Innovator Article

The Business of Low-Carbon Innovation
Pew Center on Global Climate Change Highlights Best Practices

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by Professor Andrew Hargadon

Editor’s Note: Global climate change—and efforts to mitigate it—are creating an increasingly uncertain future for businesses. Although the long-term effects of a warming planet are difficult to predict, new policies, technologies and market preferences are already altering the competitive landscape of entire industries. The result: new challenges and new opportunities for companies that effectively produce and manage low-carbon innovations.

A report by Professor Andrew Hargadon for the Pew Center on Global Climate Change documents both these challenges and the best practices of leading companies that are bringing low-carbon innovations to a wide range of markets. The report, released in October, includes in-depth case studies from four large multi-national companies: Alstom SA, Daimler AG, Hewlett-Packard and Johnson Controls, Inc. This article is adapted from Professor Hargadon’s recent blog post.

Innovation is challenging regardless of company or industry, but low-carbon innovation has distinct challenges—and requires particular capabilities—that reflect the nature of the technologies, opportunities and environments involved.

“The Business of Innovating: Bringing Low-Carbon Solutions to Market,” surveyed companies that have successfully developed and launched new low-carbon strategic initiatives. The report documents the challenges and best practices to inform other businesses developing their own low-carbon innovation strategies.

The report’s key take-away is that there are a large and growing number of opportunities for companies to grow their top-line revenue, through increased share of existing markets or capturing emerging markets, by effectively developing and launching low-carbon innovations.

These opportunities are emerging throughout the economy, although—obviously and especially—in those markets where energy plays a significant role in manufacturing, distribution or consumption.

The main drivers of these market opportunities include:

  • The growth in world energy consumption over the next two decades (an expected 40 percent, according to U.S. Energy Information Agency).
  • The resulting investments in clean energy—from renewable power to energy efficiency solutions (expected to reach $2.3 trillion over the next decade, according to Bloomberg New Energy Finance).
  • Rapidly shifting market preferences and local, regional and national policies (and regulations) that demand low-carbon alternatives.

Much attention has been given to corporate carbon footprints (see, for example, Newsweek’s latest “Top 50 Green Companies”). For most major companies, however, the emissions coming from the lifetime use of the products and services they sell are exponentially greater than the direct emissions of their own operations.

The report looks at low-carbon innovations—the new products or services that emit significantly fewer greenhouse gases (GHGs) per equivalent output than the products or services they replace (e.g., by using different power sources or materials, or by using less energy). In other words, we considered the products and services that make up the other roughly 95 percent of the carbon emissions under a company’s control.

The study drew directly from the experiences of leading corporations that have successfully developed and launched low-carbon innovations, through a survey of largely Fortune 500 companies, three workshops with companies and government representatives, and in-depth case studies of eight innovations from four companies.

Validating the recognition that there are real business opportunities for those who can effectively deliver low-carbon innovations, the companies in this study are pursuing low-carbon innovations for reasons very core to their business strategies: to pursue top-line growth, to respond to their customers’ current and emerging demands, to anticipate or shape regulatory changes, and to gain expertise in emerging technologies and markets.

At the same time, these opportunities aren’t easy to capture. Innovating for low-carbon products and services presents particular challenges, distinct from the challenges common to all companies trying to innovate. These include the need to plan and act aggressively within an increasingly uncertain regulatory landscape; the challenge of bringing innovations to a well-entrenched energy infrastructure; and the requirements for simultaneously delivering these innovations to market at scale, reliably and often with enormous capital investments.

The report outlines seven keys to low-carbon innovation strategies:

  • Manage Policy Uncertainty: Companies must not only anticipate and react to public policy directions, but also engage with policy makers to shape regulations, standards, incentives and other crucial policies that help low-carbon solutions succeed in the market.
  • Commitment from the Top: Success-ful companies appoint an influential “innovation champion” who lends experience and support to emerging innovations and who understands the importance of managing and can navigate policy uncertainties.
  • Deliver Value: Companies in the study employed a user-centered design process; an explicit focus on clarifying and managing customer costs, benefits and uncertainties; and paid attention to all “customers” in the value network.
  • Business Model Innovations shape the way, and the speed at which, low-carbon technologies come to market. New technologies often fare best with new business models.
  • Nexus Work involves envisioning, building and maintaining the complex, interdependent business and technical systems that underlie innovations.
  • Robust Innovation Strategies advance a company’s competitive advantage in the short run while preserving the flexibility to respond to the moves of competitors, suppliers, regulators, market conditions and customers over the long term.
  • Partnerships, Investments and Acquisitions with and/or by large corporations can provide a critical bridge between scientific break-through and commercial success.

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