Technological, Managerial and Organizational Core Competencies: Dynamic Innovation and Sustainable Development

Technological, Managerial and Organizational Core Competencies: Dynamic Innovation and Sustainable Development Farley Simon Nobre Federal University of Parana, Brazil David Walker The University of Birmingham Business School, UK Robert Harris The University of Wolverhampton Business School, UK

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Library of Congress Cataloging-in-Publication Data

Technological, managerial and organizational core competencies: dynamic innovation and sustainable development / Farley Simon Nobre, David Walker and Robert Harris, editors. p. cm. Includes bibliographical references and index. Summary: “This book investigates the impact of knowledge management, information systems, finance, organizational networks, internationalization, strategic management, marketing, entrepreneurship, and sustainability on an organization that pursues dynamic innovation and sustainable advantage”--Provided by publisher. ISBN 978-1-61350-165-8 (hardcover) -- ISBN 978-1-61350-166-5 (ebook) -- ISBN 978-1-61350-167-2 (print & perpetual access) 1. Knowledge management. 2. Organizational learning. I. Nobre, Farley Simon, 1971- II. Walker, David, 1947 Sept. 1- III. Harris, Robert, 1961 Apr. 21HD30.2.T4235 2011 658.4’038--dc23 2011027029

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. The views expressed in this book are those of the authors, but not necessarily of the publisher.

In memory of my Father (1938-2010), who I love and miss dearly, for his constant family support, warm heart, happiness, and brilliant mind, and to my Mother who struggled to educate me, and to Carolina, for her kindness, patience, and love. Farley S. Nobre

Editorial Advisory Board Neil Anderson, Brunel University, UK Thomas Andersson, Jönköping University, Sweden & the Research Council, Sultanate of Oman Glauco Arbix, University of Sao Paulo, Brazil Michael Brown, Birmingham City University, UK Elias G. Carayannis, George Washington University, USA Steven Cavaleri, Central Connecticut State University, USA Erik G. Hansen, Leuphana University Lüneburg, Germany Colette Henry, University of London, UK Yuya Kajikawa, The University of Tokyo, Japan Valentina Lazzarotti, LIUC University, Italy Enrique Leff, Universidad Nacional Autónoma de México, Mexico Caroline Mothe, Université de Savoie, France David L. Rainey, Rensselaer Polytechnic Institute, USA Pedro López Sáez, Universidad Complutense de Madrid, Spain Joanne L. Scillitoe, New York Institute of Technology, USA William H. Starbuck, University of Oregon & New York University, USA Eric Viardot, EADA Business School, Spain

List of Reviewers Oihana Valmaseda Andia, Universidad del País Vasco, Spain Glauco Arbix, University of Sao Paulo, Brazil Theodora Asimakou, London Metropolitan University, UK Andrea Bikfalvi, Universitat de Girona, Spain Adriana Bin, University of Campinas, Brazil Michael Brown, Birmingham City University, UK Luiz Caseiro, University of Sao Paulo, Brazil María Catalina Ramírez Cajiao, Universidad de los Andes, Colombia Milton de Abreu Campanario, University of Sao Paulo, Brazil Gregorio Martín de Castro, Universidad Complutense de Madrid, Spain Jason G. Caudill, Carson-Newman College, USA Steven Cavaleri, Central Connecticut State University, USA Claudio Cruz Cázares, Autonomous University of Barcelona, Spain

Alok K. Chakrabarti, Thapar University, India Javier Alejandro Carvajal Díaz, Universidad de los Andes, Colombia Pilar Fernández Ferrín, Universidad del País Vasco, Spain Diana A. Filipescu, Autonomous University of Barcelona, Spain Sergio Salles Filho, University of Campinas, Brazil Jonas Gabrielsson, Lund University, Sweden Jorge Cruz González, Universidad Complutense de Madrid, Spain Amir Grinstein, Ben-Gurion University of the Negev, Israel Jerald Hage, University of Maryland, USA Erik G. Hansen, Leuphana University Lüneburg, Germany Robert Harris, University of Wolverhampton, UK Colette Henry, University of London, UK Gretchen Jordan, Sandia National Laboratories, USA Milton de Freitas Chagas Junior, Instituto Tecnológico de Aeronáutica, Brazil Yuya Kajikawa, The University of Tokyo, Japan Jose Carlos Korelo, Federal University of Parana, Brazil Valentina Lazzarotti, LIUC University, Italy José Emilio Navas López, Universidad Complutense de Madrid, Spain Patrizia de Luca, University of Trieste, Italy Caroline Mothe, Université de Savoie, France Jonathon Mote, Southern Illinois University, USA M. Elena Aramendia Muneta, Universidad Pública de Navarra, Spain Hiroko Nakamura, The University of Tokyo, Japan Farley Simon Nobre, Federal University of Parana, Brazil José Tiberio Hernández Peñaloza, Universidad de los Andes, Colombia Diamanto Politis, Halmstad University, Sweden Andrew Pollard, University of Wolverhampton, UK, & Caparo Innovation Centre, UK Paulo Henrique Muller Prado, Federal University of Parana, Brazil David L. Rainey, Rensselaer Polytechnic Institute, USA Renata Lèbre La Rovere, Federal University of Rio de Janeiro, Brazil Pedro López Sáez, Universidad Complutense de Madrid, Spain Horst-Hendrik Scholz, The University of Birmingham, UK Javier Amores Salvadó, Universidad Complutense de Madrid, Spain Joanne L. Scillitoe, New York Institute of Technology, USA Danielle Mantovani Lucena da Silva, Federal University of Parana, Brazil Marcello Muniz da Silva, University of Sao Paulo, Brazil Gavin Smeilus, University of Wolverhampton, UK, & Caparo Innovation Centre, UK William H. Starbuck, University of Oregon & New York University, USA Shinji Suzuki, The University of Tokyo, Japan Adriana Roseli Wunsch Takahashi, Federal University of Parana, Brazil Miriam Delgado Verde, Universidad Complutense de Madrid, Spain Eric Viardot, EADA Business School, Spain Valter A. Vieira, Federal University of Parana, Brazil Belén Bande Vilela, Universidad de Santiago de Compostela, Spain David S. Walker, The University of Birmingham, UK

Table of Contents

Foreword by Alan D. Meyer and William H. Starbuck.................................................................... xii Foreword by Colette Henry................................................................................................................ xv Preface.................................................................................................................................................xvii Acknowledgment............................................................................................................................ xxxvii Section 1 Sustainability and Innovation Chapter 1 Environmental Rationality: Innovation in Thinking for Sustainability................................................... 1 Enrique Leff, Universidad Nacional Autónoma de México, Mexico Chapter 2 A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation....................................................................................................................................... 18 David L. Rainey, Rensselaer Polytechnic Institute, USA Chapter 3 Product-Service Systems as Enabler for Sustainability-Oriented Innovation: The Case of Osram’s Off-Grid Lighting................................................................................................ 40 Friedrich Grosse-Dunker, Dark Horse GmbH, Germany Erik G. Hansen, Leupana University Lüneburg, Germany Chapter 4 Innovation for Sustainability in Aviation: World Challenges and Visions............................................. 55 Hiroko Nakamura, The University of Tokyo, Japan Yuya Kajikawa, The University of Tokyo, Japan Shinji Suzuki, The University of Tokyo, Japan Chapter 5 Diffusion and Adoption of Innovations for Sustainability..................................................................... 73 Helen E. Muga, University of Mount Union, USA Ken D. Thomas, Auburn University, USA

Chapter 6 Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage and Firm Performance......................................................................................................... 89 Javier Amores Salvadó, Universidad Complutense de Madrid, Spain José Emilio Navas López, Universidad Complutense de Madrid, Spain Gregorio Martín de Castro, Universidad Complutense de Madrid, Spain Chapter 7 Observe, Conceive, Design, Implement and Operate: Innovation for Sustainability.......................... 105 Javier Alejandro Carvajal Díaz, Universidad de los Andes, Colombia María Catalina Ramírez Cajiao, Universidad de los Andes, Colombia José Tiberio Hernández Peñaloza, Universidad de los Andes, Colombia Section 2 Organizational Networks and Innovation Chapter 8 The Integration of Independent Inventors in Open Innovation........................................................... 131 Gavin Smeilus, University of Wolverhampton, UK & Caparo Innovation Centre, UK Robert Harris, University of Wolverhampton, UK Andrew Pollard, University of Wolverhampton, UK & Caparo Innovation Centre, UK Chapter 9 An Examination of Independent Inventor Integration in Open Innovation......................................... 146 Gavin Smeilus, University of Wolverhampton, UK & Caparo Innovation Centre, UK Robert Harris, University of Wolverhampton, UK Andrew Pollard, University of Wolverhampton, UK & Caparo Innovation Centre, UK Chapter 10 Firm-Specific Factors and the Degree of Innovation Openness.......................................................... 167 Valentina Lazzarotti, Carlo Cattaneo University, Italy Raffaella Manzini, Carlo Cattaneo University, Italy Luisa Pellegrini, University of Pisa, Italy Chapter 11 Effects of Product Development Phases on Innovation Network Relationships................................. 191 Christina Öberg, Lund University, Sweden Chapter 12 Maturity in Innovation Network Management.................................................................................... 203 Caspar Van Rijnbach, TerraForum Consulting, Brazil Gustavo de Boer Endo, TerraForum Consulting, Brazil Suzana Monteiro Leonardi, TerraForum Consulting, Brazil

Chapter 13 Science Parks and their Role in the Innovation Process: A Literature Review for the Analysis of Science Parks as Catalysts of Organizational Networks.................................................. 230 Renata Lèbre La Rovere, Federal University of Rio de Janeiro, Brazil Leonardo de Jesus Melo, Federal University of Rio de Janeiro, Brazil Section 3 Entrepreneurship and Innovation Chapter 14 Entrepreneurial Learning and Innovation: Building Entrepreneurial Knowledge from Career Experience for the Creation of New Ventures..................................................................................... 245 Jonas Gabrielsson, Lund University, Sweden Diamanto Politis, Halmstad University, Sweden Chapter 15 Innovation and Corporate Reputation: Britain’s Most Admired Company Surveys 1990-2009......... 264 Michael Brown, Birmingham City University, UK Paul Turner, Anglia Ruskin University, UK Chapter 16 Natural Resource Dependency and Innovation in the GCC Countries................................................ 278 Thomas Andersson, Jönköping University, Sweden, & The Research Council, Sultanate of Oman Chapter 17 Innovation in Scenario Building: Methodological Advancements and a Foresight Study of the Automotive Industry in Brazil................................................................................................... 302 Ariane Hinça Schneider, Industry Federation of Parana, Brazil Laila Del Bem Seleme, Industry Federation of Parana, Brazil Felipe Fontes Rodrigues, Federal University of Parana, Brazil Marilia de Souza, Industry Federation of Paraná, Brazil Helio Gomes de Carvalho, Federal Technological University of Parana, Brazil Section 4 Knowledge Management and Innovation Chapter 18 Toward a More Pragmatic Knowledge Management: Toyota’s Experiences in Advancing Innovation...................................................................................................................... 327 Steven Cavaleri, Central Connecticut State University, USA Chapter 19 Knowledge and the Politics of Innovation: Insights from a R&D Company...................................... 347 Theodora Asimakou, London Metropolitan University, UK

Chapter 20 Innovation and Knowledge Management for Sustainability: Theoretical Perspectives...................... 365 René J. Jorna, Frisian Academy (KNAW), The Netherlands & University of Groningen, The Netherlands Niels R. Faber, Frisian Academy (KNAW), The Netherlands & University of Groningen, The Netherlands Chapter 21 Dynamic Capabilities and Innovation Radicalness: Review and Analysis.......................................... 384 Jorge Cruz-González, Universidad Complutense de Madrid, Spain José Emilio Navas-López, Universidad Complutense de Madrid, Spain Pedro López-Sáez, Universidad Complutense de Madrid, Spain Miriam Delgado-Verde, Universidad Complutense de Madrid, Spain Section 5 R&D&T Management and Innovation Chapter 22 Research Profiles: Prolegomena to a New Perspective on Innovation Management.......................... 408 Gretchen Jordan, Sandia National Laboratories, USA Jonathon Mote, Southern Illinois University, USA Jerald Hage, University of Maryland, USA Chapter 23 Determinants and Consequences of R&D Strategy Selection............................................................. 428 Diana A. Filipescu, Autonomous University of Barcelona, Spain Claudio Cruz Cázares, Autonomous University of Barcelona, Spain Chapter 24 Institutional Innovation Practices in Technopoles: An Example in France......................................... 450 Anne Berthinier-Poncet, Université de Savoie, France Rachel Bocquet, Université de Savoie, France Sébastien Brion, Université de Savoie, France Caroline Mothe, Université de Savoie, France Chapter 25 Choosing Locations for Technology and Innovation Support Centers: Methodological Proposal and Brazilian Studies.................................................................................. 474 Mário Otávio Batalha, Federal University of São Carlos, Brazil Daniela Tatiane dos Santos, Federal University of São Carlos, Brazil Nelson Guedes de Alcântara, Federal University of São Carlos, Brazil Sérgio Ronaldo Granemann, University of Brasília, Brazil

Section 6 Marketing and Innovation Chapter 26 Taxonomy of Marketing Core Competencies for Innovation.............................................................. 491 Eric Viardot, EADA Business School, Spain Chapter 27 Self Regulation on Innovative Products Choice.................................................................................. 508 Paulo Henrique Muller Prado, Federal University of Parana, Brazil Danielle Mantovani Lucena da Silva, Federal University of Parana, Brazil Jose Carlos Korelo, Federal University of Parana, Brazil Chapter 28 The New Product Development Process as a Communication Web Part I: Introduction, Concepts and Spanish Context....................................................................................... 526 Pilar Fernández Ferrín, Universidad del País Vasco, Spain José Antonio Varela González, University of Santiago de Compostela, Spain Belén Bande Vilela, University of Santiago de Compostela, Spain Oihana Valmaseda Andia, Universidad del País Vasco, Spain Chapter 29 The New Product Development Process as a Communication Web Part II: Analysis of Spanish Firms................................................................................................................... 540 Pilar Fernández Ferrín, Universidad del País Vasco, Spain José Antonio Varela González, University of Santiago de Compostela, Spain Belén Bande Vilela, University of Santiago de Compostela, Spain Oihana Valmaseda Andia, Universidad del País Vasco, Spain Section 7 Finance and Innovation Chapter 30 Innovations and Financing of SMEs Part I: SME Financing and Credit Rationing: The Availability of Funds..................................................................................................................... 555 David S. Walker, The University of Birmingham, UK Horst-Hendrik Scholz, The University of Birmingham, UK Chapter 31 Innovations and Financing of SMEs Part II: Case Study of German SMEs in 2010.......................... 574 David S. Walker, The University of Birmingham, UK Horst-Hendrik Scholz, The University of Birmingham, UK

Section 8 Internationalization and Innovation Chapter 32 The Recent Internationalization of Brazilian Companies.................................................................... 590 Glauco Arbix, University of Sao Paulo, Brazil Luiz Caseiro, University of Sao Paulo, Brazil Chapter 33 R&D Internationalization as Mechanism of Innovation in Global Enterprises: A Brazilian Case Study........................................................................................................................ 619 Simone Vasconcelos Ribeiro Galina, University of Sao Paulo, Brazil Section 9 Information Systems and Innovation Chapter 34 Tools That Drive Innovation: The Role of Information Systems in Innovative Organizations........... 640 Jason G. Caudill, Carson-Newman College, USA Chapter 35 The Roles of Cognitive Machines in Customer-Centric Organizations: Towards Innovations in Computational Organizational Management Networks....................................................................... 653 Farley Simon Nobre, Federal University of Parana, Brazil About the Contributors..................................................................................................................... 675 Index.................................................................................................................................................... 688

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Foreword

The editors have assembled this book around the topic of innovation, which they define very broadly. As a happy result of this broad definition, the book comingles the themes of technological innovation, entrepreneurship, and organizing. Usually, scholars have discussed these themes separately, and this separation has probably concealed opportunities for fruitful interdependence among the themes. These are vital themes in economies and in societies more generally, and the themes intertwine. Technological innovation fosters the emergence of new ways of organizing. Advances in Information Technology, for instance, have transformed hierarchical, co-located business organizations into geographically distributed virtual networks. Yesterday’s organizations are turning into “dense spots in networks of contracts between sovereign individuals” (Davis & Marquis, 2005). People can break supply chains apart and distribute work to the most efficient producers wherever they are, and can assemble components wherever customers happen to be located today. The three themes of technological innovation, entrepreneurship, and organizing share a concern with the emergence of new things – new concepts, new forms, new viewpoints. Emergence remains one of the persistent mysteries of science. An irony of Darwinian evolutionary theory is that despite the title of his book, Darwin did not attempt to explain “the origin of species.” His analyses began with established populations, and examined how differential survival led to gradual adaptation within these populations. Contemporary scientists – physicists, chemists, biologists, and social scientists alike – have generally followed Darwin’s example. Scientists avoid studying or even thinking about emergent processes, consigning them to the realms of philosophy and spirituality along with other phenomena evoking faith and magic. However, innovation, entrepreneurship, and organizing are inherently emergent, so scholars who study these topics find it hard to ignore emergence and the interactions that foster emergence. The book itself emerged through an evolutionary process that broke through national and disciplinary boundaries, and drew energy from entrepreneurial editorial activities that extended around the world. The editors and reviewers subjected manuscripts to careful selection processes and the successful manuscripts reflect repeated revisions that improved their clarity and relevance. The editors’ efforts to enlist diverse authors enhance the book’s usefulness. The authors come from many countries. People in different parts of the world see different issues and participate in different discussions, so distinct research topics and findings emerge all around the globe. A book that embraces a wide range of societies and perceptions helps readers to distinguish between observations that are more general and those that are more idiosyncratic. New technologies and organizational forms develop differently, and with experimental adventures over time, so their characteristics are disorderly. Efforts to understand very new technologies and organizational forms have to confront both the heterogeneity of the systems themselves and the researchers’ lack of effective filters for distinguishing important stimuli.

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Observations that are more general are possible because some social trends have been widespread. For instance, throughout the 20th century, the so-called developed countries evolved from agriculture and manufacture toward services, and the latter part of the 20th century brought mounting emphasis on services requiring higher education. A large amount of global dispersion of expert services has been occurring. Companies have not only placed call centers for technical support around the world, they have located research laboratories and engineering design centers around the world. Knowledge-based activities have been at least as mobile as physical work. In the short run, this geographic dispersion increases the relative advantage of social skills over technical expertise. In the longer run, such dispersion undercuts the competitive advantage of knowledge-based activities by making expertise less esoteric. In addition to intermingling technological innovation, entrepreneurship, and organizing, Professors Nobre, Walker and Harris have introduced another more contemporary theme – sustainability. In the book’s Preface, Nobre makes an important distinction between “competitive advantage” and “sustainable development”. “Competitive advantage” is a concept based in economic theories about competitive markets; it stresses the value to individual business firms of distinguishing themselves from their competitors by offering valuable and unusual products or services. However, economists and business scholars have defined competitive advantages solely in terms of the benefits to individual business firms and without concern for effects on consumers, communities, nations, societies, or humanity in general. Nobre introduces the term “sustainable development” to describe a kind of business development that maintains a balance between economic and societal goals and between short-run and long-run goals. This is a timely distinction, since the modern global corporation, a brilliant social innovation that extended benefits of commerce around the globe, has become the world’s dominant social institution – and is helping to drive every living system on the earth into decline. We live in a time when humans are at the very peak of our technological power. We are making changes in the earth that will echo through the centuries. Sustainable development would seek to benefit not only individual firms but also their societies and the future of humanity. Alan D. Meyer University of Oregon, USA William H. Starbuck University of Oregon, USA

REFERENCE Davis, G. F., & Marquis, C. (2005). Prospects for organization theory in the early 21st century: institutional fields and mechanisms. Organization Science, 16(4), 332–343.

Alan Meyer is the Charles H. Lundquist Professor of Entrepreneurial Management at the University of Oregon. Using organizational theory and sociology as theoretical frames, he studies industry emergence, corporate venturing, and technology entrepreneurship. He is a field researcher who triangulates between archival data and primary data gathered through interviews and naturalistic observation. Alan has been a continuous National Science Foundation grantee since 1999. He is a Fellow of

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the Academy of Management, he served as the founding chair of the Managerial and Organizational Cognition Division, and he chaired the Organization and Management Theory Division. Alan has served as Consulting Editor for AMJ and as Associate Editor-in-Chief for Organization Science, and on the editorial boards of Administrative Science Quarterly, the Academy of Management Journal, and Strategic Management Journal. William H. Starbuck is Professor-in-Residence at University of Oregon and professor emeritus at New York University. He has held faculty positions in economics, sociology, or management at Purdue University, Johns Hopkins University, Cornell University, University of Wisconsin-Milwaukee, and New York University, as well as visiting positions in England, France, New Zealand, Norway, Sweden, and the United States. He was also Senior Research Fellow at the International Institute of Management in Berlin. He edited Administrative Science Quarterly, chaired the screening committee for Fulbright awards in business management, directed the doctoral program in business administration at New York University, and was President of the Academy of Management. He has published over 150 articles on accounting, bargaining, business strategy, computer programming, computer simulation, forecasting, decision making, human-computer interaction, learning, organizational design, organizational growth and development, perception, scientific methods, and social revolutions. He has also authored two books and edited 17 books. His latest book, The Production of Knowledge, reflects on lessons from his own academic journey and on the challenges associated with management and social science research.

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Foreword

It is now widely acknowledged that innovation drives the knowledge economy, fuelling productivity and growth. It is innovation that essentially underpins successful entrepreneurship, creates jobs and contributes to the sustainable development of economies around the globe. It is not surprising therefore, that the topic of innovation continues to attract increased attention from academics and politicians alike. While earlier literatures depict innovation as ‘creative destruction’ that erodes existing markets and industries (Schumpeter, 1934), more recent commentators refer to innovation in the form of ‘disruptive, radical technologies’ that allow entire markets and industries to emerge, transform or even disappear (Christensen, et el; 1997). Research has also been growing with regard to innovation in the workplace, its link to human resource management and how innovation relates to organizational structures (Scott and Bruce, 2008; West, 2002, as discussed in Foss and Henry, 2010). However, there remains a gap in the literature with regard to the study of innovation in the context of organizational competence building and the identification of key creative areas that can create and drive sustainable innovation processes. In this book the editors have brought together a range of important topics under the heading of Technological, Managerial and Organizational Core Competencies. Nobre, Walker and Harris discuss knowledge management, networks, sustainability, marketing, R&D, Information Systems and internationalization across a range of geographical contexts and organizational settings. Strategically organized in nine sections, the editors combine empirically and theoretically based research contributions from leading commentators around the globe. The diversity of authors providing insights on innovation in different economies highlights the strong international dimension of the book. However, the unique contribution of the book undoubtedly lies in its identification of key creative and typically untapped areas within an organization that can build competencies towards dynamic innovation and sustainable development. Essentially, this book enhances current understanding of the innovation process and platforms its importance as a driver of 21st century entrepreneurship. The book will be of value to those studying and researching the broad field of innovation, particularly as it relates to dynamic organizational processes. The contributions will also be of interest to innovation educators, R&D managers and those working within the general innovation support system. This timely edited text offers a multidisciplinary perspective on innovation, reminding us that innovation is dynamic in nature and highly creative in its origins. Colette Henry University of London, UK

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REFERENCES Christensen, C. (1997). ‘The innovator’s dilemma: When new technologies cause great firms to fail. Boston, MA: Harvard Business School Press. Foss, L., & Henry, C. (2010). ‘Gender and innovation: Exploring the hegemonic voice’, paper presented at the Gender Work and Organization (GWO) Conference, Keele University, 20-23 June. Schumpeter, J. A. (1934). The theory of economic development. Cambridge, MA: Harvard University Press. Scott, S. G., & Bruce, R. A. (2008). ‘Determinants of innovative behavior: A path model of individual innovation in the workplace . Academy of Management, 37(3), 580–607. West, M. A. (2002). Sparkling fountains or stagnant ponds? An integrative model of innovation implementation groups, Applied Psychology: An International Review, 51 (p. 3).

Colette Henry (BA; MBA; PhD; FRSA; FISBE) is the Norbrook Professor of Business & Enterprise at the Royal Veterinary College (RVC), University of London. She also holds visiting professorships at the Universities of Tromsø (Norway) and Birmingham City (UK). A Fellow of the Royal Society for the encouragement of Arts, Manufactures & Commerce (RSA), Colette is also the former President of the Institute for Small Business & Entrepreneurship (ISBE), and was recently awarded a fellowship in recognition of her work. She has been published widely on the topics of entrepreneurship education & training, programme evaluation, women’s entrepreneurship and the creative industries. Her publications include books, edited collections and articles in a range of leading academic journals. Her more recent research focuses on entrepreneurship education and women in veterinary medicine. Colette is also the editor of the International Journal of Gender & Entrepreneurship (IJGE).

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Preface

THE ROLE OF ORGANIZATIONAL CREATIVE AREAS (OCA) IN DYNAMIC INNOVATION: FROM COMPETITIVE ADVANTAGE OF INDIVIDUAL RATIONAL ECONOMICS TOWARDS DEVELOPMENT OF COLLECTIVE SUSTAINABILITY Genesis and Overview: The Organization as Mediator between Entrepreneurs and Innovations This book represents the culmination of an international project to compile multi and inter-disciplinary research that most contributes to innovation. The book’s unifying constructs are innovation and the organization. The organization mediates between entrepreneurs and innovations. This preface presents a brief overview of developments concerning the organization and innovation. Organizations have gradually grown in importance throughout human history. They matured after the Industrial Revolution began in Europe in the 18th century and later spread to the United States of America in the 19th century. The gradual transition from a non-industrial to an industrial society has marked the frontiers between periods of evolution and industrial development of organizations. Here, the term evolution assumes that changes in society are relatively unpredictable, whereas industrial development denotes a more predictable sequence of planned modernization (Richter, 1982). Evolution characterizes processes of organizing in ancient and the Middle Ages civilizations, and the Renaissance supported development of the Industrial Revolution in Europe. Many modern principles of organizing emerged during ancient civilizations (5.000 B.C. - 500 A.C). It is probable that organizing processes began in the family, later extending to the tribe, and finally reaching formalized political units (Wren, 1987). After the fall of the Roman Empire and the emergence of Feudalism in Europe, new principles of organizing evolved as solutions to economic and political crises. An increasing record of writings about organizing characterized the Middle Ages. Nevertheless, economies and societies were essentially static, management practices were still largely antihuman, science was only a philosophical rather than a technological concern, and political values involved unilateral decisions by central authorities. These conditions were unfavorable for developing an industrialized society. Crises in Europe during the 14th and 16th centuries brought a revolution in thinking and culture, together with religious, social, economic and political strife, giving genesis to the Renaissance (Delouche, 2001). The Renaissance brought a new focus on reason, discovery, exploration and science. Overseas expansion of Europe between the 15th and 18th centuries strengthened the confrontation and integration of cultures on different continents and gave birth to Mercantilism. Globalization and a worldwide economy evoked new technologies and more complex principles of organizing. Additionally, there was increasing need and call for practices that could bring ethics to individual liberty and to markets. Political philosophers

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began to disseminate new ideas about equality, reason, justice, the rights of citizens, governance by consent of the people, and decentralized of political power. In the 18th century, new economic theories challenged Mercantilism and the controlling power of the landed aristocracy and initiated the Industrial Revolution. In his Wealth of Nations, Adam Smith (1723-1790) established the classical school of liberal economics and he proposed that only markets and competition should be the regulators of economic activity. The transition from pre to post-industrial organizations was gradual. The transition created new social, economic, technological and political conditions and brought new societal challenges. Continuous advances in science and technology, especially in electricity, energy and information, made possible large combinations of humans and machines, giving origin to new kinds of organizations. Principles of organization and management had to be improved and extended to a new and increasingly dynamic environment. Theories of organizations have developed systematically since the beginning of the 20th century. Organization theorists have advanced in knowledge through the 20th century (Grusky & Miller, 1981; March, 1965; March & Simon, 1958; Pugh, 1997; Nobre, Tobias & Walker, 2009: 236-289; Scott, 1998; Simon, 1997). With advances in capitalism and liberal economics, philosophers, historians, political economists and sociologists proposed opposing ideologies and models of political, economic and social thought. Perhaps, Marxism was the most revolutionary political ideology. Marx and Engels supported the idea that capitalism inevitably produces internal tensions that lead to its collapse or destruction.i This Marxist process has been called Creative Destruction (Reinert & Reinert, 2006: Chapter 4). Later, the concept of Creative Destruction was revisited and popularized by Joseph Schumpeter (McCraw, 2007), and became most associated with his economic development and innovation theory, particularly from his books The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (1912/1934) and Capitalism, Socialism and Democracy (1942/1950). Despite being sympathetic to Marxian Doctrines, Schumpeter placed entrepreneurship and innovation at the center of his economic development theory. He said destruction, transformation, and renewal of a social-economic system are rooted in entrepreneurs’ decisions and actions that introduce innovations. Therefore, entrepreneurs, and innovations, are core elements that can disturb the equilibrium of any social-economic system and that accelerate economic growth (Schumpeter, 1939). However, to think about innovation, and especially technological innovation, only as synonymous with economic growth is to overlook its broad significance for humanity. While innovation and technology can benefit humans with artifacts that raise living standards (Easterlin, 2000; Johnson, 2000; Tidd, 2006; Tidd, Bessant & Pavitt, 2005), innovation and technology can also have negative results.ii Innovation and technology affect political power (Kipnis, 1990; Scarbrough & Corbett, 1992) and power-holders of innovation and technology can control resources and decisions (Suarez-Villa, 2009). Strongly influenced by the Corporation (Drucker, 1993) and by the hegemonic power of 20th century neo-Corporatism (Hagger, 2004; Suarez-Villa, 2009; Wiarda, 1996), society has entered the 21st century with the strongest desires for capital accumulation ever seen in history. These desires have accelerated environmental degradation and the destruction of natural resources (Leff, 1995). Egocentrism, individualism, and consumerism characterize contemporary society, and a political and economic model of maximization of production and consumption is generating cultural alienation and intense materialism. These have, in turn, destroyed environmental resources and eroded the values and social conditions of humanity (Nobre, Lourenço & Fagundes, 2010). Education and innovation stand out as processes that should be changing human behavior to develop a sustainable future (Dunne & Martin, 2006; Wals, 2009),

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and innovation offers a key to sustainability by contributing new alternatives (Hart & Milstein, 2003; Nidumolu, Prahalad & Rangaswami, 2009; Rainey, 2006). One day, organizations, nations and executives may be able to perceive and act based on models grounded in systemic sustainability. These new models will have to reconcile environmental, social and economic demands (Gladwin, Kennelly & Krause, 1995; Korten, 2006) - the “three pillars” of sustainability defined by The United Nations General Assembly during the World Summit Outcome, in 2005. Organizations and their participants, especially entrepreneurs, will have to create dynamic innovation and competitive advantages without disrupting the balance needed for survival of the human species (Nobre, Tobias & Walker, 2010:391).

Objectives: What the Book is About Chapters in this book address many recent theories and practices on innovation. The book contemplates economic, social, political, educational and environmental facets of innovation through technological, managerial and organizational perspectives. More specifically, this book is about innovation in firms, industries, nations and society. It speaks to professionals and researchers who want to improve their understanding of dynamic innovation and sustainable development. Chapters contribute answers to questions on: • • • • • • • • •

What are the roles (and contributions) of Sustainability in (for) Innovation? What are the roles (and contributions) of Organizational Networks in (for) Innovation? What are the roles (and contributions) of Entrepreneurship in (for) Innovation? What are the roles (and contributions) of Knowledge Management in (for) Innovation? What are the roles (and contributions) of R&D&T (Research, Development and Technology) Management in (for) Innovation? What are the roles (and contributions) of Marketing in (for) Innovation? What are the roles (and contributions) of Finance in (for) Innovation? What are the roles (and contributions) of Internationalization in (for) Innovation? What are the roles (and contributions) of Information Systems in (for) Innovation?

Key Concepts of the Book In this book, innovation involves processes, organizational elements (or resourcesiii), and Organizational Abilities (OA)iv that support the production and transformation of knowledge into new knowledge, processes, structures, technologies and products, goods and services. At the firm and industry levels of analysis, innovation can provide organizations with strengths relative to other firms, clusters, and nations and it is a key source of customer benefits and sustainable development. At the collective and societal levels of analysis, innovation can provide humanity with economic, social and environmental wealth through sustainable development. The uniqueness of this book lies in the participants’ efforts to identify Organizations’ Creative Areas (OCA) that can provide core competencies for the organization in pursuit of dynamic innovation and sustainable development. In this perspective, innovation is a dynamic system and it is contingent upon a set of core competencies that couple to each other. Therefore, changing of even one competence can affect the organization’s ability to innovate.

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Core competencies develop within Organizations’ Creative Areas (OCA) that include Sustainability, Organizational Networks, Entrepreneurship, Knowledge Management, R&D&T (Research, Development and Technology) Management, Marketing, Finance, Internationalization, and Information Systems. Core competencies are valuable and unique from a customer’s point of view, and also inimitable and non-substitutable from a competitor’s point of view (Prahalad & Hamel, 1990). Core competencies can represent collective knowledge that develops through learning and that provide strengths relative to other organizations (Nobre, Tobias & Walker, 2010; Nobre & Walker, 2011). The term dynamic refers to capacity of the organization to create new competencies and to adapt to the changing business environment (Teece, 2007). The concept of competitive advantage refers both to the position that a firm occupies in its competitive environment and the firm’s ability to create superior value for its customers and superior profits for itself (Porter, 1998). The organization can sustain competitive advantage by developing strategic resources and core competencies (Lei, Hitt & Bettis, 1996). Although some chapters in this book support this economic concept of competitive advantage, that concept makes assumptions about economic supremacy that separate humanity from ecological and social developments. Therefore, this Preface avoids the term competitive advantage and adopts a more fruitful perspective of sustainable development–“the process of achieving human development … in an inclusive, connected, equitable, prudent, and secure manner” (Gladwin, Kennelly & Krause, 1995). An inclusive perspective sees traditional competitive advantage as occupying one extreme, whereas truly sustainable development occupies the opposite extreme. Sustainable development must benefit not only the organization and its customers, but also the whole society and the future of humanity through sustainability.v Most chapters of this book fall between these extremes.

The Dynamic Model Figure 1 portrays innovation as interacting with the Organization’s Creative Areas (OCA). In this Figure, the Organization’s Creative Areas [OCA-(1…9)] include Sustainability (Sus.), Organizational Networks (ON), Entrepreneurship (Ent.), Knowledge Management (KM), Research, Development and Technology (R&D&T) Management, Marketing (Mar.), Finance (Fin), Internationalization (Int.), and Information Systems (IS). Figure 2, adapted from (Nobre & Walker, 2011), portrays the organization in pursuit of dynamic innovation and sustainable development. This model’s functional processes can be summarized as follows: •

•

•

First, the organization interacts with the environment through its Organization’s Creative Areas (OCA) and Organizational Abilities (OA) for acquisition, exchange, processing, creation, storage, renewal, distribution and employment of resources. By these processes, the organization evolves and improves its own abilities of cognition, intelligence, autonomy, learning and knowledge management. Second, the Organization’s Creative Areas (OCA) and Organizational Abilities (OA) manage strategic resources, and, consequently, develop the organization’s core competencies. Improvements in strategic resources as well as in core competencies can feed back and provide improvements in the Organization’s Creative Areas (OCA) and Organizational Abilities (OA). Third, internal and external stimuli can affect the Organization’s Dynamic Innovation and Sustainable Development (ODISD), and, consequently, changes in ODISD activate the

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Figure 1. Organization’s Creative Areas (OCA)

Figure 2. Dynamic Innovation Model

Organization’s Creative Areas (OCA) and Organizational Abilities (OA), thus starting new cycles of sustainable development. Processes (1) to (3) repeat continuously to reduce environmental uncertainty and to improve the Organization’s Creative Areas (OCA), Organizational Abilities (OA), strategic resources, core competencies and the Organization’s Dynamic Innovation and Sustainable Development (ODISD).

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Target Audience This book is most relevant to researchers, students and executives interested in future organizations that pursue dynamic innovation and sustainable development. The technological, managerial and organizational background addressed in this book can be applied in different levels of academic and industrial research, including: • • •

Research programs of undergraduate and post-graduate levels. Lectures of undergraduate and post-graduate courses. Industrial and business research projects of firms of any size.

Due to the multidisciplinary scope of this book, the editors are suggesting some schools and courses where the book can be useful. These are: • •

Schools of: Business Administration, Management, Information Systems, Organization Theory, Social Sciences, Economics, Sociology, Philosophy, Education, Technology, and Engineering. Courses on: Innovation; Organizational, Managerial and Technological Innovation; R&D and Technology Management; Organizational Theory, Organizational Learning; Knowledge Management, Information Systems, Finance, Organizational Networks, Internationalization, Strategic Management, Marketing, Entrepreneurship, and Sustainability.

The book offers readers a multidisciplinary perspective on dynamic innovation, and most importantly, challenges readers to explore new frontiers between innovation and Sustainability, Organizational Networks, Entrepreneurship, Knowledge Management, R&D&T (Research, Development and Technology) Management, Marketing, Finance, Internationalization, and Information Systems. Organizations of today confront increasing levels of environmental complexity and uncertainty (Nobre, Tobias & Walker, 2010) that demand new processes of organizing. Sustainable development, at the firm, industry, nation and societal levels, depends on new economic, social and environmental analyses. This book contributes by presenting theoretical and empirical findings for mastering, analyzing and integrating technological, managerial and organizational perspectives that identify core competencies of future organizations. The subject of dynamic innovation raises new challenges for researchers. Organizational, managerial and technological principles of the past and present have contributed successful applications in many areas of organizations and society. However, the world is changing, new processes of organizing are continuously emerging, and methods that proved successful in the past may not provide the right tools for addressing problems of the future. Participants in this book hope to provide readers with very exciting insights about how innovation can create a better future.

Book Structure and Chapters Synopsis The Editors’ goal is to foster cross-pollination among researchers. To this aim, the Editors have selected and assembled chapters that illustrate multidisciplinary theoretical perspectives and empiric results on innovation and the roles of Sustainability, Organizational Networks, Entrepreneurship, Knowledge Management, R&D&T (Research, Development and Technology) Management, Marketing, Finance,

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Internationalization, and Information Systems in the organization that pursues dynamic innovation and sustainable development. The book’s structure involves these major sections: • • • • • • • • •

Section 1: Sustainability and Innovation Section 2: Organizational Networks and Innovation Section 3: Entrepreneurship and Innovation Section 4: Knowledge Management and Innovation Section 5: R&D&T Management and Innovation Section 6: Marketing and Innovation Section 7: Finance and Innovation Section 8: Internationalization and Innovation Section 9: Information Systems and Innovation

Section 1 on Sustainability and Innovation Subsumes Seven Chapters In Chapter 1, “Environmental Rationality: Innovation in Thinking for Sustainability”, Leff proposes perspectives and concepts for a model of environmental rationality for the construction of a sustainable society. He argues that “rationality of modernity has limited capacities to reestablish the ecological balance of the planet, while environmental rationality opens new perspectives to sustainability: the construction of a new economic paradigm based on neguentropic productivity, a politics of difference and an ethic of otherness. The problem to be approached is that of understanding the unsustainability of the established, dominant and hegemonic ways of constructing the world we live in: that of economic, scientific and technological rationality which organizes the actual world order. Humanity needs to think about the possibilities of deconstructing this dominant rationality, constructing and putting into social action a new social order: a new agreement with nature based on environmental rationality”. In this prominent treatise, Leff concludes that innovation in thinking is a need, if not a must, for sustainability. In Chapter 2, “A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation”, Rainey presents the foundations of a conceptual model for connecting the key elements necessary for corporations to adopt sustainability in the context of the global economy and strategic innovation. He explains “while sustainability involves many perspectives, strategies, actions, and management constructs, the chapter focuses on how global corporations employ strategic innovations in response to the driving forces in the global economy and how they can improve their level of management sophistication in a turbulent business environment”. One of the Rainey’s conclusions is that the model provides a framework for creating win-win outcomes that are balanced in terms of the social, political, economic, technological, environmental and ethical forces. In Chapter 3, “Product-Service Systems as Enabler for Sustainability-Oriented Innovation: The Case of Osram’s Off-Grid Lighting”, Große-Dunker and Hansen emphasize the role of innovation for addressing sustainability as well as the role of sustainability as a source for innovation, whereas they propose that Product-Service System (PSS) represents an important approach for both perspectives. Große-Dunker and Hansen start by presenting an exploratory research strategy to further investigate the links between Sustainability-Oriented Innovation (SOI) and Product-Service System (PSS); and they go through a case study on off-grid lighting in Kenya and analyze the sustainability effects on the product and Product-Service System (PSS) level.

