Journal of the Academy of Marketing Science

, Volume 45, Issue 1, pp 14–36 | Cite as

Innovating for sustainability: a framework for sustainable innovations and a model of sustainable innovations orientation

Conceptual/Theoretical Paper

Abstract

In an environment characterized by growing awareness of environmental sustainability among various stakeholders in organizations, innovating for sustainability can be expected to grow in importance from the standpoints of organizational legitimacy, reputation, and performance. Relatedly, a firm’s sustainable innovations capabilities as a source of competitive advantage and the sustainability related attributes of a firm’s product offerings as bases for market segmentation, target marketing, positioning, and differentiation can also be expected to grow in importance. The emergence of sustainability as a major driver of innovation highlights a number of important issues that merit investigation, such as potential avenues for sustainable innovation and sustainable product innovation and factors underlying differences between firms in their commitment to a sustainable innovations orientation. In an attempt to gain insights into these issues, this paper presents (1) a conceptual framework delineating potential avenues for sustainable innovations and (2) a conceptual model delineating a number of firm-related and industry-related antecedents of sustainable innovations orientation, along with performance outcomes of sustainable innovations orientation. Implications for theory, research, and practice are discussed.

Keywords

Sustainability Sustainability and marketing Sustainable innovations Sustainable innovations orientation Sustainable innovations performance 

Introduction

In recent years, issues related to innovating for environmental sustainability (hereafter, sustainability) have risen in importance for decision makers in organizations and researchers in a number of academic disciplines. A number of authors have highlighted the growing importance of sustainability as a key driver of innovation (Adams et al. 2012; Nidumolu et al. 2009). Eco-innovations, eco-friendly innovations, environmental innovations, environmentally sustainable innovations, green innovations, sustainable innovations, sustainability driven innovations, sustainability driving innovations, sustainability enhancing innovations, sustainability focused innovations, and sustainability-oriented innovations are among the terms that have been used in the academic literature and/or the business press to refer to innovations with an environmental sustainability focus. In this paper, the term sustainable innovations is used with the caveat that, rather than being sustainable innovations in the strictest sense, most innovations only lessen the impact of a firm’s activities on the natural environment. Certain innovations tend to be sustainability enhancing in the domain of renewable resources, others unsustainability alleviating in the domain of nonrenewable resources, and still others both sustainability enhancing and unsustainability alleviating, in the domains of renewable and nonrenewable resources, respectively.

This paper focuses on the following questions: (1) What do the terms sustainable innovation and sustainable product innovation mean? (2) What are some potential avenues for sustainable innovation and sustainable product innovation available to firms? (3) What are some major firm-related and industry-related factors underlying differences between firms in their sustainable innovations orientation, and with what consequences? The paper is organized as follows. First, the motivation for research is addressed. Second, a conceptual framework delineating potential avenues for sustainable innovations, along with an exposition of the framework for sustainable product innovations, is presented. Third, a conceptual model of sustainable innovations orientation, delineating certain antecedents and outcomes, is presented. Fourth, implications for theory, research, and practice are discussed.

Literature overview and motivation for research

Prior research provides valuable insights into myriad issues pertaining to sustainable innovations, sustainable product innovations, and the sustainable innovations orientation of firms. Potential negative impact of sustainability attributes on consumers’ preferences (Luchs et al. 2010), effects of attribute tradeoffs on consumers’ green product preferences and choice (Olson 2013), key marketing capabilities linked to innovation-based sustainability strategies (Mariadoss et al. 2011), and performance consequences of integrating an environmental specialist in a new product team (Ebru and Di Benedetto 2015) are among the issues that have been researched in marketing. Literature on sustainable innovations also points out important gaps that merit attention. For instance, while the literature provides a number of definitions of sustainable innovation, some of them evidence limitations. The literature also points to dearth of fine-grained frameworks that delineate potential avenues for sustainable innovation and sustainable product innovation, and models that shed light on factors underlying differences between firms in their sustainable innovations orientation, and their performance consequences. A brief discussion of the above follows.

Sustainable innovation and sustainable product innovation definitions

Table 1 provides a summary of definitions of sustainable innovation and their limitations. The limitations include: (1) using the term innovation in the definition of innovation (see: Arnold and Hockerts 2011), (2) defining the construct as activities that challenge existing practice, as opposed to providing an explanation of its essential nature, in accord with the dictionary definition of definition (see Larson 2000), and (3) circumscribing scope (e.g., in regard to processes, including only new production processes in the definition, to the exclusion of processes in other functional areas; see Buttol et al. 2012). As regards sustainable product innovation, a construct germane to marketing, a literature search did not identify a formal definition.
Table 1

Sustainable Innovation: a summary and critique of conceptualizations and definitions in extant literaturea

Definition

Comments

Sustainable Innovation

 New products and processes that provide customer and business value and significantly decrease environmental impacts (Fussler and James 1996).

Illustrative of definitions of sustainable innovation whose scope is limited to new products and processes. In contrast, other definitions encompass both, new products and processes, and modifications of present products and processes. The terms, “customer and business” in the definition merits being revised to “customers and businesses.”

 New products and processes that provide customer value, while using fewer resources and resulting in reduced environmental impacts (Johansson and Magnusson 1998).

Illustrative of definitions of sustainable innovation whose scope is limited to new products and processes. In contrast, other definitions encompass both, new products and processes, and modifications of present products and processes.

 New or modified processes, techniques, practices, systems and products aimed at preventing or reducing environmental damage (Rennings 2000).

Illustrative of definitions of sustainable innovation whose scope encompasses, new products, new processes, etc., and modifications of present products, present processes, etc.

 Innovation that improves environmental performance (Arnold and Hockerts 2011).

The term “innovation” is used to define innovation.

 Overarching concept that provides direction and vision for pursuing the overall societal changes needed to achieve sustainable development. Sustainable innovation reflects an explicit emphasis on a reduction of environmental impact, whether such an effect is intended or not….It is not limited to innovation in products, processes, marketing methods and organizational methods, but also includes innovation in social and institutional structures (Machiba 2010).

Description and not definition.

 New or modified processes, techniques, practices, systems and products to avoid or reduce environmental harms. Sustainable innovations may be developed with or without the explicit aim of reducing environmental harm (Halila and Rundquist 2011).

Points out that the scope of sustainable innovations encompasses those undertaken with the explicit aim of reducing environmental harm as well as those undertaken without the explicit aim of reducing environmental harm.

 Sustainable innovation is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organization (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resource use (including energy use) compared to relevant alternatives (Buttol et al. 2012).

Rather than using the terms, “good and service,” the terms, “product and service” are used in the definition. The term “products” is commonly used in literature as encompassing a broad array of offerings such as goods, services, places, ideas, and people. Definition makes reference to new production processes to the exclusion of processes in other functional areas.

Ecological Innovationb

 The development and implementation of new products (environmental technologies), new production processes, new resources, new markets and new systems (e.g., transportation of goods), and all of them integrate economy and ecology, i.e., introduce ecological aspects in economic strategies (Blättel-Mink 1998).

As suggested below in italics, the proposed definition can be more succinctly stated by deleting text presented in parentheses (illustrative examples do not belong in a definition), and by addressing another shortcoming of the definition (reference to new production processes in the definition to the exclusion of new processes in other functional areas).

The development and implementation of new products, processes, resources, markets and systems integrating ecological aspects in economic strategies.

Environmental Innovationb

 Actions taken by individuals or teams that improve the environmental performance of companies. Pollution prevention initiatives, replacement of toxic or hazardous substances, dematerialization of products and replacing products with services are types of “sustainable innovations” (Ramus 2001).

The second sentence is an elaboration of the definition. It provides examples of innovations that can result in improved environmental performance and is not part of the definition of the focal construct.

 The compliance efforts and efficiency improvements made to existing products and operations. Sustainability is defined as the innovative and potentially transformative corporate activities that generate new products and processes that challenge existing practice (Larson 2000).

A definition is an explanation or statement of the essential nature of something. Defining a construct as activities that challenge existing practice is ambiguous and lacks precision.

 Any kind of innovations—technical, economic, legal, institutional, organizational and behavioural—that relieve strain on environmentally sensitive resources and sinks (Huber 2008).

The term “innovation” is used to define innovation.

aThe first column of the table is based on various definitions of sustainable innovation summarized in Adams et al. (2012, pp. 87–88)

bSustainable innovation, ecological innovation, eco-innovation, environmental innovation, green innovation, sustainability driven innovation, sustainability enhancing innovation, and sustainability oriented innovation are among the terms used interchangeably in literature

Sustainable innovation frameworks

Classification schemas, lists, and frameworks have been proposed in the literature as roadmaps for firms to identify potential sustainable innovation opportunities. Ambec and Lanoie (2008) broadly classify sustainable innovations as cost reduction oriented (cost of materials, energy, labor, and capital) and revenue growth oriented innovations (sustainable innovations as an enabler of differentiation and access to certain markets; sale/licensing of proprietary sustainability-related technology). Mariadoss, Tansuhaj, and Mouri (2011) broadly classify sustainable innovations as technical (incremental and radical new products) and non-technical (new marketing programs and new managerial programs) innovations. Hansen, Große-Dunker and Recihwald (2009) propose a sustainability innovation cube as a framework for structuring the sustainability effects of innovations. Here, the authors distinguish between three types of innovations (business model, product-service system, and technological) across three lifecycle stages of a product (manufacture, use, and end-of-life), and their sustainability effects (ecological, social, and economic).

In their synthesis of scholarly research on sustainable innovations, Adams et al. (2012, pp. 33–34) group sustainable design strategies into eight broad categories: (1) new concept development, (2) selection of low-impact materials, (3) reduction of material usage, (4) optimization of production techniques, (5) optimization of the distribution system, (6) reduction of impact during use, (7) optimization of initial lifetime, and (8) optimization of end-of-life system. They also enumerate a number of sub-strategies. For instance, cleaner materials, renewable materials, recycled materials, and recyclable materials are identified as potential sub-strategies of selection of lower impact materials as a sustainable design strategy, and reduction of material weight and reduction of volume in transportation as potential sub-strategies of reduction of material usage as a sustainable design strategy. Notwithstanding the overlap between some of the above categories—e.g., substitution with low impact materials (sustainable design strategy # 2) is a potential avenue for sustainable innovation during the production, distribution, and consumption/use stages (sustainable design strategies # 4, 5, and 6) of the lifecycle of a product—compared to other classification schemas and frameworks previously proposed, Adams et al. present a relatively more extensive list of potential avenues for sustainable innovations.

