A paradigm shift for SMEs: Leveraging Sustainability as a Driver for Innovation

SMEs have sustainability on their radar. Their main goal is economic sustainability. To achieve this goal, they can take ecological and social sustainability as an opportunity for innovation instead of just considering it as a mere cost driver. Thus innovation and sustainability become the two sides of the coin called profitable growth.

Strategic focus on sustainability

There is still the myth that sustainability and profitable growth contradict each other. In the IMP³rove Assessment¹, companies are asked to what extend they exploit sustainability as a driver for innovation when developing their innovation strategy. Three aspects are important here: economic sustainability, production and manufacturing methods that are fully ecologically and socially sustainable, as well as application methods that are fully ecologically and socially sustainable.

Economic sustainability secures the company’s profitable growth. Ecological sustainability mainly addresses the maintenance of natural resources, such as energy, clean water and air while social sustainability addresses job security, healthy work environment etc.

The responses to the IMP³rove question on sustainability show that SMEs strive for economic sustainability when developing their innovation strategy.The average score here is 5.41 on a Likert scale of 1 (not at all exploited) to 7 (to a high extend exploited). Ecologic and social sustainability of production and manufacturing methods as well as application methods play a less important role.

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Also small companies with 20 or less employees present a similar picture. They put a slightly stronger focus on economic sustainability and on application methods than the total sample when developing their innovation strategy.

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Given this strategic focus on sustainability as a driver for innovation that seems to exist in many SMEs,the challenge is how to achieve the paradigm shift to secure profitable growth from both innovation and holistic sustainability on an operational level.

Identifying innovation opportunities from the sustainability challenge

Many companies perceive sustainability requirements primarily as cost driver. However, they may also serve as sources for innovation, thus leading to profitable growth. Another aspect putting light on sustainability is the consumers’ attitude. Sensitivity for ecologically friendly and socially fair produced goods influences their choices. Such aspects are valued more and more in the industrialized countries. At the same time the demand for energy efficient products is growing all over the world encourage – and sometimes forcing – new concepts for production and application methods.

New ideas on how to increase the ecologic and/or social sustainability of a company’s own products, services, processes, or business models can be turned into successful innovations. These innovations can also increase efficiency and productivity and therefore reduce cost. For example cranes that are manufactured with less material consumption due to an improved manufacturing process will offer the company a cost advantage. Another example is redesigning packaging: avoiding a plastic cover on the cardboard box not only produces less waste but also eliminates a process step in the production and in the recycling.

Checking the company’s ecologic sustainability as driver for innovation and profitable growth

Legal requirements play a key role to enhance ecologic sustainability. Some SMEs may take the demand for ecologically sustainable products and services as a constraint, while their competitors take it as an opportunity to offer innovative solutions. Simple questions already stimulate the generation of new ideas for ecological sustainability such as:

  • How can we reduce the energy consumption of our products, of our production processes, of our supply chain and during the recycling of our products
  • How can we increase material efficiency in our products, our manufacturing processes, and in recycling our products

The advantage of ideas addressing those questions is their immediate impact on the company’s own cost. Nevertheless a solid business case should be the basis for the decision whether the development of such an idea makes really sense.

Sustainability always has to be seen as a holistic and long-term oriented concept balancing social and environmental aspects with the financial ones.

Another question might be: How can we provide “greener” products or services. A SME switched their tanning processes in the leather production to fully ecologic procedures. As a result they were selected by an OEM for their new “green-line” series of goods. Thus both the OEM and their supplier strengthen their branding and image as sustainable companies. A paper mill changed their business model. They collected the waste paper of their large customers when delivering the recycled paper. They streamlined the value-chain by eliminating the separate collection of the waste paper. This reduced transportation cost and at the same time increased the speed in delivery resulting in a closer customer relationship.

Sustainability always has to be seen as a holistic and long-term oriented concept balancing social and environmental aspects with the financial ones. Experience has shown that business cases building on energy and material efficiency often are surprisingly effective. Cost reduction is easier to calculate than the potential revenue and profit increase of a breakthrough innovation. Furthermore, the risk of incremental innovation with focus on material or energy efficiency is usually lower than in breakthrough innovation.