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In Chapter 4, “Innovation for Sustainability in Aviation: World Challenges and Visions”, Nakamura, Kajikawa, and Suzuki collect and analyze the latest experts’ talks from four international meetings on Aviation and the Environment in the period between September 2009 and May 2010. The talks in the international meetings were led by experts and researchers from Japan, Europe, and North America; and they had the aim of discussing technological innovation, policies, and economic measures that could contribute to mitigate the global aviation impact to climate change, such as the adoption of low-carbon technologies. The authors explain that only 1% of the world population has flown yet and that there will be a great increasing rate of this percentage in the next years, which makes it very difficult to suppress the impact of aviation on climate change. Moreover, they suggest future research directions. In Chapter 5, “Diffusion and Adoption of Innovations for Sustainability”, Muga and Thomas primarily investigate theory and concepts of sustainability and why they are important to innovation and vice-versa. They discuss in detail some key reductionist approaches to assessing sustainability such as Life Cycle Assessment (LCA), Life Cycle Cost Analysis (LCCA), and sustainability indicators and they also apply these approaches to an engineering infrastructure scenario. The authors explain “the integrated sustainability methods of LCA and LCCA enable a business to assess alternative products or processes at the planning and design stages. These methods may also be used during the production stages to assess whether a business needs to use a different raw material to make their products”. The chapter also contributes by explaining the roles of management, social network analysis, and mental models of individuals in the diffusion and adoption of innovations. In Chapter 6, “Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage and Firm Performance”, Salvadó, Navas-López, and Castro provide special emphasis on the relationship between businesses and natural environment. They argue that the inclusion of environmental criteria into business activities can promote the creation of new core competencies, offering a creative and innovative perspective to the organization that can lead to the achievement of competitive advantages. In this investigation, the authors analyze the existence of a direct relationship between Environmental Innovation and Firm Performance and the existence of an indirect relationship between the two, which highlights the mediating role of the kind of competitive advantage generated. Among the chapter’s main findings: 1) the authors explain the nature of Environmental Innovation through the Social Innovation perspective and therefore they contribute by considering some key aspects of administrative and technological innovations that have not been taken into account in the academic literature; 2) they analyze the different types of environmental innovations in order to understand and describe the strategic options in the environmental field; 3) and they conclude that Environmental Innovation is related to business performance. Finally, they explain that the practical implications of this previous relation are of great importance, since it directly influence the choice of the type of environmental strategy, allowing the company to choose from innovative strategies (based on pollution prevention) or more conservative strategies (emissions control). In Chapter 7, “Observe, Conceive, Design, Implement and Operate: Innovation for Sustainability”, Carvajal Díaz, Ramírez Cajiao, and Hernández Peñaloza present a learning model that can be applied by academics and professionals in the development of innovations. The model draws upon the engineering education cycle of Observe, Conceive, Design, Implement and Operate (OCDIO). The authors start their chapter by reviewing curricula and learning activities in some world-class universities in order to understand the contribution of state-of-the-art education models for the creation of competences for innovation. Afterwards, they introduce the Observe, Conceive, Design, Implement and Operate (OCDIO) model and explain that sustainability comes from following the OCDIO cycle continuously. In such a

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proposal, the authors argue that the OCDIO model contributes for the sustainability of the innovation, but not specifically for the creation of solutions and promotion of innovations that subsume the three pillars of economic, social and environmental sustainability. Nevertheless, the OCDIO model as well as other leaning cycles such as Problem-Based Learning (PBL) can be followed to reach innovations which attend such sustainability triple-constraints. Furthermore, the authors use the OCDIO framework to analyze innovations in Colombia as well as case studies in the Universidad de los Andes.

Section 2 on Organizational Networks and Innovation Subsumes Six Chapters In Chapter 8, “The Integration of Independent Inventors in Open Innovation”, Smeilus, Harris, and Pollard explain that “whilst current academic literature points to the growing importance of Open Innovation as a means of companies capturing new products from sources other than internal R&D facilities; the integration of independent inventors, a source of innovative new products, within Open Innovation has proven challenging”. The authors present a series of preliminary Critical Success Factors, driven by current academic literature, that are intended to contribute to independent inventors becoming more successful suppliers of new product ideas to businesses, with the intention that adherence to such factors may have a positive influence on the effectiveness of open innovation. The chapter also provides the necessary introduction and background to the understanding of the next chapter. In Chapter 9, “An Examination of Independent Inventor Integration in Open Innovation”, Smeilus, Harris, and Pollard take the preliminary critical success factors proposed in the previous chapter and utilize them as priori constructs as evidence is sought through case study for their presence or nonpresence in a practical context. A case study on the Caparo RightFuel, an automotive device originating from an independent inventor and commercialized through an Open Innovation model, forms the basis of the chapter. In Chapter 10, “Firm-Specific Factors and the Degree of Innovation Openness”, Lazzarotti, Manzini, and Pellegrini investigate the topic of how open innovation is actually implemented by companies, according to a conceptual approach in which open and closed models of innovation represent the two extremes of a continuum of different openness degrees; whereas, these are not the only two possible models. By means of a survey conducted among Italian manufacturing companies, this chapter sheds light on the many different ways in which companies open their innovation processes. Four main models emerge from the empirical study and they are investigated in depth in order to understand the relationship between a set of firm-specific factors (such as size, R&D intensity, sector of activity, company organization) and the specific open innovation model adopted by a company. In Chapter 11, “Effects of Product Development Phases on Innovation Network Relationships”, Öberg starts by explaining that “in the research literature, product development has frequently been associated with four distinct phases: introduction, growth, maturity, and decline. While these phases have been related to and used for the study of product life cycle, market strategies and competition, less or no attention has been given to the subject of Innovation Network Relationships (INRs), and more specifically, to whether and how INRs are affected by these Product Development Phases (PDPs)”. Based on a literature review of Resource Dependence Theory (RDT) and four case studies, this chapter contributes by discussing how various INRs are affected by PDPs of an innovative firm. Findings include: (i) the specific needs and resource dependence by the innovative firm during different PDPs affect the status of the firm’s INRs, whereas new relationships are built and old ones are finished; (ii) during product development, the INRs become increasingly complex where network parties become negative resources

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of the innovative firm through increased uncertainty being introduced into previous relationships; and (iii) the development of INRs cannot be captured on a dyadic level, but various parties’ relationships with one another need to be considered. In Chapter 12, “Maturity in Innovation Network Management”, Van Rijnbach, de Boer Endo, and Leonardi aim to contribute to a better understanding of how innovation networks work and how to develop them. They start by reviewing the concept of network management and by explaining the principal attributes that impact the formation and optimization of innovation networks, based on the network’s objectives, the combination of the characteristics of the network’s participants as well as the network’s organizational format to attract and maintain the partnership. To reach the chapter’s aim, the authors present the results of a benchmark study undertaken in Brazil, the United States of America and Europe between March and June 2009. In this study, they interviewed executives at 24 leading companies known as innovators in their industry. Findings by the authors showed that some common good practices exist among companies when it comes to open innovation management. They concluded that, although some practices partly depend on the company’s industry or Research, Development and Innovation (R&D&I) investment levels, many practices are common and their use depends on the company’s level of maturity regarding open innovation networks. As a result of their investigation, the authors derive and propose a maturity model for open innovation, based on four dimensions: strategic, relational, support and organization. In Chapter 13, “Science Parks and their Role in the Innovation Process: A Literature Review for the Analysis of Science Parks as Catalysts of Organizational Networks”, La Rovere and Melo investigate the contributions of Science Parks (SPs) to innovation. In particular, the authors discuss whether the literature on innovation and SPs considers the fact that SPs can be catalysts of Organizational Networks (ONs). The authors consider that ONs are elements of knowledge production and can contribute to the development of core competencies to pursue dynamic innovation and competitive advantage. The chapter is based on literature review of scientific papers and theses on SPs and their contributions to innovation, which are included in indexed databases. Preliminary analysis of the literature shows that SPs have been mostly studied as part of innovation systems, and that less attention has been given to the role of ONs and SPs in the processes of technological learning and innovation.

Section 3 on Entrepreneurship and Innovation Subsumes Four Chapters In Chapter 14, “Entrepreneurial Learning and Innovation: Building Entrepreneurial Knowledge from Career Experience for the Creation of New Ventures”, Gabrielsson and Politis explain that the relation between entrepreneurial learning and innovation has been poorly understood, especially with respect to how entrepreneurs build up their capability to create new ventures. In this chapter, the authors employ arguments from theories of experiential learning to examine the extent to which entrepreneurs’ prior career experience is associated with entrepreneurial knowledge that can be productively used in the new venture creation process. They relate entrepreneurial knowledge to two distinct learning outcomes: the ability to (i) recognize new venture opportunities, and (ii) cope with liabilities of newness. Based on analysis of data from 291 Swedish entrepreneurs, they provide novel insights into how and why entrepreneurs differ in their experientially acquired abilities in different phases of the new venture creation process. In Chapter 15, “Innovation and Corporate Reputation: Britain’s Most Admired Company surveys 1990-2009”, Brown and Turner explain that The Britain’s Most Admired Company surveys into cor-

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porate reputation includes nine characteristics, one of these is a company’s capacity to innovate. They also explain that, “surveys between 1990 and 2009 show that a good reputation for innovation does not guarantee a good overall reputation; nor does a reputation for innovation lead to business success. However, where a company has a reputation for innovation and is able to manage other characteristics, there is a better chance that this company will develop its innovation capability into long-term competitive advantage and profitability. Central to this conclusion is converting innovation into enhanced processes, products or services through effective implementation”. The chapter also contributes by identifying key attributes of companies that combine a reputation for innovation, with a good corporate reputation overall and business success. In Chapter 16, “Natural Resource Dependency and Innovation in the GCC Countries”, Andersson explains that, “whether the current strong performance displayed by the Gulf Cooperation Council (GCC) countries proves sustainable for the long term will cast new light on the extent to which natural resource abundance can be turned into a blessing, rather than a curse, and then the requirements for that”. Andersson’s chapter synthesizes new evidence on the conditions for innovation in these economies, including through examination of innovative performances at firm level, collected through the first Community Innovation Survey (CIS) carried out in the GCC countries. Whereas strengths are recorded in some respects, e.g., Information and Communication Technology (ICT), education and some conditions for start-up activity, challenges remain in others, including with regard to governance. The chapter ends with recommendations what further action is required to enable better conditions for innovation both in the natural resource sector itself, and broadly in the economy. In Chapter 17, “Innovation in Scenario Building: Methodological Advancements and a Foresight Study of the Automotive Industry in Brazil”, Schneider, Seleme, Rodrigues, de Souza, and de Carvalho extend and apply a prospective scenario building methodology over a long-range forecasting (up to 2020) for the analysis of market and innovation potentials of the automotive industry of the Metropolitan Region of Curitiba (MRC); whereas the MRC is located in the state of Paraná in southern Brazil and is home to an automotive sector, which plays a major role in the local and national economy. The sources of data in the study include literature review, document analysis, direct observation, semi-structured interviews and two rounds of questionnaires. Results of the study provided the players, stakeholders and entrepreneurs with a clearer managerial view of the industry’s future and also suggested that the proposed methodology can be applied to other industries in future studies.

Section 4 on Knowledge Management and Innovation Subsumes Four Chapters In Chapter 18, “Toward a More Pragmatic Knowledge Management: Toyota’s Experiences in Advancing Innovation”, Cavaleri contributes by examining how pragmatic principles used by Toyota can achieve superior innovation results. The chapter concludes by explaining why the pragmatic approach delivers superior performance at lower cost than conventional knowledge management methods. In Chapter 19, “Knowledge and the Politics of Innovation: Insights from a R&D Company”, Asimakou discusses the relationship between knowledge management and innovation; and specifically, she examines how knowledge in organizations affects the creation of new knowledge and what the implications are for innovation management. The chapter’s core argument is that in a knowledge-based company, where competition is assessed at the edge of rare expertise and the development of innovations, knowledge, which is always interwoven with power, becomes a precious resource, on the grounds of which struggles are inevitably enacted over its control. To support such an argument, the chapter

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discusses two innovation mechanisms in two business groups of a major oil company. The study uses a set of qualitative techniques for data collection (in-depth interview, participant observation, documentary analysis) and a sample of 41 employees that represent the groups participating in the innovation game (manager, scientists, assistant scientists, administration staff and students). From the results, the author concludes that two mainstream innovation management approaches (the rational planning and the cultural approach) have shaped the understanding and actions of the Business Groups in setting up the innovation mechanisms; however, power struggles at the individual, group and organizational level impacted upon the innovation processes to the extent that the latter became passive technical solutions. In Chapter 20, “Innovation and Knowledge Management for Sustainability: Theoretical Perspectives”, Jorna and Faber explain that “innovation is a special case of knowledge management; it is about knowledge creation. With economic profit as its driving force, innovation is mostly short term and commercial, feeding the question whether innovation really can be applied to ecological and social systems. The problem concerns the goal of innovation: what does it suppose to realize?” From such constraints, the authors propose the study of a combination of Knowledge Management (KM) and innovation concepts with sustainability and they argue that as long as the emphasis in innovation is on ‘profit’ and not on ‘people’ and ‘planet’ (the three P’s of sustainability) there is no guiding mechanism for innovation, namely the existence of a sustainable future. They also explain that “in a sustainable perspective, innovation becomes an instrument that benefits society at large”. Based on these perspectives and literature review, the authors contribute along three lines of thinking: (i) by demonstrating that innovation is knowledge creation at an individual and collective level; (ii) by explaining that innovation should be a means and not a goal; (iii) and by offering a perspective to define the relationship between knowledge, innovation and sustainability. The authors conclude the chapter by introducing concepts on Knowledge of Sustainability (KoS) and Sustainability of Knowledge (SoK), and they set the outline of a framework for sustainable innovation. In Chapter 21, “Dynamic Capabilities and Innovation Radicalness: Review and Analysis”, CruzGonzález, Navas-López, López-Sáez, and Delgado-Verde provide theoretical analyses on the determinants of firm’s innovation radicalness (the degree of novelty incorporated in an innovation) from a dynamic capabilities-based view of competitive advantage. The authors start by reviewing the many literature facets and concepts of dynamic capabilities. From such a review, they argue that dynamic capabilities (or second order capabilities) arise from the firm’s orientation or ability for knowledge exploration that can result in the creation of new organizational capabilities (first order capabilities). By deepening on this exploratory learning argument, they also suggest that external knowledge acquisition and internal knowledge combination are key components of dynamic capabilities.

Section 5 on R&D&T (Research, Development and Technology) Management and Innovation Subsumes Four Chapters In Chapter 22, “Research Profiles: Prolegomena to a New Perspective on Innovation Management”, Jordan, Mote, and Hage explain that “despite the increasing importance of the management of research for innovation, the range of differences among types of research, as well as projects and programs, are not adequately captured in current theories of either project or organizational innovation”. In this chapter, the authors offer preliminary discussions for a new perspective about alternative styles of management for different types of research, whether basic, applied, product development, manufacturing, quality control or marketing. Based on these discussions, the chapter proposes a framework for a new perspec-

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tive of innovation management, called Research Profiles, which is derived from a literature review and extensive field research. This new perspective delineates four research profiles on the basis of two dimensions of research objectives and two dimensions of research tasks. In matching the research objectives and tasks, the authors identify inherent dilemmas that managers must address and this developing perspective suggests appropriate some research management approaches. In Chapter 23, “Determinants and Consequences of R&D Strategy Selection”, Filipescu and Cázares explain that “nowadays firms are not able to achieve all innovation in-house due to the specific set of technologies required by most products and processes, obliging firms to access external knowledge”. In this chapter, the authors contribute to the knowledge on firm innovating behavior by: (i) analyzing the determinants of the selection of the “Research and Development (R&D) Strategy” (all abbreviated by RDS), considering the make, buy and make-buy as the three RDS types; (ii) and also analyzing the consequences that each of the RDS types has on firm innovativeness. Results show that commercial and organizational resources, jointly with the information sources, influence the selection of the strategy. As for the second part of the analysis, the authors see that all RDS types have positive effects on firm innovative performance but these effects are not straightforward and simple since they vary depending on firm’s type and on the radicalness of the innovation. In Chapter 24, “Institutional Innovation Practices in Technopoles: An Example in France”, BerthinierPoncet, Bocquet, Brion, and Mothe contribute by filling a void in the literature on the question on whether organizational proximity can be fostered within clusters. With the objective to gain new insights into institutional practices and to evaluate their effects on firms’ innovation performance, the authors address a dimension that has received little attention until recently, which is named the local governance structures of technopoles. They explain that by identifying how geographical and organizational (cognitive and relational) proximity interrelate in the analysis of cluster forms, the chapter seeks to contribute to the burgeoning literature on the different types of proximity. For such a purpose, the authors performed an empirical research that was based on a representative sample of 88 firms implanted within the Savoie Technolac technopole, in the French Rhône-Alpes region. The results suggest that, even though local governance contributes to territorial anchoring, only the local labor market has a direct significant impact on the firms’ innovation performance. Additionally, it was found that territorial anchoring combined with the roles played by governance in terms of ‘matchmaking’ and support for technology transfer significantly increased the number of innovation projects. The authors emphasize that “these results suggest that governance has a decisive role in the creation of communication and interaction structures between firms, which are essential for firm innovation”; and that, “this research may have important implications for governance modes, not only in technopoles, but also more generally in clusters”. In Chapter 25, “Choosing Locations for Technology and Innovation Support Centers: Methodological Proposal and Brazilian Studies”, Batalha, Santos, Alcântara, and Granemann discuss problem-solving issues of location of Technology and Innovation Support Centers (TISC) through multi-criteria analyses in order to identify demand and supply factors of these services. The authors use quantitative and qualitative methods to establish a sequence of steps that include a variety of aspects ranging from criteria preferences to global valuation of the model. Multi-criteria analysis is applied to the choice of geographic locations for Brazilian Technology Centers; this analysis contributes to identify the most suitable or preferable regions for the creation of technology centers as well as to reveal particular characteristics of the dynamics of such services in the regions in question.

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Section 6 on Marketing and Innovation Subsumes Four Chapters In Chapter 26, “Taxonomy of Marketing Core Competencies for Innovation”, Viardot argues “there is a lack of taxonomy of the various marketing capabilities that are necessary to achieve the market success of innovation”. Therefore, the author tries to fill this gap by proposing a model that subsumes two classes of Marketing Core Competencies (MCC) for successful innovative companies. The first category of core competencies is related to a superior ability of the firm to identify and to connect the actual market needs with the innovation during the preparation of the new product launching phase. Once the innovation is on the market, a second group of core competencies is associated with the capacity of the firm to ease the customers’ tensions in order to facilitate the acceptance of the innovation and turn it into a market success through adoption and diffusion. In conclusion, the chapter underlines the importance of the place of these two categories of Marketing Core Competencies (MCC) in innovative firms. In Chapter 27, “Self Regulation on Innovative Products Choice”, Prado, Lucena da Silva, and Korelo explore how choice goals influence consumers’ innovativeness in a product category domain. They explain that “intentions to adopt new products are guided by promotion and prevention self-regulation systems”. Therefore, in the investigation of the chapter, two of the choice goals were classified as promotion goals – justifiability and choice confidence – and two were classified as prevention goals – anticipated regret and evaluation costs. Two groups emerged from the analysis: one named “most innovative” and another called “less innovative”. The authors explain that “when comparing the groups, the results show that the most innovative cluster demonstrated higher choice confidence, higher justifiability and was more capable of avoiding a possible choice regret. The differences found in the group analysis highlight the need of understanding in further detail how consumers behave during the choice process of innovative products. Therefore, the Regulatory Focus Theory has been shown to be very important for understanding the choice process, especially for the innovation adoption”. In Chapter 28, “The New Product Development Process as a Communication Web – Part I: Introduction, Concepts and Spanish Context”, Fernández, Varela, Bande and Valmaseda contribute with the existing literature by analyzing the innovation activities of Spanish companies and by proposing New Product Development (NPD) as a communication Web. Based on literature reviews, the authors propose a model that relates the external communication of cross-functional teams to the performance of NPD programs. The composition of NPD teams and the external communication activities form the core competencies for companies and they can provide them with major competitive advantages. The chapter also provides the necessary introduction and background to the understanding of next chapter. In Chapter 29, “The New Product Development Process as a Communication Web – Part II: Analysis of Spanish Firms”, Fernández, Varela, Bande and Valmaseda extend the investigation in the previous chapter by applying structural equations analysis in order to compare the model to a sample of 136 managers from different functional areas at 121 innovative Spanish firms. The authors explain that “the results indicate that the impact of explanatory variables on new product programme performance differs according to the measure of performance considered. The cross-functional nature of NPD teams, the presence of product champions in NPD teams and the gathering of information by all NPD team members were all shown to positively influence new product performance. Firms should be aware of the importance of the aforementioned variables”.

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Section 7 on Finance and Innovation Subsumes Two Chapters In Chapter 30, “Innovations and Financing of SMEs - Part I: SME Financing and Credit Rationing [The Availability of Funds]”, Walker and Scholz describe various financing options and give rationales for the credit rating process and credit conditions building the base for financing decisions. Furthermore, by discussing the topic of ‘Credit Rationing’, the authors demonstrate the impact of credit conditions on management decisions in order to justify the rationing of credits. This chapter also provides the necessary introduction and background to the understanding of next chapter. In Chapter 31, “Innovations and Financing of SMEs - Part II: Case Study of German SMEs in 2010”, Walker and Scholz describe traditional and non-traditional financing opportunities for SMEs in Germany by focusing on its applicability. They explain that “the disclosure of financial business information and giving a say to an equity financier is a difficult topic for owners of Small and Medium-sized Enterprises (SMEs), because these companies are often run as a ‘one-man-show’ (by a single manager) and this person identifies itself with the company. The request for external funds is in that perspective still regarded as a disability of a business to be self-financed. A comparison of the organizational structure of a SME and that of a Large Scale Enterprise (LSE) reveals the structural weaknesses in terms of research and development (R&D) activities. While LSE have an extra department, budget and procedures to develop product and process innovations similarly to a knowledge push, in SMEs, innovations are often originated from customers - similarly to a need pull process. Furthermore, CEOs and customer contribute to a great extend to innovations in SMEs (BDI, 2010). The results of an online-based survey presented in the BDI-Mittelstandspanel 2010, show that less than 13% of innovations are originated by external scientists, R&D organizations and consultants. This proves that external R&D sources (to compensate missing internal resources and structures) are rarely employed; impeding or slowing down the development of innovations”.

Section 8 on Internationalization and Innovation Subsumes Two Chapters In Chapter 32, “The Recent Internationalization of Brazilian Companies”, Arbix and Caseiro explain that “the recent wave of internationalization among Brazilian companies differs from past experiences, in terms of volume, reach, destination and quality. Brazilian multinationals are not restricting their activities solely to regional markets, nor are their first steps entirely directed towards South America. In amount of investment and number of subsidiaries there are signs they prefer assets and activities in advanced markets – including Europe and North America - where they compete on an equal footing with major conglomerates for a share of these markets. Some Brazilian companies have previous internationalization experience, and a significant portion had been prepared and initiated outward growth in the 1990s, after the economy opened up. However, the boom of internationalization that began in 2004 took place in such unusual conditions as to deserve highlight and special analysis”. The authors contribute by discussing the recent expansion of Brazilian multinationals as a result of: (i) the functioning of a more responsive and targeted system of financing, (ii) transformation of the Brazilian productive structure, which led to the emergence of a group of companies seeking internationalization as a strategy, (iii) preference for seeking more advanced economies as a means to expand access to new markets and suppliers, as well as to absorb innovations and technology, (iv) the State’s performance in several dimensions, especially in financing the implementation of policies that support the creation of large national groups with a presence in the globalized market.

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In Chapter 33, “R&D Internationalization as Mechanism of Innovation in Global Enterprises: A Brazilian Case Study”, Galina explains that “internationalization of Research and Development (R&D) allows transnational companies (TNC) to access different and important resources overseas, which may lead to the improvement of their technological innovation. The literature in this field was mostly created from studies of TNCs coming from developed countries”. In this chapter, Galina contributes by presenting some of the main topics the literature addresses on R&D internationalization, and which are used to explore and to verify how companies in developing countries internationalize their R&D activities. In order to do so, the author conducted a bibliographic review about strategies of internationalization of TNC operations, as well as motivating factors and management of R&D internationalization. The chapter finishes presenting a case study about international R&D conducted in a Brazilian TNC. The results enabled to evidence that, like developed countries TNCs, developing coutries companies also seem to perform internationalization of R&D activities with very similar characteristics.

Section 9 on Information Systems and Innovation Subsumes Two Chapters In Chapter 34, “Tools That Drive Innovation: The Role of Information Systems in Innovative Organizations”, Caudill examines computer technology as a tool to support innovation and innovative processes. The author explains that the primary problem addressed in the chapter is the multitude of widely held misconceptions that seem to exist regarding technology and innovation; whereas technology is not innovative in and of itself. The chapter contributes by examining how technology is being successfully integrated into innovative processes in industry through literature review and case study methods. Specifically, this chapter focuses on the role of technology in communication and creativity, two of the many activities found in an innovative process. Findings indicate that while directly connecting technology use to innovation is difficult, technology can play a substantial role in facilitating the innovative process. Thus, the author concludes that “technology is a qualifier for many innovative processes, a resource that is necessary for the work of innovation to take place”. In Chapter 35, “The Roles of Cognitive Machines in Customer-Centric Organizations: Towards Innovations in Computational Organizational Management Networks”, Nobre proposes innovative features of future industrial organizations in order to provide them with the capabilities to manage high levels of environmental complexity in the 21st century. For such a purpose the author introduces the concept of Computational Organization Management Networks (COMN), which represents new organizations whose principles of operation are based on the concepts of Hierarchic Cognitive Systems (HCS) along with those of Telecommunications Management Networks (TMN). Structured with functional layers and cognitive roles that range from technical and managerial to institutional levels of analysis, and also equipped with operational, managerial and strategic processes, the concept of Computational Organization Management Networks (COMN) plays an important part in the developments of future organizations where cognitive machines and Cognitive Information Systems (CIS) are prominent actors of governance, automation and control of the whole enterprise. It is in such a context that the new organization COMN will provide customers and the whole environment with innovations such as immersiveness for the production of services and goods that are most customer-centric.

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Nobre, F. S., Lourenço, M., & Fagundes, G. (2010). Education for sustainable management: A perspective of constructivism. International Conference on Education for Sustainable Development (EDS-2010). May 18-20th. Curitiba-PR, Brazil: FIEP-PR. Nobre, F. S., Tobias, A. M., & Walker, D. (2009). Organizational and technological implications of cognitive machines: Designing future Information Management Systems. New York/Hershey, USA: Information Science Reference, IGI Global. Nobre, F. S., Tobias, A. M., & Walker, D. (2010). A new contingency view of the organization: Managing complexity and uncertainty through cognition. Brazilian Administration Review, 7(4), 379–396. doi:10.1590/S1807-76922010000400005 Nobre, F. S. & Walker, D. (2011). A dynamic ability-based view of the organization. International Journal of Knowledge Management, 7(2), (to appear in March 2011). Porter, M. E. (1998). Competitive advantage: Creating and sustaining superior performance. Free Press. Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79–91. Pugh, D. S. (1997). Organization theory: Selected readings. Penguin Books. Reinert, H., & Reinert, E. S. (2006: Chapter4). Creative destruction in economics: Nietzsche, Sombart, Schumpeter. In J. G. Backhaus & W. Drechsler (Eds.), Friedrich Nietzsche (1844-1900) Economy and Society. Berlin/Heidleberg, Germany: Springer Science+Business Media, LLC. Ribeiro, D. (1970). The culture – Historical configurations of the American peoples. Current Anthropology, 11(4-5), 403–434. doi:10.1086/201144 Ribeiro, D. (2000). The Brazilian people: The formation and meaning of Brazil. University Press of Florida. Richter, M. N. (1982). Technology and social complexity. State University of New York. Scarbrough, H., & Corbett, J. M. (1992). Technology and organization - Power, meaning and design. Routledge. Schumpeter, J. A. (1912/1934). The theory of economic development: An inquiry into profits, capital, credit, interest and the business cycle. London, UK: Oxford University Press. Schumpeter, J. A. (1939). Business cycles: A theoretical, historical, and statistical analysis of the capitalist process. New York, London: McGraw-Hill. Schumpeter, J. A. (1942/1950). Capitalism, socialism and democracy. London, UK: Unwin. Scott, W. R. (1998). Organizations: Rational, natural, and open systems. Upper Saddle River, NJ: Prentice Hall. Simon, H. A. (1997). Administrative behavior: A study of decision-making processes in administrative organizations. The Free Press.

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Suarez-Villa, L. (2009). Technocapitalism: A critical perspective on technological innovation and corporatism. Philadelphia, PA: Temple University Press. Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. doi:10.1002/smj.640 Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. doi:10.1002/(SICI)1097-0266(199708)18:73.0.CO;2-Z Tidd, J. (2006). From knowledge management to strategic competence – Measuring technological, market and organizational innovation (2nd ed.). Imperial College Press. Tidd, J., Bessant, J., & Pavitt, K. (2005). Managing innovation: Integrating technological, market and organizational change (3rd ed.). John Wiley & Sons, Ltd. Wals, A. (2009). Review of Contexts and Structures for Education for Sustainable Development Learning for a Sustainable World 2009 - Learning for a Sustainable World. United Nations Decade of Education for Sustainable Development (DESD, 2005-2014). UNESCO: www.unesco.org/education/desd. WCED. (1987). World commission on environment and development. Our common future. Oxford, UK: Oxford University Press. Wernerfelt, B. (1995). The resource-based view of the firm: Then years after. Strategic Management Journal, 16(3), 171–174. doi:10.1002/smj.4250160303 Wiarda, H. J. (1996). Corporatism and comparative politics: The other great “ism”. Armonk, NY: M. E. Sharpe. Wren, D. A. (1987). The evolution of management thought (3rd ed.). John Wiley and Sons.

ENDNOTES

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Just as capitalism replaced feudalism, Marx and Engels believed socialism would, in its turn, replace capitalism, and lead to a stateless, classless society called pure communism (Baird, 2010). Consider for instance the expansion of Europe between the 15th and 18th centuries, which was empowered by the dominance of the colonizers in navigation and army technologies. Their overseas discoveries and actions brought about a revolution in the history of humanity, resulting in good, but also negative and controversial results of political, economic, religious, and social facets for the new world (Delouche, 2001; Ribeiro, 1970, 2000). Resources can be associated with tangible and intangible assets that contribute to the production system in the organization (Hitt, Ireland & Hoskisson, 2008). This book expands this definition to the perspective that resources are organizational elements that involve social structure, goals, technology and participants (Scott, 1998: 17-22). These resources can be employed at the technical, managerial, institutional and worldwide levels (Nobre, Tobias & Walker, 2009: 47-49) by the organization through the use of the organizational abilities for the development of the core competencies, and, consequently, for the creation of dynamic innovation and sustenance of the

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organization’s development. In such a perspective, the organization manages its resources with basis on its strategy. Moreover, the organization interacts with the environment for the acquisition, processing, creation, distribution, employment and management of new strategic resources. Cognition, intelligence, autonomy, learning and knowledge management represent the set of organizational abilities (Nobre, Tobias & Walker, 2010). These abilities have an important role in the deployment and management of the organization’s strategic resources and they also represent sources of development of the organization’s core competencies (Nobre & Walker, 2011); whereas this perspective is based on the strategic context of the resource-based view (Wernerfelt, 1995) along with dynamic capabilities of the firm (Teece, 2007; Teece, Pisano & Shuen, 1997). Sustainability means the ability to meet the needs of the present without compromising the ability of future generations to meet their needs (WCED, 1987).

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Acknowledgment

In the role of Editors (Farley S. Nobre, David S. Walker, and Robert J. Harris), we would like to thank all the participants in this international book. The process of invitation and selection of the participants started in January of 2010 and finished in February of 2011, resulting 35 accepted chapters. We could account about five hundred invitations approximately! We sent Calls for Proposals and Full Chapters directly to Professors and Graduate Students of well-known worldwide Universities, Firms and Institutions as well as to researchers who are the authors of recent published papers by well-known international journals on the subjects of the book. The selection process of chapters was characterized as vast and strictly competitive since it was based on a system of blind-reviews and technical criteria of evaluation. Therefore, we are very pleased to thank the Authors, the Editorial Advisory Board (EAB) Members, the Reviewers, and the Publisher for their interest, diligent work and contribution in this international project. In particular, we are indebted to Professor William H. Starbuck (University of Oregon and New York University, USA), Alan Meyer (University of Oregon, USA), and Colette Henry (The Royal Veterinary College, University of London, UK) due to their contribution in the writing of the Forewords. We also express an inestimable gratitude for Professor William H. Starbuck who supported Farley S. Nobre in the constructive discussion and writing of Preface. We are pleased to acknowledge the authors and EAB members of the book, and in particular to whom has served this book with distinguished blind-reviews and important recommendations which most contributed to improve the overall quality of the project. We also would not forget to acknowledge all the IGI Global staff due to their attention and services provided in this publication, and specially, we are very grateful to Mr. Joel Gamon who continuously supported our questions and advised on this publication. Finally, we are grateful to our affiliation institutions: Federal University of Parana (Brazil), The University of Birmingham (UK), and The University of Wolverhampton (UK). Farley Simon Nobre Federal University of Parana, Brazil David Walker The University of Birmingham Business School, UK Robert Harris The University of Wolverhampton Business School, UK

Section 1

Sustainability and Innovation

1

Chapter 1

Environmental Rationality:

Innovation in Thinking for Sustainability Enrique Leff Universidad Nacional Autónoma de México, Mexico

ABSTRACT Renovating our thinking as humankind (rethinking nature, culture and development) is an imperative to approach the challenges of environmental crisis and to orient the social construction of a sustainable world. If environmental crisis is a predicament of knowledge, beyond the task of reinventing science, innovating technology and managing information, we must face the challenge of inventing new ways of thinking, organizing and acting in the world; of reorienting our ethical principles, modes of production and social practices for the construction of a sustainable civilization. Innovation for sustainability is drawn by alternative rationalities. I will argue that rationality of modernity has limited capacities to reestablish the ecological balance of the planet, while environmental rationality opens new perspectives to sustainability: the construction of a new economic paradigm based on neguentropic productivity, a politics of difference and an ethic of otherness. Paramount to this purpose is the contribution of Latin American Environmental Thinking.

INTRODUCTION Since Antiquity, the cosmic, natural, biological and social order, have been conceived as an ongoing process of “emergence”. Thus, metaphysics thought ontology as the “generativity of physis” DOI: 10.4018/978-1-61350-165-8.ch001

and Darwinian biology thought nature as the evolution of life forms. Innovation became the core concept of such emergence in the modern social order, as a result of the Enlightenment of Reason that intended to brighten the darkness of the Middle Ages, to bring transparency to reality through true knowledge, to make conscious the unconscious and to enlighten the human soul. In-

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Environmental Rationality

novation is in the heart and at the roots of modern rationality; it is what mobilizes progress as a self-contained process within the rationality that produced it. Thus, innovation became a mecanism inbuilt in economic rationality for the continuous renovation of the conditions of production and the unlimited expansion of the economy with the purpose of granting to humanity the well being promissed by modernity. Modernity is thus defined as the era of progress, of development, of novelty that ages and is renewed in unprescedented forms, in an infinite process that demands unendless creativity and that gears the rationalization of social organization towards its ends through unlimited growth. Thus unquestionned, innovation was inscribed and institutionalized in economic rationality; it was embodied in our mode of thinking and imbedded in our mode of production, until it reached the limits of nature and of human life. The environmental crisis unveiled the unsustainable trends of the economic process: the entropic death of the planet, the erosion of living forms, the degradation of life supporting ecosystems and the fading out of the meaning of life. Can this crisis of modernity be solved by the “reflexion of modernity” over its theoretical and scientific foundations, over its technological and instrumental means: by revolutions of science and management of positive knowledge; by innovations in technology and developments in social organization? Is ecological and complex thinking an emergence that can innovate and ecologysze a new world order? Is environmental rationality a new conception of human life on Earth that can guide the social construction of a sustainable future? The purpose of this chapter is to reflect on the key importance of innovating in the ways of thinking our place as human beings in our living planet (our thinking on nature, culture and development) to be able to face the challenges of environmental crisis and to orient the social construction of a sustainable world. If environmental crisis is at its origins and its basis a crisis of knowledge, we 2

should not only promote innovations in science, knowledge management, technological change and behavioural shifts, but we must derive new ways of thinking the world, new ethical principles and new forms of knowing to orient new modes of production and social practices for the construction of a sustainable civilization. That is what environmental rationality intends to offer to the world in crisis (Leff, 2001, 2006). Innovation of knowledge has been established in the economic world order and in the social system as an already in-set mechanism that produces novelties triggered by a mode of thinking that is “developed” in the way that science is finalized by technology as the maturing of its theoretical principles leading to their technical applications for the solution of socio-economic problems (Böhme et al., 1976); or the wy in which Bachelard thought of the new rationalism as the incorporation of the conditions of the application of a concept in the sense of the concept itself (Bachelard, 1949). Thus the real economy is the expression of economic rationality: a world system revolving in its same axis and closed in itself. If knowledge is thus geared and oriented by its internal motives and the inertia of its trends towards the growth of the economic system, then, to what extent can scientific revolutions and technological innovation readapt to the ecological conditions imposed by the laws of nature and cultural meanings to open civilization to a truly sustainable world order? This impasse in the self-reflection of modernity over its own matrix of rationality leads us to inquire if a change of rationality is needed and if such a novelty in human history is possible. We should ask ourselves if a sustainable future can be contained in the dialectical trascendance of the present world already inscribed in in the becoming of Being drawn by the destiny of the techno-economic rationality that organizes the present world order challenged by environmental crisis and unsustainanbility, or if new thinking can bring about and open new paths towards the construction of a sustainable world order.

Environmental Rationality

The problem to be approached is that of understanding the unsustainability of the established, dominant and hegemonic ways of constructing the world we live in: that of economic, scientific and technological rationality that organizes the actual world order; to think the possibilities of deconstructing this dominant rationality and of thinking, putting into social action and constructing a new social order: a new agreement with nature based on environmental rationality.

