buildings employ new ideas and methods that produce significant improvements.
• Access to government incentives. A growing number of federal, state, and local agencies require green features and offer tax credits and other incentives such as faster, less costly planning and permit approvals.

Green buildings provide a tangible means of measuring incremental steps that can aggregate into radical system-level benefits. They are a visible area in which to show corporate sustainability strategy—the benefits derived from greening facilities and building systems add up to significant cost savings and represent a demonstrable area in which to see near-term return on investment in green technologies and operating systems.

SC Johnson

We turn next to the example of incremental changes creating system innovations at SC Johnson. By the mid-1990s, SC Johnson (SCJ) had a very respectable record on corporate environmental responsibility. In 1975, SCJ voluntarily removed ozone-threatening chlorofluorocarbon (CFC) propellants from its products worldwide. This was three years before the US government banned CFCs. In 1992, when eco-efficiency was introduced as a cost savings measure by the World Business Council for Sustainable Development (WBCSD), SCJ of the first companies to join the WBCSD. Millions of dollars of unnecessary costs were trimmed by using fewer resources far more efficiently. The company could eliminate over 420,000,000 pounds of waste from products and processes over the ten-year period prior to 2004, resulting in cost savings of more than $35 million.

In addition, the company built a landfill gas–powered turbine cogeneration energy plant that delivers 6.4 megawatts of electricity and some 40,000 pounds per hour of steam for SCJ’s Waxdale manufacturing facility in Wisconsin. This energy project enabled SCJ to halve its use of coal-generated utility electricity and cut its carbon emissions.

SCJ is a 120-year-old family-owned (sixth generation) firm with explicit commitments to innovation, high-quality products, environmental concerns, and the communities in which it operates. SCJ is a consumer packaged goods (CPG) company and a “chemical formulator”—a company that chooses from a menu of chemical inputs to make its consumer products. With such well-known brands as Pledge, Windex, and Ziploc, the company had over $6.5 billion in sales in 2006 and sold its products in more than 110 countries.

In holding up sustainability criteria as goals, SCJ had set off on a journey in which the end destination was not entirely clear, and by the new millennium, company strategists knew it was time to evaluate the systems currently in place. SCJ’s earlier positive results motivated the company to look for more opportunities, so it stepped back and looked at the progress it made over a decade. Company strategists discovered that while eco-efficiency had become second nature to product design at SCJ, strategy needed to shift beyond capturing relatively easy efficiencies and move deeper. They engaged outside expertise to help develop and introduce product design tools that could build preferred ingredient choices into product and packaging design. The result was the development of a new product evaluation tool, Greenlist.

Greenlist is a tool SCJ developed to improve the quality of its products through better understanding of the health and environmental impact of material inputs. In the Greenlist database are 2,300 chemicals including surfactants, insecticides, solvents, resins, propellants, and packaging. Criteria measured include the chemicals’ biodegradability, aquatic toxicity, vapor pressure, and so forth. Through Greenlist, SCJ has reduced its environmental impact while simultaneously witnessing increases in production and sales growth.

Greenlist is a patented rating system (US Patent No. 6,973,362) that classifies raw materials used in SCJ’s products according to their impact on the environment and human health. Greenlist has helped SCJ phase out certain raw materials and use materials considered being environmentally “better” and “best.” The result is a process that gives SCJ scientists access to ingredient ratings for any new product or reformulation and enables them to continuously improve the environmental profile of the company’s products.

The Greenlist screening process covers over 90% of the company’s raw materials volume and is continually updated as new findings emerge. Materials are assigned a score from a high of 3 to a low of 0. An ingredient with a 3 rating is considered “best,” 2 is “better,” and 1 is “acceptable.” Any material receiving a 0 is called a restricted use material (RUM) and requires company vice presidential approval for use. If a material is unavoidable and has a low score, the goal is to reduce and eliminate its use as soon as substitutes are available. When existing products are reformulated, the scientist must include ingredients that have ratings equal to or higher than the original formula.