Although resource constraints are likely to limit the number of sustainable innovation opportunities that a firm can pursue, analogous to the importance of quantity of new product ideas generated during the idea generation stage, identifying a large number of potential opportunities for sustainable innovations with the aid of multiple frameworks can be conducive to superior sustainable innovations performance. In this context, the framework for sustainable innovations proposed in this paper complements the classification schemas (e.g., Ambec and Lanoie 2008), lists (e.g., Adams et al. 2012), and frameworks (e.g., Hansen et al. 2009) for sustainable innovations proposed in literature and also ameliorates some of their limitations. The proposed framework specifically focuses on resource-centric sustainable innovations and delineates a relatively large number of fine-grained sustainable innovation opportunities available to firms.

Sustainability-related organizational constructs and models

Table 2 provides an overview of selected research in marketing and other business disciplines focusing on various sustainability-related organizational constructs (e.g., corporate sustainable development, environmental innovation, and market-oriented sustainability) and typologies of firms (e.g., sustainability embracers versus cautious adopters). In their literature review, Leonidou, Katsikeas and Morgan (2013) note that a majority of studies address one or more of the following issues: (1) external and internal drivers of sustainability, (2) management of sustainability, (3) performance outcomes of sustainability, (4) marketing aspects of sustainability, and (5) consumer aspects of sustainability. The studies summarized in Table 2 primarily focus antecedents and outcomes of specific sustainability-related organizational constructs, and a few also focus on moderators.
Table 2

Sustainability related constructs and models: representative research studies and key findings

Focal Sustainability Construct, Research Focus, and Theoretical Underpinnings

Major Findings (Empirical Research Studies) / Theses (Conceptual Articles)

Remarks

1. Environmental Innovation (Berrone et al. 2013)

Institutional pressures (regulatory and normative) positively influence a firm’s level of environmental innovation. Environmental deficiency gap (firms that cause more environmental damage than their industry peers) positively moderates the relationship between institutional pressures and environmental innovation.

Environmental innovation is operationalized as the total number of citations received by the patents granted each year to the firm.

Why do some firms engage in greater levels of environmental innovation than others, and under what conditions?

Organizational slack positively moderates the relationship between normative pressures and environmental innovation, and negatively moderates the relationship between regulatory pressures and environmental innovation.

Reported research findings are based on a sample of firms belonging to the 20 most polluting sectors as per the U.S. Environmental Protection Agency’s (EPA) Toxic Release Inventory (TRI) Program.

Institutional theory

2. Market Oriented Sustainability (Crittenden et al. 2011)

A firm’s sustainability orientation is a function of its DNA—deeply rooted values and beliefs that provide behavioral norms that trigger or shape its sustainability activities.

Conceptual article

An integration of market orientation and stakeholder orientation for the long-term welfare of all stakeholders.

A sustainability orientation addressed through a firm’s DNA, stakeholder involvement and performance management can bestow a firm with an intangible resource for achieving a competitive advantage.

Resource advantage theory

3. Sustainable Market Orientation (Mitchell et al. 2010)

Sustainable market orientation is conceptualized as having four components (objectives, strategies, processes and benefits) and as institutional marketing management where firms use sustainable management principles to:

Conceptual article

Reconceptualization of market orientation as a more comprehensive framework from a macromarketing perspective.

• anticipate and meet customer needs …

Conceptual overlap between (1) focal construct and antecedents (economic orientation, ecological orientation and social orientation), and (2) focal construct and outcome (firm performance) in the proposed model of sustainable market orientation (Fig. 1, p. 161).

• apply profitable, socially and environmentally responsible value systems;

• generate positive, long-run outcomes in economic, social and environmental terms … (p. 161).

4. Green Marketing Programs (Leonidou et al. 2013)

Firm’s industry level environmental reputation moderates the relationship between green marketing components (product, price, promotion and distribution) and product-market performance and financial performance. Slack resources and top management risk aversion are independently conducive to the adoption of green marketing programs, and operate as substitutes.

Green Marketing Programs: Programs designed to accomplish a firm’s strategic and financial goals in ways that minimize their negative (or enhance their positive) impact on the natural environment (see: Leonidou et al. 2013, p. 153).

Relationship between green marketing programs and performance, moderating effects of contextual factors, and internal factors that facilitate or inhibit adoption of green marketing programs by firms.

Reported research findings are based on a sample of U.K. manufacturing firms in six two-digit Standard Industrial Classification (SIC) industry groupings.

5. Corporate Sustainable Development (Bansal 2005)

International experience, firm size, mimicry and media attention positively influence corporate sustainable development. Financial performance negatively related to corporate sustainable development.

Corporate sustainable development encompasses (1) environmental integrity through corporate environmental management, (2) social equity through corporate social responsibility, and (3) economic prosperity through value creation (Bansal 2005).

Conceptualization and operationalization of sustainable development principles (simultaneous adoption of environmental, economic and equity principles) in the context of context of organizations. Determinants of corporate sustainable development. Resource-based view and institutional theory.

Reported research findings are based on a sample of Canadian firms in the oil and gas, mining, and forestry industries.

6. Global Reporting Initiative (GRI) Adoption (Nikolaeva and Bicho 2011)

Firms that are more engaged in PR communications regarding their corporate social responsibility (CSR) practices, and firms that have greater media exposure of their CSR activities are more likely to adopt GRI Principles.

The GRI Sustainability Reporting Guidelines is the most widely used framework worldwide by firms for reporting their sustainability impacts and performance.

Role of firm’s institutional environment and identity communicators in the adoption of GRI principles as a reputation management tool. Institutional theory. Also, resource dependence theory and signaling theory.

Competitive pressures and media pressure also positively influence adoption of GRI principles by firms.

Reported research findings are based on a sample of top 501 global firms and top 100 firms from emerging markets.

GRI adoption is function of both information based and rivalry based emulation.

7. Sustainable Firm Typology: High Sustainability versus Low Sustainability Firms (Eccles et al. 2012)

Compared to low sustainability firms, high sustainability firms evidence higher levels of (1) leadership commitment, (2) employee engagement, (3) external engagement, (4) knowledge on issues pertaining to sustainability, and (5) integration of sustainability considerations into basic business decisions.

Reported research findings are based on over 200 interviews at over 60 firms, and survey of over 3000 firms worldwide.

8. Sustainable Firm Typology: Embracers versus Cautious Adopters (Haanaes et al. 2011)

Compared to cautious adopters, sustainability embracers (1) move early, even if information is incomplete, (2) balance broad, long-term vision with projects offering concrete, near-term wins, (3) drive sustainability top-down and bottom-up, (4) aggressively desilo by integrating sustainability throughout company operations, (5) measure everything, (6) value intangible benefits, and (7) strive to be authentic and transparent, both internally and externally.

Reported research findings are based on a global sample of firms.

9. Corporate Environmental Strategy (Walls et al. 2011)

Six environmental capabilities form a multidimensional construct of a firm’s “proactive” environmental strategy:

Corporate environmental strategy: “A set of initiatives that mitigate a firm’s impact on the natural environment” (Walls et al. 2011, p. 73).

Development of a valid and reliable measure of corporate environmental strategy.

1. Historical orientation: History of implementing environmental program.

Sample: Large U.S. based firms in industries with high levels of effluents in their production processes.

2. Network embeddedness: Supply chain (supplier policies, buyer policies, life cycle analysis, etc.) and other stakeholders (government relationships, NGO relationships, business/industry associations, etc.).

Data source: Corporate environmental (corporate social responsibility) reports, environmental pages from corporate websites and annual reports.

3. Endowments: ISO certification, environmental management system, and environmental R&D.

4. Managerial Vision: Long-term commitment to environment and global level of vision.

5. Top management team skills: Senior environmental executive and reporting structure level.

6. Human Resources: Environmental training programs, and GRI reporting systems.

Of the sustainability-related organizational constructs summarized in Table 2, of particular relevance to the construct that is the focus of this paper (i.e., sustainable innovations orientation) are environmental innovation, sustainable market orientation, and market-oriented sustainability. In their research, Berrone et al. (2013) operationalize environmental innovation (i.e., environmental innovation performance) as the total number of citations received by the patents granted each year to the firm. Mitchell, Wooliscroft and Higham (2010) propose a conceptual model of sustainable market orientation, and Crittenden et al. (2011) present a conceptual model of market-oriented sustainability. A limitation of the model proposed by Mitchell, Wooliscroft and Higham (see Fig. 1, p. 161) is the conceptual overlap between the focal construct (i.e., sustainable market orientation) and its antecedents and outcomes. They conceptualize sustainable market orientation as having four components (objectives, strategies, processes, and benefits) and as institutional marketing management where the firm uses sustainable management principles to apply profitable and socially and environmentally responsible value systems (conceptual overlap with antecedents), and to generate positive, long-run outcomes in economic, social, and environmental terms (conceptual overlap with outcomes).

In Crittenden et al.’s (2011) market-oriented sustainability framework, stakeholder involvement is modeled as moderating the relationship between an organization’s DNA and performance management. They note (p. 75): “Metaphorically, a company’s tendency toward sustainability is a result of its DNA. That is, the DNA holds the deeply rooted set of values and beliefs that provide behavioral norms that trigger or shape sustainability activities.” This premise is also reiterated in some of the propositions. For instance, propositions P1a and P1b (p. 75) are stated with the following lead in: “Organizations founded upon a core ideology that embraces the triumvirate of environmental integrity, social equity, and economic prosperity ….” In contrast to the organizational DNA perspective of Crittenden et al.’s framework, the proposed model of sustainable innovations orientation focuses on institutional pressures, firm-related factors, and industry-related factors that predispose firms to be more versus less sustainable innovations oriented.

Sustainable innovation: definition, conceptual framework, and exposition of framework

Sustainable innovation and sustainable product innovation: definitions

Building on extant definitions of innovation, sustainability, sustainable innovation, product, and product innovation, sustainable innovation and sustainable product innovation are defined as follows: Sustainable innovation is a firm’s implementation of a new product, process, or practice, or modification of an existing product, process, or practice that significantly reduces the impact of the firm’s activities on the natural environment. Sustainable product innovation is a firm’s introduction of a new product or modification of an existing product whose environmental impact during the lifecycle of the product, spanning resource extraction, production, distribution, use, and post-use disposal, is significantly lower than existing products for which it is a substitute. A brief discussion of the rationale underlying specific terms and phrases used in the proposed definitions follows.