SUSTAINABILITY, RATIONALITY AND THE SELF-REFLECTION OF MODERNITY The transition to sustainability is a social challenge demanding “innovative thinking”. However, tackling innovation for sustainability implies a clarification of concepts. Sustainability has irrupted as an unexpected emergence in our consciousness, our discoursiveness and our ethics; our social organization and dayly practices. Sustainability has become an imperative for survival –for the reconstruction of the relations of nature with culture– and as a search of new meanings for life. But, how is innovation embedded in rationality? We may define rationality as the complex order of social procceses, as a system of rules of thought and behaviour established within economic, political and ideological structures that legitimize and orient social actions and give meaning to society as a whole. These rules and structures guide social practices and processes towards certain ends, through socially constructed means, which in turn reflect in moral norms, cultural beliefs, institutional arrangements and modes of production. Rationality is thus organized in 3 main orders of rationality: 1. Formal and theoretical rationality that organizes the conscious control of reality through the construction of abstract concepts that constitute rational orders and cosmo-

visions that rule the modes of production and juridical rules that rationalize de World lives of the people. 2. Instrumental and practical rationality (zweckrationalität), that organizes the methodical pursue of certain practical and predetermined ends through the precise calculation of efficient means. 3. Substantive rationality, that organizes social actions based on value principles, which vary in their internal content, comprehensiveness and consistence; these values are irreducible to a scheme of relations between ends and efficient means. Substantive rationality internalizes cultural diversity, axiological relativity and social conflict in the face of different values and interests (Weber, 1978). The challenges of sustainability call for many different areas of innovation: innovation in theory and science from where new paradigms are emerging: environmental and ecological economics, the science of climate change, systems theories, energy saving systems and clean production technologies, etc. Dematerialization of production calls for innovation in production processes through eco-efficiency to optimize the amount of matter that enters the productive process and is degraded in its “throughput”; to minimize the entropic degradation of energy in the extraction, industrial transformation, agricultural production, recycling of waste, and in the consumption processes involved in the overall metabolism of nature. Thus, new areas of innovation are emerging within the prevailing rationality of modernity, in what mainstream sociology denominates “reflective modernity” (Beck, Giddens & Lash, 1997). Reflective modernity calls for a reorganization of the social system in order to ensure its stability and sustainability: that is for the ecological reestructuring and refunctioning. However, a difference must be established between the various theoretical and practical areas of innovation activated by “reflective modernity” for the transi-

3

Environmental Rationality

tion towards sustainability. Here different forms of creativity are involved, from novelty in live forms emerging from the technological intervention in biological organization and anthropogenically induced environmental changes, to creativity in the realm of thought: from scientific paradigm shifts and methodological innovations to cultural changes and social reorganization. Reflective modernity intends to activate and make use of different philosophical sources and scientific and technological resources to solve the socio-environmental problems generated by modernity, by the cultural imprint and the ecological footprint generated by the application of knowledge within its prevalent rationality. This “reflective” process certainly has generated an enormous outburst of innovations: for conservation ecology, energy saving technologies, green production systems, economic instruments for environmental management. These innovations are currently inscribed in a new geopolitics of sustainable development (Kyoto Protocol, Clean Development Mechanism, economic valuation of environmental goods and services, including carbon sinks). In the academic litterature, the term innovation has arisen from the entrepreneural and managerial world, as the creative application of knowledge to production. Novelties in thinking (schools of thought or philosophical traditions) are seldom conceived as “innovations”. In the field of science, changes of paradigms are refered to as scientific revolutions, rather than innovations in knowledge (Kuhn, 1962). It would seem even more awkward to refer to cultural changes as innovations –even those induced by the technoeconomic intervention on nature, such as cultural changes from forced adaptations to climate change; the emergence of new entities (cyborgs), hibrids of organic, technological and symbolic orders in the “reinvention of nature” (Haraway, 1991); or the reinvention of identities resulting from cultural strategies to readapt to the processes of globalization.

4

Innovation most clearly refers to the application of knowledge to new ways of reorganizing an already objectified and rationalized world, from the application of its scientific principles and technological developments, to process management and product design, rather than to the breakthrough of ideas of new modes of thinking, of understanding the creativeness of nature and the reinvention of cultural identities. Innovation can be defined as the purposeful organization of knowledge for the production of new means for the efficient management of processes, guided by the principles of instrumental rationality. Thus, sustainable development, as an emergent social goal, has triggered a broad array of innovative processes in science and technology. Innovation is by essence and definition technological, managerial and organizational novelties brought about by applying knowledge through creative thinking to new problem-solving areas, to make processes more efficient, to use new materials, to apply new methods. In this sense, sustainable development is a global goal that involves and activates changes in scientific and technological paradigms, in patterns of production and consumption behaviours. Knowledge has become a tradable good and as such, subject to innovation drawn by economic purposes and not by a pure epistemophilic drive. Innovation of knowledge became the objective of managing the optimal harmonization of the productive factors, of guiding entrepreneurship for financing and marketing tradable goods where knowledge and information systems have become strategic means of production. Thus, the management of knowledge has become the “basis of the technological, managerial and organizational core competencies of the organization in the pursuit of dynamic innovation and sustainable competitive advantage.” Innovation is the creative processes involved in producing something new, especially something useful and with economic value. Innovation brings emergent and even radical and revolutionary

Environmental Rationality

changes in production organization: a new good, a new technology, new production systems and commercialization methods. However, following Schumpeter (1934), the scholarly literature on innovation distinguishes between invention –an idea made manifest– and innovation –ideas applied successfully in practice. Innovation in the field of economics implies the production of new organizing methods and technologies that increase economic value. Innovation leading to increased productivity, through research and development, is the fundamental source of wealth in an economy. Invention is the embodiment of a new idea. It is the outcome of research or practical inventiveness that can be embodied in a paradigm shift that reorganizes knowledge, or a new prototype or design that is patentable. Inventions become innovations when they are “developed” and put to use effectively in a new social, economic or commercial reorganization. Innovation involves creativity, but not all outputs of human creativity are innovations. Innovation involves acting on the creative ideas to make some specific and tangible difference in the objectified reality, resulting in new or altered processes within the economic organization, or changes in the products and services provided. Through these varieties of viewpoints, creativity is seen as the basis for innovation, and innovation as the successful implementation of creative ideas within an organization. An innovation can be distinguished from an invention or a scientific discovery by the fact that an innovation is defined by an applicative perspective. The scientific enterprise intends to discover the internal workings of reality; theory uncovers the organization of the real. Through theoretical models and empiric experimentation, science constructs the laws that rule the functioning of the world: reality. Innovation in the economy and in technology is not an act of discovery, but of application and reordering of available knowledge of the World to generate a novelty. From the generativity of matter, to epigenesis in the evolution of nature, to ordering from chaos (Prigogine

& Stengers, 1984), the novelties emerging from Nature can be distinguished from the discoveries of science and the inventiveness of culture; from the creativeness of art, the productiveness of economy, the innovations of technology and the originality of design. Innovations are productions that because of their novelty can be registered as property rights. Although creative thinking is claimed to be universal knowledge, with the progress of technoscientific knowledge and its application to the workings of the economy, these innovations have become patented and tradable knowledge, thus distinguishable from scientific and philosophical knowledge, as well as other forms of knowledge and wisdom which have a more intrinsic value. However, with the over-economization of the modern world these traditional or non-marketable forms of knowledge are becoming targets of an extended ecological global economy. Thus the emergence of tradable knowledge over environmental goods and services, or the appropriation of indigenous knowledge by ethno-bio-prospecting carried out by biotechnological enterprises (Bellmann, Dutfield & Meléndez-Ortiz, 2003).

INNOVATION FOR DEMATERIALIZATION Undoubtedly, the main driving force that orients innovation processes towards sustainability goals, is the geopolitics of economic globalizaton and sustainable development that has been set-up since the UN World Conference on the Human Environment in 1972, to the Johanesbourg Summit on Environment and Sustainable Development in 2002, through the Eco-Rio Conference in 1992 and all their outcomes (Agenda 21, MEAs, Conventions on Biodiversity and Climate Change, Kyoto protocol, Clean Development Mechanism, etc.) that configure today the dominant vision, strategy that rules the World and national environmental policies.

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Environmental Rationality

Within that scope, one major project that has set in motion more specific actions towards technoeconomic and managerial innovations has been the one to dematerialize production, set in motion by the Wuppertal Institute in 1993, and followed by the Factor 10 Institute founded in 1997 followed by the International Factor 10 Innovation Network in 1998. Ernst Ulrich von Weizsäcker (1997) published his idea of dematerializing by a Factor 4, advocating a resource strategy founded on reducing resource use by means of what he called “efficiency revolution”. This idea was challenged and further developed by Friedrich Smidt-Bleek, who proposed a tenfold dematerialization of western technologies on average as a conditio sine qua non for approaching economic sustainability. To achieve that goal, by 2050, the worldwide average per capita consumption shall not exceed 8 tons of material per year; a per capita ecological footprint of 1.8 has, a per capita consumption of 5-6 yearly tons of non-renewable material resources and an emission of CO2 not exceeding 2 tons per year per person. These sustainable economic conditions could only be reached by increasing the resource productivity of the industrialized countries (Schmidt-Bleek, 2008). If the worldwide consumption of nature had to be reduced by a factor of 2, but up to 8 million people had to “grow” in order to satisfy their basic needs intended by the market economy in place, then the industrialized countries had to make the extra effort to dematerialize by a factor of 10. If the advanced economies are the societies of knowledge of our times, how could they doubt their capacities to trigger the innovations necessary to reach the desired sustainable economy? Thus, within the prevalent rationality, and with the intent of reestablishing the ecological balance in the economy, a campaign for eco-innovation was launched1. The basic assumptions and imperatives upon which this intended dematerialization was based on were no other than the wishful thinking principles of some of the first and main proponents of

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ecological economics: (a) The human economy must be constrained to function within the limits of the environment and its resources and in such a way that it works with the grain of, rather than against, natural laws and processes; (b) We must adjust our wealth and prosperity-generating machine to operate within the guardrails of the laws of nature; (c) “if too much environmentally dangerous material escapes at the back-end of an economy, one should curb the input streams of natural resources at the front end of the wealth machine.” Schmidt-Bleek thinks it is “the rucksack of finished products rather than the process of manufacturing what determines the overall resource intensity of the economy”; he recognizes that “lifesustaining services of the environment cannot be generated by technology at any cost”, and that “the present price situation allows only rather limited dematerialization moves under profitable conditions”. Yet he affirms that “Sustainability is won on the market or not at all.” (Schmidt-Bleek, p.3). In practice, dematerialization implied the calculation of the limited materials that the Earth can offer and the overdose of nature that enters and is consumed by the economic machine. Measured as Material Input per Service rendered at the micro level (MIPS), total yearly material flows (TAPS) and cost per unit service or utility (COPS), the Factor 10 project intends to reduce material flows and increase resource productivity in a service oriented economy. And the work to do was delivered to faith in the workings of the market economy and technological innovation. There is no hint at deconstructing, but only mending and reshaping the established wealth machine. From the fact that the economy will not listen and adjust to the imperatives of nature, that it will not reach by consciousness and planning a steady state that would allow for ecological balance, then the next step has been to call for de-growth and de-coupling the economy from nature, a step back again to the false pretention of having an economy working delinked

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away from nature. And with more arrogance than critical spirit and openness to other thinking, experiences and practices, he pontificates with Eurocentric pride that “Europe may be the only region in the world where the necessary experiences, both shameful and brilliant, have sprung from its history, and where the human and technical genius exists to lead humankind toward a more sustainable future.” (Ibid.) As we will see in what follows, there is something more to expect of alternative knowledge, thinking, experiences and practices from other corners and latitudes of the planet that are opening new perspectives for the social construction of sustainability. From the standpoint of environmental rationality and the perspectives to sustainability conceived in the South, eco-innovation appears more as a will to de-grow the economy than to refurnish and remodel it with ecological balances and energy flow calculations, with ecological footprints and economic valuation instruments. The proposal to de-grow the economy is based not only on an increase of resources productivity, efficiency of “throughput” and recycling and restriction in consumption, but on the innovation of new production processes and consumption patterns (Latouche, 2006, 2009). Notwithstanding this broad program of de-growing, it remains a fatuous will if it is not based on a new productive paradigm. As in order to de-grow, the economy has to deactivate the inbuilt mechanism that triggers growth. And this implies the deconstruction of the established economic rationality in the global world order and the construction and legitimization of a new sustainable paradigm of production based on the negentropic productivity of ecosystem local economies, and of an environmental rationality based on a culture of diversity, a politics of difference and an ethic of otherness (Leff, 2008).

SUSTAINABILITY AND INNOVATION: ENVIRONMENTAL RATIONALITY AND REVOLUTION OF KNOWLEDGE Innovation is the inbuilt mechanism that mobilizes processes within a structured system and drives it towards its prescribed and embodied ends. In economics, innovation occurs as a technological change or reorganization of processes that renews the productive capacities of the system and expands them for the use of new materials, the implementation of new instruments, the design of new products, the creation of new needs and the management of the productive forces. But innovation within the rationality that has cradled and triggered its potency, does not lead to sustainable development. By ignoring and neglecting the ecological limits and the environmental conditions for a sustainable economic process, the innovation of productive forces under the prevalent economic rationality has driven an environmental crisis (Leff, 1995, 2009a; Benton, 1996). Thus, the question of the contribution of sustainability to innovation or innovation for sustainability should be inquired in its twofold relationships but in a new perspective. It is not sustainability, as an emergent objective, which reorients innovation as an end prescribed in the tendencies and possibilities of the workings of modern rationality, those that were set at the insept of its driving mechanism towards unsustainable growth, as a way of dialectical transcendence in the reflexivity of modernity. Thus, beyond viewing sustainability as a new objective towards which dynamic innovation should be oriented to reconstruct an ecologized world order subject to the constraints of the dominant economic order, it should be viewed as a new condition of human life that reorients innovation toward the purposes and goals of a sustainable social order founded in a new environmental rationality. The construction of such environmental rationality implies new thinking and a shift in scientific theories. In this context, sustainability

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has become the main attractor in the emergence of interdsiciplinary paradigms of environmental sciences. These innovations in knowledge imply new methods of complex thinking, as well as the articulation and hibridization of different disciplines and areas of knowledge, the application of new interdisciplinary methods to complex socioenvironmental problems and the elaboration of new interscientific objects of science. Thus, environmental economics has evolved as a new branch of mainstream economics for the crematistic valuation of nature, extending its arms to embrace environmental goods and services (Fisher, 1918; Pearce, 2002); ecological economics has emerged as a new interdisciplinary paradigm that intends to subsume economics as a subsystem in a more embracing ecological system, where population processes, technological innovation and changes in human behaviour merge in the remodeling of economics (Costanza et al., 1991). In a more critical approach, Nicholas Georgescu-Roegen (1971) intended to innovate a new economic paradigm –that of bioeconomics–, establishing the intrinsic link between the law of entropy and the economic process. From the limits of biospheric resources and the ineluctability of the law of entropy, sustainability has reflected as an imperative to lessen the amount of matter and energy entering the global economic system and its metabolic “throughput” along the transformation of nature and its entropic degradation, today reflected as the threat of global warming and climate change. Thus, an imperative of technological innovation has triggered new efforts towards ecoefficiency, the increase in resource productivity, a shift to renewable sources of energy and the recycling of waste (Hinterberger & Seifert, 1995). The configuration of environmental knowledge has lead to the development of new scientific fields and environmental branches within the established scientific paradigms; of new hybrid and interdisciplinary domains of scientific research and new horizons of philosophical inquiry. Thus, we have seen a display of novel approaches to problem-

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solving knowledge that imply the articulation of a variety of theoretical paradigms and practical forms of knowledge. These efforts have brought about novelties in the management and application of available knowledge and induced innovations in research methodologies as those of complex environmental systems (García, 1986, 1994). But seldom do they imply a shift in scientific paradigms, a revolution in knowledge or the invention of a new rationality by reflective thinking. The emergence of the ecological era in our times carries with it and is rooted in a new episteme; this is not only the rearrangement of already existing disciplines, but the eruption of a novelty in philosophy, methodology and science that can be conceived as a breakthrough in knowledge and in human thinking. In similar ways as the development of knowledge in social sciences in modern times led to structuralism (Foucault, 1970), post-structural knowledge is being codified and reordered by an ecological understanding of the world order. This emergent ecological episteme influenced the new approaches to the Ecology of the Mind (Bateson, 1972), complex thinking (Morin, 1980, 1993), Gaia Theory –life as a self-regulatory systems in equilibrium with its environment– (Lovelock, 1979), the Web of Life (Capra, 1999), and autopoiesis governing selforganizing processes (Maturana & Varela, 1994). These inquiries have led to new paradigms of complex thinking on the interrelatedness of ontological and epistemological orders and the creation of new ecological and environmental disciplines: human ecology, ecological economics, ecological and environmental anthropology, deep ecology, political ecology, environmental sociology, environmental law, etc. These scientific disciplines, discourses and bodies of philosophical thinking involve novelties arising from the convergence, articulation, hybridization of traditional paradigms while being “ecologized” and problematized by an emergent environmental knowledge (Leff, 2001). In this process, the differentiation of concepts referred to as “novelties in thinking” is becom-

Environmental Rationality

ing somewhat blurred, once innovations in the different areas of human being, thinking, creativity and intervention on nature have become increasingly intertwined. Sustainability emerges in the crossroads of different forms of rationality, in the hibridization of nature, culture, economy and technology, of the real and the symbolic, where nature and culture are increasingly being intervened by technological and economic rationality. Thus, creativity in nature through natural evolution has yielded to biotechnology, where new forms of biological artifacts are being produced by scientific-technological innovations drawn by the global market economy. This outcome of modern civilization is not the result of the evolution of nature towards an ecologyzed and complex world order. Environmental complexity (Leff, 2003) has emerged from the intervention of knowledge in nature, as a process of rationalization based on the axis of modern rationality that, by ignoring and externalizing nature from the social system, has fueled the economic system towards unsustainable growth, environmental degradation and the entropic death of the planet. Thus, sustainability demands new thinking and the reorientation of the innovation processes. Here is where environmental rationality emerges planting its roots in new life territories and viewing new horizons to guide social creativity towards the construction of a sustainable future.

REENCOUNTERING NATURE AND CULTURE: THE ENVIRONMENTAL EPISTEMOLOGICAL CHALLENGE Environmental rationality opens new perspectives for the social construction of sustainability; it changes gears for the innovation process towards other purposes that depart from the inertial tendencies of modernity. Rationality, organized in its main orders of rationality –formal and theoretical rationality; instrumental and practical; substantive and cultural–, change their meaning and priorities.

In modern rationality, substantive, cultural and scientific rationality have been subordinated to the imperatives of formal logic, economic value and instrumental rationality that project the potentialities of the Real and the creativeness of the Symbolic towards the objectification of the World and an unsustainable techno-economic process of unsustainable growth. Environmental rationality is constructed from critical theory and ethical principles that reorient the civilization process towards sustainability. When environmental problems emerged and economic growth and the World economic order were questioned for their impact on environmental degradation, back in the late 60s, the economy responded by asserting that the environment is an externality of the economic system. In its selfjustifying eagerness, the economy confessed its fundamental flaw in building the economic process in a divorce from the natural, ecological, geophysical, and thermodynamic order within which it operates; that is to say, by ignoring its conditions of sustainability. In this way, an initial idea of the environment emerged as an epistemological space for the reencountering between society and nature, to solve the disjunction between the object and the subject of knowledge and the split between natural and social sciences. A more careful investigation of the constitution of the sciences as conceptual structures built around a nucleus-object of knowledge led us to understand the exclusion of the environment in the universe of the “centred formations” of modern sciences. From George Canguilhem and Jacques Derrida, an epistemological inquiry unfolded that was particularly fruitful in forging the epistemological basis of environmental rationality. Following the perspectives of French critical rationalism –from Gaston Bachelard to Louis Althusser and Michel Foucault–, an epistemological inquiry led to the positing of the environment not only as a factual territory inhabited by living beings, but actually as the epistemic space bordering and surrounding the logocentric spaces of science.

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Environmental Rationality

Thus, the environment was defined as otherness to dominant scientific rationality, beyond the holistic perspectives that were shaping theoretical systems and emerging ecological thought. In this way, it was possible to transcend a merely empirical and functional conception of the environment, as the milieu surrounding a population, the economy and society. Beyond identifying economic, political, and social causes tied to an array of socio-environmental problems –pollution, deforestation, ecological degradation, soil erosion, global warming–, this epistemological view transcended the stance of systems theory and the holistic visions that led to a will for interdisciplinary integration of existing sciences as a method to solve the fragmentation of knowledge associated to the environmental crisis (Leff, 2001). The environment was not, then, the junction of fragmented disciplines, focused on their own autonomous objectives of knowledge; it was not a simple “environmental dimension,” that could be internalized within the systemic approaches and planning practices based on the principles of ecology, cybernetics and general systems theories, that could be extended to other paradigms of knowledge or serve as the unifying thread capable of weaving the transversality of environmental through into the dispersed and dismembered body of knowledge, as suggested and posited by diverse authors (i.e., Sachs, 1972; von Bertalanffy, 1976; Morin, 1980, 1993). The environment was formed as a field of externality to the logocentrism of science, outside the system of established scientific theories. From that position, emerging environmental savoir problematizes the “normal” paradigms of science and promotes their transformation in order to generate environmental branches of knowledge. In this sense, environmental epistemology goes beyond those proposals that pretend to integrate natural and social disciplines to generate the much desired environmental sciences, interdisciplinary fields and transdisciplinary methods capable of ap-

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proaching complex emerging socio-environmental problems (Leff, 2001). In the realm of theory, from the standpoint of environmental rationality, a new approach to interdisciplinarity emerged. Beyond the methodological purpose of articulating the actual paradigms of science, the construction of new objects of knowledge was proposed. From a critical epistemological perspective that derived from systems theory conception of the environment as an externality of the system, the environment was defined as the lack of knowledge of existing sciences, as the unknown to the logocentric organization of science, as the “external” processes that influence, condition and even determine the processes that sciences are concerned with, but that have been erradicated from their field of knowledge. An exemplary case of this “externalization” of material and symbolic processes impringing on a scientific paradigm is that of economic theory, where nature as a condition of sustainable production has been simply ignored. The response to this fact in the history of science, is the reaction of economics to construct a new discipline of environmental economics by extending its traditional and mainsteram paradigm to embrace nature –ecological systems, environmental goods and services– by recodifying nature as natural capital instead of integrating nature as nature’s Being: the ecological organization of nature; the laws of entropy that determine the flows and degradation of matter and energy in the economic process. In the perspective of environmental rationality, a new economics was proposed. Following the epistemological indagatories of George Canguilhem (1970, 1977) derived from critical rationalism, interdisciplinarity is thought, not as the intended articulation, hibridization and blending of existing paradigms (that carry within themselves their own epistemological obstacles), but as the conjunction of different ontological orders and disciplines in the construction of a new scientific object. Thus, instead of recodifying nature in economic terms, or trying to subsume the

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established economic order within the limits and conditions of the biospheric ecological system, a paradigm of sustainable production can be thought of as the articulation of ecological, technological and cultural productivity: as an economic process based on the potency of nature, –of the negentropic productivity of photosynthesis and the ecological organization of nature– signified and embedded in culture (Leff, 1995, 2009a). This new productive paradigm carries within itself a complex array of innovative processes: In the level of theoretical rationality, it implies the deconstruction of the theories (economic, juridical, social) that became the pilars of modern rationality. In the field of economics and law, it carries the deconstruction of economic value and positive law based on the individual as the principle of economic and juridical actions, of intellectual property rights, etc., to construct new paradigms based on common property rights over the common patrimony of nature and culture. In the level of instrumental and practical rationality, the technological innovation process is subordinated to the preservation of the productive potentialities of nature supported by the organization of ecosystems, neguentropic productivity derived from photosynthesis and the ecological management of the metabolism of material and energy flows in agricultural and industrial, urban and rural, domestic and social systems. Technological innovation is not restricted to “ecoefficiency” in the production system –dematerialization of production end recycling of waste–; ecolabelling and the compliance to environmental rules of trade; new technologies for clean production –energy derived from renewable sources: solar, eolic, biofuels–; it promotes important shifts in agronomic production systems –agroecology and agroforestry– and new strategies for the collective and sustainable management of water and forests beyond the economic valuation of environmental goods and services under the geopolitics of sustainable development.

Substantive rationality becomes fundamental to environmental rationality. Environmental rationality is not a model, nor a paradigm to guide a “new deal” State planification for sustainable development, nor the scientific management of nature, but rather the “governance of the commons” based on cultural institutions (Orstrom, 1990). Environmental rationality is rooted and embodied in different matrixes of cultural rationality. It is from cultural rationality that nature is revalued. Culture is the source of meaning and inventiveness that resignifies the potency of nature, the creativeness that orients the construction of sustainability through a dialogue of knowledges imbedded in social imaginaries, beyond the scientific management of nature (Leff, 2006, 2010).

BUILDING ENVIRONMENTAL RATIONALITY FOR SUSTAINABILITY: CREATIVITY IN THINKING, INNOVATIVE KNOWLEDGE AND SOCIOLOGICAL IMAGINATION Environmental rationality does not only reorient innovation towards sustainability but re-signifies the concept of production. Ideas have always fed the economy and forged innovations as they entered into the productive processes in what Piero Sraffa (1973) named the “production of commodities by means of commodities”. But even though knowledge has become a commodity, the “innovations” of environmental rationality are novelties brought about in the “production of ideas by means of ideas”, of thinking by means of thinking. Following Heidegger (1957/1988), it is only though thinking that we can reflect on what has previously be thought, to bring about what there is still to be thought. If innovation is the process of purposely reorganizing what there is –re-setting reality, rearranging objective reality in the present world, applying available knowledge to produce a practical novelty–, to what extent

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Environmental Rationality

does thinking that implies an act of no-thingness –thinking on Being and Becoming beyond the present reality of things; thinking that guides the deconstruction of the objectified world as to let the Being of nature and of culture be–, can be called an innovation? That is the predicament of environmental rationality, of an idea that reorients creativeness, inventiveness and innovation towards sustainability. If environmental decay is caused by the counter-ecological workings of modern rationality, then sustainability cannot be constructed by the self-reflection of modernity over its own rationality. Innovation for sustainability demands new thinking that transcends any innovation of knowledge within the paradigms of normal science and leads to the creation of a new rationality. Environmental rationality as philosophical thinking emerges from a critical point and moment in the evolution of modern civilization: that of an environmental crisis conceived as a turning point in history, triggered by a limiting frontier in the expansion and development of the established rationality. The environmental crisis is conceived as a crisis of knowledge, that is to say, a crisis brought about by the ways of thinking and the forms of knowledge that guided the constitution of prevalent economic rationality and the technological developments brought about by scientific and instrumental rationality –together with the ethical principles and values imbedded in such configurations of rationality–, that theorized, legalized and legitimized human actions in the building of an unsustainable world. As a crisis in knowledge, environmentalism has launched innovative thinking that has impinged in several different domains of philosophy and science. However, environmental rationality is not ecologysed thinking; it goes beyond the articulation of disciplines and the blending of actual current knowledge developed by normal science. As a political philosophy, it goes beyond the simple adoption or application of philosophical traditions or post-modern philosophy to the

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understanding of present problems and situations in our societies. Environmental rationality does not emerge as “thinking within normal science”, as the reflection of knowledge on social structure, or as the refinement of an already established logic (the reworking of what is at hand in the thinking principles and instruments of modern rationality). Environmental rationality is born from the standpoint of its transcendence of metaphysical thinking, its externality to logocentrism of science and delinking from hegemonic dominant rationality. Thus, the construction of sustainability, viewed in the perspective of environmental rationality implies the creation of new ways of thinking. Counter-hegemonic globalization demands the deconstruction of the one-dimensional oppressive force against diversity, difference and otherness. The unifying force born from the power of the One, the Universal, the General, the Absolute Idea, and Systemic Totality, today globalized under the dominance of economic rationality, demands an epistemological decentralization, a Copernican revolution away from logocentric science –the centrality of thought that insists on placing modern rationality at the center of the universe of human life. This external anchor point is the environment: environment as an epistemological concept. If environmental rationality must be thought of as other to the prevailing social rationality, it cannot emerge from any ontological or epistemological order –a cultural territory–, untouched by the prevalent world order. Environmental rationality is forged in the deconstruction of metaphysical, scientific, and postmodern thought –in the territorialization of diversity, difference and otherness– on the basis of ecological potentialities and cultural knowledges that inhabit these unknown regions of the Real that are emerging from the South. Environmental rationality impinges in knowledge but is rooted in the field of political ecology and environmental politics. It is expressed in the demands and struggles of peasant and indigenous peoples like the seringueiros (rubber tapers) movement of Chico Mendes and the network

Environmental Rationality

of community based river and land extractive reserves of the Amazon region in Brazil; it becomes the mobilizing force of many indigenous peoples throughout the Latin American region, from the Seris in the Northern arid lands of Sonora, Mexico, to the Mapuches of Argentine and Chile, including the Coordination of Indigenous Peoples Organizations of the Amazonian Basin (COICA) and the Black communities of the Pacific Coast in Colombia, that are reaffirming their identities and reorganizing their productive practices for the management of their natural and cultural heritage, including their forests and genetic resources. These social environmental movements go beyond claims against biopiracy, ecological damages and the distribution of benefits from bioprospecting and ecotourism in the new geopolitics of economic-ecologic globalization, to demand their rights to re-establish their livelihoods and modes of production with nature (Porto Goncalves, 2001; Leff, 2002; Escobar, 2008). The field of political ecology is becoming an emancipation force slowly extending to large peasant organizations like the landless movement in Brazil and to peaceful unarmed popular movements, as the Zapatistas in Chiapas Mexico and the Green Army of the Indigenous Peoples of the Ecuadorian Amazonia, that struggle for the preservation of their ecosystems and for a sustainable development based on the harmonious coexistence of cultural diversity in a globalized world. It is a struggle for reappropriation of their patrimony of natural and cultural resources and for the territorialization of an environmental rationality (Leff, 2009a). From a critical perspective of the oppression and dependence of Latin America and the Third World, in relation to the hegemonic power of the globalized economy as the organizing centre of the world, environmental rationality emerges from a reflection on the Coloniality of Knowledge (Lander, 2000), to the construction of Knowledge from the South (Santos, 2008) as an epistemological struggle that accompanies social processes of

emancipation in the perspectives of constructing alternative sustainable worlds for its peoples. These reflections stem from a critique to Eurocentrist ideas (from the foundation of metaphysics in Greek philosophy through postmodern thought), as well as dominant paradigms of scientific knowledge and modern technologies continue to be imposed to our societies, from the times of the colonial period, to the era of globalization. The ideas of Enlightenment that colonized our ways of thinking, our modes of production and our life-worlds, and have led –as a reaction– to the emergence of an emancipatory knowledge and political culture. Environmental rationality as strategic knowledge, in its purpose to liberate the potentialities of nature and culture from the determinations infringed by the relationships of domination, exploitation, extermination, inequality and unsustainability, turns to the recognition of social imaginaries, alternative forms of knowledge and traditional life-worlds denied and subjugated by dominant paradigms (Leff, 2010). However, this does not necessarily imply the possibility of delinking and abandoning once and for all Western thinking. In order for the globalized World-system to be deconstructed and for other possible worlds to be constructed, the reconstruction of knowledges and of “other rationalities” emerging from “knowledge from the South” –from cultural knowledge and ecological potentials– encounter the established hegemonic economic and epistemic world order. The emergent environmental rationality is constructed through a dialogue of knowledges with the critical Western thinking now underway in science, philosophy and ethics. Environmental rationality emerges not only from a spirit of emancipation, but from its epistemological standpoint in the margins and the externality to logocentric knowledge. Above all, it emerges, outside the realm of thought, from the ecological and cultural roots of a social movement for survival and resignification of human life. It is from this situated critical knowledge that Latin American

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Environmental Rationality

Environmental Thought contributes an original outlook to sustainability (Leff, 2011). The epistemological inquiry set forth by that critical concept of the environment sowed a seed that fertilized the field of Latin American environmentalism. This led to a new theoretical path that stimulated a critical revision of many of the most important theorists of modernity, from Karl Marx (1965) and Max Weber (1978), to Martin Heidegger (1927/1951), Emmanuel Levinas (1977) and Jacques Derrida (1989), in order to attract their thoughts and transform them from the roots of the ecology and the cultures of Latin American territories. This epistemological odyssey –from eco-Marxism to political ecology and existential ontology rooted in ecology and culture– did not merely imply the influence of European thought on American lands. The theories forged in Europe were transformed from a critical perspective that was born from the sources of ecological potentials and the cultural diversity of our continent, that are fertilizing new fields of political ecology in Latin America. The concept of environment as potential; the concepts of difference and otherness as cultural diversity rights, are typically Latin American. From this epistemological field, unique proposals about environmental complexity arose –beyond complex thought and the sciences of complexity– that displaced the critique of interdisciplinary methodologies and systems theories toward the dialogue of knowledge as an epistemological strategy to construct sustainable societies (Leff, 2003, 2006). The pending debt of environmental rationality is that of building a more plural, direct and close dialogue with the indigenous savoirs and cultural knowledges imbedded in the social imaginaries, habitus and practices of the people of the region. Only by setting this dialogue into practice can a political ethic of difference emerge, one that orients the cultural re-appropriation of the common heritage of humanity; a democratic and participatory management of the commons that challenges the totalitarian regime of meaning on nature and

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the dominance of the World economic order: a political ethics for diverse sustainable societies which neither submits to the merchandizing of nature, nor to an ecological order, nor to a general sense of Being, pretending to unify the views and interests of the people, that are differentiated by nature and culture. Apart from a hegemonic or dominant rationality that forces a consensus in a unified knowledge, the solidarities that must be forged to construct a sustainable future for all peoples in our living planet, must recognize their differences, their irreducible otherness to a “common sense”, their being and becoming led by the heterogenesis of a new world order generated by coevolution of biocultural diversity and guided by a new environmental rationality.

FUTURE RESEARCH DIRECTION AND BRIEF CONCLUSION Theoretical inquiry on environmental rationality is an open ongoing process for the construction of a sustainable future. Most important for this goal will be research on the social appropriation of the categories of environmental rationality in the building of a new economy, the dialogue of knowledges among all social factors involved and environmental education for the training of new forms of reasoning, modes of thinking and ways of being, to open the paths for a sustainable future. Several research routes are open for further theoretical and practical reasearch regarding the concept of environmental rationality and its application for innovation in social organization oriented towards the construction of a sustainable world order. A synthetic list of inquiries and applications can organize a research programme include the following issues: 1. Further research on the theoretical consistency of the category of environmental rationality following its epistemological,

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theoretical and ethical principles, and contrasting this “paradigm” with other innovations in thinking –in science, philosophy, economy, politics and ethics oriented towards the construction of sustainability 2. Further research and action for the construction and implementation of a paradigm of negentropic productivity, conceived as an alternative mode of production based on an integrated system of ecological-technological-cultural productivity. This research is not only theoretical –ie defining an heuristic concept of a negentropic society facing the entropic condition of the techno-economic order—but should focus on actual practices for territorializing environmental rationality as innovative forms of productive and social organization. This will open new research on the ecological and cultural potentials for local sustainability based on interdisciplinary ethno-ecological research. 3. Further research on socio-environmental movements and groups that are “innovating” their strategies for sustainability inspired by, and in dialogue with, the ideas and proposals emerging from environmental rationality.

REFERENCES Bachelard, G. (1938). La formation de l’esprit scientifique. Paris, France: Librairie Philosophique J. Vrin. Bateson, G. (1972). Steps to an ecology of mind: Collected essays in anthropology, psychiatry, evolution, and epistemology. Chicago, IL: University of Chicago Press. Beck, U., Giddens, A., & Lash, S. (1997). Modernização reflexiva. São Paulo, Brazil: Editora UNESP.

Bellmann, C., Dutfield, G., & Meléndez-Ortiz, R. (2003). Trading in knowledge. Development perspectives on TRIPS, trade and sustainability. London, UK: ICTSD/Earthscan. Benton, T. (1996). Marxism and natural limits: An ecological critique and reconstruction. In Benton, T. (Ed.), The greening of Marxism. New York, NY: Guilford. Böhme, G. (1976). Finalisation in science. Social Sciences Information. Information Sur les Sciences Sociales, 15, 307–330. doi:10.1177/053901847601500205 Canguilhem, G. (1971). La connaissance de la vie. Paris, France: Librairie Philosophique J. Vrin. Canguilhem, G. (1977). Idéologie et rationalité dans l’histoire des sciences de la vie. Paris, France: Librairie Philosophique J. Vrin. Capra, F. (1996). The Web of life. A new scientific understanding of living systems. New York, NY: Anchor Books/Random House. Costanza, R. (Ed.). (1991). Ecological economics: The science and management of sustainability. New York, NY: Columbia University Press. Derrida, J. (1989). Márgenes de la filosofía. Madrid, Spain: Cátedra. Escobar, A. (2008). Territories of difference. Place, movements, life, redes. Durham, London: Duke University Press. Fisher, A. C. (1981). Resource and environmental economics. Cambridge, New York: Cambridge University Press. doi:10.1017/ CBO9780511572081 Foucault, M. (1970). The order of things: An archaeology of the human sciences. New York, NY: Pantheon Books.

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García, R. (1986/2000). Conceptos básicos para el estudio de sistemas complejos. In E. Leff (coord.), Los problemas del conocimiento y la perspectiva ambiental del desarrollo. México: Siglo XXI Editores. García, R. (1994). Interdisciplinariedad y sistemas complejos. In E. Leff (coord.), Ciencias sociales y formación ambiental. Barcelona, Spain: GEDISA. Georgescu-Roegen, N. (1971). The economic process and the entropy law. Cambridge, MA: Harvard University Press.

Leff, E. (2001). Epistemologia ambiental. São Paulo, Brazil: Cortez Editora. Leff, E. (2002). A geopolítica da biodiversidade e do desenvolvimento sustentável: Economização do mundo, racionalidade ambiental e reapropriação social da natureza, In Ceceña, A. E. & Sader, E. (Eds.), A guerra infinita. Hegemonia e terror mundial (pp. 253-288). Petrópolis, RJ:VozesClacso-LPP. Leff, E. (2003). A complexidade ambiental. São Paulo, Brazil: Cortez/Edifurb/PNUMA.

Haraway, D. (1991). Simians, cyborgs and women. The reinvention of nature. New York, NY: Routledge.

Leff, E. (2006). Racionalidade ambiental: A reapropriação social da natureza. Rio de Janeiro, Brazil: Civilização Brasileira.

Heidegger, M. (1927/1951). El ser y el tiempo. México: Fondo de Cultura Económica.

Leff, E. (2009a). Ecologia, capital e cultura: A territorialização da racionalidade ambiental. Petrópolis, Brasil: Editora Vozes.

Heidegger, M. (1957/1988). Identidad y diferencia. Barcelona: Editorial Anthropos. Hinterberger, F., & Seifert, E. (1995). Reducing material throughput: A contribution to the measurement of dematerialization and sustainable human development. In van der Straaten, J., & Tylecote, A. (Eds.), Environment, technology and economic growth: The challenge to sustainable development. Aldershot, UK: Edward Elgar Publishing. Kuhn, T. S. (1962). The structure of scientific revolutions. Chicago, IL: The University of Chicago Press. Lander, E. (Ed.). (2000). La colonialidad del saber. Buenos Aires, Argentina: CLACSO/UNESCO. Latouche, S. (2006). Le pari de la décroissance. Paris, France: Fayard. Latouche, S. (2009). Farewell to growth. New York, NY: Wiley. Leff, E. (1995). Green production. Towards an environmental rationality. New York, NY: Guilford Press.

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Leff, E. (2009b). De-growth or deconstruction of the economy: Towards a sustainable world. In U. Brand, N. Bullard, E. Lander & T. Mueller (Eds.), Contours of climate justice: Ideas for shaping new climate and energy politics, in Critical currents (Occasional Paper Series, No. 6) (pp. 101-107). Upsala, Sweden: Dag Hammarskjöld Foundation. Leff, E. (2010). Imaginarios sociales y sustentabilidad, Cultura y representaciones sociales (Num. 9, pp. 42-121), México. Retrieved from www. culturayrs.org.mx Levinas, E. (1977). Totalidad e infinito. Ensayo sobre la exterioridad. Salamanca, Spain: Sígueme. Lovelock, J. (1979). Gaia. A new look at life on earth. Oxford, UK: Oxford University Press. Marx, K. (1965). Œuvres. Paris, France: Gallimard. Maturana, H., & Varela, F. (1994). De máquinas y seres vivos. Autopoiesis: La organización de lo vivo. Buenos Aires, Argentina: Lumen.