While some raw materials with a 0 score are not restricted by government regulatory requirements, over the years SCJ has elected to limit their use. SCJ replaces these 0-rated materials with materials that are more biodegradable and have a better environment and health profile.

An example of Greenlist in action involves one of SCJ’s glass cleaner products. In 2002 and again in 2004, SCJ assessed the formulation of Windex blue glass cleaner to reduce volatile organic compounds. The reformulations reduced health and environmental impacts while increasing the product’s cleaning performance by 40% and growing its market share by 4%.

When SCJ introduced Greenlist in 2001, the company set a goal to improve its baseline Greenlist score for all raw material purchases from 1.2 to 1.41 by 2007. This goal was accomplished in early 2005. In 2001, SCJ’s use of “better” and “best” materials was at 9% of all raw materials scored, and by 2005, this number increased to 28% of all raw materials scored. The company uses an annual planning process to help drive these scores, and the Greenlist results are shared in the company’s annual public report.^[37]

SCJ has eliminated all PVC packaging (a step taken to eliminate risk and liability) and, as performance results remain stable or improve, the company has moved to 10% of surfactants made from bio-based as opposed to oil-based materials. Each change required coordination with suppliers, which have made the more efficient or benign substitute available for other customers as demand for “clean” materials grows.

SCJ has patented Greenlist, but it has made the process licensable by other companies at no charge (although SCJ’s formulations remain protected). The goal is to encourage application of Greenlist thinking and analysis across industry sectors. The company has already shared its Greenlist process with the US EPA, Environment Canada, the Chinese Environmental Protection Agency, industry associations, universities, and other corporations. The company has used insights from Greenlist to work with partner suppliers to help identify and develop ingredients that are more environmentally sustainable.

To date, “The company has been recognized with over 40 awards for corporate environmental leadership from governments and non-governmental organizations, including the World Environment Center Gold Medal, and Environment Canada’s Corporate Achievement Award. SCJ received the first-ever Lifetime Atmospheric Achievement Award from the US Environmental Protection Agency.” In 2005, SCJ announced that it had entered into a voluntary partnership with the EPA under the agency’s Design for the Environment (DfE) program. SCJ is the first major CPG company to partner with EPA on the program, which promotes innovative chemical products, technologies, and practices that benefit human health and the environment. In 2006, SCJ received the Presidential Green Chemistry Challenge Award for its Greenlist process.

SCJ has evolved its sustainability strategy from well-meant but relatively piecemeal efficiency efforts to developing an award-winning, innovative product assessment tool. The company has achieved real leadership in the world of consumer products manufacturing. Not only has the company strategically positioned itself ahead of the pack by anticipating regulatory restrictions before they happen, but it has developed enviable preferred purchaser relationships with its suppliers. SCJ has simplified its materials inputs list to fewer, greener inputs and is helping suppliers develop market leadership in supplying greener inputs. SCJ is trying to teach the world how it does what it does—and it is doing this for free.

An area in which the company has recognized it needs to take further steps is in incorporating Greenlist further upstream in the product design process. SCJ’s goal is to use the tool not only to assess existing products but also to inspire breakthrough green innovations to capture new market space. Given the company’s track record of conscious evolution of its strategy, this is not an unrealistic goal.

Radical incrementalism, as we have seen, offers a path that can both deliver real-time benefits and lead to market-shifting innovation. KP and SCJ demonstrate the tactics we advocate here: set big goals but take moderate, integrated steps to get there. Both companies have religiously monitored and measured their progress to build the business case for the next ambitious steps. Both now grapple with incorporating the knowledge gained from their earlier successes into future product designs, process designs, or both.

Being radically incremental requires having an ambitious goal of corporate sustainability, but it does not imply that you will map out all the steps with clockwork accuracy. It does mean, however, that one’s incremental steps must be integrated, that each success and failure must be evaluated, and that the road map under one’s feet must be redrawn accordingly. Being radical takes courage but so does radical incrementalism. Courage and resolve builds, however, with each successful step.