Product, process, or practice

As summarized in Table 1, some definitions of sustainable innovation refer to business models, methods, systems, and techniques. In the proposed definitions of sustainable innovation and sustainable product innovation, “practice” is used to succinctly denote such nuances. Consider, for instance, the conceptualization of business model innovation as a new way of delivering and capturing value that changes the basis of competition (see Nidumolu et al. 2009, p. 60). Within reason, “new way,” “new method,” “new procedure,” and “new technique” for delivering and capturing value can all be considered as equivalent.

New product, process, or practice, or modification of an existing product, process, or practice

As summarized in Table 1, in some of the definitions, the scope of sustainable innovations is limited to new products, and in others, it encompasses both new products and modifications/improvements of existing products. The proposed conceptualization of sustainable innovations as encompassing new products, processes, and practices, and modifications of existing products, processes, and practices is in accord with conceptualizations and definitions of innovation in the literature.

Reduction in impact on the natural environment

The innovation literature contains numerous definitions of innovation, broadly construed, and of specific types of innovation such as product and process innovation, exploratory and exploitative innovation, incremental and radical innovation, market breakthrough and technological breakthrough innovation (see: Chandy and Tellis 1998; Garcia and Calantone 2002). Regardless of whether a sustainable innovation is radical or incremental, exploratory or exploitative, revolutionary or evolutionary, etc., a defining characteristic of all sustainable innovations is their implementation reducing the impact of the firm’s activities on the natural environment. For instance, Adams et al. (2012) note that while both traditional innovation and sustainability-oriented innovation address technological change and innovations in processes, operating procedures and practices, business models, and systems thinking, the integration of environmental, social, and economic considerations distinguishes the latter from the former.

Significant reduction

While some definitions of sustainability-related constructs merely refer to a reduction in environmental impact—e.g., corporate environmental management is “an effort by firms to reduce the size of their ecological footprint” (Bansal 2005, p. 199); corporate environmental strategy is “a set of initiatives that mitigate a firm’s impact on the natural environment” (Walls et al. 2011, p. 73)—in the proposed definitions, the phrase “significantly reduces” is used in reference to the amount of reduction in environmental impact. Realistically, there are likely to be differences between various concerned entities such as regulatory bodies, industry associations, firms in an industry, and their institutional customers regarding the minimum threshold that a sustainable innovation must meet in order to be considered as a significant reduction in environmental impact. A number of other characteristics such as frequency of use must also be taken into account. For frequently used consumer products with a large customer base, even a small per unit reduction in environmental impact during each use can result in a substantial reduction in overall environmental impact (i.e., for the total user base of the product) during a specific period of time. Despite such complexities, it may be desirable to qualify the amount of reduction in the definition as “significant reduction.”

Sustainable innovations: conceptual framework

Figure 1 presents a conceptual framework for sustainable innovations. The framework broadly distinguishes between three sustainable innovation types (resource use reduction or resource use efficiency innovations, resource use elimination innovations, and resource use substitution innovations) and five major sustainable innovation opportunity stages (upstream supply chain, production, downstream supply chain, use or consumption, and post-use or post-consumption). For the three broad innovation types, nine finer gradations of sustainable innovation types are shown in the framework (A1.1 through A3.4). In the interest of simplicity, similar finer gradations of specific innovation stages are not shown in the framework. For instance, Hansen and Große-Dunker (2013) conceptualize supply chain (upstream supply chain in Fig. 1) as encompassing all raw materials, pre-manufactured components, parts, and modules sourced from third-party suppliers—both direct or from first-tier suppliers as well from n-tier suppliers—further upstream. While the proposed framework offers a fine-grained roadmap of a large number of resource-centric sustainable innovation opportunities that may be available to firms, a number of sustainable innovation opportunities exist outside the scope of the framework—e.g., sustainable business model innovation opportunities such as servicization of goods (decoupling ownership of tangible goods from the benefits consumers derive from using them) and collaborative consumption]. A brief discussion of the proposed framework follows.
Fig. 1

Potential avenues for sustainable innovations: a conceptual framework. 1 Innovations that lower the environmental impact of a product by achieving greater productivity in the use of a resource used as an input. A1.1: Reduction in the amount of use of a renewable resource. A1.2: Reduction in the amount of use of a nonrenewable resource. 2 Innovations that lower the environmental impact of a product by eliminating the use of a resource as an input. A2.1: Elimination of an ecologically harmful ingredient from a product. A2.2: Elimination of a filler ingredient from a product. A2.3: Elimination of the need to use a complementary product. 3 Innovations that lower the environmental impact of a product by substituting a resource used as an input with another resource. A3.1: Substitution of a nonrenewable resource with a renewable resource. A3.2: Substitution of an ecologically more harmful nonrenewable resource with an ecologically less harmful nonrenewable resource. A3.3: Substitution of a less abundant nonrenewable resource with a more abundant nonrenewable resource, subject to the substitution not having a negative impact on the overall sustainability profile of the product. A3.4: Substitution of source of raw material from below ground mined with above ground mined—reuse of resources extracted during the post use/consumption stage during the upstream supply chain, production, downstream supply chain, and/or use/consumption stages. 4 Innovation types A1.1 through A3.4 are primarily pertinent in reference to innovation opportunity stages B1 to B4. Although they may have some potential during stage B5, the primary focus of sustainable innovations during the post use/post consumption stage is value recovery. That is recovery of resources through above ground mining for use as inputs during stages B1 to B4 of the focal product (shown in the figure by dotted arrows from B5 leading into B1 to B4), and/or for other products (shown as a solid arrow from B5). 5 The scope of certain sustainable innovation opportunities are likely to be limited to a specific innovation type in a specific innovation opportunity stage (e.g., cell “A1.2, B2”—non-renewable resource use reduction innovation during the production stage). However, as illustrated with arrows from cell “A1, B1” to other cells, the scope of certain other sustainable innovation opportunities are likely to span multiple innovation stages and/or innovation types

Resource use reduction or resource use efficiency innovations

lower the environmental impact of a firm’s activities by achieving greater productivity in the use of resources used as inputs, and they can be broadly distinguished as innovations focused on reduction in the amount of use of (1) renewable resources and (2) nonrenewable resources. Resource use elimination innovations lower the environmental impact of a firm’s activities by eliminating the use of a resource as an input. For sustainable product innovations, the upper limit for resource use reduction is resource use elimination with no discernible effect on the functionality and performance of the product. Sustainable product innovations in this category can be broadly distinguished as innovations focused on elimination of (1) an ecologically harmful ingredient from a product, (2) a filler ingredient from a product, and (3) the need to use a complementary product. Resource use substitution innovations lower the environmental impact of a firm’s activities by substituting a resource used as an input. Sustainable innovations in this category can be broadly distinguished as innovations focused on substitution of (1) a nonrenewable resource with a renewable resource, (2) an ecologically more harmful nonrenewable resource with an ecologically less harmful nonrenewable resource, (3) a less abundant nonrenewable resource with a more abundant nonrenewable resource, subject to the substitution not having a negative impact on the overall sustainability profile of the product, and (4) a below-ground mined raw material with an above-ground mined raw material (i.e., reuse of resources extracted during the post-use or consumption stage during earlier stages).

In the interest of simplicity, inter-dependencies between sustainable innovation types and innovation opportunity stages are not shown in Fig. 1; for instance, designing a product for ease of dis-assembly during the production stage (stage B2), through its positive effect of the extent of above-ground mining of raw materials during the post-use or post-consumption stage (stage B5), having a positive impact on resource use substitution innovation (innovation type A3.4)—that is, substitution of a below-ground mined raw material with an above-ground mined raw material during the production, distribution, or use stage.

The portfolio of sustainable innovation opportunities pursued by most firms is likely to be comprised of some whose scope is limited to specific innovation types in specific innovation opportunity stages (e.g., cell “A1.2, B2”: nonrenewable resource use reduction innovation during the production stage) and others whose scope spans multiple innovation types and/or innovation stages. The latter types of sustainable innovation opportunities are illustrated in Fig. 1 with representative arrows from cell “A1, B1” leading into other cells. Illustrative of sustainable innovations within the domain of a single cell in Fig. 1 are innovations in the automobile industry focused on greater resource use efficiency during the use or consumption stage (cell “A1, B4” in Fig. 1) such as greater fuel efficiency, engine oil change at less frequent intervals, and replacement of spark plugs at less frequent intervals.

Illustrative of a sustainable product innovation whose sustainability impact spans multiple lifecycle stages is the digital camera as a substitute for film-based cameras. Compared to the amounts of various resources consumed during the manufacturing, distribution, use, and post-use stages of the lifecycle of film-based cameras (e.g., resources used in the manufacture of cameras, photo film, photo printing paper, chemicals used for processing of film and printing of photographs on paper, resources wasted on film and paper on poor quality pictures that are subsequently discarded, and fossil fuel used to drive to a retail outlet to drop-off the film for processing and later to pick-up the processed pictures), substantially lesser amounts of various resources are likely to be used during the manufacturing, distribution, use, and disposal stages of the lifecycle of digital cameras (e.g., online storage and viewing of pictures taken; selective printing of photographs as opposed to printing the complete roll used in a film camera). Although sustainability considerations may not have been the impetus underlying the development of digital cameras (i.e., the positive sustainability effects of the emergence of digital cameras as a substitute for film cameras may be serendipitous), it’s conceivable that similar opportunities might exist in other product markets. Furthermore, as pointed out by Halila and Rundquist (2011), sustainable innovations includes both innovations developed with the explicit aim of reducing environmental harm and those developed without the explicit aim of reducing environmental harm (see Table 1). What matters is, ex post, the innovation resulting in reduced environmental harm. The above observations concerning the sustainability impact of digital cameras relative to film-based cameras should be viewed as tentative. A number of studies provide insights into the mechanics of quantitative data based environmental lifecycle assessment of products (see, for example, Hawkins et al. 2013).