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Morin, E. (1980). La méthode. La vie de la vie. Paris, France: Éditions du Seuil. Morin, E. (1993). Introducción al pensamiento de la complejidad. Barcelona, Spain: GEDISA. Orstrom, E. (1990). Governing the commons. The evolution of institutions for collective action. Cambridge, UK: Cambridge University Press. Pearce, D. (2002). An intellectual history of environmental economics. Annual Review of Energy and the Environment, 27, 57–81. doi:10.1146/ annurev.energy.27.122001.083429 Porto-Gonçalves, C. W. (2001). Geo-grafías. Movimientos sociales, nuevas territorialidades y sustentabilidad. México: Siglo XXI Editores. Prigogine, I., & Stengers, I. (1984). Order out of chaos: Man’s new dialogue with nature. New York, NY: Bantam Books. Rees, W. E. (1992). Ecological footprints and appropriated carrying capacity: What urban economics leaves out. Environment and Urbanization, 4(2), 121–130. doi:10.1177/095624789200400212 Sachs, I. (1982). Ecodesarrollo. Desarrollo sin destrucción. México: El Colegio de México. Santos, B. de Sousa (2008). Conocer desde el Sur. Para una cultura política emancipatoria. Buenos Aires, Argentina: CLACSO/CIDES-UMSA/ Plural Editores. Schmidt-Bleek, F. (2008). Future. Beyond climate change (Position paper 08/01). Provence, France: Factor 10 Institute.

Schumpeter, J. (1934). The theory of economic development. Boston, MA: Harvard University Press. Sraffa, P. (1973). Production of commodities by means of commodities. Cambridge, UK: Cambridge University Press. von Bertalanffy, L. (1976). Teoría general de los sistemas. México-Madrid-Buenos Aires: FCE. von Weiszsäcker, E. U., Lovins, A. B., & Lovins, L. H. (1997). Factor four. Doubling wealth halving resource use. A report to the Club of Rome. London, UK: Earthscan. Wackernagel, M. (1994). Ecological footprint and appropriated carrying capacity: A tool for planning toward sustainability (PhD thesis). Vancouver, Canada: School of Community and Regional Planning, The University of British Columbia. Weber, M. (1978). Economy and society. An outline of interpretive sociology. Berkeley, Los Angeles, London: University of California Press.

ENDNOTE 1



In terms of the EU Eco-innovation panel, eco-innovation means “the creation of novel and competitively priced goods, processes, systems, services and procedures, that can satisfy human needs and bring quality of life to all people with a life-cycle-wide minimal use of natural resources (material including energy and surface area) per unit output, and a minimal release of toxic substances.”

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Chapter 2

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation David L. Rainey Rensselaer Polytechnic Institute, USA

ABSTRACT This chapter presents the foundations of a conceptual model for connecting the key elements necessary for corporations to adopt sustainability in the context of the global economy and strategic innovation. While there are numerous theories and practical methods for managing in a national or even regional markets, most of them lack the sophistication necessary for leading change in a global business environment. With the advent of globalization, the complexities of doing business on a global basis have increased dramatically over the last two decades. While sustainability involves many perspectives, strategies, actions, and management constructs, the chapter focuses on how global corporations employ strategic innovations in response to the driving forces in the global economy and how they can improve their level of management sophistication in a turbulent business environment. The model incorporates the concepts of sustainability and sustainable development in creating the solutions, systems and structures for doing business in the global economy. It focuses on strategic innovations that provide more positive aspects and fewer negative ones. Sustainability and sustainable development are based on proactive strategies and actions that exceed expectations and outperform peers and competitors alike. Strategic innovations are dramatic changes that have the potential to create dramatic new solutions that create exceptional value and eliminate or reduce negative effects and impacts. Strategic innovations include radical technological innovations, business model innovations, product developments, and organizational developments that are game changers. DOI: 10.4018/978-1-61350-165-8.ch002

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

INTRODUCTION This chapter presents a model for adopting sustainability and sustainable development (SD) in business organizations based on the perspectives of globalization and the management constructs associated with strategic innovation. Globalization involves the development of an integrated global economic system. It is based on fewer time and distance constraints, the reduction in the costs of global communications and logistics, the removal of trade restrictions, and enhancements in information flows and currency exchanges. Today, advanced technologies and sophisticated management methods and practices have dramatically improved the efficiency, effectiveness, and benefits of international trade. While incredible improvements have been made over the last decade, there are many more changes necessary to ensure that globalization is a positive force resulting in sustainable outcomes for all of the participants. Given that globalization is still far from a true reality, sustainability and SD are essential constructs for achieving positive gains and reducing negative effects and impacts. Sustainability involves the quest toward more ideal solutions and sustainable success over time. It necessitates more inclusive and innovative approaches for collaboration, cooperation, integration, and innovativeness in developing and deploying the best possible solutions for enhancing the well being of people, preserving the natural environment, and ensuring social and economic stability. It requires creating newto-the-world solutions that are based on clean technologies and innovative products and more efficient, effective, and less polluting systems; ones that provide mostly positive benefits with few defects, burdens, problems, and significantly less pollution and waste. Sustainability involves a transformation to higher levels of sophistication in how business leaders and government officials

formulate and implement strategies, policies, and actions plans to achieve such outcomes. SD is a critical element of sustainability that focuses on developing and deploying strategic innovations that exceed the expectations customers, stakeholders, and people. SD focuses on protecting the natural environment and enhancing the social and economic world as well as achieving superior strategic, market, and financial results by the corporations. SD involves obtaining the best outcomes possible for the present generation and ensuring that future generations can realize their aspirations for social and economic well being in harmony with the natural world. SD originated in 1987 by the World Commission Environment and Development for the General Assembly of the United Nations that prepared the Brundtland Report, entitled Our Common Future. In the report, SD refers to the notion “that it [humankind] meets the needs of the present without compromising the ability of future generations to meet their own needs.” (The World Commission of Environment and Development, 1987, p8) Strategic innovation refers to technological innovations and high-level product developments that have the potential to change the global competitive landscape based on advancements in the benefits provided to customers and stakeholders, and significant reductions in the negative effects and impacts associated with existing technologies and products. Creating, developing and deploying strategic innovations offer bright prospects for an enhanced global business environment with the greater possibilities for more people worldwide to enjoy the solutions provided by businesses. Specifying precisely what strategic leaders must do to achieve sustainability, SD and strategic innovation is an arduous task. Given that an all-compassing model linking globalization, sustainability, SD and strategic innovation may not be possible in the short term, developing and gaining acceptance of a general model that fits multinational enterprises (MNEs), transnational

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

corporations, and small and medium sized enterprises (SMEs) may take years to realize. Moreover, as more companies from the developing countries play significant roles in the global business environment, such a model or models have to accommodate the social, economic, cultural, environmental, technological and ethical realities that exist across the globe. Most importantly, a holistic model pertaining to sustainability and SD has to recognize and incorporate the differences in resources, capabilities and sophistication between the MNEs and the SMEs, between the companies from the developed countries and those from the developing ones, and the between the old line corporations and the emerging companies. The objective of the chapter is to articulate the basic elements of a holistic model for improving the adoption of sustainability in the context of globalization. The model provides broad guidelines for what is necessary and beneficial from a global perspective. Such guidelines are intended to provide insights and assistance in developing and implementing the requisite methods and mechanisms. The adoption of the model would be voluntary and offer benefits to corporations, governments, business leaders, political officials, and practitioners alike, since they would have a sense of the underlying specifications so that they can more easily determine what needs to be done going forward. Sustainability and SD involve a continuum in the formulation and implementation of strategies, solutions, actions and innovations that unfold over decades. The chapter does not provide all of the answers. The discussions herein do not include all of the requisite details to fully articulate how to develop and implement the model. Trying to prescribe a single pathway to sustainability and SD would require a model that is so intricate and detailed that it would take several books to spell out all of the variations. The intent herein is to offer insights about what can be done to become more sustainable in a world full of opportunities and challenges.

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BACKGROUND The business world has changed dramatically over the last two decades as the scope of the social, economic, political and environmental forces impacting businesses has broadened to include not just those pertaining to the developed countries, but those affecting developing countries as well. While there has been much discussion about a shrinking world due to the incredible innovations in new technologies and the linkages between businesses and people, it can also be said that the business world has expanded multifold with the inclusion of all people living in the developed and developing countries. This profound change has been supported by numerous strategic innovations including the expansion of the internet, the interconnectivity of telecommunications, the digitization of many products, and the improvements in affordability. The lowering of the costs of manufactured parts, final products and the related logistical requirements has made the integration of the global economy possible, especially from an economic perspective. Prior to the fall of the Iron Curtain, global corporations generally served approximately one billion people, those living in the developed countries. Today, the business world is not only global, but it is richer in scope, scale, and diversity. Worldwide, there are approximately 6.9 billion people who play a role in the global economy. While some are active participants in the served markets, most are bystanders who might be considered latent customers waiting for the right solutions to meet their needs and circumstances. Globalization is a complex term that has many meanings from a limited view focusing mainly on the economic exchanges of the global economy to the multi-dimensional perspective involving an interrelated, interactive, innovative and more sustainable business world. Regardless, globalization includes interconnections and interrelationships between business enterprises, national governments, and non-governmental organizations (NGOs) among many others. Most

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

importantly, it is based on the context of all of the social, political, economic, technological, environmental and ethical forces. The limited view of globalization is often stated in terms of the merging of national economies into a regional economy and ultimately into a global economy. The European Union (EU) is an example of a regional economy that includes 27 nation states that have linked their economic interests and activities to enjoy economies of scale and more open associations. The intent is to enhance free trade based on a transnational economic system. On a global basis, the limited view pertains to economic exchanges and activities as the primary forces that drive international trade, business investments, and the global economic system. In the limited perspective, global corporations vie to satisfy customer demand and meet stakeholder expectations based strategic positions and global resources and capabilities. The key factors for achieving success are perceived to be cost-effectiveness, high quality products, and tailored products and services; ones that generate advantages and financial rewards for the entities involved. Economics is perceived to be the overarching factor and markets and customers are viewed as the main driving forces. The underpinnings of the limited view are based on free enterprise and market capitalism. The multi-dimensional perspective of globalization involves sophisticated management systems, proactive strategies, cutting-edge solutions, and innovative methods that are developed and deployed to enhance the positive aspects and eliminate the negative aspects of the social, political, economic, technological, environmental and ethical forces. It is based on advanced information and communications technologies, more costeffective means and mechanisms for producing and transporting goods from remote locations to the markets across the world, sophisticated management constructs for decision making, and newto-the-world technologies and products. It is also based on the realization that enduring economic success depends on satisfying all entities and

individuals engaged in or impacted by business transactions, not just customers and stakeholders. It implies that participants and non-participants have to be included in the analysis of what is necessary and appropriate and in the creation of sustainable outcomes. It involves creating, developing, producing and providing innovative solutions for people based on their context and not just the objectives, strategies, and actions of the global corporations. The multi-dimensional perspective also includes a longer time horizon. While most business leaders, economists, and government officials view five to ten years out to be the long term, the long term in the context of the multi-dimensional perspective is measured in decades. The multi-dimensional perspective includes considerations about future generations of people as well. Such considerations are an integral part of true globalization that has yet to be fully developed. Globalization without sustainability, SD and strategic innovations may be viewed as a continuation of the “business usual” mindset that has dominated strategic management thinking over the last half century. The “business as usual” mindset represents the line of strategic thinking, in which the main focus is on growing and expanding businesses without significant concerns about their social and environmental underpinnings, effects and impacts. It presumes that such corporations and their strategic leaders comply with the existing laws and regulations and take due care of their specified environmental responsibilities, but they are not compelled to go beyond such mandates and requirements. The “business as usual” mindset has positives from an economic perspective, but it is generally limited in terms of the social, environmental and ethical aspects. The time horizon is relatively short, usually five years or so. Historically, such perspectives resulted in reasonable outcomes in the developed countries, especially if the social and economic forces were stable and enduring. However, difficulties and discontinuities often arise in the long term. For instance, if the effects of oil depletion are the 21

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

most profound in latter stages of the life cycle of petroleum, then the next ten years may be relatively stable in terms of conventional energy sources, but chaotic thereafter. Moreover, with the addition of many new participants in the global economy and expanding global energy consumption, the business world may become less stable and secure as conflicts arise over obtaining the necessary resources. Under such conditions, there is a significant possibility that the economic and social forces may be overwhelmed by increasing demand for energy; thus, affecting the costs of all materials and goods and leading to significant competition for resources and unsustainable outcomes. Indeed, the current economic recession may be a harbinger of more challenging times ahead, especially if strategic leaders maintain the “business as usual” mindset. True globalization has to incorporate the concepts of sustainability, SD and strategic innovation. They are essential elements in achieving broadbased globalization and providing successful outcomes for all people. Globalization based on sustainability, SD and strategic innovation necessitates a mindset shift in strategic thinking from exploiting the prevailing situations and selling the existing products to customers who have the financial wherewithal to developing innovative solutions that fit the needs, expectations and circumstances of people on their basis. Today, many of the strategic leaders focus their efforts on the developed countries because people in those countries have money and can afford to buy the branded products and services. Moreover, many of the same strategic leaders pay little attention to people in the least developed countries because most of the people are poor and seemingly do not have the necessary disposable income to buy the existing products. However, such strategic leaders should view the creation of solutions based on the needs and perspectives of people, especially those in the developing countries, as enormous opportunities for translating non-customers into customers.

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Daniel Esty (2006) and Andrew S. Winston in their book, Green to Gold, articulate that “successful, long-lasting companies regularly redefine themselves. Environmental-inspired innovations offer companies new and exciting way to find fresh expressions for their capabilities” (p301). In support of sustainability, Bob Willard (2005) in his book, The Next Sustainability Wave, suggests that “sustainability strategies give corporations the choice of getting ahead of the curve, defining the new rules, and being rewarded by their stakeholders for behaving responsibly” (p1). Sustainability is about leading change to create better outcomes and more enduring business value.

UNDERPINNINGS AND GLOBAL REALITIES Prevailing Business Situation The current economic crisis, the so-called Great Recession, has shed new light on the many difficulties and problems facing business leaders, politicians, government officials and NGO leaders as they try to right the global economy and develop new mechanisms for dealing with the related challenges. All leaders are being challenged to make dramatic improvements in the ways they manage their responsibilities and achieve desired outcomes. Politicians and government officials focus on setting new policies, providing stimulus, and allocating resources. Business leaders across the spectrum of industries and markets try to develop and implement the most effective programs to maximize benefits and outcomes and minimize the risks and vulnerabilities. Today, strategic leaders and senior management of all persuasions have to expand their capabilities and knowledge and adopt innovative management approaches that are in line with the realities of the world. As evidenced by the current economic crisis with its myriad of causes, effects, impacts, and consequences, the underpinnings and

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

key elements of the global economy are too complicated and intertwined for “old school” approaches to succeed. A major untangling of the turbulence and new understandings of the global economy are necessary for creating the requisite solutions. C.K. Prahalad (2005) in his book, The Fortune at the Bottom of the Pyramid, talked about how to handle the global challenges: “What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win-win scenarios where the poor are actively engaged, and at the same time, the companies providing products and service to them that are profitable” (pp3-4). With all of the uncertainty, there are incredible opportunities for companies to succeed. The great challenge for strategic leaders is not just to “right the mistakes” of the past or cut through the turbulence, but to invent a more sustainable future by creating wonderful new solutions for people everywhere and by eliminating the problems and the underlying risks and difficulties. Strategic leaders have to recognize that they are responsible for assuring that the best solutions possible are devised and implemented. Unfortunately, most of today’s management models are not in synch with the new realities of globalization and the twenty-first century business world. The world has changed significantly over the past two decades, yet many strategic leaders still follow the theories and practices that were developed during the 1980s and 1990s. While such management constructs were innovative methods during the later years of the twentieth century, they are based on the realities of the times. Most of the models viewed the business world in the context of the developed countries and Western business philosophies. They were underpinned by many assumptions that were relevant for the major markets like those in the US, UK, Germany, France, Japan, etc. The underlying perspectives were based on political stability, economic freedom, open exchanges, linear increases in market demand, affluent populations with significant disposable

income, and well-established infrastructures. Today, many of those assumptions and perspectives are questionable, especially on a global basis. The economic, social and environmental conditions and trends are now less predictable and more volatile. Many factors and phenomena play out on a global scale. The global economy with its numerous interconnections and interrelationships brings with it many risks and uncertainties. With all of the improvements in management science, managing global corporations is still an extremely risky venture. Globalization requires global corporations to recognize new responsibilities, if they plan to create value and enjoy success. Paul Hawken (2007) in Blessed Unrest discusses the challenges of globalization (p135): One of the failures of the arguments opposing market globalization is the visible lack of an alternative economic model that might address the plight of the world’s poor. The failure of those making the case for globalized free trade is their inability to adequately address the results of rapid economic change in human and ecological degradation, roughly in equal measure, incomparable through they may seem. Hawken clearly points out the problems with the prevailing business situation. The present form of globalization is not inclusive. It does not provide the necessary support for the poor of the world nor does it include a scope wide enough to assure that solutions are complete.

Insights about Global Realities and Possibilities The global economy includes all of the existing, emerging and potential markets and customers in the world. One of the most significant underlying approaches in the drive to be more successful is to make products and services more affordable through design innovations and incorporating

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

customers’ needs and expectations in the solutions. Such methods have been in play for several decades in the developed countries as companies like Walmart and Toyota have become global giants and great financial successes through innovations to make their products and services both more affordable and their systems more productive and cost-effective. Globalization requires that businesses and governments become key participants in developing, supporting and advancing the social, economic, technological, market, and environmental underpinnings of the global community of nations and people. The underpinnings include assuring that the recipients of the solutions, especially the customers, stakeholders, and societies of the world, are provided with right products and services that have been designed and delivered from an external perspective, not just those of business leaders and/or high-level government officials, and that everyone’s well being is positively enhanced and not exploited. The multi-dimensional perspective of globalization includes the effects and impacts on a much larger scale, including all of the driving forces of change. The resulting management constructs are more complicated because reality and future requirements have to be examined from multiple views involving more intensive analysis of the salient forces and more in-depth understandings of the interactions and interrelationships between the forces. Moreover, the analyses require exploring the possibilities as well as the realities, i.e. what could be or should be not just what is. Thus, it is not just a simply matter of obtaining information and data and discerning what is happening; it also involves getting to the underpinnings of reality and trying to ascertain what could be done instead of just trying to understand what is being done. It involves a mindset shift from exploring “what is” to “what could be.” Strategic leaders have to view human developments and the elimination of poverty in the least developed countries as enormous opportunities

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for transforming non-customers into customers. Moreover, strategic leaders in rapidly industrializing countries have to create positive outcomes without overwhelming the social world and the natural environment with pollution and wastes. For instance, strategic leaders in China are expanding their industrial outcomes at incredible rates, but in doing so they are creating wastes streams that may become impossible to mitigate in just a few years. Air and water pollution may be the limiting factor in China’s quest to be a global economic power. Such difficulties are much easier to correct before the industrial facilities and power plants are built. Once the plants have been designed and constructed, it is often close to impossible to retrofit pollution abatement on a cost-effective basis. With positive actions, strategic leaders have the opportunity to solve future problems at low investments that in the long-term are inconsequential to overall economics of the processes. Failure to do so may result in significant long-term costs, expenditures, and possible failures. In Globalization: A Critical Introduction, J. A. Scholte (2000) identifies five categories that help to articulate what globalization is as follows (p15-17): •

•

•

•

•

Internationalization-the growth of international trade and interdependence among countries and participants. Liberalization-reducing government imposed trade restrictions on the movement of goods between countries. “Universalization”-spreading of concepts and experiences to people around the world in harmonizing aspirations and outcomes. Modernization- spreading social structures around the world affecting local self-determination and destroying local cultures. “Deterritorialization”-reconfiguring geography so that social space is mapped out in terms of territorial places, territorial distances, and territorial borders.

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

Scholte’s perspective provides a sense of the complexities involved in globalization. Clearly, globalization involves moving away from just economic theories about international trade and exchanges to the more integrated business world, in which all of the driving forces are considered and acted upon from a unified perspective. Moreover, there are many positive aspects, but as indicated by Scholte, there are many concerns and issues that have to be dealt with, especially those impacting social institutions like the destructions of ingenious cultures and languages. Globalization today is more than economic forces, political decisions and geography. The expanding physical and informational links between distance markets have spawned a better understanding of cultural and regional similarities and differences among people. Public policy directives in the developed countries to eliminate historic barriers to trade and commerce contribute to common markets and more open communications and travel. However, the evidence about whether globalization is real does not provide a compelling answer. Globalization can be viewed as part of the evolutionary track of expanding opportunities for economic and social activities and interactions. It may be viewed as simply a linear expansion of the economic power that has migrated from the Western countries, principally the G7, to a few new players who are vying for the share in the economic riches. This perspective is not a new paradigm for achieving growth and improvements for all people, but one of simply adding new players to the world elites. The new powerhouses are China, India, Brazil, and Russia (BRIC countries). The current form of globalization may lead to more intense competition among the key players without regard for the broader social, economic, and environmental factors. New companies in the BRIC countries may focus extensively on economic outcomes and try to gain superior positions against the old line corporations like BMW, DuPont, Ford, IBM, Pfizer, Proctor & Gamble,

Shell Oil, Unilever, and thousands of others. Emerging companies may use their strategic advantages of low-cost labor and positive cash flow to grow rapidly. They may quickly become global players. In this scenario, globalization is really a different manifestation of the old world of the economic models of the twentieth century. The main competitors not only seek to dominate customers and markets, they try to monopolize the essential resources for production through whatever means available. For instance, companies in China are trying to secure sources of raw materials around the world from aluminum to zirconium. Moreover, with the numerous examples of toxic substances being used in producing products or incorporated in the products, there are great concerns that Chinese companies in particular are not following prescribed protocols or generally accepted practices for ensuring safeguards, consumer protection, proper work standards, and environmental protection. Globalization must include the whole context of reality (inclusiveness), involve providing the best solutions possible (innovativeness), build enduring and trust-based relationships with customers, stakeholders, partners and people around the world (connectedness), provide the requisite information about products, processes and services to all customers and constituencies (openness), and ultimately, ensure that people are successful and that success is enduring over time (effectiveness). To do this, strategic leaders must embrace the importance of the social underpinnings, recognize and respect cultural differences between societies, protect and preserve the natural environment, create and deploy the best technologies and products possible, contemplate non-traditional and countervailing perspectives that reveal ways of doing business more efficiently and effectively, and understand the needs of the future as well as the expectations of the present. Adil Najam, David Runnalls, and Mark Halle (2005) of the International Institute of Sustainable Development in their article, “Environment

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

and Globalization: Five Propositions”, identify several challenges and opportunities associated with globalization (P10): 1. The rapid acceleration in global economic activity and our dramatically increased demand for critical natural resources undermine our pursuit of continued economic prosperity. 2. The linked processes of globalization and environmental degradation pose new security threats to an already insecure world. They impact the vulnerability of ecosystems and societies. And the least resilient ecosystems. The livelihoods of the poorest communities are most at risk. 3. The newly prosperous and the established wealthy will have to come to terms with the limitations of the ecological space in which both must operate, and also with the needs and rights of those who have not been as lucky. 4. Consumption-in both the North and Southwill define the future of globalization as well as the global environment. 5. Concerns about the global market and global environment will become even more intertwined and each will become increasingly dependent on the other. These perceptions are very useful when exploring the meaning and future aspects of globalization. It is crucial to realize that globalization is accelerating and that the availability of resources is a significant strategic factor for the sustainable success of global corporations. For most the twentieth century, competition played out in the domain of the markets and the drive for revenue and profits. Today, the availability of natural resources, especially metal ores, petroleum and water, is among the most critical factors for achieving strategic success. Resource vulnerabilities are becoming worrisome. Such vulnerabilities are multifaceted. They include being unable to handle all of the wastes being

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generated and lacking the capabilities to mitigate, if not eliminate, pollution and hazardous wastes. Failures to resolve such difficulties may limit the overall economic and market potential. As more people around the world expect and demand products and service, the economic realities have to be improved dramatically to satisfy all of the needs and at the same time keep the negative effects and impacts under control and mitigated to the extent possible. The world is more complex and is expected to become more interdependent as emerging markets take their place in the business world of the twenty-first century.

A MULTI-DIMENSIONAL MODEL FOR THE ADOPTION OF SUSTAINABILITY The Strategic Logic for the Adoption of the Model External context in the long term drives change and the opportunities and challenges facing global corporations. In the days when most corporations primarily focused on their home markets, the scope of their enterprises was relatively small even in the case of MNEs. For most of the early twentieth century, corporations obtained most of their revenues and profits from their national markets. Most MNEs participated in exporting and licensing and the large ones often had subsidiaries and operations in the other major economies. As such corporations expanded internationally during the last century, their external context did become more complicated with a greater geographic scope. They did adapt their business models to recognize the additional forces and factors that required attention and actions. However, the complexities of the situations were mitigated to a large extent because there were many similarities between the most advanced national economies. For instance, all of the G7 countries had relatively stable political, social, and economic systems and structures. The markets were generally expanding and custom-

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

ers demanded fairly similar products. Variations in demand usually were easily accommodated through product innovations and modifications in marketing methods. While there were major differences and culturally based requirements like the French preferences for their own wines and American preferences for fast food, most MNEs accommodated the market-related expectations. As discussed earlier, the business world changed dramatically in the 1990s. Free trade was expanded with the formalization of the EU and the North American Free Trade Agreement (NAFTA). The EU enhanced economic exchanges throughout most of Western Europe and NAFTA eliminated many of the trade restrictions between Canada, Mexico and the US. While the underpinnings and implications of the EU and NAFTA are profound and beyond the scope of this discussion, such changes expanded the prospects for trade and business growth by integrating national economies into regional ones. The changes were more compelling in the EU than in North America. The difference might be explained by that fact that the national economies of the leading European countries (Germany, France, UK and Italy) were more or less coequal, whereas the US economy overwhelmed the economies of Canada and Mexico. Moreover, US economy was already interconnected with many other national economies on a global basis. Regionalization introduces many more variables to the scope of the business environment. As the scope expands, strategic leaders of global corporations have to modify their perspectives of what is necessary for achieving success and adopt new models for including the essential elements. Most importantly, strategic leaders have to shift their strategic thinking from what the company has to do to serve its home market to how it can meet the needs and expectations of more complicated market situations. In a nutshell, they have to become market-centric instead of company-centric. They have to transition from basic constructs like improving their competitiveness in markets, building a large portfolio of products and services,

obtaining efficient and effective operations, and maximizing profits to more advanced approaches like achieving market leadership, creating cuttingedge brands that are unique, establishing strategic direction for exceeding expectations, and obtaining desirable market shares. The logic behind the transition is not based on an “either-or” situation, but a realization that the scope and scale have to become much greater as a corporation moves from national markets to regional ones. It means that the basic requirements in serving national markets are still important, except that additional perspectives are also critical for achieving success in a much large business environment. It is important to point out that these discussions only cover some of the most salient aspects and that in both cases the requisite models are much more complicated than outlined herein. In most cases, global corporations have made the transition from focusing on national markets to regional or more broadly based markets, especially considering the phenomena in the developed countries. Obviously, some corporations are more successful than others and that outcomes are dependent on circumstances and the capabilities of the organizations involved. Gary Hamel in The Future of Management (2007) suggests the “there’s little that can be said with certainty about the future except this; sometimes over the next decade your company will be challenged to change in a way for which it has no precedent (p41). More recently, many global corporations are struggling with the complexities of the global business environment. Globalization has taken root, but the means and mechanisms for achieving success in the global economy are not well established. Most strategic leaders are still using management constructs that were developed for managing in national or regional economies. While some of the approaches may be useful in the global business environment, many lack the scope and sophistication for assessing, understanding, and managing the realities impacting global corporations.

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

Managing in the global economy necessitates more comprehensive and sophisticated management constructs and models for realizing extraordinary performance and achieving longterm success. Globalization requires that strategic leaders consider, analyze, engage, strategize and execute from the very broad perspectives. While it is impossible to know and manage everything in the world, sophisticated strategic leaders have to be holistic in their thinking and have inclusive strategies, actions and decision making, if they except to realize success in a complex and turbulent reality. In a global setting, global corporations have to become enterprise-centric, not just market-centric. They have to recognize that success depends on more than addressing markets and satisfying customers and stakeholders. It involves incorporating all of the driving forces and facets of the global business environment into the strategic logic of the corporation and the models used for decision making. Globalization necessitates a transformation in management constructs and models from marketbased approaches to inclusive and innovative ways of realizing sustainable success. The transformation to a broader scope using more sophisticated constructs and models does not mean that the traditional constructs and models are no longer appropriate or useful. Some may be embedded within the systems and structures of the more contemporary models; others can be applied in special cases, in which the underpinnings and forces are less complicated. For instance, Southwest Airlines (SWA) is a specialized US airline that successfully serves small markets. Its model is fine-tuned to the US and its business environment is national in scope and nature. While global forces impinge on all corporations, SWA’s strategic leaders have chosen to focus on a narrow perspective. Most strategic leaders realize that their corporations must be more capable, innovative and responsive. They have made improvements; however, in many cases the improvements are simply not good enough to stay ahead of the changes

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and expectations in the business environment. For instance, for more than a decade many strategic leaders in the developed countries viewed globalization in terms of outsourcing processes and activities to lower their cost structures. They were company-centric focused on improving the sales and profits of their products and services. While strategic leaders believed that such strategies and actions would lead to profound outcomes and financial success, such theories were sound in the short term but over time have become less powerful as competitors followed the same line of thinking. Such methods have helped consumers in the developed countries obtain more affordable products and services and allowed governments to keep inflation low. However, the hoped for gains in profitability became less and less viable as outsourcing evolved into a global phenomenon. Ultimately, management constructs that can be easily copied are subject to being generic approaches with limited advantages, if any at all. Simple methods have the allure of being easy to understand and implement, but they also have the risk of being quickly duplicated by competitors. Table 1 provides some of the salient factors involving the transformation from national market to regional one and then to global perspectives. The higher level of sophistication identified under “global” in Table 1 provides strategic leaders with the prospects of realizing more enduring performance and success. While very little in the business world lasts forever, the broader the scope, the more inclusive the model and the more sophisticated the elements, the more difficult it is for others to emulate the strategies and actions. Sustainability is the imperative of the twentyfirst century. It implies exactly what the term means, i.e. to support from the foundation, to strengthen the framework, to endure over the course of time, to keep going regardless of the challenges, etc. For instance, it is fool-hardy to create new products, invest in new capital equipment, and develop new ventures among numerous other business initiatives unless they are sustain-

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

Table 1. Salient factors pertaining to national, regional and global markets Scope

National

Regional

Global

Focus

Company

Market

Business Environment

Imperative Means Mechanisms Measures Strategies

Competitiveness Products & Services Operations & Marketing Process Innovations Profitability Competitive Strategies

Market Leadership Cutting Edge Brands Strategic Planning Product Innovations Market Share Market Strategies

Sustainability Sustainable Solutions Sustainable Development Strategic Innovations Sustainable Success Preemptive Strategies

Dimensions

Salient Factors of the External Context

Market

Customers Competitors National Stakeholders

Customers Allies & Partners Regional Stakeholders

Customers & Non-customers Contributors & Recipients All Stakeholders

Social

Communities Employees Shareholders

Civil Society National Identity Social systems

All people Cultural Diversity Social Structure

Economic

Production / Consumption Competitive Positions Revenue & Profits

Value Proposition Market Positions Economic Performance

Value Creation Value Maximization Sustainable Success

Technological

Products/Services Dominant Technologies Incremental Innovation

Innovative Products Advanced Technologies Radical Innovation

Cutting Edge Solutions Clean Technologies Strategic Innovation

Environmental

Regulatory Compliance Pollution Prevention Waste Management

Beyond Compliance Green Management Waste Minimization

Openness & Transparency Sustainable Enterprise Zero Defects & Wastes

Political

Legal System Political Structure Regulatory Mandates

Political Economy Governmental Structures Directives

International Laws and Policies International Organizations International Treaties

Ethical

Values and ethics Accepted Principles Established Behaviors

World Class Standards Axiomatic Principles Proper Behaviors

Universal Standards Global Compact Profound Respect

able over the long term. Sustainability is about realizing ongoing success from every dimension, not just the economic or environmental ones. While there are strategic leaders, practitioners and scholars who discuss concepts like “environmental sustainability,” sustainability is really about integrating the social, economic, environmental, technological, ethical, political, and market forces and considerations into a holistic perspective (model), in which success is obtained in every dimension. For instance, outsourcing of jobs from developed countries to developing countries may result in improved cost structures, but in the long term the consumers in the developed countries may not be able to afford the products, if they

do have sufficient disposable income; therefore, such approaches may not be sustainable. Sustainability requires an integrated model for decisions, strategies, solutions and actions. Sustainability is facilitated through sustainable solutions. It is based on the realization that customers and stakeholders really want and desire solutions. A sustainable solution is the complete package of everything that is necessary to provide the customers and stakeholders with their own successfully outcomes. It includes the products and services, the support mechanisms, the complementary products, and all of the short-term and long-term requirements to make the solution succeed and endure. 29

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

SD involves the mechanisms that are employed to create sustainable solutions, sustain success, and advance sustainability. It is underpinned by strategic innovations. Strategic innovations are particularly powerful when they create extraordinary value for all contributors and recipients and eliminate difficulties and challenges across the business environment. SD requires preemptive strategies for leading change. From a sustainability perspective, strategic leaders have to have the confidence and courage to develop new solutions that offer extraordinary value and new-to-the-world outcomes. In my book, Enterprise-wide Strategic Management: Achieving Sustainable Success through Leadership, Strategies, and Value Creation, the construct of preemptive strategies is developed and discussed in detail. Preemptive strategies are cutting-edge methods for leapfrogging expectations and competitors and achieving sustainable success. The following excerpts provide the main perspectives (Rainey, 2010, pp373-376): Preemptive strategies are proactive approaches for leading change and taking the initiative to aggressively move on opportunities and challenges in the business environment before such actions are expected or become obvious. Preemptive strategies necessitate changing and even disrupting industry or market space norms through fast-paced, hard to duplicate strategic actions that provide distinctive and sustainable advantages for first mover, fast follower, or strategic change leaders. Preemptive strategies eschew the notions of reacting to change or anticipating changes only slightly ahead of a necessity for action. Preemptive strategies imply that strategic leaders seek out every opportunity to forge positive changes and exploit new opportunities before customers or competitors understand the implications. Preemptive strategies require extremely assertive actions in making dramatic or radical improvements to the external and internal dimensions of

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[the company and/or] business units… Aggressive does not mean increasing the rivalry among competitors; it does mean taking every opportunity to make profound changes that advance the well being of customers, the extended enterprise, the organization, and all of the key contributors. Preemptive strategies usually involve the full integration of the whole enterprise into a seamless and highly assertive value delivery system (holistic management system) that is fully capable of planning and executing every action at the highest level of quality and performance. Most importantly, preemptive strategies involve strategic innovations that significantly or radically improve underlying technologies, products and servicesthe solutions. Such innovations include inventing and validating clean technologies, developing and delivering more valuable solutions, enriching and exploiting improved process capabilities, and reinventing the strategic management system and value delivery system with outstanding intellectual capital, capabilities and resources. Preemptive strategies involve transitions and transformations to the next higher levels of achievements and sustainable outcomes… [Preemptive strategies] involve out-of-the-box thinking about how to move closer toward perfection and obtain the best solutions for customers and stakeholders, and to build enduring relationships with all of the essential contributors and recipients. Strategic thinking shifts from the competitive spaces of the past to preempting the market spaces and creating the business enterprise of the future. This includes integrating the extended enterprise into a complete system, leading change to secure sustainable advantages, and using all of the capabilities and resources in the most effective and least damaging ways. Sustainability involves applying the most sophisticated management constructs possible to attain market leadership and value creation. In the

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

context of globalization, it provides the underlying elements and perspectives that make the concept of globalization truly global. Sustainability integrates of all of the external driving forces into a coherent model for creating value and sustainable solutions for the present and future. Sustainability is more than the “triple bottom line” articulated by John Elkington (1997, P2). The “triple-bottom line” includes social, economic, and environmental considerations in managing businesses. While Elkington’s concept is an important contribution to management theories, preemptive strategies and sustainable solutions necessitate dynamic actions to produce sustainable success, especially from the development and deployment of new-to-theworld technologies and products.

The Model: Sustainability in the Context of Globalization and Strategic Innovation Sustainability and SD fit well in the context of globalization. They are essential for true globalization. However, sustainability is a preeminent management construct in its own right with or without globalization. Moreover, sustainability and SD are inextirpable linked with strategic innovations. Given the current state of affairs in the business world, global corporations are a long way from achieving the level of sophistication that is necessary to achieve a modicum of sustainability within a decade or two. In my book, Sustainable Business Development: Inventing the Future through Strategy, Innovation and Leadership, the important factors for realizing sustainable are detailed. Some of the key underlying concepts include (Rainey, 2006, pp678-680): Management across the world is engaged in the relentless struggle to keep pace with technological, social, economic and environmental changes that seem to accelerate as time moves forward. Great strides in competitive advantages are marginalized by the gains of peers and competitors, and the changing business environment.

Where past breakthroughs led to competitive advantages that lasted for decades, the effects of such achievements today are often measured in months. However, with all of the challenges, there are also enormous opportunities, opportunities to lead change and move beyond the social, economic and environmental mandates. Across the world people want solutions to the problems they face. The opportunities for providing these solutions range from finding ways to expand health care and obliterate hunger to protecting natural resources and eliminating waste streams. The penultimate objective is the quest for greatness, the quest for perfection, not perfection itself. It is akin to the building of the great cathedrals of Europe. The architects and builders recognized the daunting nature of such projects. They knew that it would take many generations of skilled and dedicated people to realize the dreams. Nevertheless, they were willing to invest their time and efforts in the process because they believed in the vision. They understood that laying the foundation and building solid walls would provide the means for others to continue building. Moreover, they realized that the succeeding generations of their relatives and compatriots would enjoy the fruits of their labor and that the structures would provide humankind a lasting testimonial of their contributions and achievements. Sustainability requires dedication and ongoing development. While continuous improvement was one of the main management themes of the late twentieth century, the pursuit of sustainability and SD are the critical perspectives driving global corporation in this century. Sustainability is the relentless pursuit toward perfection through innovativeness, inclusiveness, and connectedness. The requisite model includes the key elements for leading change through innovation, managing the systems and structures across the organization and the extended enterprise, and building enduring relationships with people through social responsibility. The model provides a framework pertaining to how the key elements interrelate. The

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

Figure 1. Model for improving the adoption of sustainability in the context of globalization and innovation

model is depicted in Figure 1; it is an adaptation of the model presented in my book, Enterprisewide Strategic Management: Achieving Sustainable Success through Leadership, Strategies and Value Creation (Rainey, 2010, p160). While the framework maps out the essential elements, it is impossible to articulate all of the details. The model offers several exciting perspectives: •

•

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The model provides an inclusive, sophisticated, and broader framework for leading change in complex business situations, in which strategic leaders create extraordinary value for all. The focus is on the global business environment and market spaces. Market spaces

•

include existing markets, emerging ones, customers, and non-customers. While many existing models are either company-centric based on core competencies or competition-centric based on rivalry, sustainable success focuses on making people the center of strategies and actions and making them successful. The underlying aspirations include creating sustainable solutions and achieving sustainable outcomes through SD and strategic innovations, not just making shortterm profits at the expense of long-term success. Given that people are central to sustainable success, building enduring re-

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

•

lationships is essential for realizing the expected outcomes on an ongoing basis. The model has holistic connections with strategic management and operational constructs. It focuses on integrating the corporation’s strategies and actions with the external contributions of the extended enterprise and the needs and expectations of the market spaces. This represents a quantum leap forward in connecting the systems, structures, processes, and practices that facilitate developing and deploying the best solutions possible.

