Before I take you through the four building blocks of sustainable innovation, I first want to get rid of a hindering thought. Many executives, myself included, were trained in an era when the idea prevailed that ‘doing business’ and ‘doing good’ bite each other. That thought is wrong. A sustainable business model outperforms less sustainable business models, according to various studies. We call this Triple Value: business models that are designed in such a way that they add value for all parties and thereby boost People, Planet and Prosperity.
A benchmark by McKinsey found that sustainable business practices actually lead to cost savings, improving the bottom line by up to 60%. Research from the University of Berkeley found that 40% of all Millenials choose a job because of the sustainability of the company. They are even willing to accept a pay cut to work at an environmentally friendly company. With the labor market tight and the growth of Millennials in business, not having a sustainability strategy can mean missing out on a lot of good talent as an organization. Being sustainable can also lead to employees being more motivated to work because they see value in what the organization does. Several studies show that overall sales revenue can increase as much as 20% as a result of responsible business practices.
Sustainable innovation starts by investigating the desirability of the solution. After all, scarce resources are lost when something is developed that no one really wants.
When examining desirability, the key question is: what “job to be done” are you helping to accomplish. The job to be done, introduced by Clayton Christensen, reflects the problem or need that you solve for the customer. Not only do you look at the job to be done itself, but also at the ‘pains’ and ‘gains’ the customer experiences in solving this job to be done. The pains are the frictions and risks that the customer experiences in solving his or her problem. The gains are the advantages the customer experiences in solving his or her problem.
Winning value propositions today, are those propositions that not only deliver a great product or service for the job to be done itself, but also manage to relieve the pains and create additional gains. For example, many have been fans of Apple for decades because Apple managed to turn the pain of an ugly computer into a great design.
Validating the desirability is all about getting into the shoes of your customer. Make sure you really understand where and when in the customer’s life the job to be done is at play and desig your solution, also called value proposition, based on those insights.
Once validated that you offer a solution that is relevant and solves a real need for your customers, the next step in sustainable innovation is to deliver on promise. This is called feasibility.
When designing how to deliver the value proposition, it is not only important to look at how you will offer your products or services in a sustainable way. You also need to think carefully about the scalability of your solution. This means knowing in advance how you can continue to deliver the value proposition when the demand for the solution grows exponentially. Not being able to deliver, or not delivering on promise, breaks your business model and often gets you out of business.
In practice, strong growth can lead to less sustainable choices, such as the use of less sustainable raw materials or outsourcing work to low-wage countries and the purchase of raw materials in other parts of the world, resulting in increased transport.
When designing and validating the feasibility, define the core activities you need to perform to be able to deliver your value proposition. What assets do you need and what will be outsourced to partners? What are sustainable choices? Take into account the broader chain and the way in which suppliers and partners have organized their business sustainably. Co-creating within the eco-system with partners and customers to come to more sustainable solutions helps to achieve triple value business.
Technology often enables more scalable and sustainable ways of feasibility.
When innovating, viability is an important building block for validating your solution and the long-term sustainability of your business model. Because although customers may be enthusiastic about your solution, you also need to validate the willingness to pay. Is the investment in time, data and money in line with the value you offer your customers.
Too often, we only see revenue streams as the price customers are willing to pay for a solution. However, winning business models today, are actually able to connect with customers in such a way that the time and data customers invest in those business models determine the success. Think of social media like TikTok and platforms like Waze where actually all the content is provided by its customers.
The revenue streams, measured against the costs, determine whether your business model is viable in the short and long term.
Innovating along the axes of desirability, feasibility and viability has been a familiar approach in the world of design for years. We are now adding a fourth building block: responsibility. Responsibility is about how sustainable the innovation is. Looking at the underlying business model, the responsibility building block answers the question that is central to Paul Polman’s book Net Positive: Is the world better off because your business is in it?
We previously added two elements to Alexander Osterwalder’s well-known business model canvas: the positive and negative impact your business has on people and the environment.
How sustainable is your solution in a larger context? This question has multiple aspects. It is not only about the raw materials, people and production methods you use to realize your value proposition. It also takes into account if you have thought about how your solution is used and what impact that solution has on the people who use it, the accessibility of the solution in the broadest sense and the waste your solution creates.
It takes a broader view and a designers mindset to innovate in such a way that these aspects are also well thought out.
Sustainable innovation focuses on those innovations that lead to valuable business while boosting People, Planet and Prosperity. This is the triple value idea I started this article with. When we are able to design business in such a way that we do not take from people and the environment, but rather restore it, we can regenerate as humanity what was previously broken. Doing so while we are in business.
In natural science, regeneration is a basic principle in how ecosystems are designed. Very valuable to adopt those basic principles from nature into business design. Achieving sustainable innovations and regenerative business models is the challenge that lies ahead of us. This will only succeed if we take a broader view and co-design. The great thing is that all the ingredients are here to get started!