A resource use efficiency innovation during a particular stage of the lifecycle can have either a positive or a negative effect during another stage of the lifecycle of the product. Illustrative of the former is the introduction of concentrated formulations of liquid detergents (an innovation focused on resource use efficiency during the production stage of the lifecycle: reduced amount of use of water in the liquid detergent and plastic resins for the detergent containers) also having a positive sustainability effect during the distribution stage of the lifecycle (e.g., lower storage and transportation costs). Illustrative of the latter is a recent comparative environmental lifecycle assessment study of conventional and electric vehicles (Hawkins et al. 2013). The study reports that for a vehicle lifetime of 150,000 km, electric vehicles (EVs) powered by the present European electricity mix offer a 10 to 24% decrease in global warming potential (GWP) relative to conventional diesel or gasoline vehicles. The study further notes that while for conventional internal combustion engine vehicles (ICEVs), the use phase accounts for the majority of the GWP impact, with the production phase accounting for about 10% of the GWP impact, the production phase is more environmentally intensive for EVs than for ICEVs for nine of the ten environmental impact categories (e.g., global warming potential, human toxicity potential, freshwater sustainable toxicity potential, mineral resource depletion potential, and fossil resource depletion potential) considered in the study. Drawing attention to the sensitivity of the results to assumptions regarding electricity source, use phase energy consumption, vehicle lifetime, and battery replacement schedule for the EV, the authors caution that it may be counterproductive to promote EVs in areas where electricity is primarily generated from coal, lignite, or oil combustion. In such a scenario, the authors note that, at best, EVs would aggregate emissions to a few point sources (power plants, mines, etc.) from millions of mobile sources (tail pipe emissions from ICEVs).

The proposed framework (Fig. 1) builds on lifecycle analysis literature to distinguish between sustainable innovations opportunity stages (i.e., upstream supply chain, production, downstream supply chain, use or consumption, and post-use or post-consumption). Notwithstanding some conceptual overlap, a complementing framework that distinguishes between sustainable innovation opportunity stages based on a firm’s primary value chain activity stages (inbound logistics, production, outbound logistics, marketing and sales, and after-sales service; see Porter 1985) can aid in unearthing additional sustainable innovation opportunities. In reference to the link between competitive advantage and corporate social responsibility (CSR), Porter and Kramer (2006) note that organizations, rather than merely acting on well-intentioned impulses or reacting to outside pressure, should set an affirmative CSR agenda that produces maximum social benefits as well as gains for the business. As a decision aid for integrating social considerations more effectively into business strategy and operations, they propose a social impact map for identifying the positive and negative social impact of the activities comprising a business’ value chain, and in turn undertaking initiatives to eliminate as many negative value chain social impacts as possible. Although sustainable innovations are not the explicit focus of Porter and Kramer’s social impact map, by serving as a frame of reference for identifying the environmental sustainability-related negative social impacts of a business’ value chain activities, it can provide an impetus for sustainable innovations to mitigate the negative impacts.

Sustainable product innovation opportunities: exposition of the sustainable innovations framework

Table 3 presents an exposition of the sustainable innovations framework (Fig. 1) in specific reference to sustainable product innovations (i.e., potential avenues for sustainable product innovation through resource use reduction, resource use elimination, and resource use substitution). A number of potential avenues for sustainable product innovations presented in the first column of the table were inductively derived. That is, based on analysis of real-world examples of sustainable product innovations such as those presented in the second column of the table, the underlying innovation principle that generalizes as a potential sustainable innovation opportunity for all firms is inferred and an appropriate descriptive label assigned. For instance, for sustainable product innovations through resource use reduction, the following are delineated in Table 3 as potential opportunities: (1) product technology innovation, (2) product miniaturization innovation, (3) product convergence innovation, (4) product versatility innovation, (5) complementary product use amount reduction innovation, (6) variable use amount facilitation innovation, (7) product substitution innovation, (8) product upgrade in-lieu of replacement innovation, (9) reverse innovation, and (10) packaging innovation. A limitation of the inductive approach is that, even if a large number of potential opportunities for sustainable product innovation are identified using the approach, it does not constitute a comprehensive list. It is conceivable that sustainability considerations may not have been the impetus underlying some of the illustrative examples presented in Table 3. However, even in instances where the sustainability-related benefits of an innovation are serendipitous, to the extent it provides insights into potential pathways for sustainable product innovations in the context of other products, it can be of value to firms. As noted earlier, sustainable innovations includes innovations developed both with and without the explicit aim of reducing environmental harm (Halila and Rundquist 2011).
Table 3

Sustainable product innovations: an exposition of the sustainable innovations framework

Innovation Type

Description and Illustrative Examples

A1. Resource Use Reduction/Efficiency Innovation

 1. Product Technology Innovation

Reductions in the quantities of various renewable and nonrenewable resources used during different stages of the life cycle of the product.

More resource efficient new technology

Example: Digital cameras versus film based cameras

 2. Product Miniaturization Innovation

More resource efficient new technology (e.g., from analog to digital technology), and/or major improvements in current technology (e.g., within analog or within digital technology)

Example: Evolution of music storage devices and players from vinyl records and record player, to cassette tapes and cassette player, to compact discs (CDs) and CD player, to even more compact devices with an hard drive for storage of larger amount of data / music (e.g., iPod)

 3. Product Convergence Innovation

A new product that subsumes in a single product a number of erstwhile distinct standalone products

Example: A smart phone which incorporates in a single device the functions of multiple standalone devices (e.g., phone, digital camera, music storage and playback, information storage and retrieval, and sending and receiving emails).

 4. Product Versatility Innovation

A new product with greater versatility that eliminates the need to use different standalone products for different use situations

Example: A vacuum cleaner that can be used on carpet, hardwood and tiled floor in place of vacuum cleaners specifically designed for use on carpets versus hard surfaces.

 5. Complementary Product Use Amount Reduction Innovation

A new product that lowers the amount of complementary product used during the use stage of life cycle of product

Examples: (1) Single rinse formulation of laundry detergent. Cold water formulation of laundry detergent (About three-quarters of the energy use and greenhouse-gas emissions from washing a load of laundry result from heating the water; see Martin and Rosenthal (2011). (2) Automobiles designed for greater fuel efficiency, less frequent oil change (e.g., at intervals of 15,000 miles versus 5000 miles), and using longer lasting parts, components and subassemblies (e.g., spark plug replacement, tire replacement, etc.). (3) Designing printers/copiers to print/copy on both sides of paper.

 6. Variable Use Amount Innovation

Product redesign for variable amount of use during the use stage of life cycle, in place of a pre-determined, fixed amount.

Example: A paper towel roll with perforations that facilitates use of smaller amounts of paper towel (e.g., one-half or one-quarter of regular size sheet in a roll)

 7. Product Substitution Innovation

Video conferencing as a substitute for travel by plane, train or car for face-to-face business meetings

 8. Product Upgrade through Module Replacement versus Full Replacement

Reduction in quantities of various resources used during the production stage of the life cycle by replacing only certain components and/or subassemblies to upgrade a product as opposed to the whole product.

Example: As an alternative to full product replacement, designing a product so that it can be upgraded and its useful life extended by replacing subsystems or modules (see: Guiltinan 2009)

 9. Reverse Innovation

Compared to products developed in and targeted at customers in developed markets, products developed in and targeted at customers in emerging markets at a price that is affordable by a large majority of customers in these markets tend to use substantially lesser amounts of various materials used during the production and use stages. When these innovations are subsequently introduced in developed markets as well, they result in positive sustainability effects [see Govindarajan and Trimble (2012) for illustrative examples].

 10. Packaging Innovation

Reduction in the amount of various packaging materials used

A2. Resource Use Elimination Innovation

 1. Ingredient Product Elimination Innovation

Elimination of specific ingredient products (e.g., ecologically harmful ingredients) during the production stage of the life cycle of the product

Example: Phosphate free formulation of laundry detergent

 2. Complementary Product Elimination Innovation

Elimination of the need to use a complementary product during the use stage of the life cycle of a product

Example: Vacuum cleaners with canisters whose contents can be directly emptied into a waste basket, in place of vacuum cleaners that require use of disposable bags for capture and storage of dirt and dust.

 3. Complementary Product Carryover Innovation

Elimination of resources expended on complementary products when upgrading to a newer core product.

Example: A universal cell phone charger that eliminates waste associated with the charger being discarded each time a consumer upgrades to a newer model of a cell phone with new and/or more features, or switches from one cell phone service provider to another.

 4. Packaging Innovation

Elimination of packaging

Example: Elimination of paper/cardboard carton packing for deodorants by incorporating all product-related information in the product container

A3. Resource Use Substitution Innovation

 1. Substitution of: (a) Nonrenewable resource ingredients with renewable resource ingredients. (b) Scarce nonrenewable resource ingredients with relatively more abundant nonrenewable resource ingredients. (c) Ecologically more harmful resource ingredients with ecologically less harmful resource ingredients.

Examples: (1) Substitution of disposable polystyrene foam plates in fast food restaurants with paper plates made with natural fibers, a byproduct of wheat harvest and a renewable resource, that disintegrate and biodegrade swiftly and safely in professionally managed composting facilities. (2) Substitution of paper napkins made using wood pulp with paper napkins made using recycled paper or a mix of wood pulp and recycled paper.

 2. Product Digitization Innovation

Innovations that enable accessibility and consumption of information products in digital form in place of the products in analog form.

  (a) Digitization of Information Products

Examples: Digital versus analog versions of encyclopedias; digital versus analog versions of books—e-books stored and read on devices such as the Amazon Kindle and Apple iPad versus books printed on paper.

  (b) Digitization of Information Attributes of Non-information Products

Examples: (1) Online access to monthly billing statements for charge cards and utility services and online bill payment, in lieu of statements printed on paper and mailed to customers. (2) Electronic boarding pass transmitted to a mobile phone in lieu of boarding pass printed on paper. (3) Online reservation and purchase of service products (e.g., air travel) for future consumption

 3. Packaging Innovation

(1) Change in packaging materials used from non-biodegradable to partially biodegradable or fully biodegradable packaging materials.

(2) Increase in percent or recycled paper products used as packaging material content

Sustainable product innovations focused on resource use efficiency, resource use elimination, or resource use substitution during the production stage of a product (see Fig. 1) manifest as physical differentiation attributes (e.g., concentrated liquid detergent, compact fluorescent light bulb). Sustainable product innovations focused on resource use efficiency, elimination, or substitution during the use stage of a product manifest as experienced differentiation attributes (e.g., lower power consumption of a compact fluorescent light bulb compared to a tungsten filament light bulb, greater fuel efficiency of a hybrid car relative to a comparable internal combustion engine based car). In general, in a sustainable product innovation, the product’s attributes undergirding the reduction of its environmental impact are potential bases for differentiating the innovation from competing offerings in the marketplace. With respect to resource elimination–based sustainable product innovations, “what’s not in the product” (e.g., phosphate-free detergent), as opposed to “what’s in the product,” is integral to product differentiation (as well as positioning, market segmentation, and target marketing) and the customer value proposition.