The model addresses perspectives and constructs that are in line with 21st century dynamics. It examines the business environment in the context of the whole global landscape, and strategic leadership and management in the context of sustainability and sustainable development. Indeed, it examines the whole perspective rather than focusing on the parts, which is often the prevailing methodology. For instance, the model integrates concepts for dealing with customers and stakeholders and building relationships rather than just focusing on marketing and selling. It recognizes that customers want solutions that exceed their needs and expectations. It discusses solutions in the context of social, economic, technological, ethical, environmental, and market space considerations. It explores not only the prevailing situation but how innovative solutions taken from the market perspective can create new opportunities. It includes the systems, structures, and processes required for obtaining results. These perspectives are reinforced by the contributions of C. K. Prahalad and M. S. Krishnan (2007) in the new age of innovation, in which they state that building relationships with external contributors are a main source of competitive advantage (p46).

The Means: Sustainability and Sustainable Development Sustainability is the overarching constructs that includes the philosophical perspectives, theoretical constructs and practical approaches for leading change in global corporations and managing their businesses, enterprises, and organizations. The intellectual challenges include determining the vision and strategic direction and the strategic leadership philosophies and constructs for leading change. The simple yet most compelling philosophical perspective is putting the business environment or external context first before thinking about internal context. This fits the concept of “people, planet and profit,” (Bergmans, 2006, pp117-119). It is based on the recognition that people and the natural environment are the overarching considerations and that profit is important for sustaining companies, but profit is really a derivative of good analysis, decision making, strategies and actions. Sustainability is a continuum of strategic thinking and actions that is internally driven by visionary strategic leadership. Strategic leaders have to have the courage and dedication to take on incredible challenges, to think about radical ways of providing solutions, and to use preemptive strategies for realizing extraordinary outcomes. Without direction from strategic leaders, sustainability and SD do not get traction. They require concerted efforts and significant investments. Strategic leaders have to provide the resources and commitments to implement the revolutionary ways to do more good and less bad as Peter Senge discussed in his book, The Necessary Revolution (Senge, 2008, pp33-41)) SD is often conceptually accepted by global corporations. While the underpinnings and aspirations are often clear, it involves a complex array of solutions, systems, structures, processes and techniques. Unlike most of the major initiatives of the last century like strategic planning and total quality management, SD cannot be implemented

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

on a project basis, in which significant efforts and funds are allocated to create the systems and then one can enjoy the results at completion. SD involves a long-term approach for transforming the corporation and its enterprise(s) into an integrated and innovative entity. SD requires an embedded structure that is parallel to the salient factors associated with the transition from national and regional markets to global ones as portrayed in Table 1. The key elements for being successful in national markets are also necessary for success in the global economy. As depicted in Figure 1, strategic leaders have to provide the key elements for establishing the basic foundation and the strategic direction. They define the values, principles and ethics of the organization based on the broader social, legal, ethical, and environmental responsibilities. Strategic leaders and the directors of the corporation determine the governance structure and company policies. They must set strategic direction, the missions and the objectives. These elements are translated into strategies and action plans that are implemented by the organization and its enterprise. Strategic leaders ensure that the capabilities and resources of the organization are aligned with the strategic direction. Moreover, strategic leaders allocate the resources and provide learning opportunities for employees and contributors across the enterprise. Operational management engages in the implementation and execution. It includes a myriad of the critical systems and processes that a used to realize outcomes and achieve success. They include, but are not limited to, marketing, finance, quality management, supply chain management, environmental management, health and safety management and waste management. Results are accomplished through support systems and structures, programs, protocols, and tactics. While most global corporations have well-functioning operating systems and reasonably effective processes, the management constructs are often based on twentieth century requirements rather than on the current realities or future ones. Like many of the

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military situations and organizations of the past, strategic leaders are often well prepared to fight the battles of the past, instead of being proactive and contemplating what is necessary for the future. Strategic leaders too often think about what their organizations are instead of what they must be. Understanding the past is important because it gives us insights about the social and economic dimensions, but transforming the corporation and organization to lead change and being ahead of mandates and expectations is the essence of SD.

The Mechanism: Strategic Innovations The transformation to highly levels of achievement is predicated on strategic innovations. Strategic innovations are radical changes to the corporation, its business units, the extended enterprise, the organization, the leadership, relationships, and the technologies, products and processes. Strategic innovations involve high-level investments into employees, learning, intellectual property, know-how, business portfolios, technological underpinnings, brands, and product lines. They also involve the tangibles of developing and commercializing new products and creating and building new business ventures and the intangibles of enhancing one’s reputation and acquiring new knowledge. Strategic innovations make sustainability and SD real for the people who are task with carrying out the actions. Strategic innovations are a global corporation’s answers to how to develop a unique place in today’s turbulent and complex business world. Global corporations seek practical approaches to their quests to be competitive and achieve ongoing success. While strategic innovations do not always result in significant advancements in competitiveness and market success, they do offer a greater probability of achieving game changing outcomes that are more difficult for competitors and would be rivals to emulate. However, strategic leaders often view strategic innovations, i.e.

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

Table 2. Types of strategic innovations Categories

Main Types

Salient Aspects

Solutions

Radical technological innovation (RTI)

RTI involves developing new or dramatically improved technologies that change the basis for delivering value. Creating a new-to-the-world solution starts with insights and innovativeness. It incorporates the full spectrum of internal and external ingredients to create exceptional value and realize sustainable success.

Systems

Business model innovation (BMI)

BMI involves a conceptual combination of all of the entities and the patterns of interrelationships and interfaces that are linked together in formal and informal arrangements to create and deliver value-producing outcomes that are guided by strategies and actions. It also involves starting new business units that have superior solutions with new technologies.

Structures

Leadership and organizational development (LOD)

LOD is critical for realizing sustainable success. It involves the development of new competencies and capabilities and the transfer of know-how and management wherewithal within the corporation and enterprise and between the generations of leaders and practitioners. Leadership and talent development are crucial for assuring the going commitment to sustainable success.

radical innovations, as risky and subject to many perils. While it is clear that strategic innovations are more challenging, they are not necessarily more risky than incremental innovations or doing nothing when all factors are considered. While the potential results of incremental innovations are usually more predictable and successful from a product or process point of view, the actual business outcomes are often less fruitful and enduring. For instance, improving obsolete products may result in additional sales and revenues in the short term, but the resultant business performance and financial outcomes are often unchanged and the products are eventually replaced or eliminated. The investment in incremental innovations may be positive, but the business may lose valuable time and money pursuing marginal outcomes. Strategic innovations are necessary to assure that global corporations stay ahead of the driving forces and expectations in the business environment. Among the most crucial are strategic innovations that create unique advantages for the corporation through innovative solutions, systems, and structures and build enduring relationships. Table 2 lists some types of strategic innovations. Innovative solutions engender outstanding combinations of value creation, value innovation, and value delivery expressed and supported using

the value systems and extended enterprise. Radical technological innovation is a primary mechanism for effecting strategic innovation. The strategic leaders initiate the development of new technologies using the research and development (R&D) programs and projects. While there are many variations, the corporate R&D generally involves developing new-to-the-world technologies and/or products with potentially exceptional business value. Radical technological innovations depend on external context. Exploring the global business environment and the market spaces and determining how the corporation and its enterprise(s) fit the needs and requirements for the future are effective ways for initiating the long process of creating new technologies. Radical technological innovations are based on insights from the business environment and the organization’s imagination about what can be accomplished. Global corporations can take a proactive approach and invest into transforming their businesses by developing new technologies that are cleaner and more efficient and effective. Some of the best opportunities are those involving eliminating the negative side of existing technologies. This results in new-to-theworld products that have superior attributes and value. Strategic leaders must allow for risk taking

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A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

and even failures to occur as the R&D people find new ways of achieving success. Moreover, creating radical innovations that solve problems for people in emerging markets are also great opportunities. Antoine van Agtmael (2007) in his book, The Emerging Markets Century, details how many of the emerging companies in BRIC countries, Taiwan, South Korea and Mexico are gaining footholds as world-class competitors through brainpower and innovation. He cites the incredible progress made by companies like Embraer of Brazil, Lenovo of China, Samsung of South Korea, and TSMC of Taiwan. These companies are vying for their place in the world. Historically, global corporations used simple business models for managing their businesses. The general methodology employed a de-coupled, hierarchical approach that included operations management of the value system on the bottom and strategic business management at the top. Traditional business models limited the scope of the analytical framework to facilitate decisionmaking and simplify the interactions. Due to the lack of integration at the operating level, strategic leaders had to play a significant role in resolving difficulties within the system. The strength of the approach became the weakness. During the mid-1980s Michael Porter’s models of the value chain and the value system dramatically shifted the management constructs from a vertical organizational approach to a system approach with horizontal processes (Porter, 1985, pp33-35). A higher level of sophistication is necessary for incorporating all of the forces impinging on the entire organization and its linkages, partners, stakeholders, and customers. An effective business model is a comprehensive management construct that forms the basis for analysis, understanding, decision-making, continuous improvement, as well as radical innovation. It is a unifying approach that integrates the people, the processes, the practices and the programs into a comprehensive management system. Today, fully integrated business models are pivotal for success as more

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corporations depend on supply networks, strategic alliances, and external relationships for sustaining success. Business model innovation encompasses the whole, both internal and external, and the present and the future. It is inclusive of all of the essential dimensions in managing and leading an organization. Business model innovation involves the convergence of the solution, systems and the structure. In Leading the Revolution, Gary Hamel (2000) discusses the ‘age of revolution’. He suggests that “it is not knowledge that produces wealth, but insights into opportunities for discontinuous innovation” (p14). Hamel’s business model includes “four major components: core strategy, strategic resources, customer interfaces, value networks” (p70). He incorporates into the “new innovation” model the concept of a solution (pp283-313). He views innovation as an essential element for achieving strategic success. Given the diversity of the global competitive landscape and the expectations of people and society, the most important part of strategic innovation is the development of talent. Unlike the business world of the early twentieth century that was based on machine-driven methods, twentyfirst century corporations are based on intellectual capital. The core competencies and capabilities of the corporations are its true strategic assets. From strategic management and strategic innovation perspectives, people are the innovative force. They create the solutions and the systems. Leadership and organizational development address the needs of the people in the organization and how to enhance their knowledge and capabilities through learning and experience. Leadership and organizational development invoke a spirit to become the best and to build new capabilities and competencies for the emerging technologies and practices of the 21st century. It provides the means and mechanisms for the organization to acquire the new knowledge and skills to perform to the highest standards.

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

CONCLUDING COMMENTS Rapid changes in the business world over the last two decades have made most of the prevailing management constructs obsolete. In a global business environment of limited time and scarce resources, strategic leaders have to seek and develop innovative ways to keep ahead of change. This necessity is especially important for global corporations. Global corporations have to expand their reach and sophistication to create sustainable solutions, integrated systems, and robust structures that are proactive and unique. Good is no longer good enough. Global corporations have to lead change and become sustainable enterprises. They have to incorporate sustainability and SD in their models and ensure that they can exceed customer and stakeholder expectations and outperform competitors. Strategic leaders have to preemptive the market and competitive situations through strategic innovations that open the doors to new possibilities and success. They have to think about the whole enterprise and ensure that solutions and systems are fully aligned and providing successful outcomes for all contributors and recipients. Globalization without a multi-dimensional perspective is a prescription for enduring ongoing problems, challenges, and instability. Solutions have to be multifaceted and holistic. They have to produce win-win outcomes. They must avoid creating tensions and conflicts among people across the world. For instance, simply shifting jobs to low-wage countries to obtain low-cost products may result in cost-effective products that people in the developed countries cannot afford to buy because they lack employment opportunities and personal income. The model discussed in the chapter provides a framework for creating win-win outcomes that are balanced in terms of the social, political, economic, technological, environmental and ethical forces. Good solutions require an integrated approach with strategic leaders and contributors working together using strategic innovations. For most

global corporations, the focus shifts from “business as usual” approaches to creating sustainable solutions and developing holistic systems and structures to deploy the solutions. From a strategic perspective, the decision making methodology for strategic innovations has to become more comprehensive and farsighted. Decision makers have to be proactive. They have to use learning and acquire new knowledge to obtain a more comprehensive understanding of the realities. They must be thorough in their assessments of context to obtain insights about what the solutions have to be. Ultimately, they need to use their imaginations to envisions how to create the best strategies, solutions, and outcomes and to use the judgments of all of the participants in the decision making process. Great decisions are based on the collective wisdom and intellectual capital of the people involved. True globalization may only be possible in the context of sustainability, SD and strategic innovation. Otherwise, short-term successes may turn into complex challenges and difficulties that limit long-term performance and outcomes. For instance, pollution and wastes are critical factors that have to be eliminated via clean technologies and new-to-the-world products, if solutions are to endure. Future developments may be stymied because resources have to be allocated for cleaning up the messes created due to poor decision making or simply not available because of resource depletion. It is critical that business leaders, government officials and people understand, develop, produce and deploy sustainable solutions and achieve sustainable success. With true globalization, global corporations have to adopt a more inclusive and comprehensive model of their external and internal context, if they aspire to obtain competitive advantages, achieve outstanding business performance, and enjoy sustainable success. The underpinnings must focus on protecting future generations of people, preserving the natural environment, ensuring that the economic, social, environmental and financial interests of businesses and society continue well into the future. 37

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

REFERENCES Bergmans, F. (2006). Integrating people, planet and profit. In J. Jonker & Marco de Witte (Eds.), Management models for corporate social responsibility (pp. 117-125). Berlin, Germany: Springer. Elkington, J. (1997). Cannibals with forks: The triple bottom line of sustainable development. Oxford, UK: Chapstone Publishing. Esty, D., & Winston, A. (2006). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. New Haven, CT: Yale University Press.

Rainey, D. L. (2006). Sustainable business development: Inventing the future through strategy, innovation and leadership. Cambridge, UK: Cambridge University Press. doi:10.1017/ CBO9780511617607 Rainey, D. L. (2010). Enterprise-wide strategic management: Achieving sustainable success through leadership, strategies and value creation. Cambridge, UK: Cambridge University Press. Scholte, J. A. (2000). Globalization: The critical introduction. New York, NY: Palgrave.

Hamel, G. (2000). Leading the revolution. Boston, MA: Harvard Business School Press.

Senge, P. (2008). The necessary revolution: How individuals and organizations are working together to create a sustainable world. New York, NY: Doubleday Publishing Group.

Hamel, G., & Breen, B. (2007). The future of management. Boston, MA: Harvard Business School Press.

The World Commission of Environment and Development. (1987). Our common future. Oxford, UK: Oxford University Press.

Hawken, P. (2007). Blessed unrest: How the largest movement in the world came into being and why no one saw it coming. New York, NY: Viking/Penguin Group.

van Agtmael, A. (2007). The emerging markets century: How a new breed of world-class companies is overtaking the world. New York, NY: Free Press.

Najam, A., Runnalls, D., & Halle, M. (2007). Environment and globalization: Five propositions (p. 10). Winnipeg, Canada: International Institute of Sustainable Development.

Willard, B. (2005). The next sustainability wave: Building boardroom buy-. Gabriola Island, BC: New Society Publishers.

Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press.

KEY TERMS AND DEFINITIONS

Prahalad, C. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing. Prahalad, C., & Krishnan, M. (2007). The new age of innovation: Driving co-created value through global networks. New York, NY: McGraw-Hill.

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Business Environment: The business environment includes the external forces impinging upon the corporation. It includes the social, economic, political, technological, environmental, and market forces. It also includes the external dimensions of markets, stakeholders, and competition. Clean Technology: Clean technology involves advanced technological designs that maximize the positive benefits and minimize the negative defects, burdens, and impacts. It includes sys-

A Model for Improving the Adoption of Sustainability in the Context of Globalization and Innovation

tems, processes, equipment and know-how that eliminates, reduces or controls pollution and waste streams better than alternates. Construct: A construct is a theoretical framework or model used to analyze and determine strategies, systems, structures, and solutions. A construct is intended to be a representation of the dimensions and elements of business situations. It combines information, data and experience with theoretical thinking about how to view the business situation in light of its opportunities, challenges, and constraints. Context: Context provides the basis for analysis, understanding and decision making. It includes the business environment and the management systems of the organization. Context is framed based on defining the scope of the analysis and the inclusion or exclusion of variables. The context includes both time and space considerations. Extended Enterprise: The extended enterprise includes the contributors to the solutions and recipients who use the solutions. It includes customers, stakeholders, supply networks, strategic partners, related industries, competition, and infrastructure. It provides a framework for a descriptive, analytical, and structural understanding of the needs, opportunities, challenges, requirements, specifications, and the strategies and action plans. Globalization: The notion that the world economies are shifting toward a borderless economic structure, in which global corporations vie to satisfy customer demand on a global basis. Space and time are compressed and geography becomes less of a critical factor. Preemptive Strategies: Preemptive strategies are intended to gain sustainable advantages by

significantly improving the solutions, systems and structures. The focus is primarily on leading change and value creation. Product Innovation: Product innovation includes the initiatives, methods, techniques, and processes for making incremental improvements to existing products and services. It involves making evolutionary changes to the products employing the prevailing technologies and organizational capabilities. Radical Technological Innovation: Radical technological innovation involves creating new-to-the-world technology that brings about revolutionary changes. It often creates new industry or market structures or involves dramatic changes to the existing ones. It also involve making substantial changes to the existing strategic management system including developing new customers, new markets, new supply networks, and other related entities. Sustainability: Sustainability implies that all human and business activities are carried out rates equal to or less than the Earth’s natural carrying capacity to renew the resources used and naturally mitigate the waste streams generated. Sustainable Development: Sustainable development is a holistic management construct that includes the entire management business system from the origins of the raw materials to production processes and the customer applications and to the end-of-life solutions. Sustainable development involves making dramatic improves and positive changes to the full scope of relationships and linkages of the supply networks, customers and stakeholders, and support service providers for handling wastes, residuals and impacts.

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Chapter 3

Product-Service Systems as Enabler for SustainabilityOriented Innovation:

The Case of Osram’s Off-Grid Lighting Friedrich Grosse-Dunker Dark Horse GmbH, Germany Erik G. Hansen Leupana University Lüneburg, Germany

ABSTRACT Corporations increasingly subscribe to the principles of corporate sustainability, which is generally described as the integration of economic, environmental, and social dimensions. As sustainability presents a new source of ideas and visions leading to new business opportunities and competitive advantage, the role of Sustainability-Oriented Innovation (SOI) is ever more emphasized. However, developing products under the paradigm of SOI is risky: both the product’s market success and (non-economic) sustainability effects are uncertain. Product-Service System (PSS) – i.e. a combination of products and services –constitutes a significant approach to overcome some of the limitations of SOI and, additionally, can spur the diffusion of SOI. In this chapter, we use an exploratory research strategy to further investigate the links between SOI and PSS. We present a case study on off-grid lighting in Kenya and analyze the sustainability effects on the product and PSS level. The complexity of SOI and the sustainability potentials of PSS are illustrated. Moreover, we also emphasize the role of a joint achievement of sustainability-oriented product innovations and PSS innovations.

DOI: 10.4018/978-1-61350-165-8.ch003

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

INTRODUCTION For the last decade, the prevailing form of doing business has been increasingly challenged by a number of problems such as climate change, environmental degradation, and social inequalities. These challenges culminate in the view that to only focus on economic aspects of business is ever more difficult or even impossible as it is essentially unsustainable (Hart & Milstein, 2003). From a business perspective, corporate sustainability seeks to address these issues by transcending the conventional responsibilities of businesses (i.e. to make profits) to also include non-economic aspects such as ecological and social responsibilities (Sharma, 2002; Schaltegger & Burritt, 2005). Scholars have lately emphasized to put sustainability at the core of the corporation, i.e. its products and services (Hart, 1997; Schaltegger & Wagner, 2010). New regulations, but also raising consumer demand for socially and environmental benign products drive the need for more sustainable products and services. The notion of sustainability-oriented innovations (SOI) thus embraces concepts, criteria, and processes to develop more sustainable products and services (Hansen et al., 2009). One important lever for SOI is the concept of product-service systems (PSS) or servitization (Baines et al., 2007; Mont 2001, 2004; Hansen et al., 2009). Generally, PSS approach represents a spectrum between pure products and pure services (Baines et al., 2007; Pawar et al., 2009). PSS where the manufacturer remains with the ownership of the products are especially interesting. In this case, PSS follows the idea that the environmental burden is dramatically decreased when switching from selling products to providing solutions through product-service combinations. In contrast to mid to long-term leasing and performance contracting in the business to business context (Williams, 2006), this chapter focuses on systems of shared use in business to consumer markets. Current empirical studies on shared use in business to consumer markets are usually case

studies (Baines et al., 2007) and focus on such as car sharing (Huwer, 2004; Engelhardt et al., 2003), ride sharing (Hansen et al., 2010), and on washing machine and power tools service centers (Mont, 2004). Besides few others (Devisscher & Mont, 2008; Manzini & Vezzoli, 2000), existing cases predominantly focus on developed nations. The cases often evaluate the sustainability impacts of PSS (Pawar et al., 2009, Devisscher & Mont, 2008). PSS is said to be a concept that “aims to improve overall system efficiency, along with improving efficiency of each system element” (Mont, 2001, 13). However, most of the case studies are limited to studies where existing products and technologies are integrated into a PSS, i.e. the innovation considers only the servitization of the unchanged product or technology. There is virtually no research on cases where the product innovation joins the introduction of the PSS. Our research question is thus twofold: (1) how can the mechanism of PSS help to introduce a sustainability-oriented product innovation? (2) Which sustainability effects materialize on the product level, which ones at the service level? This chapter addresses this gap with a case study approach (Yin, 2003) about a multinational corporation based in Germany that offers a product-service system in a developing nation. By concurrently addressing economic, environmental, as well as social impacts, the case highlights the multi-dimensionality of SOIs. We furthermore emphasize the importance of PSS as being an innovation enabler on a (technological) product level and therefore underline the importance of product-service offers in the context of sustainability. The remainder of this chapter is structured as follows: first, a literature review introduces the concepts of SOI, life-cycle assessments, and PSS. Building on this framework, a case study on off-grid lighting in Kenya is presented and its sustainability effects are analyzed. The results and implications of the case study are then discussed and future research directions are given.

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Product-Service Systems as Enabler for Sustainability-Oriented Innovation

BACKGROUND Sustainability-Oriented Innovation (SOI) There is wide agreement that the challenges of sustainability offer significant potential for product and service innovations and related business opportunities. Two arguments support this view. First, new social and environmental regulations and laws increase the pressure for innovativeness (“regulatory push”) (Fichter, 2006; Hockerts, 2008; Preuss, 2007). Second, sustainability presents a new source of ideas and visions leading to new business opportunities through new markets and customer segments (“market pull” or “vision pull”) (Hart, 1997; Day, 1998). Based on these insights, the importance of SOIs has generally been acknowledged (e.g. Hansen et al., 2009; Hart, 1997; Schaltegger & Wagner, 2010). However, recent studies show that only a minority of businesses consider sustainability as a source of innovation (Hockerts & Morsing, 2008). The reluctance in advancing SOIs can arguably be attributed to the high risks involved in this kind of innovation (Hall, 2002). These risks include not only the product’s economic success (Cooper, 2001), but also the direction of environmental and social sustainability effects of innovations, i.e. whether they contribute positively or negatively to sustainability. The latter type of risk is also termed directional risk (Paech, 2005). For instance, environmental innovations can lead to negative societal impacts, i.e. to a problem of “eco justice” (Schaltegger & Burritt, 2005), as the case of bio-fuels demonstrates (Kölsch & Saling, 2008; Rennings & Zwick, 2002). On the other hand, conventional innovation projects sometimes result in innovations with positive sustainability effects (Fichter & Arnold, 2003). Due to the multi-dimensionality of sustainability targets (social, environmental, and economic targets) and the dispersion of innovation sustainability effects, the assessment of innovations with respect

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to sustainability is considered highly complex (Fichter, 2005). Beyond the triple bottom line reflecting economic, social, and environmental considerations (Elkington, 1998), also referred to as the target dimension of innovation, two other dimensions – life-cycle and innovation type– are important for assessing sustainability effects of product innovations. Both dimensions are addressed in the subsequent sections.

Life-Cycle Assessment and SOI The life cycle dimension refers to the physical life cycle of a product from resources extraction to end-of-life treatment. Life-cycle assessment (LCA) has become a major research field in literature (Kloeppfer, 2008; Mont, 2004; Spillemaeckers & Vanhoutte, 2006), though it also has some limitations (Schaltegger, 1997). Whilst the emphasis in life-cycle assessment has been on environmental considerations, integrated sustainability analysis has gained research attention as well (Spillemaeckers & Vanhoutte, 2006). Table 1 shows a matrix based on the life-cycle dimension and the triple-bottom line.

From Products to Product-Service Systems (PSS) Innovations are commonly classified into the categories of product, process, organizational, or market innovations (Hausschildt & Salomo, 2007). The current chapter focuses on product innovations, and thus on new product development. Within the latter understanding of innovation, people are usually concerned about the technological dimension of products (and – from a life-cycle perspective – of processes related to manufacturing the product). For instance, products can be manufactured with improved eco-efficiency (e.g. they consume less energy; Schaltegger & Burritt, 2005) or companies shift the product portfolio towards addressing environmental challenges

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Table 1. Sustainability of products/technologies related to the physical life-cycle (Hansen et al., 2009) Target dimension

Life-cycle phases Manufacturing

Packaging/ distribution

Use/ maintenance

End of life

Economic

Production efficiency

Efficient packaging; efficient logistics

(Technical) quality

Costs of take-back/ disposal/ landfill

Environmental

Use of environmental friendly materials and processes

Reduce packaging resources; minimized transports

Durability; energy consumption

Dangerous materials; recycling, re-make, or re-use

Social

Occupational health & safety; child work; wages; benefits

Customer health & safety; complaint handling

Health threads of landfills

(e.g. clean technologies) or social challenges (e.g. adapted products for people from poor communities/developing countries) (Hart, 1997). Whilst these efforts are very important, they alone cannot solve some of the overarching sustainability challenges. At least three reasons should be mentioned: first, the increased aggregated resource consumption related to product manufacturing and ownership, i.e. there mere number of products. Second, though product eco-efficiency can be strongly increased, rebound effects (Dyllick & Hockerts, 2002) are responsible for that the overall consumption increases might exist. For example, lower maintenance costs entail more intense use (e.g. when switching to a more fuelefficient car, more kilometres might be driven). Third, more sustainable products may be difficult to introduce and diffuse, simply because the additional environmental and social characteristics make the products too expensive for consumers. For all three reasons mentioned, it is important to go beyond the technological level to also consider the level of the PSSs. A PSS is defined as “[…] a system of products, services, networks of players and supporting infrastructure that continuously strives to be competitive, satisfy customers needs and have a lower environmental impact than traditional business models” (Goedkoop, 1999). This definition shows that the traditional distinction of products and services is nowadays becoming less clear (Wise & Baumgartner, 1999). In general, three degrees of product-service combinations can

be distinguished (e.g. Baines et al., 2007; Mont, 2001): Product-oriented PSS add a service to the conventional product. For example, the product take-back service (end-of-life phase) allows the producer to recycle or remake the product and thus contribute to environmental (but also to economic) value. In an extreme case, product service bundles may turn into pure product-based services based on product leasing and contracting rather than selling. A good example is the case of Interface Inc. which originally focused on selling carpets, but later became involved in leasing carpets. Instead of replacing entire carpets, the company only replaces worn tiles. Third, a further increase of the service factor leads to product-service systems in a narrower sense (Mont, 2006). These are systems of shared use, i.e. consumers (or users) use the same products either subsequently (e.g. car sharing; public washing machines) or simultaneously (e.g. ride sharing instead of a private car; Hansen et al., 2010). The current chapter focuses on such systems of shared use. The benefits of PSSs are very thoroughly analyzed in the literature. Pawar et al. (2009) differentiates three major streams of literature: the first stream of “product service systems” highlights the environmental benefits of PSS. The second stream “integrated solutions” analyses financial effects of PSS and the third stream of “experience services” highlights benefits created by consumer interactions and co-created values. In general, benefits of PSSs result from a shift of 43

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

risks, responsibilities, and costs to the manufacturer, which are associated with the ownership of products (Baines et al., 2007, Pawar et al., 2009). This chapter is especially interested in the environmental (and more broadly, sustainability) benefits of PSS, which are described in the following. By increasing the service content of offers, value creation and resource consumption can be decoupled with the effect of creating sustainability effects (Baines et al., 2007; Mont, 2001). For instance, Interface Inc. is now responsible for the maintaining, recycling, and disposal of its carpets and has therefore a high interest in, for instance, prolonging the life cycle of its carpets and recycling old carpets. As a result, providers of PSSs have strong incentives to consider the total life cycle and to optimize their offers and value chain over the complete PSS life cycle (Aurich et al., 2006). This kind of analysis is also referred to as system thinking (Manzini et al., 2001). Furthermore, by retaining the ownership of products, providers of PSS have strong incentives of minimizing their resource input to reduce costs and capital expenditures, while keeping the value proposition of their offer on a constant level (Baines et al., 2007, Manzini & Velozzi, 2002) or to even increase the value proposition. In systems of shared use, fewer products are sold and thus the number of products in the end-of-life phase is reduced (Aurich et al., 2006; Mont, 2004). For instance, car sharing services need less cars “in action”, leading to a significant increase of overall resource efficiency of the service system. Hence, PSSs offer the opportunity of dematerializing the value creation (Mont, 2006; Ehrenfeld, 2001). Bearing those findings in mind, we may state that the higher the service part of a SOI, the higher the consideration of the products’ life cycle and, consequently, its positive sustainability effects. Hence, PSS offer a promising innovation strategy for SOIs. However, sustainability effects have to be assessed carefully, as contradictory effects may arise through PSSs (Manzini & Velozzi, 2002).

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CASE STUDY: OFF-GRID LIGHTING Research Method In order to gain a better understanding of the relation between SOI and PSS, we subsequently analyze specific sustainability effects within a case study research strategy. We conducted a single case study about OSRAM, a company providing off-grid lighting in Kenya. OSRAM is a company fully owned by Siemens AG, one of the largest multinational corporation based in Germany. Case study research is a strategy for the “systematic production of exemplars” (Flyvbjerg, 2006). It does not follow a strategy of statistical sampling and thus the number of case studies is not a measure for the quality of this approach. Rather, even a single in-depth case study can contribute to theory (Flyvbjerg, 2006; Yin, 2003). We carefully considered trustworthiness criteria of credibility, transferability, dependability, and conformability (Lincoln and Guba, 1985; Shah and Corley, 2006) in our methodology, as will be further explained in the following paragraphs. When selecting the case, we followed a strategy of extreme cases (Flyvbjerg, 2006), as this is one alley for a purposeful theoretical sampling and thus contributes the trustworthiness criteria of dependability (Shah and Corley, 2006). OSRAM provides a very unique approach for introducing a new PSS, embedding a highly innovative and sustainability-oriented technology. The example is also one of the flag ship programs within the area of Siemens’s corporate sustainability advances, and thus it is also well documented. Access to data was another reason for selecting the case (Yin, 2003). With regard to data collection, we drew on multiple sources of data in order to analyze the case from multiple perspectives and, hence, to increase credibility (Shah and Corley, 2006; Yin, 2003). Data collection covered public corporate reports and websites, documents from the public domain, and media reports. The documents were

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

collected between 2009 and mid 2010 (Table 2). As we solely relied on secondary data from explicit documents and reports, risks with regard to data recording and management – as they are expressed in the trustworthiness criteria of conformability (Shah and Corley, 2006) – were reduced. The data analysis can be considered abductive (Dubois & Gadde, 2002) relying both on an initial (deductive) conceptual framework (life-cycle; levels of innovation) and, at the same time, letting inductive findings emerge from the data. We used a content analysis to investigate the various documents presented earlier. The triangulation of data from different sources led to the emergence of the overall picture (Yin, 2003). In the sense of transferability (Shah and Corley, 2006), the research findings contain “thick” descriptions of empirical data related to the abductive categories, concepts, and overall structures. We further controlled the criteria of dependability by a critical audit of data: whereas the first author collected the first-order data (mere data) and proposed a first draft of the second-order findings (theorizing), the second author served as a critical reviewer of these processes. The following findings section provides some background information on the case setting. Then the off-grid lighting PSS is presented and its effects on both the technological and overall PSS level analyzed. Table 2. Data collection for case study Type of data

Documents studied

Public corporate reports/data

Siemens (2009). Sustainability Report 2008. Munich, Germany. OSRAM website: http://www.osram.com Global Nature Fund website: http://www. globalnature.org

Reports from public domain

Esch et al. (2008) Loew et al. (2009) Mills (2008)

Media

Rybak, A. (2009) Zeug, K. (2009)

Background to Off-Grid Lighting Lighting is of fundamental value for human beings and greatly influences everyday life. For instance, lighting substantially impacts on security issues, production (lighting can considerably prolong working hours), education (lighting enables studying in the evening) and poverty reduction, to name only a few. However, around 1.6 billion people in sub-Saharan Africa do not have access to power grids (Mills, 2008). Thus, fuel-based (primarily kerosene) lamps are often the only viable lighting source in vast areas within developing countries to this date. After all, kerosene is an affordable energy carrier, and is available even in remote rural areas. However, lighting costs can account for up to 10% of household incomes (Mills, 2008). In addition, fuel-based lamps are highly inefficient for lighting purposes and therefore burden excessive costs on its users. Moreover, the practice of kerosene lamps implies additional fundamental negative impacts, both ecologically and socially. Fuel-based lighting leads to the emission of roughly 190 million tonnes of CO2 per year. Kerosene lamps also emit several toxic gases, which can cause severe health damages in the population, especially when used inside buildings. Furthermore, kerosene often causes pollution of potable water, especially when used for fishing purposes. The use of kerosene lamps is extremely widespread in the Lake Victoria region of Kenya. This area is inhabited by 30 million people and is characterized by the use of local fishing vessels, which mainly fish at night. The fishermen use swimming kerosene lamps as lures for fish and are therefore highly dependent on lighting. Approximately 75% of their income accounts for lighting only.

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Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Company Background Osram GmbH was established in 1906 and is a fully-owned subsidiary of Siemens AG. Today, Osram is one of the two leading lighting manufacturer worldwide, being active in numerous markets, e.g. general lighting, automotive lighting, ballasts and luminaries. Osram perceives climate protection and sustainability issues as one of the major drivers in the lighting industry. Hence, Osram is heavily engaging in the development of energy-efficient products, which in 2008 already generated 66% of its total revenues. Furthermore, Osram’s product portfolio was recently acknowledged with the German Sustainability Award. To sustain its growth potential, Osram is increasingly seeking market opportunities in emerging markets, especially in Africa. In 2009, 88% of its revenues were generated outside of Germany. The market for off-grid lighting is of peculiar interest, as its size is estimated to amount to €50 billion per annum, which is almost twice as big as Osram’s original lighting market. In order to further expand its revenues in this market, an innovative product-service system was developed in Kenya, which is described below.

Off-Grid Lighting as a Product-Service System In 2004, the Global Nature Fund and a local Kenyan NGO started to work on an alternative to kerosene lamps. Together with OSRAM, a leading manufacturer of lighting solutions, and SolarWorld, a manufacturer of solar panels, they developed a new solution tailored to the needs of developing countries. OSRAM manufactured portable lamps, which consisted of a rechargeable battery (O-Box) unit and a robust and waterproof energy-saving lamp (O-Lamp). Interestingly, OSRAM did not sell those lamps, but created a PSS by lending those products to local residents. In order to do so, an on-site station was established, where lamps are handed out and recharged by using solar

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panels installed on the rooftop of the building. This service was supported by micro loans to make it affordable to local residents. Hence, this productbased service promised cheaper, more reliable and ecologically beneficial off-grid lighting. In the following, the sustainability effects of this solution in the use and end-of-life phases of the physical life-cycle are analyzed. A simplified version of the earlier presented Table 1 serves as evaluation matrix. The analysis is limited to major and well-known effects of the PSS, as they already provide a good indication of the overall value and effects of the proposed offer. Basic sustainability effects (resource consumption, etc.) and in-depth analyses (cost structures, eco-balances, working conditions, etc.) are – for reasons of clarity – not explicitly mentioned. Firstly, we focus on the effects of the product (i.e. the technological level) itself. Then the impacts derived from introducing the PSS are discussed.

Analysis of Technology Level From a technological viewpoint, the introduction of O-Lamps with energy saving lamps results in several advantages in comparison to the earlier used kerosene lamps. However, it also poses some disadvantages and new economic, environmental, and social risks, which are described in Table 3: Economic effects: The assessment of effects within the lifecycle of production is generally undertaken from a company’s point of view. At this point, we resign an in-depth comparison of different cost structures of O-Lamps and kerosene lamps. Generally speaking, if we assume costcovering business practices of OSRAM, negative effects for production and recycling exist, but are not higher than accumulated lending revenues per lamp. However, considering the maintenance phase from a user’s point of view, we can analyze the economic effects of the O-Lamp. By capturing solar energy, the price of charging the batteries is around 20% lower than the price of kerosene for the same amount of lighting. The costs of recycling

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Table 3. Sustainability effects on the technological level Target dimension

Life-cycle phases Use/ maintenance

End of life

Economic

20% lower energy costs

n/a

Environmental

Zero emissions Fewer pollution from kerosene

Fewer pollution from kerosene Risk of mercury Risk of battery disposal

Social

Zero air pollution Zero accidents from kerosene lamps Improved living standards and education

Risk of mercury Risk of battery disposal

O-Lamps were not known at this point of time, but can be considered as negative and moderate. Environmental effects: Considering the use phase, the introduction of off-grid lighting leads to a maximum reduction of CO2 and other toxic emissions while the lamps are used. It has to be noted that the reduction of CO2 is possible due to solar energy collected on the roofs of the recharging stations. Furthermore, environmental pollution from spilled or dumped kerosene is removed entirely. However, O-Lamps pose some environmental risks in the end-of-life phase, as some hazardous materials are part of the energy saving lamps (e.g. mercury) and batteries (e.g. plumb). Hence, these products carry certain risks, if not recycled properly. Social effects: Regarding the use phase, the reduction of toxic emissions in houses of the local users leads to healthier living environments and less air pollution. Furthermore, accidents with kerosene lamps, which may lead to severe burns or deaths, can be avoided. Another indirect, but noteworthy, effect is the improvement of living and, foremost, learning conditions. Generally, young children may only be able to study in the evening, when home from school or work. However, kerosene lamps are rather improper due to the poor quality of light. By having access to better and longer lighting, children have improved opportunities for education. From an end-of-life perspective, the use of mercury within the O-Lamps and the use of batteries cause health risks, when not recycled properly.