But how can service providers innovate to contribute to ecologic sustainability? SMEs in the service sector should ask themselves:

  • Where can we innovate our entire “order-to-cash” processes to become more ecologically and socially sustainable?
  • How can we at least innovate our service delivery process for more sustainability?

Bundling services so that the customer needs only one visit at the service provider’s office is a simple yet customer-oriented solution. Offering services online will also increase speed of the service delivery while at the same time it might reduce the energy consumption compared to services that are delivered in the traditional manner.

Checking the company’s social sustainability as driver for innovation and for profitable growth

Social sustainability includes aspects like user-friendliness and stake holder responsibility in a company but also compliance with human rights within a company’s supply chain or rejection of health-damaging materials in all production processes. Especially the textile industry is often blamed for unacceptable working conditions and wages. But also micro technology and other industries suffer from bad reputation due to non-existing engagement in social sustainability.

Why should a SME innovate with regard to social sustainability? Many SMEs are family-owned and employers in small towns or villages. For them social sustainability is essential to maintain a positive image to be able to recruit staff and run their business. In many of these family-owned businesses social sustainability is high on the agenda.

Engagement for social sustainability can also be frugal engineering. Frugal engineering attempts to reduce production costs and products’ complexity while maintaining the key features of the product. This enables products at low prices and makes them affordable to people who otherwise would not at all be able to buy these products. Such engineering efforts support the economic independence of people in emerging countries. For example, low-cost equipment improves farming and relieves workers. There are many other products specially designed for emerging markets like cars and mobile phones. These products usually have fewer features compared to products sold in the industrialized world but still are valued by the targeted group for the small price tag and customized details like integrated flashlight in a mobile phone.

To point out the importance of social sustainability a company can ask themselves “Who would be worse off if our company and our products would not exist?” Innovation can be used to increase the number of these people.

Embedding sustainability in innovation management

The three dimensions of sustainability – economic, ecologic and social – combined with innovation strengthen the competitive advantage by differentiation and enable profitable growth. Challenge your team in finding the answers to a holistic sustainability approach for your organization. It will display that the sources for your company’s economic sustainability might lie in the innovations triggered through ecological and social sustainability. It creates that paradigm shift that (re-)energizes organisations to master the competitive challenges. It also helps developing a sustainable innovation management system that incorporated sustainability in the innovation strategy, in the company’s culture, in the innovation life-cycle process – from idea management to development and successful launch of the innovation – and in the innovation enabling factors such as knowledge management, controlling or IP protection. The roadmap to economic sustainability is then laid out and easy to follow for everyone in the organisation.

By Eva Diedrichs and Margarita Korockina

About the Authors

Dr. Eva Diedrichs is senior consultant at A.T. Kearney, Top Management Consulting. She is Core Team member of the European Innovation and R&D Management Practice there.
She is the responsible project manager for the European Commission’s flagship project on innovation management called “IMP³rove”. She has managed numerous innovation management projects in various industries such as pharmaceutical industry, medical device sector, service industries and in the aero space and defense sector. She published several articles and monographs on innovation management, benchmarking, change management and strategic topics. She co-authored a book on core competencies and gave several speeches on success factors of innovation management at international conferences. She holds a PhD from the University of Bamberg, Germany and was a lecturer at St. Thomas College, St. Paul MN, USA.

Margarita Korockina is member of the IMP³rove Core Team.

 

 

 

References

The IMP³rove Benchmarking has been developed within the European Commission’s initiative IMP³rove – better support in innovation management. The services developed within this initiative will be provided in the future by the IMP³rove – European Innovation Management Academy (non for profit).

Photo: Head of Janus, the ship cast Roman coin from shutterstock.com

  • http://www.bizstuff.co/ Zufi Deo – www.bizstuff.co

    In my experience of working with SME’s over the last 20 odd years is
    that they tend to be highly sensitive to the needs of their employees. In
    fact the flexibility they offer tends to be one of the drawing
    features for talent. This does not come out in your article.

    I hope the manner of gathering the data is holistic enough to capture the true picture of actual SME experience.

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