Sustainable innovations orientation: definition, conceptual model, and propositions

Sustainable innovations orientation: definition

Siguaw, Simpson and Enz (2006) note that innovation orientation is conceptualized in literature as an organizational trait that is broad in scope, encompassing the total enterprise and all functional areas rather than a single functional area such as R&D or marketing. In a similar vein, sustainable innovations orientation is conceptualized here as broad in scope, encompassing the total enterprise and all functional areas. Siguaw, Simpson and Enz’s review of extant definitions of innovation orientation shows an organization’s actual behavior and/or behavioral predisposition (commitment, inclination, propensity, or tendency) to be the focus of most definitions (e.g., an organization’s beliefs and understandings about innovation; an organization’s beliefs and understandings underlying its actions in the realm of innovation; an organization’s understandings that manifest as specific innovation-enabling behaviors; an organization’s common standards and beliefs about learning and knowledge that pervade and guide all functional areas toward innovation; organizational climate, organizational philosophy, organizational propensities, organizational practices, strategic direction of organization; and strategies and actions of an organization).

Building on extant literature, as a behavioral construct, sustainable innovations orientation is defined as a firm’s relative extent of involvement in intra-organizational and inter-organizational activities within specific organizational functions and spanning multiple organizational functions toward the development of new products, processes, and practices, and modifications of existing products, processes, and practices, with the goal of significantly reducing the impact of its activities on the natural environment. As a behavioral predisposition construct, sustainable innovations orientation can be defined as a firm’s relative level of commitment to involvement in intra-organizational and inter-organizational activities within specific organizational functions and spanning multiple organizational functions toward the development of new products, processes, and practices, and modifications of existing products, processes, and practices, with the goal of significantly reducing the impact of its activities on the natural environment. All else being equal, the sustainable innovations resource outlay of larger firms will be greater than that of smaller firms. Hence, the proposed definition of sustainable innovations orientation refers to the relative extent of a firm’s involvement. Illustrative of the relative extent of a firm’s involvement is the ratio of the R&D expenditures of a firm on sustainable innovations during a specific time frame divided by the sales revenue of the firm during the same time frame, a proxy for sustainable innovations orientation.

Sustainable innovations orientation: conceptual model and propositions

Sustainable innovations orientation as an organizational phenomenon of interest brings to fore two inter-related questions: (1) What explains the predisposition of firms, in general, to make resource commitments to sustainable innovations (i.e., demonstrate a sustainable innovations orientation)? (2) What explains differences between firms in their sustainable innovations orientation (i.e., heterogeneity in sustainable innovations orientation), and with what consequences? The first question can be explained from an institutional theory perspective. Institutional theory posits that institutional pressures (coercive, mimetic, and normative pressures) lead firms to adopt similar strategies, structures, and processes (DiMaggio and Powell 1983). Institutional pressures originate from a firm’s environment and include pressures exerted by regulators and policymakers, stakeholders (investors, customers, suppliers, employees, etc.), and competitors. Coercive pressures are pressures to conform that are exerted on an organization by other organizations upon which it depends for critical resources, and by institutions that uphold the cultural expectations of the society in which it functions. Mimetic pressures are those experienced by an organization to model itself after other organizations in its field when faced with uncertainty over goals, technologies, means-ends relationships, etc. Normative pressures are pressures faced by an organization to comply with the collective norms shared by other organizations in its field, in their attempts to define the conditions and methods of their work (see Heugens and Lander 2009, Table 1, p. 68).

From an institutional theory (DiMaggio and Powell 1983) perspective, sustainable innovations orientation can be explained as a dimension of the behavior of the firm embedded in the collective cognitions of its managers, in the aftermath of institutional pressures exerted on the firm. Perception among managers that sustainable innovations can have a positive influence on firm performance (environmental, economic, and/or social performance), prominent firms engaging in sustainable innovations, and sustainable innovations being acclaimed in the mass media confers legitimacy to the behavior. During the ongoing process of firms monitoring the actions of their competitors to assess threats posed by their actions, under conditions of uncertainty over goals, and means-ends relationships, they are likely to react by engaging in mimetic behavior. Firms are more likely to engage in mimetic behavior when industry leaders engage in sustainable innovations.

Berrone and Gomez-Mejia (2009) characterize enhancing or protecting organizational legitimacy by conforming to the expectations of institutions and stakeholders as the main thesis of institutional theory. They note that concern over legitimacy leads firms to adopt managerial practices that are expected to have social value, and adherence by firms to institutional prescriptions reflects an alignment of corporate and social values. The findings of a recent KPMG survey (KPMG 2013), covering 4100 companies across 41 countries, are insightful in this regard. The study reports that corporate responsibility (CR) reporting has evolved into a mainstream business practice worldwide over the last two decades. Of the 4100 companies surveyed, 71% were found to engage in global CR reporting. Among the world’s largest 250 companies, the CR reporting rate was found to be 93%. The study further notes that 78% of companies surveyed refer to the Global Reporting Initiative (GRI) reporting guidelines in their CR reports. Drawing attention to CR reporting becoming a standard business practice worldwide, including in geographic regions and industry sectors that until recently lagged behind, the study notes that the debate concerning whether or not companies should publish a CR report is over. Instead, firms should focus on what should be reported, and how. Although the study findings concern CR reporting and compliance with GRI reporting guidelines in CR reporting at a broad level, an integral element of CR reports is the sustainable innovations and sustainable innovations–related initiatives of firms.

Figure 2 presents a model of sustainability innovations orientation. Building on institutional theory, institutional pressures (coercive pressures, mimetic pressures, and normative pressures) are shown as predisposing firms, in general, to demonstrate a sustainable innovations orientation. Within this context, certain firm-related factors (size, globalization, reputation, and slack) and industry-related factors (relative environmental impact of the industry, sustainability initiatives of firms in upstream supplier industries and downstream customer industries, and size of end users’ customer base) are modeled to explain heterogeneity in the sustainable innovations orientation of firms. Prior research focusing on other sustainability-related phenomena from an institutional theory perspective also evidence a similar approach—that is, a focus on firm-related and industry-related factors to explain heterogeneity in organizational responses, e.g., international experience and organizational slack (Bansal 2005) and environmental impact of the industry and organizational slack (Berrone et al. 2013). Prior research focusing on other sustainability-related phenomena from an institutional theory perspective has focused on decision-maker characteristics (e.g., CEO educational background and tenure) to gain insights into heterogeneity in organizational responses. However, the focus here is on firm-related factors that are more enduring characteristics of the firm, and not the characteristics of the firm’s decision makers. In relation to prior research, the proposed model shows a larger number of firm- and industry-related factors as antecedents. Furthermore, some are more comprehensively explored (e.g., reputation). Also, in relation to prior research, in the proposed model, the outcomes of sustainable innovations orientation are more comprehensively delineated (i.e., sustainable process innovations performance, sustainable product innovations performance, environmental performance, marketing performance, financial performance, and employees’ performance).
Fig. 2

A conceptual model of sustainable innovations orientation

Direct positive relationships between sustainable innovations orientation and sustainable process innovations performance, sustainable product innovations performance, and employees’ performance are posited in the proposed model. Sustainable process innovations performance and sustainable product innovations performance are modeled as mediating the relationship between sustainable innovations orientation and environmental performance. Sustainable product innovations performance is modeled as mediating the relationship between sustainable innovations orientation and marketing performance. Financial performance is modeled as the net effect of the following mediated relationships: (1) sustainable product innovations performance marketing performance → financial performance (link shown in bold arrows) and (2) sustainable process innovations performance and sustainable product innovations performance environmental performance financial performance (link shown in dotted arrows). In the interest of simplicity, direct links from sustainable innovations orientation to environmental performance, marketing performance, and financial performance are not shown in the figure.

The model is proposed in the context of established or legacy firms, and it does not generalize to new ventures launched with a mission to develop and market ecologically less harmful products. However, the sustainable innovations opportunities framework (Fig. 1) and the exposition of the framework in specific reference to sustainable product innovations (Table 3) are of relevance to both established firms and new ventures. In fact, the genesis of new ventures can often be traced to analyzing an industry in depth and identifying opportunities to serve specific customer needs that are either not met by incumbent firms or not met satisfactorily. A discussion of the conceptual rationale for the proposed firm effects and industry effects, and formal statements of propositions follows. The conceptual rationale advanced in support of the various propositions are in the vein of MacInnis’ (2011, p. 141) characterization of theory as a relationship that specifies why a construct affects another construct.

Sustainable innovations orientation: firm effects

Firm size

All else being equal, relative to smaller firms, larger firms in an industry can be expected to be under greater institutional pressures from various stakeholders (e.g., customers, suppliers, shareholders, and employees) and other actors (e.g., policy makers, legal and regulatory bodies, general public, opinion leaders, and the media) to demonstrate greater responsiveness to the sustainability imperative. For instance, in the face of growing societal concerns about environmental degradation, relatively larger firms in various industries are more likely to be held accountable by external stakeholders as well as the society at large, and looked up to for solutions. Relatively larger firms are also more likely to be objects of vilification and targets of protest marches for environmental degradation caused by their activities and/or the activities of the industry that they are part of, called upon to serve on sustainability-related task force committees, testify before governmental committees such as Senate and Congressional Committee hearings, investigated for commissions and omissions by the mass media, and objects of coverage in the news media. According to a recent study that classifies firms as sustainability embracers and cautious adopters, compared to smaller firms, a greater proportion of larger firms tend to be sustainability embracers (Haanaes et al. 2011). Larger firms having more resources, more experience, and greater reputational risk for failing to demonstrate a commitment to sustainability are among the plausible explanations offered for the observed differences. Hence:
  • P1: Sustainable innovations orientation will be greater in larger firms than in smaller firms.