Analysis of the PSS level The off-grid lighting solution depicts an illustrative example of a PSS: by lending rechargeable battery packs, these packs can be used more often and can be maintained more easily. Therefore, the assessment of sustainability effects on a PSS level is of particular interest (Table 4): Economic effects: As mentioned above, the assessment of the production phase is very company-specific and carried out in this case study rather generically. The analysis of the use phase, however, reveals remarkable effects. By offering a lending service of its product, the product is much more affordable to local residents. This is due to the fact that the actual usage of a product can be split up in single value-adding packages and then sold separately. In contrast, the sales based on transfer of ownership do not allow such separation and can only be sold once. Accordingly, while a classical approach of selling lamps and transferring ownership would impose a very high economical entry barrier, lending out lamps leads to a lower price level per „utility unit“ and therefore significantly increases the market reach of this product. In fact, in this case study, the introduction of a lending service enables the access to technological innovations and SOIs in the first place. The support of micro loans adds to this fact that lower economical entry barriers can be considered as a key achievement of PSS innovations in developing countries. Consequently, in developing countries PSS can be re47

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Table 4. Sustainability effects on the PSS level Target dimension

Life-cycle phases Use/ maintenance

End of life

Economic

Lower economical entry barriers

-

Environmental

Access to clean and renewable energy sources

Recycling and disposal of lamps and batteries, which include toxic materials

Social

Access to improved lighting New job possibilities

-

garded as enabler for SOIs on a technological level. Environmental effects: Major environmental effects of the overall PSS can be determined in the use and end-of-life phase. By collecting solar power at the recharging stations, clean and renewable energy sources can be guaranteed in the use phase. Regarding the end-of-life phase, the collection of battery packs and their recycling and disposal is more feasible. Social effects: Noteworthy social effects on the level of the PSS are created mostly during the use phase. By lowering the economical entry barriers, the PSS discloses the accessibility of technology to the poor and can hence lead to improved living standards of the population. The operation of energy hubs as charging station is an investment in local infrastructure and thus may also add job opportunities to local communities. Still, it may also be considered that such new infrastructure and offerings put previous job opportunities (e.g. kerosene trading) at risk – the positive job effect thus might be outweighed. In summary, Table 5 gives an overview of all effects on the technological level and the PSS level.

DISCUSSION AND FUTURE RESEARCH DIRECTIONS The case study exemplifies the multi-dimensionality of SOIs and demonstrates the importance of structuring sustainability effects along the target

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and life-cycle dimensions of SOIs. Furthermore, our findings lead to several implications which are discussed in the following.

PSS and its Effects on Sustainability The effects of PSS on sustainability have been generally discussed elsewhere with regard to developed countries (e.g. Mont, 2004). We could identify those effects within this case study again to support the following findings: firstly, by introducing a PSS (instead of mere product sales), the resource efficiency could be significantly increased (by using the batteries more often). Secondly, the PSS leads to an extension of the responsibilities of the manufacturer. The company now owns batteries and lamps and is hence responsible for their recycling and disposal. This is extremely important in the presented case, as both components incorporate toxic and environmentally harmful materials. The case illustrates an additional positive effect resulting from the shift of responsibility: as OSRAM is responsible for the recharging of the batteries, it adds to the positive sustainability impacts by integrating solar power to its system. The use of solar panels is only feasible by taking advantage from economies of scale at the recharging stations. This finding supports research on PSS, in which the generation of synergies is explicitly mentioned as a major benefit of PSS (Manzini & Velozzi, 2002). More generally, Pawar et al. (2009) identified the challenge of “designing value” in order

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Table 5. Overall assessment of sustainability effects Target dimension Economic

Environmental

Social

Innovation level

Life-cycle phases Use/ maintenance

End of life

Product

~20% lower energy costs

-

PSS

Company: lower economical entry barriers through rental and thus creation of new markets

-

Product

Zero emissions Fewer pollution from kerosene

Fewer pollution from kerosene Risk of mercury disposal Risk of battery disposal

PSS

Access to clean and renewable energy sources

Recycling and disposal of lamps and batteries

Product

Zero air pollution Zero accidents from kerosene lamps Improved living standards and education

Risk of mercury Risk of battery disposal

PSS

Access to improved lighting (long-term: new job possibilities)

-

to successfully implement PSS. Furthermore, the need of being able “to model” a PSS was identified (Baines et al., 2007). The presented approach – especially the separate evaluation of technological and PSS levels – may add value by providing an in-depth understanding on how and where value is created and where additional value might be created. Hence, the taken approach may add to the further understanding of a PSS’s sustainability effects.

PSS as Enabler for SOIs This case study emphasizes another profound effect of PSS, which is unveiled in our findings: PSS can function as economic enabler for SOIs – and more generally, for product innovations (Manzini & Velozzi, 2002). By selling the utility of products, rather than transferring ownership, the price of using a product for the first time drops significantly, hence minimizing economic entry barriers to using products and/or services (Mont, 2001, 20). This is extremely important in developing countries where relatively high purchasing prices constitute significant barriers to the diffusion of products. Introducing sustainability-

oriented product innovations through a PSS can thus be a good strategy to maximize positive sustainability effects (Figure 1). Future research should thus analyze the role of PSS for successfully introducing radical SOIs, either in niche markets or at transition into mass markets.

The Role of SOIs for the Development of PSS Pawar et al. (2009) highlighted the importance of simultaneously designing the product, service, and organization in order to successfully establish a PSS. Our case study underlines this finding by illustrating a rather different product design of OSRAM: by integrating batteries and recharging stations, OSRAM designed its offering different to its traditional products of mere selling of bulbs. The product itself was adapted to fit in the newly developed PSS. This notion emphasizes the interdependencies of the technological and PSS levels of innovation. Hence, when advancing to the layer of PSS, companies have to review their product innovations and may design them differently (Pawar et al., 2009).

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Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Figure 1. Simultaneous innovation at the technological level and PSS (or functional) level

Success Factors for the Introduction of PSS General barriers and design features for the introduction of PSS are discussed in literature (Baines et al., 2007, Manzini & Velozzi, 2002). For instance, the need of incorporating a multi-stakeholder approach is highlighted, when introducing PSS (Pawar et al., 2009, Huiten et al., 2001, Mazini & Velozzi, 2002). Additionally, being sensitive to the cultural context can be regarded as one of the key success factors for the integration of PSSs (Wong, 2004). By integrating local and international NGOs in the development of its offering, OSRAM pursued this notion fairly well. However, arguably, OSRAM failed to fully integrate its customer into the development process. One of the reasons, why the solution is not adopted by the local population in Kenya so far, can be traced back to its pricing system: OSRAM charges deposit fees to be able to use the system. However, those deposit fees are considerably high, thereby impeding most of the potential customers from purchasing the service. Additionally, the income of local fishermen is highly volatile and thus their need for electricity is equally varying. However, OSRAM’s offer is rather inflexible, as only fully charged batteries

50

are lent at full cost which does not correspond with the fluctuation of local demand for off-grid lighting. This invalidates the general flexibility benefit of the PSS which would allow for a better adjustment to customer needs (Cook et al. 2006). Ultimately, OSRAM’s PSS is not fully suited to the needs and usage patterns of its target group and, hence, could not fully unveil its sustainability potentials. This emphasizes the importance of integrating customers into the development of PSS as early as possible (Hansen et al., 2009, Manzini et al., 2001, Huiten et al., 2001). The case may further stress the requirement of new methodologies for the design and development of user-tailored PSS (Morelli, 2002, Baines et al., 2007, Manzini & Velozzi, 2002). Further research should look at processes of open innovation and customer integration (e.g. Halila & Horte, 2006; von Hippel, 1988) in order to build more successful PSS.

CONCLUSION This chapter emphasized the role of innovation for addressing sustainability as well as the role of sustainability as a source for innovation. Product-

Product-Service Systems as Enabler for Sustainability-Oriented Innovation

Service System (PSS) represents an important approach for both perspectives. However, as PSSs are combinations of products and services and, as they go beyond product ownership, multiple new hurdles and opportunities emerge. The presented case study showed an example of simultaneous product and PSS innovations and revealed how to assess the various sustainability effects on both levels. Beyond established effects of PSS of saving materials due to fewer products in the market (as the same product is used more often by various customers) the PSS could also be a beneficial innovation strategy for introducing new products/technologies in the market. Future research should emphasize this role of PSS in market entry strategies also in developed nations.

ACKNOWLEDGMENT We thank Prof. Stefan Schaltegger, head of the Centre for Sustainability Management (CSM), for providing us with valuable feedback. Furthermore, we thank one unknown reviewer for his/ her constructive suggestions.

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KEY TERMS AND DEFINITIONS Case Study: A case study is a research strategy which focuses on understanding the dynamics present within single settings (Eisenhardt, 1989). Corporate Sustainability: Corporate Sustainability can be defined as meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities etc), without compromising its ability to meet the needs of future stakeholders as well (Dyllick & Hockerts, 2002) - which can be operationalized by the heuristic, multi-criteria triple bottom line perspective aiming at the integration of economic, environmental, and social capital through eco-efficiency and effectiveness,

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socio-efficiency and effectiveness, and eco justice (Schaltegger & Burritt, 2005). Low-Income Market: Customers with annual purchasing power parity (PPP) of $1500 or less (Prahalad & Hart, 2002). Notably, there is no generally accepted definition of the exact amount of purchasing power yet and the debate on this specific amount is still ongoing. Product Innovation: Gualitatively new products which differ significantly from a comparable condition (Hauschildt & Salomo, 2007). Product-Service System (PSS): A system of products, services, networks of players and supporting infrastructure that continuously strives to be competitive, satisfy customers needs and have a lower environmental impact than traditional business models” (Goedkoop, 1999). Sustainable Development: A development that meets the needs and aspirations of the present generation without compromising the ability of future generations to meet their needs (World Commission on Environment and Development, 1987). Sustainability-Oriented Innovation (SOI): A new development (and commercial introduction) of a product, technology, service, process, or business model which, in comparison to a prior version, has a positive net effect on the overall capital stock (economic, environmental, social), whereby tradeoffs between economic capital on the one hand and environmental and social capitals on the other are possible only when the reduction of either one side is compensated with a sufficiently high increase of the other (Hansen et al., 2010; Wagner and Llerena, 2008).

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Chapter 4

Innovation for Sustainability in Aviation: World Challenges and Visions Hiroko Nakamura The University of Tokyo, Japan Yuya Kajikawa The University of Tokyo, Japan Shinji Suzuki The University of Tokyo, Japan

ABSTRACT In this chapter, the shared visions and the latest activities for sustainability in the aviation sector are presented and perspectives on the innovations that this sector should achieve are discussed. To do this, the latest experts’ talks are collected from four international meetings for aviation and the environment held around the world between September 2009 and May 2010, which invited experts and researchers from Japan, Europe, and North America. The expansion of networks between agents of the sector, which is considered to be essential for the success of innovation transition, is found in the latest projects for aviation sustainability. To smooth the transition of innovation from sector’s initiatives including radical change such as low-carbon alternative fuels, we emphasize the need for more discussion about new economic measurements. Finally, we discuss directions for future research, using multi-level perspectives for a transition management of aviation innovation for sustainability.

INTRODUCTION Some environmentalists believe that air transportation is evil because it is energy consuming, extravagant, and polluting. Aircrafts fly using fossil fuels, which emits various problems such DOI: 10.4018/978-1-61350-165-8.ch004

as “sustainability”, however air travel also allows people to meet their friends and families living on other continents, and the chance to buy local products of another hemisphere in their own towns. The aviation and a “sustainable” future is very complicated issue socially and economically. Furthermore, aviation connects countries.

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Innovation for Sustainability in Aviation

No single country has full control of international flights, which indicates that the management of aviation in the future can not be achieved without international negotiations and challenges. In this chapter, we investigate how the sector is going to control the flight for sustainability in such a difficult weather. Over a hundred years after the Wright brothers flights, aviation has achieved countless technological and system innovations in the area of fuel efficiency, noise, air quality, speed and safety. The main agents of the aviation sector are listed as follows: airlines, aircraft manufacturers, engine manufacturers, research institutes, researchers, air control services, airports, and governmental and non-governmental organizations. Geel (2006) pointed out that the networks within the socio-technical system for aviation were one of the keys to success in precedent innovations. With successful experience in innovations, the aviation sector is now tightening and widening the networks between various agents to challenge the climate-change issue. Last year, for example, the sector produced the first globally harmonized agreement on reducing the sector’s impact on climate change (ICAO, 2009), the details of which will be described in the next section. This chapter is organized as follows: the second section explains the theory we use for the analysis of experts’ talks and the background of the aviation and the environment issues. The third section presents the data sources which the analysis is based on, and the sector’s shared visions toward aviation for sustainability. The fourth section discusses the technological and system innovation trends, network expansions of agents of the aviation sector and perspectives for achieving the sector’s responsibility toward a carbon-neutral society. The fifth section proposes future innovation management directions. And the sixth section concludes our findings. Finally, in this chapter, we treat CO2 emission reduction as the main solution for aviation impact reduction for climate change, while the balance

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of NOx effects to ozone production and methane reduction and the potentially grave effect of contrails are still uncertain (Szodruch, 2009).

BACKGROUND Research into Innovation and Sustainable Development Recent social science research into innovation and sustainable development can be classified into two groups: cleaner technology and systems innovation (Smith, 2006). The latter is important since cleaner technologies are often not adopted without some transformation of socio-technical systems (ex. technology, policy, users, industry structure, markets, culture, infrastructure, science) (Weber et al., 1999). Researchers of systems innovation have been developing many theories and tools to promote the transitions required to make it possible to move innovations from laboratories to market. One prominent school of thought in recent systems innovation debates is called Strategic Niche Management (SNM). Here niche is used to describe an emerging and innovative technology or system, and is vulnerable at the infancy. Studying the history of technology innovations, SNM scholars have analyzed processes to try to determine what is the best for successful development of niche. They have identified some strategic factors; broad and deep social networks, robust expectation shared between actors of a niche, and learning processes at multiple stages where the actors related to the niche learn about the design, user needs, cultural and political acceptability, and other aspects of the niche (Schot & Rip, 1996, Hoogma et al., 2002). SNM researchers have taken a lot of case studies of the transition mechanism of various domains; products such as organic food, ecoefficient house etc., or public services such as biogas energy plant, waste water plants and so on

Innovation for Sustainability in Aviation

(e.g. Smith, 2006; Raven & Geel, 2010; Dries et al., 2007). There are a few studies about aviation (Haan & Mulder, 2002; Kivits et al., 2010). More studies are expected to accelerate both the SNM research and the aviation sustainability, because systems innovation in the aviation sector is very difficult due to the long product lifecycle and huge sunk costs (Kivits et al., 2010). Furthermore, the development requires a lot of investment and government supports, which causes WTO subsidies disputes. How the aviation sector will bring niches up is very interesting to the researchers of SNM.

Aviation for Sustainability The impact of air transport on the atmosphere and the climate was estimated as 3.5%~4.9% of current anthropogenic radioactive forcing (Lee, 2009) with a high uncertainty due to emission at high altitudes (Szodruch, 2009). This number itself doesn’t tell us whether the impact is “small”, “significant” or “fair” (Randles & Bows, 2009) because aviation also brings a number of social and economical benefits. The sector has achieved significant improvements in environmental performance, for example, 90% noise reduction and 70% CO2 reduction (or fuel-efficiency increase) compared to the 1950s (Blackner, 2010). It must be remembered, however, that a stable increase of traffic is forecasted. Boeing estimated an average 5.2% to 5.9% growth of worldwide passenger traffic and cargo traffic, respectively, over the next 20 years (Boeing 2010). The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) asked the International Civil Aviation Organization (ICAO) to pursue limitation or reduction of greenhouse gas (GHG) emissions from international flights (Conference of the Parties, 1997). ICAO formed the Group on International Aviation and Climate Change (GIACC) to develop an ICAO program of Action in January 2008. The ICAO’s discussion on climate change,

however, has been caught between two opposite principals; UNFCCC’s principle on common, but differentiated responsibilities (CBDR), and aviation’s Chicago Convention principle of nondiscrimination and equal and fair opportunities to develop international aviation. In other words, to achieve a consensus in the ICAO, a consensus both of countries which ratified the Kyoto Protocol and those countries which did not. Consideration on the two principles of the CBDR and the Chicago Convention caused very slow progress in the discussions. A continuous increase in world fear about climate change and the absence of a central force in the ICAO consequently called to fore the sector agents’ awareness of their responsibility to work on climate change issues and their ambitious to take leadership in aviation development towards sustainability. A number of activities, which vary from R&D projects in manufacturing to international initiatives for air transport management (ATM) systems are now organized around the world, but especially in North America and Europe.

VISIONS AND TECHNOLOGY DIRECTIONS OF THE AVIATION SECTOR In this section, visions shared widely among the aviation sector and directions of technology development are discussed on the basis of the experts’ talks gathered from four international meetings for aviation and the environment. The meetings were held between September 2009 and May 2010 by 2 major international organizations that are connected strongly with European and North American leading industries and institutes and by authors. The brief summary of each organizations and the meetings are as follows. It is interesting to note that, in each meeting, we can find the increase of the sector’s interest on the environment issue.

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Innovation for Sustainability in Aviation

The American Institute of Aeronautics and Astronautics (AIAA), which is the world’s largest technical society for aerospace, held “Inside Aerospace”, an annual international forum for aviation and space leaders. While the themes of recent meetings were about the aerospace workforce, the meetings held on the 11th and 12th, May, 2010, at Arlington, in Washington D.C, were dedicated to “a candid discussion of how to make aviation more energy efficient and “green” and how to effectively use aerospace technology to understand and limit climate change” (AIAA homepage). The AIAA invited key speakers from government, airlines, aircraft and engine manufacturers, oil companies, academia, research institutes, non-governmental organizations, and even the Air Forces. Most speakers came from North America, but some speakers were also from Europe. Some of presentation documents can be downloaded from the AIAA homepage. The International Council of the Aeronautical Science (ICAS) is the sole global organization for a free international exchange of information on aeronautical science and engineering. The Council holds an International Congress in the fields of Aeronautical Sciences every two years (ICAS homepage) and receives hundreds of aeronautical researchers and student participants. It also holds an International Workshop biennially for “international experts in the field to exchange views and to identify further areas of potential cooperation”. In 2005, the theme for the international workshop was, “Towards a Global Vision on Aviation Safety and Security”, in 2007, the theme was “UAV-Airworthiness, certification and access to the airspace”, and in 2009, “Aviation and Environment”. It was not until recently that environmental themes were considered important enough to discuss as a main theme. On the 28th of September 2009, in Amsterdam, the Netherlands, the workshop was organized with invited speakers from government, airlines, aircraft manufacturers, academia, and non-governmental organizations.

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Most speakers came from the Europe, but one speakers was from the U.S. All of the presentation documents from this 2009 meeting in Amsterdam can be downloaded from the ICAS homepage. The Centre for Aviation Innovation Research (CAIR) is an inter-disciplinary organization within the University of Tokyo, established in August, 2009. CAIR’s main objectives are to research aviation innovation from a wide range of views, including aeronautics, aviation policy, and economics, and to help promote and design the aviation industry as one of the leading industries in Japan. One concrete objective is to contribute to realize maximum utilization of airspace by developing a set of policy recommendations. CAIR held an “International Seminar on Aviation and Climate Change” on February 18th, 2010, and an “Aviation Environment Workshop” on May 19th, 2010. The former seminar invited experts and researchers from Japan and Europe to discuss the technological feasibility of attaining emission reduction targets as well as future research directions on the issue. The latter workshop organized by CAIR and the Boeing Company invited experts from the U.S. and Japan to share their knowledge of technologies that have enabled significant reductions in aircraft noise and emissions to date. Technologies being developed for further reduction in aviation’s environmental footprint were discussed. The workshop was initially planned as a workshop for noise issues, but in the course of preparation, the theme was replaced with wider environmental issues, which also included the subject of emissions. This fact implies also the recent increase in the sector’s attention to the climate change. Both meetings invited governments, airlines, aircraft and engine manufacturers, oil companies, academia, and research institutes. Half of the speakers came from Japan and the others from Europe and the U.S. Some of presentation documents can be downloaded from the CAIR homepage.

Innovation for Sustainability in Aviation

Table 1. World aviation goals Organization

Vision Title

CO2 and other aviation environmental performance targets

ICAO

“Programme of Action”

-2% annual fuel efficiency improvement up to 2050 -Further discussion on more ambitious goal

IATA

“Carbon Neutral Growth from 2020”

-1.5% annual fuel efficiency improvement from 2009 until 2020 -Carbon neutral growth from 2020 -50% carbon emission reduction by 2050 compared to 2005 levels

ACARE (Europe)

“A Vision for 2020”

-50% CO2 reduction -80% NOx reduction -50% noise reduction compared with 2000

NASA (USA)

“NASA subsonic transport system level goals”

Conventional configurations relative to 1998 single aisle (N+1=2015***) -32dB below Stage4 for Noise reduction -60% below CAEP6 for LTO NOx emissions reduction -33% aircraft fuel burn reduction** Unconventional configurations relative to 1997 single aisle (N+2=2020***) -42dB below Stage4 for Noise reduction -75% below CAEP6 for LTO NOx emissions reduction -50% aircraft fuel burn reduction** Conventional configurations relative to 1998 single aisle (N+3=2025***) -71dB below Stage4 for Noise reduction -75% below CAEP6 for LTO NOx emissions reduction -Better than 70% aircraft fuel burn reduction** with Exploit metro-plex*concepts ***Technology Readiness Level for key technologies = 4-6 ** Recently Updated. Additional gains may be possible through operational improvements * Concepts that enable optimal use of runways at multiple airports within the metropolitan area

Visions for the Future of Aviation Before discussing the major activities of the aviation sector for sustainability, we would like to present visions and strategies besides the Kyoto Protocol, which serve as a frame for each of the activities. These strategies are summarized in Table 1. The International Air Transport Association (IATA), which “represents some 230 airlines comprising 93% of scheduled international air traffic”, created and have been promoting a fourpillar strategy since 2007 to achieve a vision of “carbon-neutral growth in the mid-term and to build a zero emission commercial aircraft within the next 50 years” (IATA homepage). The fourpillar strategy, ‘Improved technology’, ‘Effective operations’, ‘Efficient infrastructure’ and ‘Positive economic measures’ is comprehensive (Haag, 2009). The IATA, as a representative of the airline industry, set three goals as follows prior to the

ICAO: (1) CO2 efficiency by 1.5 per cent per annum from 2009 until 2020, (2) carbon neutral growth from 2020, and (3) reduction of carbon emissions by 50 per cent by 2050 compared to the 2005 levels in June 2009. The “Next Generation Air Transportation System” (NextGen) is an air transport management concept for the year 2025 and beyond, which meets US future air transportation safety, security, mobility, and environmental needs. The NextGen concept was enacted in 2003 by the Congress of the United States. An important benefit of NextGen is to provide environmental protection (FAA homepage). NextGen uses a five-pillar strategy of ‘advances in science and modeling’, ‘operational improvements’, ‘new technologies’, ‘renewable fuels’ and ‘policy initiatives including the environmental management system (EMS) to address environmental impacts. On the other hand, the National Aeronautics and Space Administration (NASA) in November 2007, presented the tech-

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Innovation for Sustainability in Aviation

nological goals for future-generation aircraft that should be in service from 2030 to 2035 (NASA homepage). “European Aeronautics: A Vision for 2020” and the Strategic Research Agendas (SRA1, SRA2, Addendum) of the Advisory Council for Aeronautics Research in Europe (ACARE) exist to “better serve societies’ needs while becoming global leaders in the field of aeronautics”. The challenges for the European aviation industry include quality & affordability, the environment, safety, and the efficiency of the air transport system and security. The ambitious environmental goals are 50% CO2 reduction, 80% NOx reduction, and 50% noise reduction compared with 2000 levels (ACARE homepage). Japan does not have a clear shared vision throughout the national aviation industry. A target for domestic aviation, however, has arisen from the national sector-based approach under the Kyoto Protocol Target Attainment plan. The target is 15% improvement in energy efficiency (fuel consumption per pax-km performed). With the UNFCCC Conference of the Parties (COP) 15 close at hand, ICAO finally reached the first globally harmonized agreement on reducing the sector’s impact on climate change at the High-level Meeting on International Aviation and Climate Change in Oct 2009 (ICAO, 2009). The ICAO Programme of Action on International Aviation and Climate Change has a 2% annual fuel efficiency target for improvement up to 2050 and further discussions are expected on even more ambitious goals. These high targets are well shared and stimulate integrated development approaches between agents. There are dozens of technical and operational innovation proposals which include what could not be expected from development approaches by a single agent, such as open rotor engines.

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Technical Development Directions Through observation of the current sector’s movement toward sustainable aviation, we found that various levels of innovative ideas have been proposed and developed. There are two main directions: One direction of innovation is to reduce fuel use by (1) lighter weight, (2) low air resistance aircraft design, (3) lean combustion and a high bypass engine, (4) an optimized electric system and (5) optimized flight routes Another direction is to replace fossil fuel by 6) biofuels. We discuss each innovation from (1) to (5), while considering (6) as a separate direction below: 1. Light weighting of aircraft: Weight is as critical as cost in aircraft development, and resistance to the severe environments of heat, load, and fire is required aircraft material. Replacement of metal by Carbon Fiber Reinforced Plastics (CFRP) is expected in this sector. According to the panel discussions of the CAIR seminar in Feb 2010, however, simple replacement by CFRP won’t bring enough reduction of weight because a drastic change of structural design is also needed to benefit from the use of CFRP. NASA is currently investigating a “failsafe” structure design instead of “safe-life” for lightweight composite structures in its research project, “Pultruded Rod Stitched Efficient Unitzed Structure” (PRESEUS) (Collier 2010). 2. Lowering air resistance of the aircraft: NASA is now conducting research about a Blended Wing Body (BWB), which can contribute to the reduction of both aircraft weight and air resistance by integrating the wings and the fuselage. In Boeing’s newest product, innovation in aerodynamics is achieved through state-of-the-art Computational Fluid Dynamics (CFD) technology and advanc-

Innovation for Sustainability in Aviation

ing wing technologies like multi-function ailerons and high-aspect ratio wings with CFRP (Blackner, 2010). 3. Improving fuel efficiency of the engine: Improvement of fuel efficiency is pursued in two directions, improvement of propulsive efficiency and thermal efficiency. A higher bypass ratio, of the air that passes around the engine to the air that passes through the engine, is effective in improving the propulsive efficiency by reducing the passed air flow speed. A higher bypass ratio, however, confronts the problem of the hypersonic rotation of blades and engine size. Mitsubishi announced the use of a geared turbo fan (GTF) engine made by Pratt & Whitney in the Mitsubishi Regional Jet (MRJ). Pratt & Whitney has developed a speed reduction gear which can improve propulsive efficiency with very high bypass ratio. The open rotor engine which allows a very high bypass ratio is now under development in many institutes and companies. The development of the open rotor must challenge safety and mounting issues. For thermal efficiency, the main issue has been how to make higher pressure and temperature in a combustion room possible without NOx increase. In Europe, a unique alternative cycle process with an intercooler system is now under investigation on a long-term basis. 4. Optimizing the electric system: The output from jet engines are used not only for propulsive purposes, but also for electric power generation and the power of the hydraulic and heating systems. GE and Boeing have developed a non-engine-bleed system in the 787, which replaces the bleed air heating and de-icing system by changing the engine’s output to an electric signal. The replacement can remove a lot of weight from the hydraulic system. An idea to store electricity, will

cause an increase of aircraft weight due to the weight of the battery. In fact, there is an inbalance of supply and demand in electric power generation. During the take off and climb, the engines generate a lot of power. On the other hand, during the cruise, the cabin requires a lot of electricity for air conditioning, meal preparation, etc. Research is being conducted to minimize the inbalance and to effectively use the engine output by generation and storage of electricity. Furthermore, the Japan Aerospace Exploration Agency (JAXA) is conducting hydrogen and fuel cell hybrid engine research with which an aircraft can cruise with fuel cell power and then use a hydrogen gas turbine engine when the fuel cell power is not enough. 5. Optimizing the flight route: Currently, aircrafts fly to their destination in zigzag for various reasons such as political and technological issues. While many political efforts to encourage effective use of airspace with airlines, military operators, business and general aviations of different countries are being made globally, a new air traffic management system which can optimize the route according to the airports’ particular environments and latest climate reports, are being developed and are under international agreement negotiation. The Federal Aviation Administration’s (FAA’s) PerformanceBased Navigation (PBN) system, which allows aircrafts to take preferred routing and trajectories, is an example of an innovative development. Test flights of PBN conducted and have shown a significant reduction of fuel consumption as well as other benefits like optimal use of air space, reduction of pilot/ controller voice transmission, etc.. The major technological challenge is how to manage plural operations safely without an additional load of works on operators and navigators.

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Innovation for Sustainability in Aviation

6. Development of Biofuels: Airlines still have few choices when it comes to jet fuels (kerosene) because jet fuels for aircraft are strictly controlled by international standards. Any compound change in fuels, even without combustion characteristics change, need to be approved for safety and reliancy. On the other hand, relying only on kerosene is a menace to the airlines in terms of future energy security and high prices. For energy diversity generally, the fuel candidate must be handled like oil so that XTL such as Gas to Liquid (GTL), Coal to Liquid, and Biomass to Liquid (BLT) have been challenged. For alternative aviation, too, “dropin” fuel which can replace current jet fuels without change to aircrafts has been actively investigated (Okai, 2010). The use of XTL products produced by new industry processes, which have been developed for more than thirty years, have been approved by the American Society For Testing and Materials (ASTM), an international standards for aviation. Synthetic gas from natural gas, coal, or biomass are being processed in the Fisher-Tropsch process to log chain paraffins and are finished in hydroprocessing and separated into final XTL products. ASTM D7566, a standard for Aviation Turbine Fuel Containing Synthesized Hydrocarbons, which was issued in Sep. 2009, accommodates up to 50% blends of conventional aviation turbine fuel with synthesized hydrocarbon blend components produced from coal, natural gas, or biomass using the Fischer-Tropsch process. For low carbon jet fuel, experts say that biofuel is technically feasible. While 1st generation biofuels often produced from seeds or grains such as wheat, are criticized for their strong adverse effects regarding food shortage in developing nations (Hansen et al., 2009, Schaltegger et al., 2005), 3rd generation biofuels derived from algae avoid this criticism since they can be

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grown on soil or in water that is otherwise unsuitable for food production (Sustainable Aviation, 2010, Ito, 2010). Many test flights have been completed by Boeing, Airbus, and many research institutes (Blackner, 2010, Szodruch, 2009). According to Shell (Ito, 2010, Bauldreay, 2010), the cost of production due to the longer refining routes, and the cost of feedstock and poor yields are the big obstacles when the biofuels try to replace the kerosene.

PERSPECTIVES ON AVIATION FOR SUSTAINABILITY In this section, we are going to investigate, on the basis of SNM findings, whether current aviation sector’s activities toward sustainability can be implemented successfully. According to the findings from SNM research, development of a broad network including actors from dominant “regimes” such as policy makers, users, suppliers, knowledge institutes and also new actors such as small innovative firms, is very important. For the success of the project, SNM also emphasizes the importance of high expectations to the vision by all of the actors and of internal and external learning cycles on technologies, infrastructures, and policies (Van der Laak et al., 2007).

Active Networks Table 2 shows some examples of active networks found among agents in the aviation projects for sustainability. A close relationship among agents has supported a number of innovations since the Wright brothers. Aviation is an integrated multi-technology system. Aircraft development and operation involve thousands of people all over the world. During the development of a new aircraft, such as the Boeing 787, or the Mitsubishi MRJ, the aircraft manufacturer “works together” with not only engine manufacture and other suppliers but

Air Transport Association (ATA) Aerospace Industries Association (AIA)

Boeing

AIA

P&W, R-R, GE

54 industries

P&W, GE, R-R

Contracts

P&W

GE& Rolls-Royce

Engine Manufacturers

15 instit. + 17 univ.

NASA

JAXA

NASA

Research institutes / Academia

Airports

Airports Council International North America (ACI-NA)

€€

Commercial Aviation Alternative Fuels Initiative (CAAFI) - Environmental team - R&D team - Certification-Qualification team - Business & Economics team

JAL, COA, ANZ, VJM

54 industries

EU Clean Sky Programme - 6 integrated technology demonstrators - 40% CO2 reduction

Sustainable biofuel viability

Boeing, Honeywell

FAA Continuous Lower Energy and Noise (CLEEN) Project - Focus on NASA N+1 goal - 33% fuel burn reduction

Mitsubishi

Boeing

Contracts

ANA

ANA

Aircraft/ Avionics Manufacturers

NASA Environmentally Responsible Aviation (ERA) Project - Focus on NASA N+2 goal - 50% fuel burn reduction

Mitsubishi MRJ - 70% lower CO2 emissions from ICAO CAEP6 requirements - Pratt & Whitney PurePower PW1000G: 12~15% fuel efficient

Boeing 787 Dreamliner - 20% reduction in fuel and CO2 (Relative to the 767)

IATA four-pillar strategies; “Improved technology”

Projects, Activities, Technologies

Airlines

Table 2. Landscape of aviation activities for sustainability

FAA

European Commission

Federal Aviation Administration (FAA)

FAA, JCAB

FAA

Governments /Air control services

Shell

Young (ATA) Inside Maurice (CAAFI) Inside Baudreay (Shell) Inside

Blackner (Boeing) CAIRMay

Wetzel (Federal Environmental Agency) CAIR-May

Hanlon (FAA) CAIR-May

Collier (NASA) CAIR-May

Sakura (Mitsubishi) CAIRFeb Parakeh (P&W) Inside

Blackner (Boeing) CAIRMAY

Data Sources*

continued on following page

UOP etc.

20 small and medium enterprises

Others (fuel suppliers)

Innovation for Sustainability in Aviation

63

64 Airlines Aircraft/ Avionics Manufacturers

JAL, ANZ, QFA, UAL, SIA

FAA

Air service of AU, NZ, SG, JP US

Governments /Air control services

EU

US Airports

AU, NZ, SG, JP US Airports

Airports

EU-ETS - All airlines operating in territory of the EU from 2012 - CO2 will be capped at the 97% level of average emissions for 2004-2006 and will be lowered to 95% from 2013

Research institutes / Academia

Japan Civil Aviation Bureau (JCAB)

Engine Manufacturers

JAPAN - Corporation tax and property tax reduction to promote new efficient aircraft - Application of Act on the rational use of energy for large airlines

IATA four-pillar strategies; “Positive economic measures”

Performance Based Navigation (Next Gen) - Radar Navigation (RNAV) - Required Navigation Performance (RNP)

Asia and Pacific Initiative to Reduce Emissions (ASPIRE)

IATA four-pillar strategies; “Effective operations” and “Efficient infrastructure”

Projects, Activities, Technologies

Table 2. Continued Others (fuel suppliers)

Anger-Kraavi (Cambridge Uni) CAIR-Feb

Shimizu (JCAB) CAIRMay

Hanlon, FAA, CAIR-Feb

Funai, JAL, CAIR-Feb Hanlon, FAA, CAIR-May

Data Sources*

Innovation for Sustainability in Aviation

Innovation for Sustainability in Aviation

also with airlines and government agencies. Among various projects, the Asia and Pacific Initiative to Reduce Emissions (ASPIRE) and the Commercial Aviation Alternative Fuels Initiative (CAAFI) are especially interesting because the networks found in the former project are international, and the later project involves more different agents than in most other aviation projects (Table 2). ASPIRE: ASPIRE was created in 2008 as a joint partnership between air navigation service providers – Airservices Australia, Airways New Zealand, and the FAA – to demonstrate optimized operational procedures to reduce fuel burn with current best practices and existing technology. The Japan Civil Aviation Bureau (JCAB) and the Civil Aviation Authority of Singapore (CAAS) joined in the ASPIRE partnership in 2009, and 2010, respectively. To date ASPIRE has conducted five flight demonstrations with Air New Zealand Qantas, United Airlines, Japan Airlines (JAL), and Singapore Airlines on oceanic routes. The oceanic routes have a culture which accepts changes, and has the most modern aircraft fleet, as well as many advanced ocean ground automation systems. The five flights demonstrated the maximum potential for environmental efficiency. For example, JAL flight J077 from Honolulu, U.S. to Kansai, Japan, on the 10th of October 2009 succeeded in a 4,825kg fuel consumption reduction; in other words, a 15,247kg CO2 emission reduction (Funai, 2010). The flight was fueled with the latest on-board loads data, used the closest runway, followed shorter departure routes adjusted by the U.S. Air Force, took a User Preferred Route for the oceanic phase of the flight with a dynamic airborne re-route procedure instead of a route determined by 24-hours old climate data, arrived with Continue Descended Approach, and optimized a flap/ undercarriage/ thrust-reverse operation. CAFFI: CAAFI has been working to lead development and deployment of alternative jet fuels for commercial aviation since 2006 under the leadership and sponsorship of the Federal Aviation

Administration (FAA), Airports Council International – North America (ACI-NA), Aerospace Industries Association (AIA) and the Air Transport Association of America (ATA). “The coalition of airlines, aircraft and engine manufacturers, energy producers, researchers, international participants, and U.S. government agencies” has accelerated preparation for alternative fuel introduction (Maurice, 2010). For example, any slight change to a jet fuel needs a certification approval because of the strict priority to safety in this sector, and this approval is usually a long procedure. ASTM D7566, which is a specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons accommodates up to 50% blends of conventional aviation turbine fuel with synthesized hydrocarbon blend components produced from coal, natural gas, or biomass using the Fischer-Tropsch process, was approved in 2009 with an exceptionally fast procedural speed because of supports to evaluation and qualification of alternative fuels by CAAFI and other agencies (Rumizen, 2009). In CAAFI, the FAA leads the Environmental team and the Certification-Qualification team, AIA leads the R&D Team, and ATA and ACI-NA comprise the Business & Economic team. Shell, which has contributed to the fuel readiness level of the Fischer-Tropsch process and other alternative fuels, is an active member of CAAFI, as well as various international aviation alternative fuel projects: FAA-PARTNER, ASTM, CRC, IATA & EU programs SWAFEA and Alfa-Bird (Bouldreay, 2010). * Inside stands for “Inside Aerospace” held by AIAA on the 11th and 12th, May, 2010. CAIRFeb and May stand for “International Seminar on Aviation and Climate Change” on February 18th, 2010, and an “Aviation Environment Workshop” on May 19th, 2010 held by Authors. In addition to the projects in the Table 2, there is an interesting initiative within UK, Sustainable Aviation, which brings together the UK’s leading airlines, airports, aerospace manufacturers and air navigation service providers. The sorts of agents

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Innovation for Sustainability in Aviation

involved in the initiative is typical as for aviation but the aim of this initiative is broad. The initiative sets a series of eight goals and 34 commitments relating to economic, environmental and social aspects of aviation. The initiative is for the long term sustainability of the UK aviation industry but provides interesting and important reports about alternative fuels, CO2 efficient airport operation etc. through its homepage (Sustainable Aviation homepage). The initiative is strong and leads the government (Sunetra, 2010).

A Forked Expectation Governments and other non-profit organizations expect suppression of greenhouse gas effects in the aviation sector for innovations presented in the previous section. On the other hand, in actuality, the expectation from airlines for innovations is heterogeneous. Airlines, which are the main customers and users of new technology and systems, look for cost reduction before reduction of greenhouse gases. However, in many presentation documents of the four meetings, a slide with the equation: “Fuel reduction = CO2 emission reduction” is shown. This equation amplifies the driving force behind innovation. In the new aircraft development phase, fuel efficiency is a critical factor in addition to speed, load capacity, and aircraft range without any trade-offs in safety and security. This priority among fuel efficiency, speed, load capacity and aircraft range changes, however, depending on the business and social environment for operators such as airlines and sometimes airports. Recent soaring fuel prices and the expectation from governments to operators to reduce CO2 emissions raise the need for fuel efficiency in the priority competition. Governments and airlines, manufacturers and research institutes expect technological breakthroughs for technological and operational innovations. Therefore, “Fuel reduction = CO2 emission reduction”, accelerates the sector’s activities on sustainability innova-

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tion. The expectations of the airlines themselves are especially important because it is the airlines that finally decide whether or not to modernize their fleets (e.g., Lufthansa’s fleet modernization programme of 170 aircrafts with a list-order price of 16 billion euros (Haag, 2009)). Airlines open the window of opportunity for technological and system innovations to spread in actual operations. Nonetheless, the aviation industry still needs more discussions about the stage where CO2 emissions reduction is not equal to cost reduction any more. “Drop in” biofuels, are one of the most feasible candidates for low carbon alternative fuel. In terms of cost, however biofuels are not competitive against current jet fuel (Ito, 2010). Even though many airlines are open to development in various alternative fuel projects such as CAAFI for example, the main expectation of airlines to biofuel programs is energy security and corporate social responsibility. So even if biofuels can be used technically, the positive participation of airlines to the development does not promise the positive use of the low carbon alternative fuels if the current kerosene jet fuel is still available and less expensive than alternatives. In order to introduce technological and system innovations and the use of low carbon fuels to achieve a carbon-neutral environment, we need a new mechanism to keep such different expectations to the same direction. From the discussions in the four meetings, however, a lack of ideas about positive economic measurements, the 4th pillar of IATA strategies, seemed to stand out. The cap-and-trade scheme is considered by many politicians and economists to be one of the most effective methods for realizing a low GHG society (Duval, 2009). The cap-andtrade scheme can add more value to low-carbon technologies so that these technologies can enter the market. In the U.S., which didn’t ratify the Kyoto-protocol, or pass national legislation for cap-and-trade, many regional initiatives have been established with the aim of reducing GHG from particular regions and most initiatives are preparing a cap-and-trade scheme, although the

Innovation for Sustainability in Aviation

aviation industry is not yet included in the scheme (McCann, 2010). The EU emission trading system (EU-ETS) is one of a few propositions made to the aviation sector as a positive economic measure. From 2012, the EU will begin an emissions trading system (EU-ETS) for all airlines operating in the territory of the EU. CO2 will be capped at the 97% level of average emissions for 2004-2006 and will be lowered to 95% from 2013. While the cap-and-trade scheme can be expected to evaluate the cost benefits of low-carbon technology for aircraft, this scheme still has the problem of reducing airline business rather than replacing conventional fleets with innovative low-carbon technology. The reduction of airline business causes a reduction of mobility. Stopping the significant increase of traffic is actually one of the purposes of EU-ETS supporters. However, secure of mobility is also important in a different frame, for example, in the regional economic gap issue. Because when airlines need to reduce the business, they may start the reduction from abandonment of the routes to developing regions. Even though cap-and-trade is a positive mechanism urgently needed in the implementation of aviation for sustainability, long discussions are still necessary before putting such a scheme into effect. For example, the EU-ETS was sued recently by the US Air Transport Association of America (ATA) to halt and is assumed not to be able to start from 2012 (Young, 2010). We need, therefore, other measures to compliment the time gap from now until the introduction of the cap-and-trade scheme to the aviation sector. Daley and Preston (2009) assessed market-based policy options, which is similar to IATA’s 4th piller of, ‘Positive economic measures’, for the mitigation of aviation impact to climate change. The authors listed environmental taxes, emission charges, subsidies and tradable permits as marketbased policy options. The authors assessed that any of these options confront problems of uncertainty in aviation’s impact on climate change, distortions of international airlines or manufacturing markets,

or the complexity of the international aviation agreements. There is another option, which is not a positive economic measure nor a market-based approach but a regulatory approach. The ICAO is now investigating a CO2 standard similar to noise and NOx. In aviation operation, strict noise standard, such as ICAO “chapter”, or on the U.S. “stage”, plays a significant role to reduce noisy aircrafts. If an aircraft doesn’t satisfy the noise standard, the aircraft can not operate. The standard has proven its big effect on airline fleet strategies.

FUTURE RESEARCH DIRECTIONS In previous sections, we have seen that there are various projects of aviation sustainability and we have analyzed the perspectives of these projects. While we found growing networks, we recognized that the driving forces from markets are within the limits of expectation on cost-efficiency. Besides of these facts, we must note the IATA’s report, which warns that even we implement all of the technology and operational innovations (a) lighter weight, (b) low air resistance aircraft design, (c) lean combustion and a high bypass engine, (d) an optimized electric system and (e) optimized flight routes), it is not achievable to bring aviaFigure 1. Schematic roadmap of aviation CO2 emissions under the effect of reduction measures (Adapted from IATA, 2009)

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Innovation for Sustainability in Aviation

tion to CO2 carbon neutral emissions (Figure 1). “Regime” changing innovations are expected for “Carbon Neutral Growth from 2020”. We need to discuss how to manage a radical technology or system change. And we think it is important to understand the driving force in the aviation socio-technical system in multi-level perspectives. Multi-Level Perspectives (MLP) is a useful approach to understanding transition pathways of an innovative idea to integrate in the main stream of a system or a society. It comes from SNM researches and has a complementary relationship with SNM (Schot & Geel, 2008). The MLP distinguishes three levels (niche, regime and landscape) in a system. Niches are a level of emerging innovations and are situated at the margin of the regime. Regimes are a level of the main or existing streams and create stability of the system. Landscapes are the macro-level of society as a whole. The interplay between dynamics at multiple levels leads transitions. See Geels (2006) for further explication. In brief, Geels concluded that co-evolution at the regime level was clearly visible in his case studies of past technology or system replacements. There was a strong interaction between technology and markets. Transitions are not caused by a change in a single aspect, but by the interplay of many aspects and actors. A MLP approach may help Green’s (2002, 2006) radical idea of flight with short-range aircraft with several refuelings before arriving at their destination. A lot of technical papers and significant benefit have been proposed, but this idea doesn’t appear in a roadmap of this sector. Green’s idea is against the development of longrange aircraft, or of aircraft technology itself. The development of longer-range flights is often described in the first slides of manufacturers and airline presentations. For example, development of aircraft technology reduced the number of stops of the London-Sydney flight from 32 stops and 10 days in 1939 by Flying Boat, 2 stops and 26 hours in 1990 by 747-400 to 0 stops and 19.5 hours in 2006 by 777-200LR, according to Qan-

68

tas. But according to Green, using an aircraft of 5000km range capacity with stops of lubrications at airports can be about 40% more fuel efficient than carrying the same number of passengers along a 15000km distance using an aircraft of 15000km range capacity. This difference is due to the weight of fuel, which covers all of the flight. In other words, for carrying fuels, a long distance flight consumes nearly half of the fuel. Green’s short-range aircraft idea is an effective solution for the reduction of CO2 emissions, but it is considered unrealistic. Customers will not accept the trouble of stopping in several airports once they have taken a non-stop flight. Although there is the idea of air-to-air refuelling, this type of refuelling is risky in terms of safety. For such a socially challenging issues, MLP approach will be useful to list the problems to solve and organize the learning process. Some of MLP researchers study the interaction of different niches or regimes. There are several options for the future aviation system. Many stakeholders wish aviation for sustainability. On the other hand, there are some options that may go opposite direction of “sustainability”. Supersonic transportation attracts some of airlines and business travellers. Cohen (2010) detected the small but strong human desires for personal aeromobility pushing back the force for sustainability. Each innovative aviation scenario including “sustainability” has opposite and favourable driving forces and may not able to be realized by itself. If we could combine the favourable driving forces, we might be able to obtain sustainability and even further ideals for the sector. For example, we may be able to load low-carbon technologies on personal aircraft in the same way as Toyota obtained technology and cost supremacy in the hybrid engine mark by mounting the hybrid engine in the compact size car and pursuing low profit but high volume. Even though the requirements for safety and security will not change between small and large aircraft, small aircraft might have advantages in terms of the difficulty of develop-

Innovation for Sustainability in Aviation

ment because of the strength and complexities of the system as well as the scale of the market. Manufacturers may be able to innovate their technology development from small aircraft, which has fewer constraints, and transform these technological developments in big aircraft much earlier than in direct development to big aircraft. Therefore, we propose management of the sector’s future options in multi-level perspectives as a future research directions for sustainable aviation.

need a specific remedy before a trade scheme is finally put into effect after many more necessary long discussions. Finally, we have presented future research directions using a multi-level perspective approach, which is useful in discussing how to bring innovations to practice. The aviation sector has had a number of innovative successes. Sustainability issues, however, may need a paradigm shift due to the higher overall complexity of issues.

CONCLUSION

REFERENCES

Only 1% of the world population has flown yet, but rapid growth of airline traffic, especially in Asia is expected in the near future (Upham, 2003). Air transportation interacts with current business and the economical practices and policies and well as through social activities, such as allowing people to meet their families on different continents. How to achieve aviation for sustainability without jeopardizing mobility is a huge issue for the sector. We collected and analyzed the latest experts talks from four international meetings for Aviation and the Environment held by ICAS, AIAA, and CAIR between Sep. 2009 and May. 2010. These meetings invited experts and researchers from Japan, Europe, and North America to mitigate the aviation impact to climate change. We saw that various levels of vision are well shared between agencies and many technology and system innovations are upcoming. We also found that the networks between agencies are expanding through initiatives. In spite of ambitious innovation plans, strong traffic growth makes it difficult to suppress the aviation impact to climate change. We discussed the need for positive economic measures to put a higher value on the need for low- carbon technology in the sustainability context. The cap-and-trade scheme is considered to be one of the best solutions, but at the same time, we may

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Homepage, A. I. A. A. (n. d.). Retrieved from http://www.aiaa.org/ Homepage, C. A. I. R. (n. d.). Retrieved from http://aviation.u-tokyo.ac.jp/ Homepage, F. A. A. (n. d.). Retrieved from http:// www.faa.gov/ HomepageI. C. A. S. (n. d.). http://www.icas.org/ Hoogma, R., Kemp, R., Schot, J., & Truffer, B. (2002). Experimenting for sustainable transport: The approach of strategic niche management. London, New York: Spon Press. IATA. (2009). The IATA Technology Roadmap Report (3rd ed.). Swizerland.

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ICAO. (2009). ICAO-Uniting international aviation on climate change. ICAO news release, PIO 14/09. Retrieved on July 17, 2010, from http:// www.bangkok.icao.int/ news/2010/ pio-14-09final.pdf

Haag, K. (2009, September). Environmental policy of a global airline. Presented at ICAS Workshop 2009, Amsterdam, The Netherlands.

Ito, T. (2010, February). Shell energy scenario 2050. Presented at the International Semiar on Aviation and Climate Change, Tokyo, Japan.

Haan, A., & de Mulder, K. (2002). Sustainable air transport: Identifying possibilities for technological regime shifts in aircraft construction. International Journal of Innovation Management, 6, 301–318. doi:10.1142/S1363919602000628

Kivitsa, R., Charlesa, M. B., & Ryanb, N. (2010). A post-carbon aviation future: Airports and the transition to a cleaner aviation sector. Future, 42, 199–211. doi:10.1016/j.futures.2009.11.005

Hanlon, D. (2010, May). FAA environmental initiatives. Presented at the University of Tokyo Boeing Aviation Environment Workshop, Tokyo, Japan. Hansen, E. G., Große-Dunker, F., & Reichwald, R. (2009). Sustainability innovation cube — A framework to evaluate sustainability-Oriented innovations. International Journal of Innovation Management, 13, 683–713. doi:10.1142/ S1363919609002479 Homepage, A. C. A. R. E. (n. d.). Retrieved from http://www.acare4europe.com/

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Lee, D. S., Pitari, G., Grewe, V., Gierens, K., Penner, J. E., Petzold, A.,...Sausen, R. (2009). Transport impacts on atmosphere and climate: Aviation, Journal of Atmospheric Environment. doi:10.1016/j.atmosenv.2009.06.005 Maurice, L. (2010, May). Greening U. S. Aviation. Presented at the AIAA Inside Aerospace Conference, Arlington, VA. McCann, M. G. (2010, May). Greenhouse gas regulations and associated energy issues. Presented at the AIAA Inside Aerospace Conference, Arlington, VA.

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NASA. (2010). Subsonic fixed wing – Research overview. Retrieved August 28, 2010, from http:// www. aeronautics.nasa.gov/ fap/ sfw_research_ overview_feature.html Okai, K. (2010, February). R&D on de-carbonized engines at JAXA. Paper presented at the University of Tokyo Boeing Aviation Environment Workshop, Tokyo. Randles, R., & Bows, A. (2009). Editorial, aviation, emissions and the climate change debate. Technology Analysis and Strategic Management, 21, 1–16. doi:10.1080/09537320802557194 Raven, R. O. J. M., & Geels, F. W. (2010). Socio-cognitive evolution in niche development: Comparative analysis of biogas development in Denmark and the Netherlands (1973-2004). Technovation, 30, 87–99. doi:10.1016/j.technovation.2009.08.006 Rumizen, M. (2009). Aviation turbine fuels, ASTM standardization news. Retreived August 16, 2010, from http://www.astm.org/ SNEWS/ ND_2009/ d02J006_nd09.html Schaltegger, S., & Burritt, R. (2005). Corporate sustainability. In Folmer, H., & Tietenberg, T. (Eds.), The International Yearbook of Environmental And Resource Economics 2005/2006: A Survey of Current Issues (pp. 185–222). Cheltenham, UK: Edward Elgar. Schot, J., & Geels, F. W. (2008). Strategic niche management and sustainable innovation journeys: Theory, findings, research agenda, and policy. Technology Analysis and Strategic Management, 20, 537–554. doi:10.1080/09537320802292651 Smith, A. (2006). Niche-based approaches to sustainable development: Radical activists versus strategic managers. In Bauknecht, D., Kemp, R., & Voss, J. (Eds.), Sustainability and reflexive governance. Camberley, UK: Edward Elgar.

Sunetra, M. (2010, March). Assistant director of Department for Business Innovation & Skills. Private Discussion. Sustainable Aviation. (2010). Sustainable alternative fuels progress paper, Summer 2010. Retreived November 18 2010 from http://www. sustainableaviation.co.uk Szodruch, J. (2009, September). DLR climate research and aircraft technologies. Presented at ICAS Workshop 2009, Amsterdam, The Netherlands. The Group of Personalities. (2001). European aeronautics: A vision for 2020. European Communities. Luxemburg. Upham, P. (2003). Introduction: Perspectives on sustainability and aviation. In Upham, P., Maughan, J., Raper, D., & Thoams, C. (Eds.), Towards sustainable aviation (pp. 3–18). Earthscan Climate. Van der Laak, W., Raven, R., & Verbong, G. (2007). Strategic niche management for biofuels. Analysing past experiments for developing new biofuel policies. Energy Policy, 35, 3213–3225. doi:10.1016/j.enpol.2006.11.009 Weber, M., Hoogma, R., Lane, B., & Schot, J. (1999). Experimenting with sustainable transport innovations. Workbook for Strategic Niche Management. CEC Joint Research Centre in Seville. Wetzel, F. (2010, February). Air pollution abatement and energy saving in the transport sector. Presented at the International Semiar on Aviation and Climate Change, Tokyo, Japan. Young, N. N. (2010, May). Aviation – Current energy challenges: A view from the airline industry on energy & environment. Presented at the AIAA Inside Aerospace Conference, Arlington, VA.

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KEY TERMS AND DEFINITIONS Carbon Neutral Growth: Airlines are the first global industry, which committed their growth without increase the carbon emission from 2020. IATA 4 Pillars Strategies: The International Air Transport Association (IATA), created and have been promoting a four-pillar strategy, ‘Improved technology’, ‘Effective operations’, ‘Efficient infrastructure’ and ‘Positive economic measures’, since 2007 to achieve a vision of “carbon-neutral growth in the mid-term and to build a zero emission commercial aircraft within the next 50 years” (IATA homepage).

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Multi-Level Perspectives (MLP): MLP is a useful approach to understanding transition pathways of an innovative idea to integrate in the main stream of a system or a society (Schot and Geel, 2008). Strong Air Traffic Growth: The growth of air traffic is statistically faster than economic, GDP growth and eventually has canceled the recent effort of fuel-efficient improvement (Szodruch, 2009). Sustainable System Innovation: Researchers of systems innovation have been recently developing many theories and tools to promote the transitions required to make it possible to move innovations from laboratories to market.

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Chapter 5

Diffusion and Adoption of Innovations for Sustainability Helen E. Muga University of Mount Union, USA Ken D. Thomas Auburn University, USA

ABTRACT The primary focus of this chapter is on the theory and concepts of sustainability and why they are important to innovation and vice-versa. Key reductionist approaches to assessing sustainability such life cycle assessment (LCA), life cycle cost analysis (LCCA), and sustainability indicators are discussed in detail and applied to an engineering infrastructure scenario. The integrated sustainability methods of life cycle assessment and life cycle cost analysis enable a business to assess alternative products or processes at the planning and design stages. They may also be used during the production stages to assess whether a business needs to use a different raw material to make their products. The role of management, social network analysis, and mental models of individuals in the diffusion and adoption of innovations are also explored.

INTRODUCTION Over the centuries, energy consumption has increased from 10 quadrillion BTU (10.055 x 1018 joules) in year 1800 to 500 quadrillion BTU (5000 x 1018 joules) in year 2000 (UN Environment Programme, 2007). Population, carbon dioxide emissions, water use, amounted of domesticated DOI: 10.4018/978-1-61350-165-8.ch005

land, loss of tropical rain forest and woodland, and nitrogen flux to coastal zones have also increased over time. Population increased from 600 million in year 1750 to 6 billion in year 2000. Carbon dioxide emissions increased from 250 ppmv in year 1800 to 360 ppmv in year 2000. Water use increased from 200 km3/year in 1900 to 5000 km3/yr in 2000 and nitrogen fluxes increased from 0.25x1012 moles/year in year 1850 to 9x1012 moles/year in 2000 (Crutzen, 2005). Unsustainable

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Diffusion and Adoption of Innovations for Sustainability

practices such as excess consumption, unsustainable management practices exacerbate current global problems. These global challenges/issues are intricately linked to one another. Figure 1 shows the interaction between population, natural resources and services, energy, emissions, and climate change. The introduction, and the diffusion and adoption of sustainability concepts and theory to a large extent attempts to address current global challenges that society and future generations face by reducing excess consumption, promoting efficient management and use of natural resources, and reducing consumption of energy sources that contribute to climate change The term “sustainability” has different meanings to different people. One of the definitions of sustainability is that it is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987). At the business level, sustainability is defined as, “meeting the needs of a firm’s direct and indirect stakeholders (such as shareholders, employees, clients, pressure groups, communities etc), without compromising its ability to meet the needs of future stakeholders as well” (Dyllick & Hockerts, 2002). In this chapter, we focus on the theory and concepts of sustainability (life cycle assessment, life cycle cost analysis, and indicators) and their application to the built environment. In this chapter, we focus on the theory and concepts of sustainability (life cycle assessment, life cycle cost analysis, and indicators) and their application to the built environment. The built environment includes “all of the physical structures engineered and built by people—the places where we live, work, and play. These edifices include homes, workplaces, schools, parks, and transit arrangements” (Dearry, 2004). They also include roads, power generation facilities, harbors, treatment plants, bike paths, and storm-water management systems. These engineered structures sustain and support human activity and continuity. The built environment is one of the largest consumers of raw materials and 74

energy. Over three billion tons per year of global raw materials (40%) are consumed in the United States (U.S. Green Building Council, 2005). Commercial and residential buildings consume around 36% of energy and over 65% of electricity in the U.S. (U.S Green Building Council, 2005). Further, construction, renovation, and demolition of buildings contribute a significant amount to total solid waste in the U.S. and around the world. In 1997 alone, construction and demolition waste amounted to 65% of all solid waste in the U.S (U.S.EPA, 2000). We also focus on the role of management in the diffusion and adoption of innovative strategies that contribute to sustainability and drive it over the ‘tipping point- defined as the point at which an object is displaced from its current state (of trajectory) into a new state (of trajectory). Of great importance are the types of strategies that businesses and various entities adopt and their impact on sustainability. For example, do the innovative strategies that are adopted drive the business toward sustainability or away from it? A great deal of emphasis is given to the role of learning and its impact on the change in mental models of individuals as these play a critical role in the adoption and diffusion of innovation.

OVERVIEW OF SUSTAINABILITY AND SUSTAINABLE DEVELOPMENT While there are varying definitions of sustainability from different sectors of industry, what is important is that it strives for protection of the environment, prudent use of natural resources, equitable social progress, and maintenance of economic well-being without compromising the environment and society. Figure 1 shows the three dimensions of sustainability. Long-term strategies towards achieving sustainability should consider all three aspects (i.e. the whole or complex system), either at the decision stage or during the operational stage.

Diffusion and Adoption of Innovations for Sustainability

Figure 1. Linkages between population, resources, consumption, emissions, and climate change. Population growth requires significant amount of natural resources and energy to sustain and support, with positive and negative impacts. An increase in population, leads to an increase in energy and natural resources (+). This subsequently contributes to increase in emissions (+) which in turn contribute to climate change (+). A decrease in population leads to a decrease in energy and resource consumption (-). The adoption of sustainable practices by the public and in the energy sector also contributes to a decrease in energy consumption (-).

The three core pillars of sustainability (Figure 2) or the ‘triple bottom-line’ (i.e. People. Planet and Prosperity) are inter-connected and hence may influence each other in multiple ways. Understanding the inter-connectedness and employing strategies that consider all three dimensions is critical to achieving sustainability. Strategies that concentrate on short-term gains often focus on one aspect of the triple bottom line. Ongoing research and development in the field of sustainability science has expanded those 3 core pillars to 5 pillars of sustainability: environment, culture, politics, society and economy (McConville & Mihelcic, 2007). Inclusion of environmental and societal aspects in addition to economic aspect into long-term strategies enables a company/firm or other entities to meet the needs of the present without compromising the needs of the future. It also gives the entity a competitive advantage over its competitors as the public and society become socially and environmentally conscious. Further inclusion of

the triple bottom line in decision-making, brought about by a change in mental model of the decisionmaker towards sustainability, has the potential to significantly reduce/mitigate the upward trend in carbon dioxide emissions, energy consumption, water use and nitrogen fluxes in waterways. Adoption and diffusion of sustainable strategies (sustainable management practices, education, technology) is key to controlling, reducing, mitigating the upward trend unsustainable practices. According to Mihelcic et al. (2003), sustainable development is the design and use of human and industrial systems to ensure that humankind’s use of natural resources and cycles do not lead to diminished quality of life due either to losses in future economic opportunities or to adverse impacts on social conditions, human health and the environment. According to the United Nations Educational, Scientific and Cultural Organization (UNESCO), sustainable development ‘is a vision of development that encompasses populations, animal and plant species, ecosystems, natural

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Diffusion and Adoption of Innovations for Sustainability

Figure 2. The three interconnected pillars of sustainability consist primarily of the environmental (planet), economic (prosperity), and social (people) dimensions with emerging dimensions of culture and politics

• • •

• • •

Recognition of emerging risks and or conflictive issues, thus allowing prevention; Detection of impacts to allow for timely remedial action when needed; Performance measurement of the implementation of development plans and management actions; Reduced risk of planning mistakes; Reduced public liability; and Regular monitoring which can lead to rolling improvement.

According to the Organization for Economic Cooperation and Development, there are different kinds of indicators, each with different purposes for decision makers: •

resources and that integrates concerns such as the fight against poverty, gender equality, human rights, education for all, health, human security, intercultural dialogue, etc.’ In the context of sustainable development, indicators are information sets which are formally selected to measure changes in assets and issues that are key for the product development and management. Indicators are measures expressed in single numbers, percentage or ratios, qualitative descriptions or existence/non-existence of certain elements concerning environmental, social and economic issues (OECD, 1993). They are signals of current issues, emerging situations or problems, need for action and results of actions. Sustainability indicators should be easy to comprehend, as well as be economically and technically feasible to measure for them to be classified as good (OECD, 2003). Benefits from good indicators include (adapted from OECD, 2003): •

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Better decision making in order to lower risks or costs;

• • •

• •

Early warning indicators (e.g., decline in product sales and number of customers who intend to return); Indicators of stresses on the system (e.g., raw material shortages); Measures of the current state of the industry that the product primarily serves; Measures of the impact of product development and production on the biophysical and socio-economic environments (e.g. indices of the level of deforestation, changes of consumption patterns and income levels in local communities); Measures of management efforts; and Measures of management effect, results or performance.

SUSTAINBILITY THEORY AND CONCEPTS Sustainability, as defined by The Brundtland Commission, strives to achieve the following: (1) maintenance of economic well-being, (2) social progress, and (3) environmental protection for the present and future generation through the use of various assessment methods such as life

Diffusion and Adoption of Innovations for Sustainability

cycle assessment, life cycle cost analysis, and sustainability indicators. These various integrated methods of assessment attempt to evaluate the impacts of various processes, products, and activities over a set lifetime. They are also used to compare alternatives from a systematic, holistic perspective. Results from such a study that utilizes integrated assessment methods to gauge the environmental, economic and societal impacts of competing alternatives may be used as a guide to aid in decision-making in selecting and implementing the most appropriate strategy. Such integrated assessment methods can also be used in determining where improvements/innovative strategies can be made. The following paragraphs cover the basic concepts and theories of sustainability including the methods of various methods of assessment and how such methods lead to innovation. The concepts of sustainability as covered in the Introduction section are applied to the built environment as a system.

SUSTAINABILITY ASSESSMENT METHODS APPLIED TO THE BUILT ENVIRONMENT The built environment and urban systems are a complex interaction between human activity (economy), human well-being (social), and the natural systems (air, land, water) with each other and with the civil infrastructures and the interface at which they converge. The built environment is a system that consists of all types of buildings such as houses, shops, together with engineering works such as roads, treatment plants, storm-water management systems, bridges, power generation facilities, and other civil infrastructures that support and enable human activity and urbanization. Water and wastewater treatment facilities and storm-water management systems are design to protect human lives, other civil infrastructures, and the environment by removing and or reducing contaminants.

Power generating facilities enable human activity, industrial processes, and transportation to be possible and also sustain society. Transportation systems including roads, bridges are the “veins” or “conduits” that provide accessibility to goods and services from the natural and built environment and maintain and/or improve human well-being. They also enable dynamic interaction of human activity (e.g., economic activity), human wellbeing, and the natural environment with each other and other infrastructure that makes up the built environment. These civil infrastructures are part of the considered human system. Engineering projects that build these infrastructures are always hinged on a single reductionist assessment method, e.g. economic approach to evaluating the project across all life cycle stages (planning, design, to construction, to operation and maintenance and demolition/retrofitting). The piece of the puzzle that is often not connected in practice is that the built environment also encompasses socio-cultural activities and human interaction with the physical infrastructure and with the natural environment. Hence social and environmental assessment methods are also critical. Human activity influences behavior of the built environment components in unexpected ways. When these interactions are not considered the analysis remains incomplete. In order to assess the impacts of various projects, a holistic, systematic approach that considers the triple bottom line is essential for long-term and possible short-term planning. We can evaluate the impacts of process, products, and activities in the built environment using a single-method approach, Table 1. Or alternatively, we can reduce the problem into smaller problems and evaluate them separately, then appropriately reconnect them within a systems context – a ‘sum of all the parts’ approach. Once we’ve reduced the problem to smaller problems we can then apply a systematic analysis to each of the specific problems or component. For example in the built environment, we can study buildings and we can

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Diffusion and Adoption of Innovations for Sustainability

Table 1. Reductionist and systematic approaches to addressing sustainability (adapted from Muga, 2009) Reductionist Approach to Identifying Problem Reductionist Approach to Assessing Sustainability

Economic assessment, such as cost-benefit analysis and life cycle cost analysis. Traditional methods of assessment, where cost was the only factor taken into consideration.

Systematic Approach to Assessing Sustainability

Economic (life cycle cost analysis), Environmental (life cycle assessment), and Societal (societal indicators). Integrated methods of assessment that attempt to address the three pillars of sustainability: economic, environment, and society.

study pavements/roads separately then reconnect them to a systems context. According to General Systems Theory, reductionist approaches are best applied in the study of sub-systems whereas the systems approach looks at whole systems (Checkland, 1993). Therefore the reductionist approach is used to attempt to solve problems within a system while the complex systems approach is used to thereafter to frame and define the issues (Checkland, 1993; Greenwood, 2006; Muga, 2009). The various reductionist approaches to addressing sustainability can be seen in Table 1. As an example, a company may focus on the economic aspect by reducing costs in order to achieve short-term gain often times at the detriment of environmental and social dimensions (i.e. a reductionist or subsystem approach). Strategies that are top-down and/or bottom-up approach have the potential to move a company or entity towards sustainability or away from it. Applying reductionist approach to the built environment, the system can be divided into smaller parts that inherently are connected and support its overall function. Some of the critical components or parts of the built environment include buildings/structural support, transportation systems, services, gas and water lines, water reservoirs, information systems, etc. Once each ‘part’ is identified, a systematic approach to as-

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Systematic Approach to Identifying Problem

Economic (life cycle cost analysis), Environmental (life cycle assessment), Societal (risk assessment), triple bottom line. This is where we would like to be. However uncertainty of data and lack of data make getting to this stage challenging.

sessment, one that incorporates the triple bottom line (societal, economic, and environmental assessment) can then be applied to each part. Each of these ‘parts’ may be put together to gauge the overall sustainability of the system. With such a complex system as the built environment, a reductionist approach to identifying a problem along with the application of a systematic approach to assessment is often the best option. Such an option is also best suited when long-term strategies are concerned. A systematic methods approach such as an integrated framework of life cycle assessment (LCA), life cycle cost analysis (LCCA), and indicators are necessary to evaluate these component-specific impacts from a sustainability perspective. Life cycle assessment (LCA), Economic-Input Output Model (EIO-LCA), and Simapro are tools that can be used to evaluate the environmental impacts of a given product, process, activity/service at various life stages (raw material extraction, manufacturing, distribution, use, and disposal, Figure 3). With LCA/EIO-LCA/Simapro we can determine the environmental outputs for, for example raw materials that are used to build a commercial property. We can also use these tools to evaluate the outputs from various energy sources used during the operation of the facility. LCA/EIO-LCA/ Simapro enables us to identify what stage of a product’s or process’ life significant environment

Diffusion and Adoption of Innovations for Sustainability

Figure 3. Life cycle stages involved in the manufacture of a product. Integrated assessment methods such as LCA and LCCA may be used at the planning and design stage to evaluate the impacts of alternative materials, processes, and end of life uses of a product before a project begins. These methods may also be used to evaluate the operation and maintenance stages when it is in progress.

emissions occur and where improvements can be made. They are useful tools in aiding decisionmaking. While the integrated assessment methods for sustainability enable us to compare alternatives processes, and technologies with the least negative impacts, they also enable us to identify, processes, technologies, and pathways where innovation can take place further reducing undesirable outcomes or increasing desirable outcomes. The life cycle stages, Figure 3, of various competing alternatives can be compared using LCA, LCCA or other assessment methods, to determine the alternative with the least environmental, economic and societal impacts. Innovation can also take place when performing an LCA or LCCA over the different life cycle stages. For example in Figure 3, in the extraction stage, an innovation might be what kind of equipments do we use and how do we carry out the extraction so that have minimal impacts. In the processing and manufacturing stages, an innovation might be re-designing a process so that less energy is consumed, or capturing heat for in-house energy use, or utiliz-

ing waste material that might otherwise be landfilled. In the use stage it might be, an innovation might be re-designing and manufacturing the products so that they have long-lives. In the endof-life stage, an innovation might be to re-use of the product in another process, or recycle the product in order to make a completely different product, hence avoiding land-fill. When it comes innovating and designing sustainably, it pays to think light. Products made with less material have less negative impact all the way from production to disposal, often making them cheaper to produce. It is clear how a light-weight truck can save energy as it takes less fuel to operate. But for any product that is made lighter it affects the entire LCA since it reduces costs from materials required to shipping of raw materials and final products. Thus this whole system thinking or systems approach to innovating sustainably has been captured by the Rock Mountain Institute in the following principles to be considered for sustainable integrative design, innovation and engineering:

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Diffusion and Adoption of Innovations for Sustainability

• • • • • • • •

• • • • • • • •

Define the shared and aggressive goals Collaborate across disciplines Design nonlinearly Reward desired outcomes Define the end-use Optimize over time and space Establish baseline parametric values Establish the minimum energy or resource theoretically required, then identify and minimize constraints to achieving that minimum in practice Start with a clean sheet Use measures data and explicit analysis, not assumptions and rules Start downstream Seek radical simplicity Tunnel through the cost barrier Wring multiple benefits from single expenditures Meet minimized peak demand; optimize over integrated demand Include feedback in the design

INNOVATION AND SUSTAINABILITY Innovation and sustainability go hand in hand. Innovations and the development of new technology provide a way for humans to improve their lives (social progress) through better, smarter ways of conducting their activities. According to Nidumolu, Prahalad and Rangaswami (2009), sustainability is now the key driver of innovation. These authors say that contemporary innovation, with sustainability at the core, takes on a cyclical process with evaluation of sustainability challenges, competencies and opportunities for any given business. Their key findings are highlighted in Figure 4. Energy systems (photovoltaic cells, biomass, geothermal) are one of the innovative technologies that provide clean, renewable energy to humans, thereby reducing carbon dioxide emissions from fossil fuel use and contributing to a sustainable

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planet. Innovative energy systems are a tremendous business opportunity for companies. Understanding these emerging energy systems, what materials works best, how to increase their life span spurs further innovation. Competing businesses emerging with similar, product possibly of a higher quality and increased life span yet spurs further innovation. Where innovations are concerned, there is a need for calculated and strategic management of resources; particularly human resources. This is one key area where the application of Social Network Analysis (SNA) can assist; in the development of the best innovation network to ensure a business has the best competitive advantage possible. SNA is used widely in the social and behavioral sciences, as well as in economics, marketing, and somewhat for project management in industrial engineering (Taagepera, 2008). The social network perspective focuses on relationships among social entities and is an important addition to standard social and behavioral research, which is primarily concerned with attributes of the social units (Wasserman & Faust, 1994). Management, of any kind, refers to the use of people (i.e. social units), in some level of seniority to others, to control some commodity. According to some measuring indices of SNA, characteristics of each actor’s interaction or management activities will affect the holistic management of assets in terms of sustainability and structure (Li & Chen, 2006). Thus an understanding of the actual and perceived managerial structure for arriving at innovations will allow for altering the social network to reduce ‘processing time’ for innovative product development. This reshuffling of human resources for optimum yield of innovative throughput necessitates continuous monitoring of internal social networks through the calculation of key SNA indices such as centrality, adjacency, relationship, reachability, network density, boundary spanners, betweeness and closeness. Table 2 describes these in some depth. Innovation needs to be influenced by a population’s current mental model with regards to any

Diffusion and Adoption of Innovations for Sustainability

Figure 4. Sustainability challenges, competencies and opportunities in relation to innovation (adapted from Nidumolu, Prahalad & Rangaswami, 2009)

product expected to be developed for use within this population. Thus there is a need for developers to be connected with the population for which the innovation is intended. So as a major preinnovation step, a needs assessment of the population should be done and used as the driving force of the innovation research and development.

Within this assessment key understanding of the population’s knowledge, beliefs and notion of complexity should be revealed for consideration of what the innovated product needs to appease. This is key to the sustainability of the innovation. During the innovation development process this is where the proponent of the innovation has the

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Diffusion and Adoption of Innovations for Sustainability

Table 2. Quantitative measures and relational characteristics of strength of management in SNA (adapted from Freeman, White & Romney, 1989; Hassan, 2009; Outhwaite & Turner, 2007) Numerical measure

Definition

SNA matrices

Adjacency - Adjacency tells us whether there is a direct connection from one actor to another (or between 2 actors for un-directed data). Relationship – This matrix shows the relations between actors using integers that represent the strength of the relation between 2 actors. The resulting matrix represents the sum of frequencies or the ‘frequency of contact’ required between 2 actors. Reachability – Reachability is a measure of path distance, the “length” or number of unique walks between actors. The reachability matrix is the product of the adjacency matrix with itself and it uncovers the number of paths that an actor can be reached. To determine path distances of more than one, the adjacency matrix is multiplied by itself as many times as the path requires. Reachability tells us whether two actors are connected or not by way of either a direct or an indirect pathways of any length.

Centrality ratio (Ci)

This ratio is the ratio of the aggregate relations involving the actor over all relations in the management structure. The centrality can be found from: N

C

i

=

∑ (z j =1

+ z ji)

ij

N

N

i =1

j =1

∑∑Z

where Ci is the centrality of the ith actor; Zij is the value of a relation from the ith actor

ij

directed to the jth actor in the kth network. Note that i ≠ j and N is the number of actors in the network. Network density

This is a measure of the percentage of all the possible ties present and varies from 0 to 1. This gives a ready index of the degree of dyadic connection in a population. For binary data this is simply the ratio of the number of adjacencies that are present divided by the number of pairs i.e. the proportion of possible dyadic connections actually present. Simply put it is the proportion of ties present to the maximum number of ties possible. It can be calculated by: Network density =

T N ( N −1) / 2

where T is the number of ties present; N is the number of actors in the network. Betweenness

This refers to the extent to which an actor acts as a ‘broker’ or ‘gatekeeper’ in the network.

Closeness

An actor is considered to be close when it has the shortest paths to all others. This means that actor can avoid the potential control of others.

Boundary spanners

A boundary spanner refers to an actor that has access to other networks.

Centrality

Centrality identifies the most important actors in a social network, which are usually nodes located in strategic locations within the network. The centrality value of the actors in asset management will therefore depend on the frequency of contact of an actor relative to that of other actors.

overarching power to infuse sustainability into the design of the product/technology/strategy. For example, the innovation developer should consider the life cycle analysis (LCA) of the material chosen with regards to where the raw materials come from through to how the materials can impact the environment at the end of life (i.e. a cradle to grave analysis). Here all the pillars of

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sustainability should be considered, in tandem with the pre-innovation mental models of the population, in achieving an innovative product that attains the company’s triple bottom line. The post-innovation sustainability hinges upon acceptance of the product by the target population through a change in their mental models. This necessitates aggressive strategic marketing (i.e.

Diffusion and Adoption of Innovations for Sustainability

diffusion) to lead the population to adoption of the product. In addition, once a strategy or an innovative technology that addresses sustainability has been developed/identified, decision-making be it from the top-down or bottom-up is critical to its diffusion and adoption within an organization and into mainstream. The mental models of individuals play a critical function on how they weigh the alternatives, what they weigh their alternative on, and their eventual decision. The high cost of photovoltaic cells and lack of governmental incentives mean that companies and individuals will not adopt it even though it is sustainable, because it is not economically viable compared to other alternatives such as fossil fuel. In the preceding paragraphs we discussed key parameters that link innovation to diffusion and adoption to achieve sustainability. These include mental models of individuals that lead to diffusion and adoption, social networks, and the role management. Social Network theory and methods of SNA are being increasingly used to study real-world networks in order to support knowledge management and decision making in organizations (Hu, 2009). SNA has been used since the early 1970’s as the theoretical basis for the examination of general social and behavioral science communities (Wasserman & Faust, 1994). The importance of SNA is highlighted by the demonstration that an individual’s behavior can often times be categorized by their relations with others. According to Rogers (2003), social network research can range from small-scale studies (i.e. micro level) of a person’s intimate social network to system studies (i.e. macro level) focusing on larger societal and community organizational structure. SNA is inherently based on the underlying premise that “the structure of relations among actors and the location of individual actors in the network have important behavioral, perceptual, and attitudinal consequences both for the individual units and for the system as a whole” (Knoke & Kuklinski, 1982).