Firm globalization

Global firms face different levels of institutional pressures to demonstrate responsiveness to the sustainability imperative in different country markets. At one level, globalized firms can be expected to demonstrate greater sustainable innovations orientation in country markets in which they are under greater levels of institutional pressures. At another level, as a result of transfer of organizational learning, globalized firms can be expected demonstrate greater sustainable innovations orientation even in country markets in which they are under lesser institutional pressures. Compared to purely domestic firms and less globalized firms, exposure to multiple and diverse environments provides more globalized firms with broader learning opportunities, and thereby they develop more diverse capabilities. As a result, more globalized firms have more opportunities to transfer organizational learning from one country market to another, as well as synthesize organizational learning that occurs in a number of country markets (see Ghoshal 1987). All else being equal, through synthesis of organizational learning from a number of country markets, more globalized firms will also be able to develop more and better sustainable innovations than purely domestic firms (see Ghoshal [1987, p. 432] for an illustrative example of a new product innovation based on synthesis of organizational learning in diverse market environments). Bansal (2005) posits and finds empirical support for a positive relationship between international experience and corporate sustainable development. She notes that compared to domestic firms, firms with international experience are likely to be more adept in developing organizational structures and systems that allow coordination across different jurisdictions and regulatory structures. Hence:
  • P2: Sustainable innovations orientation will be greater in more globalized firms than in less globalized firms.

Firm reputation

Brown, Dacin, Pratt and Whetten (2006, p. 104), define corporate reputation as “the set of corporate associations that individuals outside an organization believe are central, enduring and distinctive to the organization.” Prior research suggests that reputation management and brand protection are among the reasons underlying the corporate social responsibility (CSR) activities of firms and CSR reporting by firms. For instance, based on case studies of seven large firms, Adams (2002) reports that enhancing corporate image and credibility with stakeholders are the main reasons for initiating sustainability reports. Haanaes et al. (2011) note that companies with a favorable reputation for sustainability may be in a better position to capture other benefits such as entering new markets, and attracting and retaining top talent. Christmann and Taylor (2001) posit that firms which stand to gain more in the realm of reputational benefits are likely to exhibit greater responsiveness to institutional pressures. Nikolaeva and Bicho (2011) hypothesize that top reputation companies, while more likely to adopt GRI principles, are less likely to imitate their competitors. They further note that firms which own top brands are more likely to adopt Global Reporting Initiative (GRI) principles due to greater level of awareness of the value of the brands and how they can be enhanced and protected with structured corporate social responsibility reports.

On the one hand, reputation enhancement or reputation preservation motives are likely to predispose firms with an overall favorable corporate reputation (as a result of favorable reputation in a number of areas such as reputation for innovation, product quality, customer trust, and progressive organizational practices) to strive for favorable reputation in the area of environmental sustainability. On the other hand, firms suffering from an unfavorable reputation due to their past commissions and omissions that caused severe harm to the natural environment (e.g., the 1989 Exxon Valdez oil spill in Prince William Sound, the 2010 BP oil spill in the Gulf of Mexico) are also likely to be strive to rebuild their image by investing in pro-environmental behaviors such as sustainable innovations. Therefore, an inverted U-type relationship can be expected between firm reputation and sustainable innovations orientation. A more detailed discussion follows.

Firm reputation in customer interfacing dimensions

In the broader context of corporate reputation, the term customer interfacing reputation dimensions is used here to refer to those dimensions of firm reputation that positively impact the demand for a firm’s product offerings—that is, dimensions of firm reputation which are likely to influence customers’ brand choice, repurchase, and loyalty behaviors. At one level, firms that enjoy a favorable reputation among external constituencies in areas such as reputation for innovation, product quality, and customer trust in brand name that positively impact on demand drivers (e.g., acquisition of new customers and retention of present customers), and in turn on marketing performance (e.g., sales revenue, market share, customer satisfaction, and customer loyalty) and financial performance (e.g., profits and return on investment), are likely to strive to develop a favorable reputation in other customer interfacing reputation dimensions as well. In this regard, a dimension that is likely to be viewed by decision makers in organizations as increasingly important is firm reputation for sustainable business practices and sustainable innovations. Also, of likely concern to a firm’s decision makers is the potential negative spillover effect of an unfavorable reputation for sustainable business practices on the favorable reputation the firm currently enjoys in other customer interfacing reputation dimensions. Hence, firms with a favorable reputation in the customer interfacing reputation dimensions such as innovation, product quality, and customer trust in brand name can be expected to be more sustainable innovations oriented.

Firm reputation for progressive organizational practices

All else being equal, progressive organizational practices can be expected to engender a firm with a favorable reputation among opinion leaders and favorable coverage in the mass media as among the best firms to work for (e.g., Fortune magazine’s annual ranking of 100 best companies to work for). The higher a firm’s standing among opinion leaders and visibility in the mass media, the greater its ability to attract as well as retain a high quality workforce at all levels. A high quality workforce is likely to be more knowledgeable about changes in the environment and skilled at formulating and implementing superior responses to these changes. An environmental development that is likely to be prominent in the assessment of firms with a superior quality workforce at all levels is the environmental sustainability imperative. A high quality workforce is also likely to raise awareness within the firm of the importance of environmental stewardship and predispose the firm toward making sizeable investments in sustainability initiatives. Furthermore, in the evolving environment, key to maintaining and enhancing a firm’s reputation as among the best firms to work for is a reputation for environmental stewardship. Hence, firms with a favorable reputation for progressive organizational practices can be expected to be more sustainable innovations oriented.

Firm reputation for environmental performance

Berrone et al. (2013) note that firms with larger environmental deficiency gaps will impute greater value to environmental projects and invest in environmental innovations to appease external monitors. They reason that the visibility of firms whose activities caused severe harm to the environment and their sensitivity will make them more responsive to pressure exerted by external constituencies. In a theoretical model of firm voluntary over-compliance with environmental regulations, Arora and Gangopadhyay (1995) conclude that in an environment of greater public access to information regarding the performance of firms on social dimensions, a key driving force behind voluntary over-compliance is the public image of the firm. In an empirical study of the phenomenon, Arora and Cason (1995) report that larger firms with more toxic emissions are more likely participants. Berrone, Fosfuri, Gelabert and Gomez-Mejia (2013) posit that institutional pressures can trigger greater levels of environmental innovation in firms that pollute relatively more than their industry peers. Based on an analysis of the environment-related patents of 326 publicly traded firms from polluting industries in the U.S., they also report empirical support for their hypothesis. These considerations suggest that firms with an unfavorable reputation as a consequence of their poor environmental performance are also likely to be more sustainable innovations oriented.

Collectively, the discussion relating to sustainable innovations orientation and firm reputation in customer interfacing dimensions, firm reputation for progressive organizational practices, and firm reputation for environmental performance suggest that both firms with a favorable corporate reputation and firms with an unfavorable corporate reputation are likely to be more sustainable innovations oriented than firms with corporate reputation in the midrange. Hence:
  • P3: There will be an inverted U-type relationship between firm reputation and sustainable innovations orientation.

Organizational slack

Bourgeois (1981, p. 30) defines organizational slack as “that cushion of actual or potential resources which allows an organization to adapt successfully to internal pressures for adjustment or to external pressures for change.” The role of organizational slack has been examined in prior research in reference to environmental innovation (Berrone et al. 2013), corporate sustainable development (Bansal 2005), and sustainability-oriented product, price, promotion, and distribution programs of firms (Leonidou et al. 2013). Drawing on prior literature, Bansal points out that organizational slack allows firms to invest in resources and capabilities that may not have an immediate payoff. In a similar vein, Leonidou, Katsikeas and Morgan note that organizational slack, while providing managers the resources for greening their marketing programs, allows them wait to for longer-term benefits. Berrone, Fosfuri, Gelabert and Gomez-Mejia note that resource-abundant firms facing environmental pressures are better equipped to secure the necessary resources to launch environmental innovations. Hence:
  • P4: Sustainable innovations orientation will be greater in firms with higher levels of organizational slack than in firms with lower levels of organizational slack.

Sustainable innovations orientation: industry effects

Relative environmental impact of industry

All else being equal, firms that belong to industries whose activities cause greater environmental harm will be under greater institutional pressures to demonstrate responsiveness to the sustainability imperative. Among the indicators of the extent of environmental harm caused by an industry are the rate at which its activities deplete specific renewable and nonrenewable resources, lead to pollution of air and water, and use up landfill space. Porter and Kramer (2006) note that firms in stigmatized industries such as chemicals and energy may be predisposed to pursue social responsibility initiatives as a form of insurance in the hope that such demonstrated reputation for social consciousness may temper public criticism in the event of a crisis. Haanaes et al. (2011) report that many of the early movers in sustainability were firms in the chemicals and resource-based industries, and that, for firms in these industries, sustainability began as risk mitigation and license to operate issues and later evolved into something more holistic. Hence:
  • P5: Sustainable innovations orientation will be greater in firms competing in industries whose activities cause greater environmental degradation than firms of comparable size competing in industries whose activities cause lesser environmental degradation.

Sustainability initiatives of firms in upstream supplier industries and downstream customer industries

By its very nature, innovation as an organizational activity requires firms to collaborate and cooperate with external entities such as suppliers and customers. All else being equal, greater levels of sustainability-related initiatives by firms in upstream supplier industries and downstream customer industries can be expected to lead to greater levels of sustainability initiatives in the focal industry as well. From a resource dependence theory (Pfeffer and Salancik 1978) perspective, collaboration and cooperation by firms with their upstream suppliers and downstream customers on sustainable innovations can be viewed as a means of creating governance mechanisms to reduce uncertainty and manage dependence. That is, few organizations are self-sufficient with respect to critical resources. Furthermore, firms are heterogeneous with asymmetric abilities to develop or acquire resources. Lack of self-sufficiency leads to dependence on other firms and introduces uncertainty into the firm’s decision-making environment. Drumwright (1994) notes that relatively larger business customers can be more credible in emphasizing environmentally friendly policies in their transactions with other firms. Along similar lines, Sharma, Iyer, Mehrotra and Krishnan (2010) note that the greater the buying power of institutional buyers, the greater their effectiveness in forcing their suppliers to be environmentally conscious in their business practices and market environment-friendly products. Hence:
  • P6: Sustainable innovations orientation will be greater in firms competing in industries in which firms in upstream supplier industries are more extensively involved in sustainability-related initiatives.

  • P7: Sustainable innovations orientation will be greater in firms competing in industries in which firms in downstream customer industries are more extensively involved in sustainability-related initiatives.

Illustrative of the effect of downstream customer industry firms’ involvement in sustainability initiatives on the sustainable innovations orientation of firms upstream are the following. In 2007, Walmart announced its plans to transition in its U.S. stores to selling liquid laundry detergent only in concentrated form. The sustainability benefits of liquid laundry detergent in concentrated form include use of substantially lesser amount of water and plastic for packaging during the manufacturing stage, and fossil fuel for transportation during the distribution stage. By 2009, the transition was completed, with all of Walmart’s major suppliers of detergent complying (Rosenbloom and Barbaro 2009). In 2010, P&G unveiled a Supplier Environmental Sustainability Scorecard for its key suppliers with the eventual goal of requiring an environmental audit of all its suppliers. In order to receive a high rating on the scorecard, suppliers were required to report and show improvements on all applicable-to-the-industry P&G core environmental-impact measures (e.g., energy usage, waste disposal, reduction and recycling, and environmental regulatory compliance), work collaboratively on all applicable P&G sustainability initiatives, jointly develop several ideas adopted by P&G, and report on all additional feasible measures of environmental impact requested by P&G (Neff 2010). The above vignette is also illustrative of the business system evolving toward a virtuous cycle of environmental sustainability audits in a number of industries. That is, producers conducting environmental sustainability audits of their upstream suppliers, who in turn, conduct sustainability audits of their suppliers, and marketing intermediaries conducting environmental sustainability audits of their upstream suppliers (i.e., producers of products).

Size of end users’ customer base

Due to the nature of their product offerings, firms differ in respect of the size of their end users’ customer base. For instance, the end users’ customer base of some multinational firms that produce and market frequently purchased consumer products (e.g., goods and services for which a very large percent of the world’s population are current users, and in some instances on a daily basis such as toothpaste, bath soap, detergent, food, and beverages) are in the billions. For such firms, as a key stakeholder group, in absolute numbers, the number of end user customers who are likely to hold the producers to high standards in the realm of sustainable business practices can be sizeable. Furthermore, in absolute numbers, the number of end user customers who comprise the market segment for ecologically less harmful formulations of their product offerings can be sizeable. The above considerations suggest that, all else being equal, firms in industries with a relatively large end users’ customer base are likely to be under greater institutional pressures to demonstrate sustainable innovations orientation compared to firms in industries with relatively smaller end users’ customer base. Hence:
  • P8: Sustainable innovations orientation will be greater in firms competing in industries with a relatively larger end users customer base than in firms competing in industries with a smaller end users’ customer base.

Relative to the size of the customer base in business-to-business (B2B) markets, the size of the end users’ customer base in business-to-consumer (B2C) markets is substantially larger (e.g., tens of millions to hundreds of millions, and even exceeding a billion at a global level). For certain products in the B2B market, at one end, the size of the customer base can be fewer than 100 (e.g., the number of commercial airlines worldwide) globally, and tens of thousands at the other end (e.g., for office equipment such as computers, copiers and telephones, and supplies such as stationary). Hence, the contextual nature of the size of the end users’ customer base across market types (e.g., B2C versus B2B), and the need to control for such differences should be borne in mind.

Sustainable innovations orientation: outcomes

Sustainable process innovation performance, product innovation performance, and environmental performance

The resource-based view (RBV) of the firm (Barney 1991) and organizational capabilities extensions of RBV (Amit and Schoemaker 1993) support a positive relationship between sustainable innovations orientation and product innovation performance, and sustainable innovations orientation and process innovation performance. All else being equal, superior sustainable product innovation performance and process innovation performance can be expected to lead to superior environmental performance. Resources refer to stocks of available factors that are controlled or owned by the firm, and capabilities refer to the capacity of a firm to deploy resources, usually in combination, using organizational processes to achieve a desired end (Amit and Schoemaker 1993, p. 35). Building on extant literature, sustainable innovations capabilities is defined here as the ability of a firm to integrate, build, and reconfigure internal and external sustainability–related resources to develop new products, processes, and practices, and modify existing products, processes, and practices, and thereby significantly reduce the impact of its activities on the natural environment. All else being equal, a high level of sustainable innovations orientation over a period of time can be expected to result in a firm accumulating resources and capabilities that are crucial to developing and implementing superior sustainable process innovations and product innovations.

The imitability of an asset stock (the length of time it might take for a competitor to imitate, and the cost it would incur) is a function of the characteristics of the process of accumulation of the asset stock. Time compression diseconomies are diseconomies associated with attempting to duplicate certain asset stocks accumulated over time by one firm by another firm over a shorter period of time (Dierickx and Cool 1989). That is, maintaining a given rate of R&D spending over a particular time interval on sustainable innovations (i.e., a certain level of sustainable innovations orientation over a period of time) resulting in a larger increment to the stock of sustainable innovations capabilities than maintaining twice the rate of spending over half the time interval. Asset mass inefficiencies refers to the impact of the initial level of an asset stock on its further accumulation (Dierickx and Cool 1989). That is, a firm’s higher level of asset stock position (i.e., sustainable innovations capabilities) at a particular point in time facilitating further asset accumulation at lower cost than a competitor attempting to build from a lower level of asset stock position at the same point in time.

Employee performance

The rationale advanced in the market orientation literature (Kohli and Jaworski 1990; Jaworski and Kohli 1993) in support of a positive relationship between an organization’s market orientation and employees’ responses (organizational commitment and job satisfaction) also supports a positive relationship between sustainable innovations orientation and employee’s performance (organizational commitment and job satisfaction). Among the social and psychological benefits that an organization’s employees can be expected to derive are a sense of pride from belonging to and working for a firm that demonstrates a commitment to an important societal issue (i.e., environmental sustainability) through its sustainable innovations orientation.

Marketing performance

In light of equivocal arguments and findings reported in literature, a research proposition is not advanced. Instead, the direction of the relationship between sustainable innovations orientation and marketing performance is treated as an empirical issue. At one level, sustainable innovations can be expected to enable a firm to attract eco-conscious consumers, gain loyalty among eco-conscious consumers, and enhance its reputation among a broader cross-section of the general public. At another level, in a market environment characterized by growing sustainability awareness, in a sequential brand choice decision process, in an increasing number of product categories, the consideration set of an increasing number of buyers is likely to be limited to brands that are rated high on specific sustainability attributes. Although the final brand choice may be based on a number of other considerations, to the extent the ratings of competing brands on specific sustainability attributes determine their inclusion in or exclusion from the consideration set, a positive relationship between sustainable innovations orientation and marketing performance is tenable.

However, extant literature on the gap between consumers’ sustainable products related attitudes and behaviors (see Claudy et al. 2013) and other literature serves to highlight other issues that must be taken into account. Highlighting the findings of a global survey that revealed a 36% gap between consumers’ attitudes toward sustainable products and actual behaviors (40% of the respondents indicating a willingness to buy green products, but only 4% being actual buyers of green products), a UN report on advancing sustainable lifestyles through marketing and communications (United Nations Environment Programme 2005) characterizes overcoming barriers to sustainable consumption while making a profit as a Holy Grail for marketers. Luchs, Naylor, Irwin and Raghunathan (2010) report that for products in which strength-related attributes are valued, the positive effect of sustainability attributes on consumer preferences might be reduced, and even result in a preference for alternative products that are void of sustainability attributes. They note that in such instances, firms can attenuate the potential negative impact of sustainability attributes on consumer preferences by using explicit cues about product strength. Olson (2013) notes that widespread green product adoption will likely require green tradeoff reductions and/or compensation for the tradeoff by offering important advantages on non-green attributes relative to brown product alternatives. Kronrod, Grinstein and Wathieu (2012) note that persuading consumers to engage in environmentally responsible actions poses a challenge due to the beneficiary not always being the consumer engaging in pro-environmental behavior, but other consumers, the society at large or the planet Earth.

Financial performance

In light of equivocal arguments and findings reported in literature, a research proposition is not advanced. Instead, the direction of the relationship between sustainable innovations orientation and financial performance is treated as an empirical issue. Some of the arguments advanced in the literature support a positive relationship between sustainable innovations orientation and financial performance, albeit over a longer time horizon. Berrone and Gomez-Mejia (2009) note that the link between environmental actions and financial performance may not be straightforward, and that good environmental performance may take time to come to fruition, increasing uncertainty about outcomes. Madsen and Rodgers (2015) note that while firms may accrue benefits such as reputational insurance, leniency from regulators, and decreased risk of public activism from their CSR activities, CSR costs may exceed benefits over shorter time horizons. However, they note, the expected value of corporate financial performance over the long term may be positive. Statements by senior executives that shed insights into mental models of theories in use also suggest that a positive relationship between sustainable innovations orientation and financial performance is tenable over a longer-term horizon. Case is point is the following quote from Deveshwar, Chairman of ITC Limited (Srivastava (2013, p. 1):

ITC has crafted innovative business models that simultaneously build economic, environmental, and social capital—the pillars for sustainable and inclusive growth for the nation. The problem is that markets seldom reward such an approach, since the uni-dimensional focus is on financial wealth creation and quarterly results rather than sustainable growth in the long run. My argument is that when consumers and civil society begin to recognise the sustainability of companies, and when their consumer franchise is directed to those companies in terms of preference of products and services, then investors would automatically be attracted. Investors will then instinctively gravitate towards this larger consumer franchise and thereby to socially responsible corporations.

However, prior research on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) serves to highlight other issues that must be taken into account. Barnett and Salomon (2012) note that the vast body of literature on the relationship between CSP and CFP has spawned more than a dozen published reviews. They further note that, of the numerous studies examining the relationship, some found no relationship, others a negative relationship, still others a positive relationship, and some a mixed relationship. In their research on the relationship between corporate social responsibility (CSR) and financial performance, Luo and Bhattacharya (2006) note that firms may generate different returns (positive, non-significant or negative returns) from CSR under different conditions. Commenting on the variety of results reported in studies examining whether corporate social responsibility (CSR) metrics predict financial performance, Chatterji, Levine and Toffel (2009) note that if the CSR metrics are noisy indicators of true CSR activities, studies finding little correlation between CSR metrics and financial performance may be understating the relationship between actual CSR and financial performance. However, if customers or other stakeholders are misled by the erroneous CSR metrics, studies finding a positive correlation between CSR metrics and financial performance may be overstating the relationship between actual CSR and financial performance.

Discussion

In their review of the diverse and contested meanings of sustainable development, Williams and Millington (2004) note that the continuum of thought on sustainable development spans from those seeking to alter the demand side at one end to those seeking to alter the resource side at the other end. As broad literature streams in marketing, demarketing for sustainability and innovating for sustainability relate to the demand side and supply side of sustainable development, respectively. In reference to the demand side, sustainability-oriented demarketing can be conceptualized as the use of marketing tools and techniques to effect changes in consumers’ attitudes, knowledge, social norms and values, and thereby behavior to promote cessation of consumption of certain products, reduction in the amount of consumption of certain other products, and redirection of consumption (i.e., from ecologically more harmful to ecologically less harmful substitutes) of still other products (see Varadarajan 2014). In reference to the resource side, this paper presents a framework for sustainable innovations (i.e., sustainable innovations through resource use reduction, resource use elimination, and resource use substitution), and a model of sustainable innovations orientation of firms.

Implications for theory

Building on institutional theory and the resource-based and capabilities-based views of the firm, this paper presents a model of sustainable innovations orientation delineating a number of firm-related and industry-related antecedents, and performance outcomes. From a theory development point of view, the model complements prior research focusing on other sustainability-related phenomena that have been explored from an institutional theory perspective (e.g., corporate sustainable development [Bansal 2005] and environmental innovations [Berrone et al. 2013]), and from other perspectives (e.g., organizational DNA perspective of market-oriented sustainability (Crittenden et al. 2011]). A brief discussion on potential avenues for enhancement of the proposed model and exploration of sustainable innovations orientation from other theoretical perspectives follows.

Model enhancement

Relative to prior research focusing on other sustainability-related organizational phenomena, a larger number of firm-related and industry-related factors are modeled to explain heterogeneity in sustainable innovations orientation. Also, relative to prior research, the performance consequences of sustainable innovations orientation are delineated in greater detail and the inter-dependencies between them are explicated. A potential avenue for further enhancement is modeling key environmental and organizational factors as moderators of the relationship between sustainable innovations orientation and its antecedents, and sustainable innovations orientation and its outcomes.

Stakeholder management theory

Stakeholders are “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman 1984, p. 46). In their synthesis of literature on stakeholder theory, Laplume, Sonpar and Litz (2008, p. 1164) note that stakeholders are more likely to support firms they (1) perceive as more cognitively legitimate, well liked, reliable, accountable, and strategically flexible, (2) believe have fairly considered, treated, and rewarded their stakeholders, and (3) feel have built trust and avoided treating stakeholders opportunistically. They also highlight prior research that suggests that firms can gain stakeholder support through charitable contributions, reputation management, impression management, rhetoric, and images. Building on literature on stakeholder management theory, explaining differences in the sustainable innovations orientation of firms on the basis of differences in their stakeholder management strategies merits further exploration.

Future focus of firms

Chandy and Tellis (1998) conceptualize the future focus of firms as the amount of attention they devote to events that are yet to occur. Tellis, Prabhu and Chandy (2009) note that a future orientation forces a firm to realize the limitations of current technologies and the emergence of new technologies that may become dominant in the future. Yadav, Prabhu and Chandy (2007) report that firms whose CEOs are more future focused are (1) faster at detecting new technological opportunities, (2) faster at developing initial products based on these technologies, and (3) better at deploying these initial products. Firms generally engage in certain innovation-related behaviors in the present in order to develop specific capabilities which they envision will be crucial for them to effectively compete in the future. Envisioning a future in which the performance of firms is likely to be evaluated by stakeholders on the basis of their economic, environmental, and social performance, compared to less future focused firms, more future focused firms are likely to make greater levels of resource commitments to various sustainable innovations–related initiatives in order to acquire greater levels of sustainable innovations capabilities. Building on literature on the future focus–related behavior of firms, explaining differences in the sustainable innovations orientation of firms on the basis of differences in their future focus merits further exploration.

Implications for research

Construct operationalization

From the standpoint of empirical testing of the proposed model, or major building blocks of the model (e.g., portion of the model pertaining to the relationship between sustainable innovations orientation and its antecedents), operationalization of the focal construct (i.e., sustainable innovations orientation) constitutes an important avenue for future research. Extant literature in marketing pertaining to the development of psychometrically valid and reliable scales (e.g., the MARKOR scale for measurement of market orientation [Kohli et al. 1993] and SERVQUAL scale for measurement of service quality [Parasuraman et al. 1988]) provides valuable insights for the development of a scale for measurement of sustainable innovations orientation. As noted earlier, corporate responsibility (CR) reporting, in accordance with Global Reporting Initiatives (GRI) guidelines is becoming a common business practice worldwide (KPMG 2013). CR reports of firms can be a valuable resource for generating scale items pertaining to the sustainable innovations related behaviors of firms. The following statements adapted from excerpts from the environmental reports of firms presented in Walls, Phan and Berrone (2011; Table 1, p. 77–84) are illustrative of the potential of the textual contents of CR reports as a source for generation of scale items: (1) Lifecycle assessments are performed during the development of new products. (2) Our products are designed, engineered, installed, and supported to achieve customers’ production needs and their EHS (environmental, health and safety) objectives. (3) Our suppliers are committed to reducing the environmental impact of their designs, manufacturing processes, and waste emissions. (4) We participate in industry working groups on specific sustainability initiatives.

Performance outcome measures

With the exception of sustainable process innovations performance (in light of its scope spanning multiple organizational functions), representative measures are presented in Fig. 2 for all other outcome measures. For instance, the number and percent of a firm’s present products that are enhanced with sustainable innovations during a specified timeframe, and the number of ecologically superior new products introduced by the firm during a specified time frame are shown as potential measures of a firm’s sustainable product innovations performance. In the current business environment, the prototypical large firm in most parts of the world is a multi-business and multi-product firm. However, market performance metrics such as market share, sales growth rate, customer satisfaction and customer loyalty are product- and brand-level metrics. Furthermore, during a specified timeframe, it’s conceivable that a firm might have incorporated sustainable product innovations in only a subset of its product offerings. Moreover, there might be differences in the degree of innovativeness of various sustainable product innovations implemented by a firm during a specific time frame. In light of the above considerations, in Fig. 2, mean change in market share, sales growth rate, customer satisfaction, and customer loyalty for the product portfolio of the firm are proposed as measures of marketing performance. Organizations broadly state their sustainability goals in terms of environmental performance measures such as targets for percent reduction in CO2 emissions, energy consumption, water consumption, and waste disposed. For instance, Unilever states its sustainability goal as halving the environmental footprint of the making and use of its products (e.g., reducing by half the greenhouse gas impact of its products across the lifecycle, the water associated with the use of its products by consumers, and the waste associated with the disposal of its products) by 2020 (Unilever Sustainable Living Plan Progress Report 2011). The sustainability goals of firms in specific reference to innovation also evidence a similar focus. For instance, Procter and Gamble states its sustainable innovation goals as developing products that result in a reduction greater than 10% in one or more of the following five areas—energy, water, transportation, amount of material used in packaging or products, and substitution of nonrenewable energy or materials with renewable sources—without negatively impacting the overall sustainability profile of the product (P&G 2010 Sustainability Report). Hence, the representative measures of environmental performance that are shown in Fig. 2.

Proxy for sustainable innovations orientation

The proposed model and major building blocks of the model are amenable to empirical testing by employing sustainability-oriented R&D intensity as a proxy for sustainable innovations orientation. Along the lines of operationalization of R&D intensity in the literature as a ratio measure (R&D expenditures of the firm divided by sales revenue during a specified time frame), sustainability-oriented R&D intensity can be operationalized as a ratio measure (i.e., sustainability-related R&D expenditures of the firm divided by sales revenue during a specified time frame). A desirable feature of the proposed proxy measure is that it can be operationalized with data that might be readily available in the public domain for a broad cross-section of firms. However, a limitation of the proposed proxy measure is it does not fully capture the domain of the construct as defined.

Implications for practice

Sustainable innovations portfolio

Kanter (2006) characterizes the innovation strategy of successful innovators as an innovation pyramid—a few big bets at the top, a larger number of promising midrange ideas in the test stage, and a broad base of early stage ideas or incremental innovations. She further notes that not every innovation idea has to be a blockbuster, and sizeable profits can also result from a sufficient number of small or incremental innovations. In a similar vein, the cumulative impact of a number of incremental sustainable innovations can enable firms to achieve significant reductions in key environmental performance dimensions such as (1) reduction in CO2 emissions, energy consumption, water consumption, and waste disposed, (2) reduction in amount of material used in product and packaging, (3) amount of substitution of nonrenewable energy with renewable energy, and (4) amount of substitution of nonrenewable materials with renewable materials. Ex ante, viewed in isolation, the potential contribution of certain opportunities for sustainable innovation to the environmental sustainability goals of a firm may be viewed as trivial. However, ex post, the collective impact of a number of incremental sustainable innovations to the environmental sustainability goals of the firm may be non-trivial. Furthermore, an organizational climate that is supportive of the pursuit of a broad array of sustainable innovations (incremental and radical, low hanging fruits and moon shots, etc.) can be conducive to fostering a culture conducive to the pursuit of sustainable innovations.

Innovating for shared value, broadly construed (i.e., innovations that deliver both social benefit and business value) encompasses innovating for sustainability. Pfitzer, Bockstette and Stamp (2013) note that firms which excel in innovating for shared value rely on five mutually reinforcing elements: (1) embedding a social purpose in their corporate culture and channeling resources to the development of innovations that can help solve specific social problems, (2) defining the social need—developing a comprehensive view of the problem, the people affected by the problem, and the number of people affected by the problem, (3) measuring shared value, (4) creating the optimal innovation structure, and (5) co-creating with external stakeholders. Ebru and Di Benedetto (2015) report that integrating an environmental specialist into a new product team has a positive influence on sustainable new product development (SNPD) project performance beyond what the traditional members of a team might accomplish. Based on analysis of the relationship across the stages of SNPD, they report the effectiveness of integration of the environmental specialist on SNPD project performance to be greater in the final stage of the SNPD process when the product is being launched, and the effect to be greater for more innovative projects.

Conclusion

As firms strive to concurrently decrease their environmental footprint and increase their market footprint, sustainable innovations capabilities as an organizational capability can be expected to grow in importance. Against this backdrop, this paper presents a conceptual framework delineating potential avenues for sustainable innovations and a conceptual model and propositions delineating the relationship between certain antecedents and outcomes of sustainable innovations orientation. An oft-repeated and prescient characterization of successful new-to-the-world products is, “products that did not exist yesterday, but most people worldwide cannot live without today.” In a similar vein, it’s conceivable that successful sustainable innovations, in light of their impact on significantly lowering the impact of human activities on the natural environment, may be viewed in the future as “innovations that did not exist yesterday, but the world cannot live without today and in the future.”

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Copyright information

© Academy of Marketing Science 2015

Authors and Affiliations

  1. 1.Department of MarketingTexas A&M UniversityCollege StationUSA

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