MENTAL MODELS AND DIFFUSION AND ADOPTION OF INNOVATIONS The mental model of an individual is critical to adoption of an innovative strategy that contributes to sustainability. Adoption describes the acceptance of a new product, idea or technology according to the demographic and psychological characteristics of defined adopter groups (Rogers, 2003). Adoption of an innovation or green thinking by an individual is due to a shift in their mental models, caused by interactions in their professional networks. Craik (1943) suggested that the mind constructs “small-scale models” of reality that it uses to anticipate events (Johnson-Laird & Byrne, 2000). Such models are conceptualizations of the world that the mind builds by incorporating the individuals’ views of the world, of themselves, of their own capabilities and of the tasks that they are required to perform (Norman, 1983) and are referred to as mental models. Individuals construct mental models of themselves and the environment that they are required to interact with from perception, imagination, the comprehension of discourse, and use them in their decision-making. An individual’s mental model of innovation/ green technology and sustainability reflects their awareness and perception of how it improves for example the organization that they work for and its operations, their clear comprehension of the discourse on sustainability, and intention to involve innovation that contribute to green thinking/ sustainability in their decision-making process. Individuals interacting with their immediate environment are exposed to new ideas, and learning which results in a shift in their mental models. The ability for an individual in an organization to adopt an innovative idea is largely dependent on their interactions in social networks and its influence on the diffusion of the innovative idea. A change in mental model of an individual can impact or ‘infect’ others in their network to adopt

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an idea. This gives rise to social network analysis (SNA), defined as the mapping and measuring of relationships and flows between people, groups, organizations, computers, web sites, and other information/knowledge processing entities (Wasserman & Faust, 1994). Figure 4 shows how diffusion spreads through a social network of an individual over time. The social network in Figure 4 is comprised of two individuals. A faster diffusion and change in mental model (Adoption Curve 1, Figure 5) of an individual leads to a quicker adoption rate (steep inflection point) and a rapid spread of the ‘infection’ within the individual’s immediate social network with the innovative idea. A rapid change in mental model, diffusion/ adoption rate, and spread of the ‘infection’ or innovative idea is crucial to achieving sustainability (reducing carbon dioxide emissions, excess consumption, etc). The adoption of an innovative idea becomes self-sustaining when the ‘tipping point’ is reached. Critical mass or the ‘tipping point’ (Figure 5), is the point at which enough individuals in a system have adopted an innovation so that the information’s further rate of adoption becomes self-sustaining (Rogers, 2003)

Management plays an important role in the diffusion and adoption of an innovative strategy that addresses sustainability. Transposing the idea of social network to a management structure, diffusion and adoption is a function of the strength of a management structure of a firm or company, the ties between the individuals within the structure, and the key individual connectors who enable transmission of the innovative idea and/or policies between the different hierarchies. From organizational theory of management, two way ties between individuals (a←→b) are more important than one-way time (a→ b). Two way ties represent transfer of crucial information among lateral and/or lower rank individuals to a lateral/ higher rank managerial individual.

FUTURE RESEARCH DIRECTION AND CONCLUSIONS The primary focus of this chapter was on the theory and concepts of sustainability, how they can be applied to a business, and why they important to innovation and vice-versa. Sustainability as-

Figure 5. The dynamics of diffusion and adoption of innovation over time due to change in mental models of individuals (adapted from Mukherjee & Muga, 2010)

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sessment methods such as LCA and LCCA were discussed to a great length. These methods are useful when a business is evaluating alternative products or processes at the planning and design stages. They may also be used during the operation stage if a business is considering switching to an alternative raw material. In addition the role of management, social network analysis, and the influences of an individual’s mental model on diffusion and adoption of innovation were also explored. While this chapter provides some insights into the relationship between sustainability and innovation, there is still a need for more research into the area. One area of interest is the mental models of individuals in the diffusion and adoption of sustainable innovations. When does an individual decide to adopt a product that was produced in a sustainable manner? Individuals/ consumers to a large extent drive the market. If all individuals are educated in the concepts and theories sustainability as is the case in higher educational institutions where there are courses such as “Green Engineering”, “Green Design”, “Sustainable World”, etc, how would these impact businesses? Will there competition? Will business innovate till they can’t innovate anymore? When will this plateau be reached? Social networks are critical to the diffusion and adoption of new knowledge/innovations. Given the above scenario, what would be the role of social networks, specifically in the diffusion and adoption of sustainable innovations to different social, political, and cultural demographics? These scenarios need to be further explored to gauge the true relationship between sustainability and innovation in the short- and long-term and across different socio-cultural and political boundaries.

REFERENCES Brundtland, G. H. (1987). Our common future. Brussels, Belgium: World Commission on Environment and Development. Checkland, P. (1993). Systems thinking, systems practice. New York, NY: John Wiley and Sons Ltd. Craik, K. (1943). The nature of explanation. Cambridge, UK: Cambridge University Press. Crutzen, P. J. (2005). The Anthropocene: The current human-dominated geological era – Human impacts on climate and the environment. Climate Change and Its Effect on Sustainable Development, In Proceedings of the Global Environmental Action International Conference, Tokyo, Japan. Dearry, A. (2004). Impacts of our built environment on public health. Environmental Health Perspectives, 12(11), A600. doi:10.1289/ehp.112a600 Dyllick, T., & Hockerts, K. (2002). Beyond the business case for corporate sustainability. Business Strategy and the Environment, 11(2), 130–141. doi:10.1002/bse.323 Freeman, L. C., White, D. R., & Romney, A. K. (Eds.). (1989). Research methods in social network analysis. Fairfax, VA: Greg Manson University Press. Greenwood, J. B. (2006). Sustainable development in a tourism destination context: A Plimsoll model of sustainability in Tyrell county, North Carolina. Doctoral dissertation, North Carolina State University, Raleigh. Hassan, N. R. (2009). Using social network analysis to measure IT-enabled business process performance. Information Systems Management, 26(1), 61–76. doi:10.1080/10580530802557762

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Hu, D. (2009). Analysis and applications of social network formation. Doctoral dissertation, University of Arizona, Tucson. Johnson‐Laird, P., & Byrne, R. (2000). Mental models website: A gentle introduction. Retrieved February 19, 2008, from http://www.tcd.ie/Psychology/ Ruth_Byrne/mental_models/ Knoke, D., & Kuklinski, J. H. (1982). Network analysis. Beverly Hills, CA: Sage Publications. Li, J., & Chen, Y. (2006). Social network analysis: A new approach for business process reengineering. Paper presented at the 10th World Scientific and Engineering Academy and Society (WSEAS) International Conference on Applied Mathematics, Dallas, TX. McConville, J. R., & Mihelcic, J. R. (2007). Adapting life cycle thinking tools to evaluate project sustainability in international water and sanitation development work. Environmental Engineering Science, 24(7), 937–948. doi:10.1089/ ees.2006.0225 Mihelcic, J. R., Crittenden, J. C., Small, M. J., Shonnard, D. R., Hokanson, D. R., & Zhang, Q. (2003). Sustainability science and engineering: Emergence of a new metadiscipline. Environmental Science & Technology, 37(23), 5314–5324. doi:10.1021/es034605h Muga, H. E. (2009). An integrated framework for assessing the sustainability of components that make up the built environment. Doctoral dissertation, Michigan Technological University, Houghton. Mukherjee, A. M., & Muga, H. E. (2010). An integrative framework for studying sustainable practices and its adoption in the AEC industry: A case study. Journal of Engineering and Technology Management, 27(3-4), 197–214. doi:10.1016/j. jengtecman.2010.06.006

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Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Retrieved December 10, 2010, from http://www.acteonline.org/ uploadedFiles/ Why%20Sustainability%20Is%20 Now%20the%20Key%20 Driver%20of%20Innovation%20 Harvard%20Review.pdf Norman, D. A. (1983). Some observations on mental models. In Gentner, D., & Stevens, A. L. (Eds.), Mental models. Hillsdale, NJ: Lawrence Earlbaum Associates, Publishers. Organization for Economic Co-operation and Development (OECD). (1993). Environment monographs no. 83: OECD Core Set of Indicators for Environmental Performance Reviews. Paris, France: Organization for Economic Co-operation and Development. Outhwaite, W., & Turner, S. P. (Eds.). (2007). The SAGE handbook of social science methodology. London, UK: SAGE Publications Ltd. Rogers, E. M. (2003). Diffusion of innovations (4th ed.). New York, NY: The Free Press. Taagepera, R. (2008). Making social sciences more scientific: The need for predictive models. New York, NY: Oxford University Press. doi:10.1093/ acprof:oso/9780199534661.001.0001 UN Environment Programme. (2007). Global environmental outlook: Environment for development; Report GEO – 4. Valletta, Malta: Progress Press. Wasserman, S., & Faust, K. (1994). Social network analysis: Methods and applications (structural analysis in the social sciences). Cambridge, UK: Cambridge University Press.

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ADDITIONAL READING Bazerman, M. H., Messick, D. M., Tenbrunsel, A. E., & Wade-Benzoni, K. A. (Eds.). (1997). Environment, ethics, and behavior. San Francisco, CA: The New Lexington Press. Brown, D. (2002). Insatiable is not sustainable. Westport, CT: Praeger Publishers. Brown, L. A. (1981). Innovation diffusion: A new perspective. New York, NY: Methuen & Co. Ltd. Burgelman, R. A., Maidique, M. A., & Wheelwright, S. C. (2001). Strategic management of technology and innovation (3rd ed.). New York, NY: McGraw-Hill/Irwin. Burns, R. O. (1975). Innovation: The management connection. Lexington, MA: D.C. Heath and Company. Chacko, G. K. (1988). Technology management. New York, NY: Praeger Publishers. Coombs, R., Saviotti, P., & Walsh, V. (Eds.). (1992). Technological change and company strategies. London, UK: Academic Press Limited. Doppelt, B. (2003). Overcoming the seven sustainability blunders. The Systems Thinker, 14(5), 2–7. Fagerberg, J., Verspagen, B., & von Tunzelmann, N. (Eds.). (1994). Dynamics of technology, trade and growth. Brookfield, VT: Edward Elgar Publishing Limited. Fauconnier, G., & Turner, M. (2002). The way we think: Conceptual blending and the mind’s hidden complexities. New York, NY: Basic Books. Garud, R., Nayyar, P. R., & Shapira, Z. B. (1997). Technological innovation: Oversights and foresights. Cambridge, UK: Cambridge University Press.

Goodstein, L. P., Andersen, H. B., & Olsen, S. E. (Eds.). (1988). Tasks, errors and mental models. Philadelphia, PA: Taylor & Francis Ltd. Hanneman, R. A., & Riddle, M. (2005). Introduction to social network methods. Riversdale, CA: University of California. Loveridge, R., & Pitt, M. (Eds.). (1990). The strategic management of technological innovation. West Sussex, England: John Wiley & Sons Ltd. Marcum,J.W.(2009).Mentalmodelsforsustainability. The Bottom Line: Managing Library Finances, 22(2), 45–49. doi:10.1108/08880450910982620 Meadows, D. (2005). Dancing with systems. San Francisco, CA: Sierra Club. Rosner, W. J. (1995). Mental models for sustainability. Journal of Cleaner Production, 3(1-2), 107–121. doi:10.1016/0959-6526(95)00057-L Sundbo, J. (1998). The theory of innovation: Entrepreneurs, technology and strategy. Cheltenham, UK: Edward Elgar Publishing Limited. Szakonyi, R. (1988). Managing new product technology. New York, NY: American Management Association. Terwiesch, C., & Ulrich, K. T. (2009). Innovation tournaments: Creating and selecting exceptional opportunities. Boston, MA: Harvard Business Press. U.S. Environmental Protection Agency. (2000). Solid waste and emergency response, building savings: Strategies for waste reduction of construction and demolition debris from buildings. Washington, DC, USA: Environmental Protection Agency. U.S. Green Building Council. (2005). An introduction to the U.S. Green Building Council (USGBC) and the LEED Green Building Rating System. Washington, DC, USA: USGBC.

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KEY TERMS AND DEFINITIONS Adoption: The acceptance of a new product, idea or technology according to the demographic and psychological characteristics of defined adopter groups (Rogers, 2003). Built Environment: All of the physical structures engineered and built by people—the places where we live, work, and play (examples: homes, workplaces, schools, parks, and transit arrangements) (Dearry, 2004). Diffusion: The spread of new product, idea or technology (Rogers, 2003). Mental Model: Conceptualizations of the world that the mind builds by incorporating the individuals’ views of the world, of themselves, of their own capabilities and of the tasks that they are required to perform (Norman, 1983). Reductionist and Systems Approach: Reductionist approaches are best applied in the study of sub-systems whereas the systems approach looks at whole systems (Checkland, 1993).

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Social Network Analysis (SNA): Mapping and measuring of relationships and flows between people, groups, organizations, computers, web sites, and other information/knowledge processing entities (Wasserman & Faust, 1994). Sustainability Indicators: Information sets which are formally selected to measure changes in assets and issues that are key for the product development and management. Indicators are measures expressed in single numbers, percentage or ratios, qualitative descriptions or existence/non-existence of certain elements concerning environmental, social and economic issues (OECD, 1993). Sustainability: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Brundtland, 1987). Tipping Point: Point at which enough individuals in a system have adopted an innovation so that the information’s further rate of adoption becomes self-sustaining (Rogers, 2003).

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Chapter 6

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage and Firm Performance Javier Amores Salvadó Universidad Complutense de Madrid, Spain José Emilio Navas López Universidad Complutense de Madrid, Spain Gregorio Martín de Castro Universidad Complutense de Madrid, Spain

ABSTRACT The proposal below provides a special emphasis on the relationship between businesses and natural environment. It is argued that the inclusion of environmental criteria to business activities promotes the creation of new core competencies, offering a creative and innovative perspective to the organization that can lead to the achievement of sustainable competitive advantages. More specifically, we analyze both the existence of a direct relationship between Environmental Innovation and Firm Performance and the existence of an indirect relationship between the two, which highlights the mediating role of the kind of competitive advantage generated. It also provides an innovative approach, as it explains the Environmental Innovation from the literature on Social Innovation, considering Environmental Innovation as an expression of Social Innovation through the incorporation of ethical arguments to products, processes and organizational modes of the company. The main contributions of this work can be summarized as follows: (1) It explains the nature of Environmental Innovation through the Social Innovation literature, which allows consideration of some key aspects of administrative and technological innovations that have not been taken into account the academic literature. (2) The different types DOI: 10.4018/978-1-61350-165-8.ch006

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Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage

of environmental innovations are analyzed as a necessary step to understand the strategic options in the environmental field. (3) Environmental Innovation is related to business performance. The practical implications of the relationship between environmental innovation and performance are of great importance, since it directly influence the type of environmental strategy chosen, allowing the company to choose from innovative strategies (based on pollution prevention) or more conservative strategies (emissions control).

INTRODUCTION The concept of Social Innovation is directly linked to the idea of change. The systemic changes offer many opportunities for Social Innovation and the societies at large are immersed in learning new habits and rules. New forms of efficiency and new ways of seeing and doing things are discovered. The connection between Social Innovation and changing environments is confirmed by the words of the Nobel Prize Simon Kuznets (Pol & Ville, 2009). According to Kuznets, without the existence of firms and banks (both defined as social innovations), the industrial revolution had not taken place, and also would have been much more difficult the development of railways if they had not also developed securities markets. Nowadays, our society is experiencing a time of change, the paradigm shift towards Sustainable Development, defined by the Brundtland Commission (World Commission on Economic Development, 1987) in its report to the United Nations as the kind of development that meets the needs of present without compromising the needs of future generations (Sharma & Vredenburg, 1998). Although industrial development of the last two hundred years has brought prosperity and wealth, it has unintentionally caused environmental degradation as well (Shrivastava, 1995). Industrial activity has grown to such an extent that has already produced irreversible effects on our global environment, including impacts on climate, biodiversity and ecosystems. For these reasons, companies must be able to reduce their emissions and their levels of consumption of materials, developing new clean

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technologies that are more efficient than current and inclusive business models that facilitate the creation and distribution of wealth more evenly. According to these arguments, in this chapter we will analyze the role of the Environmental Innovation (understood as an expression of Social Innovation) in achieving business results. Taking Social Innovation as starting point, throughout the chapter the nature, determinants and types of environmental innovations will be shown in order to show a complete picture of the topic. More specifically, both the existence of a direct relationship between Environmental Innovation and Firm Performance and the existence of an indirect relationship between the two will be analyzed, highlighting the mediating role of the kind of competitive advantage generated. A broad concept of Social Innovation is used, which allows consideration of some key aspects of administrative and technological innovations that have not been taken into account the academic literature. Furthermore, the practical implications of the relationship between Environmental Innovation and performance are of great importance, since it directly influences the type of environmental strategy chosen, allowing the company to choose from innovative strategies (based on the creation of new core competencies via pollution prevention) or more conservative strategies (emissions control). The remainder of the chapter will be structured as follows: The first section discusses the concept of Social Innovation. A review of the major contributions made by the literature regarding the term is carried out. Additionally, a definition in line with the concept of Environmental Innova-

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage

Figure 1. Social innovation as mission and change

tion is proposed. The second section examines the concept of Environmental Innovation emphasizing its nature, determinants and typology, and the third section highlights the relationship between Environmental Innovation with the economic performance of the company. Finally, the main conclusions will be provided.

SOCIAL INNOVATION Social Innovation is an emerging field that remains under-researched (Social Innovation Exchange and Young Foundation, 2010). Very few are the efforts to classify and organize the various contributions. In this sense, is very interesting the contribution carried out by Pol and Ville (2009), which discusses some of the definitions given to the concept of Social Innovation elaborating a four group classification (understanding the concept as linked to institutional change, to social purposes, to the public good or to the satisfaction of needs not covered by the market). On this first contribution, and taking as reference the characterization of the different types of businesses proposed by Professor Yunus (Yunus et

al., 2010), two basic directions can be identified in the existing definitions in Social Innovation literature as shown by the four quadrants of Figure 1. On the one hand, companies can be seen as profit-maximizing businesses, and on the other, non-profit organizations exist to fulfill social objectives. In between, we can find social businesses that at the same time have to cover operations cost but also are more cause-driven than profit-driven. Both, companies and social businesses have the potential to act as change agents for the world and also be economically viable. On the contrary, not for profit organizations, usually, are not economically viable, and their objectives are more aimed to meet the social needs of those more disadvantaged than to create a global change. The distinction outlined above fits perfectly with the two main streams on the literature on Social Innovation. Thus, as Pol and Ville (2009) pointed out, some authors associate the term Social Innovation with the idea of institutional and social change (Lewin, 1947; Scherhorn et al., 1997; Duchin, 1999; Mumford, 2002; Martin, 2006; Hamalainen & Heiscala, 2007; Centre for Social Innovation, 2008). This approach provides

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Table 1. Social innovation as change AUTHOR

DEFINITION

Lewin (1947)

Researcher as a strategist for Social Innovation.

Scherhorn et al. (1997)

Social Innovations as the changes in lifestyles or behavior of consumers.

Duchin (1999)

Social Innovation as new technologies and new lifestyle dynamics.

Mumford (2002)

Social Innovation as the generation and implementation of new ideas about how people should organize their interpersonal activities or social interactions to get one or more common goals.

Martin (2006)

Social Innovation associated with social experimentation.

Hamalainen and Heiscala (2007)

Social Innovation as the changes in social structures that enhance the social and economic performance and the collective power of resources.

Centre for Social Innovation (2008)

Those new ideas that address current economic, social, cultural and environmental challenges to benefit the planet and the people who inhabit it.

Yunus, Moingeon and Lehmann-Ortega (2010)

Building social innovation models require two additional specificities: (i) favoring social profit-oriented shareholders; and (ii)clearly specifying the social profit objective.

Dawson, Daniel and Farmer (2010)

Social Innovations are triggered by an interest in improving the well-being of people in society. Its aim to improve the welfare of groups and communities, as such they may: seek to further the social conditions of work; hope to provide socially useful solutions to ongoing community problems; or provide improvements in well-being for remote or socially isolated communities.

a wide-ranging concept, since it does not focus only on meeting specific social needs but also understands the term as a necessary instrument that accompanies the change in values, ways of acting and thinking and institutions. Understanding the company as an agent of social change (Bies et al., 2007), one can see that this conception of Social Innovation is perfectly compatible with the entrepreneurial phenomenon. Following Yunus et al., (2010), within this category can be included some businesses whose objective is to maximize the economic benefits such as those based on the use of green technologies or social businesses in general (understanding these as those that maximize social benefit and are also financially sustainable). (Figure 1, top and bottom right). In contrast, other authors, in defining Social Innovation emphasize its social mission (Taylor, 1970; Gabor, 1970; Forum on Social Innovation (OECD); Mulgan, 2006; Phills et al., 2008, Pol and Ville, 2009). So, they argue that Social Innovation’s mission is to satisfy unmet social needs. This conception does not explicitly links Social Innovation with the idea of change, meaning that the Social Innovation fulfill its mission if social

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needs are met, even if this does not mean a broader social change. This emphasis on the social aspect of the term, place it near from philanthropic activities and away from the idea of economic benefit. Within this category can be included those activities carried out by nongovernmental organizations (NGO’s), most of which are not created to recover the full cost of their operations (Yunus et al., 2010). (Figure 1, bottom left). Once exposed the different approaches given to the term, this chapter will focus on the development of the former. That is, starting from the idea of Social Innovation and change we will try to reconcile the achievement of economic returns with the Sustainable Development paradigm through Environmental Innovation. The authors that associate the term Social Innovation with the idea of institutional and social change, provide different definitions of the concept (Table 1). Lewin (1947) conceives the researcher as a strategist for Social Innovation and demands the production of theories for the transformation of society. From another point of view, changes in lifestyles or behavior of consumers are often defined

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as Social Innovations (Scherhorn et al., 1997). Duchin (1999) argues that the idea of Social Innovation is new and requires not only new technologies but also new lifestyle dynamics. In the same vein, Mumford (2002) considers the Social Innovation as the generation and implementation of new ideas about how people should organize their interpersonal activities or social interactions to get one or more common goals. It adds that the Social Innovation can lead to the development of new business practices, processes and procedures. This view is consistent with Martin (2006) who stresses that social experimentation is beneficial for Social Innovation and claims that the biggest obstacle for Social Innovation is the drag created by entrenched interests. Also emphasizing the idea of change, (Hamalainen & Heiscala, 2007) understand Social Innovation as the changes in social structures that enhance the social and economic performance and the collective power of resources. Also, on the same line, mention must be made to the definition given by the Centre for Social Innovation, that trying to define the concept, understands as Social Innovations those new ideas that address current economic, social, cultural and environmental challenges to benefit the planet and the people who inhabit it. Thus, authentic Social Innovations are the ones that change the system by altering the perceptions, behaviors and structures (Centre for Social Innovation, 2008). As mentioned above, this orientation is typical of companies that understand the changes as business opportunities. It is therefore considered that the fact of adding a social dimension to the value proposition of the company offers a new frontier in competitive positioning (Porter & Kramer, 2006). Therefore, after consideration of the literature on Social Innovation and the various proposals that are encompassed within it, we understand Social Innovation as the combination of innovative activities carried out by the company with the

potential to promote social change. This social change is expressed through the incorporation of ethical arguments to the products, processes and organizational modes of the company and results in changes in consumer behavior, changes within the enterprise and changes in the company’s relationship with the social and natural environment.

ENVIRONMENTAL INNOVATION: NATURE, DETERMINANTS AND TYPES As a Social Innovation, Environmental Innovation incorporates ethical arguments to products, processes and organizational modes of the company. This statement, however, lacks specificity. Therefore, it’s necessary to specify in more detail its nature, its determinants and the different types of environmental innovations in order to understand the strategic options in the environmental field. Some academics suggest that Environmental Innovation have different natures (Rennings, 2000). Thus, its nature can be technological, organizational, institutional or social. Technological nature can be seen in environmental technologies for the prevention of environmental pollution or for the control of the same, commonly called “end of pipe”. In relation to its organizational nature it includes environmental management tools such as ISO 14001 or EMAS. Institutional and social nature can be seen in the environmental institutions such as the intergovernmental panel on climate change and in changes in styles and dynamics of life and consumption respectively. However, arguing that Environmental Innovation has different natures implies, from our point of view, to assume a very limited concept of Social Innovation. Accordingly, the social nature of Environmental Innovation would be restricted exclusively to changes in lifestyles and consumption habits, leaving out those changes in behavior and relationships of individuals as a result of the emergence of administrative and technological

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environmental innovations such as environmental management systems or recycling of materials for re-entry into the production process. In other words, under that limited scope of the social nature of the Environmental Innovation, we are not considering the changes (in behavior and relationships) that occur inside the business when administrative or technological environmental innovations are implemented. We believe, therefore, from Business Strategy, that is more appropriate to use a broad definition of Social Innovation. A broader definition of the concept is needed in order to be able to classify as environmental innovations the changes (in behavior and relationships) that occur inside the business when administrative or technological environmental innovations are implemented. Environmental Innovations have been defined from different points of view. Thus, according to Chen et al., (2006), Green Innovations are hardware or software innovations related to green products or processes, including the innovation in technologies that are involved in energy-saving, pollution prevention, waste recycling, green product design or corporate environmental management. Kemp et al., (2001, in Horbach, 2008) argues that Environmental Innovations consist of new or modified processes, techniques, systems and products to avoid or reduce environmental damage, and according to Rennings (2000), Environmental Innovations can be defined as the measures of relevant actors consisting in the development, application or introduction of new ideas, behaviors, products and processes that contributes to a reduction of environmental burdens or to ecologically specified sustainability targets. In line with the extensive concept of Social Innovation that we are using in this chapter, Rennings’s definition is the one that fits better to our purposes since it refers not only to environmental product and process innovation but also to ideas and behaviors, which, from our point of view, are particularly important to understand environmental organizational innovations like

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environmental management systems or “green teams”. Note that this definition encompasses technological environmental innovations as well (regarding the changes in behavior and relationships that occur inside the business technological environmental innovations are implemented) as we have highlighted before. Regarding the determinants of Environmental Innovation, the literature suggests that these are supply factors, demand factors and institutional and political influences (Horbach, 2008). From the supply side, the Environmental Innovations (as many innovations) are conditioned by the available technological possibilities of the firm and by the return appropriation of the innovation activities. At this regard, the double externality problem must be highlighted. Environmental Innovations, besides the positive externalities from spillovers which are common to all innovations, are characterized by the fact that while the whole society benefits from a technical environmental innovation, the cost have to be borne by a single firm (Rennings, 2000). From the demand side, both the potential market demand and the social awareness can determine the posture of the firm regarding the Environmental Innovations. Thus, through the Environmental Innovation, firms may have access to those segments of the market willing to pay a premium for green products (Miles et al., 1997) and also create a green reputation (Chen, 2008). Furthermore, companies can leverage their reputation for environmental innovation to gain preferential access to new and lucrative businesses like waste management, recycling services and environmental impact analysis among others (Nidumolu et al., 2009). In relation to the institutional and political influences, the role of the environmental regulation should be noted. First, environmental regulation may force firms to realize economically benign Environmental Innovation, and second, firms may find early movers advantages from adapting to

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage

Figure 2. Types of environmental innovations

regulation before than their rivals (Porter & Van der Linde, 1995; Horbach, 2008). Finally, in addition to the nature and determinants of environmental innovations, we must refer to the environmental innovation types in order to show a complete picture of the topic. Thus, following the OECD (1997) Guidelines, we can distinguish between technical and organizational innovations. Thus, technical environmental innovations are specific kinds of innovations that consist of new or modified products and processes to avoid or reduce the environmental burden, and environmental organizational innovations include the re-organization of processes and responsibilities within the firm with the objective to reduce environmental impacts (Rennings et al., 2006). (Figure 2) Among technical environmental innovations we can find environmental process innovations and environmental product innovations. As process innovations we can include those aimed at reducing energy consumption during the production process or those that convert waste into new ways of creating value, both through its reuse within the enterprise or outside, selling the waste

in those businesses where they could be useful (Porter & Van der Linde, 1995). Among environmental process innovations we can include the reductions in air or water emissions, improvements in resource and energy efficiency, reductions in water consumption and switching fossils fuels to bioenergy (Kivimaa & Kautto, 2010). Environmental process innovations can be subdivided into innovations in end-of-pipe technologies and innovations in integrated technologies (also called cleaner production technologies). While end-of pipe technologies are oriented to comply with the environmental regulation (waste disposal, water protection, noise abatement or air quality control technologies), cleaner production technologies emphasize continuous improvement and cost minimization. Examples of cleaner production technologies are the recirculation of materials, the use of environmental friendly materials and the modification of the combustion chamber design. Some authors, adding more detail to the technological environmental innovations typology, distinguish between end-of-pipe integrated (preventive) and end-of-pipe non integrated (control) depending whether these technologies

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are integrated in the production process or not Hartie (1990, in Hemmelskamp, 1997). On the other hand, among the environmental product innovations we have to mention product design innovations like those responding to the concept of “design for disassembly”, which is based on creating products that are designed for easy recovery, dismantling and recycling, thus extending the life of each of the components (Shrivastava, 1995b), improvements in the durability of the products, raw materials reductions, selection of environmentally less harmful raw materials and removal of hazardous substances (Kivimaa & Kautto, 2010). Environmental organizational innovations, in turn, can be supporting factors for technical environmental innovations. Among them, we can mention as one of the most prominent initiatives the utilization of environmental management systems (EMS) like EMAS (Environmental Management and Auditing Scheme) or ISO 14001 and the “green teams” which are composed of members of the organization from various departments and levels of responsibility whose job is to advise the company on the impact of their activities on the environment. This advisory work covers all areas of business activities and includes the development of programs for waste management, energy and resources conservation or renewable energy sources exploration (Shrivastava & Hart, 1995).

Environmental Innovation and Firm Performance: An Approach to Direct and Indirect Effects The environmental factor provides opportunities to foster innovation and develop technologies to improve efficiency. According to Hart and Milstein (2003), problems associated to industrialization like material consumption, waste and emissions represent an opportunity for companies to develop skills and capabilities in the fields of pollution prevention and ecological efficiency (Nidumolu et al., 2009).

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Russo and Fouts (1995), referring to different environmental strategies as mentioned by Hart (1995), emphasize that companies that carry out pollution prevention strategies (beyond compliance with the law) focusing on process environmental innovation, have a resource base that enhances their ability to generate profits and also makes them able to protect themselves against future risk arising from resource depletion or fluctuating cost of energy (Shrivastava, 1995). Dechant and Altman (1994, in Karagozoglu & Lindell, 2000), in the same vein, argue that environmental innovations enables companies to position themselves ahead of their competitors in meeting environmental regulations, which in turn helps them to protect their markets Therefore, the importance of incorporating environmental considerations in strategic decision making is increasing (Sharma and Vredenburg, 1998). Thus, through environmental innovations the firm can improve its efficiency, achieve significant cost reductions and meet the demands of those consumers especially sensitive to the environmental factor. Firms can save costs through a better use of raw materials and energy, selling the surpluses of the production process or reducing the control and waste treatment cost (Murillo et al., 2008), idea that is shared by Berrone and Gómez-Mejía (2009, in López Gamero et al., 2009) for whom proactive environmental management, characterized by innovation, can minimize waste disposal costs, reduce unnecessary steps and optimize the use of inputs in the production process. Klassen and Whybark (1999) relate pollution prevention technologies to the existence of greater opportunities for innovation and improvement in production efficiency. In the same line, Wagner (2005) shows that environmental strategies based on pollution prevention (as opposed to the additive and control strategies or “end of pipe”) result in improved economic performance of the company. Rennings et al., (2006) show evidence of the relationship between Environmental Innovation and increased

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage

Figure 3. Environmental innovation: Direct and indirect effects

turnover of the plant, while according to Radonjic and Tominc (2007), the new, cleaner technologies lead to the optimization processes and result in increased productivity. Therefore, with appropriate skill sets and capabilities, companies that carry out prevention strategies and reduce waste emissions are able to reduce costs and increase profits (Sharma & Vredenburg, 1998; Christmann, 2000). In addition, besides the cost factor, the respect for the environment can also be a key element to meet the demands of those conscious customers who specially value the environmental performance of products, packaging and sustainable forms of business management. These customers will be willing to pay and additional price for such environmental features (Sharma et al., 1999). Although by 2001, Hamschmidt and Dyllick argued that the market for environmentally innovative products was reduced, the development of new products more “green” or sustainable has been also studied by the researchers. Among the beneficial effects of designing new and more sustainable products we can mention increases in sales and corporate image enhancement (Tien et al., 2005; Chen, 2007), increased market share (Cleff & Rennings,1999) and company growth (Chen et al., 2006). Likewise, environmental marketing activities positively affect the business performance of companies (Fraj-Andrés et al., 2009). These are what we call the “direct

effects” between Environmental Innovation and firm performance. However, if technical and organizational possibilities for sustainable businesses are available for all the firms in the market, the achievement of some degree of cost reduction, improved efficiency or product differentiation may not be enough to obtain a significant improvement in the economic performance of the firm. Therefore, it may be necessary the existence of competitive advantage in terms of cost or differentiation. In this sense, competitive advantage can play a mediating role in the achievement of business results and better firm performance. In short, attention must be paid to what we call the “indirect effects” (Figure 3). According to Christmann (2000), Environmental Innovation practices can result in different types of competitive advantage. In the same line, Chen et al., (2006) argues that environmental innovation in both product and process is positively related to the achievement of competitive advantage. Thus, starting from the distinction of Porter (1980) between differentiation and cost leadership and in line with the relationship between strategy and competitive environmental strategy (Shrivastava, 1995), cost advantage can result from incorporating best environmental practices on the production process (Hart, 1995). These process oriented environmental innovations include the redesign of production processes or the use of

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productive inputs that are less polluting and recycling of byproducts of processes, among other measures (Hart, 1995; Porter & Van der Linde, 1995). Other broader approaches to environmental management also contribute to the cost advantage. Such is the case of the Sustainable Management of Product Life Cycle (Hart, 1995, 1997), Ecocentric Management (Shrivastava, 1995), Design for Disassembly (Shrivastava, 1995) or Design for the Environment (Hart, 1997). In regard to environmental differentiation, innovations related to the packaging design or environmentally friendly product development must be mentioned. Raw materials utilization and business process modifications can be used as differentiation factors when selling products and services on the market (Murillo et al., 2008). As pointed out by Reinhardt (1998) through environmental innovations seeking product differentiation is that consumers pay a higher price because of the ecological attributes of the products sold. Also playing an important role in terms of differentiation we can find the environmental management systems like ISO 14001 or EMAS. According to Johnstone and Labonne (2009), environmental management systems are very important to send signals to regulators and play a role in differentiation against other competitors from the market. This argument is consistent with what has been described by Fombrun and Shanley (1990), for which the fact of producing according to criteria of social responsibility (in our case by providing an environmental argument to products and processes) may contribute to product differentiation and enhanced reputation, though, according to Barin and Dirk (2008), also should be noted that this kind of product differentiation will be effective if is adopted by the value chain as a whole. However, there are also more critical perspectives in relation to Environmental Innovation in terms of differentiation and cost. Some studies find no relationship between the certification of environmental management systems and economic performance of companies (Link & Naveh,

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2006). Some authors doubt about the potential of environmental management systems to produce differentiation because not all markets are familiar with and value these certifications and it is also controversial the fact that eco efficient activities are a way to gain cost advantages because firms aren’t punished in proportion to the damage caused (Aragón-Correa & Rubio-López, 2007). In a similar vein, according to Frondel et al., (2008) there is a negative relationship between cost reductions and the adoption of environmental management systems.

FUTURE RESEARCH DIRECTIONS As can be seen, the debate on the economic effects of environmental innovation is still open. Direct links between Environmental Innovation and firm performance may be valid in some cases but not in others. Therefore, future studies should analyze more in detail the moderating factors in the relationship between Environmental Innovation and business performance. In particular, the role of the environmental management systems is not clear yet. According to Nawrocka and Parker (2009), the study of the influence of environmental management systems on environmental performance of companies yields inconclusive results. Thus, the casual link between environmental management systems and Environmental Innovation is not resolved by the literature and there is no consensus on whether the environmental management systems are key determinants of Environmental Innovation (Ziegler & Rennings, 2004; Rennings et al., 2006), are factors that help the emergence of environmental innovations (Wagner, 2007; Rehfeld et al., 2007) (playing a moderating role), or on the contrary, do not affect at all to the emergence of environmental innovations (Frondell et al., 2008). Likewise, other factors such as environmental capacity building (Aragón-Correa & RubioLópez, 2007), the complementary deployment of

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage

environmental capabilities, firm size (Ziegler & Nogareda, 2009; Iraldo et al, 2009; Wagner, 2007; Chen, 2008; Cleff and Rennings, 1999) or industry (Horbach, 2008; Darnall et al., 2008; Frondel et al., 2008) among others are also relevant and must be taken into account in future research.

CONCLUSION This chapter takes a new perspective in the study of Environmental Innovation. Thus, it is considered that Environmental Innovation can be explained from the theory of Social Innovation. This approach is justified on the grounds that Environmental Innovation is a way of introducing ethical arguments to the activities of the company within a general context of change towards sustainable development. Therefore, according to our view, Environmental Innovation is considered as a kind of Social Innovation. Contrary to other authors, that suggest the existence of different natures for Environmental Innovation, (Rennings, 2000), we argue that, Environmental Innovation is a Social Innovation in nature, which is very important to classify as environmental innovations the changes (in behavior and relationships) that occur inside the business when administrative or technological environmental innovations are implemented. Additionally, it provides an analysis of Environmental Innovation, taking into account its nature, determinants, types and the relationship between environmental innovations and the economic performance of the firms. Escuchar Leer fonéticamente Diccionario - Ver diccionario detallado 1. adverbio a. even 2. preposición a. with b. by c. cum d. in spite of

3. conjunción a. else Demand factors like environmentally conscious consumers or general environmental concern, supply factors arising from the technological capabilities of enterprises in relation to environmental innovations, and institutional factors such as regulatory pressure are taken into account. Escuchar Leer fonéticamente Diccionario - Ver diccionario detallado 1. preposición a. in spite of 2. conjunción a. however b. nevertheless c. notwithstanding d. nonetheless Also, a typology of environmental innovations in line with OECD guidelines (1997) is presented. Providing examples of the most cited environmental innovations (organizational, product and process) and differentiating environmental process innovations between Innovations in End-of -pipe Technologies and Innovations in Cleaner Production Technologies, a complete picture of environmental innovations is offered. Finally, the relationship between Environmental Innovation and business performance is examined. We argue that Environmental Innovation represents an opportunity for companies, promoting the creation of new core competencies and offering a creative and innovative perspective to the organization that can lead to the achievement of sustainable competitive advantages. However, in order to exploit the full potential of Environmental Innovation, further investigation is needed. In this regard, the importance of other factors such as size, environmental capacity or industry, this, among many others, may be useful to advance the study of the field. Empirical research regarding these aspects is of great importance for the 99

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determination of environmental strategies. Thus, if environmental innovation results in business benefits, companies will devote more resources to pollution prevention strategies (based on innovation), while otherwise will focus in emission control strategies. Escuchar Leer fonéticamente Diccionario - Ver diccionario detallado 1. nombre a. si b. B 2. conjunción a. if b. whether c. once d. supposing

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KEY TERMS AND DEFINITIONS Cleaner Production Technologies: Environmental technologies that emphasize continuous improvement and cost minimization. (Rennings et al., 2006). End of Pipe Technologies: Environmental technologies designed to diminish harmful substances that occur as by-products of production (Frondel et al., 2006). Environmental Innovation Double Externality: Environmental Innovations, besides the positive externalities from spillovers which are common to all innovations, are characterized by the fact that while the whole society benefits from a technical environmental innovation, the cost have to be borne by a single firm (Rennings, 2000). Environmental Innovation: The measures of relevant actors consisting in the development, application or introduction of new ideas, behaviors, products and processes that contributes to a reduction of environmental burdens or to ecologically specified sustainability targets (Rennings, 2000). Environmental Organizational Innovations: The re-organization of processes and responsibilities within the firm with the objective to reduce environmental impacts (Frondel et al., 2006). Social Innovation: Social Innovation as the combination of innovative activities carried out by the company with the potential to promote social change. This social change is expressed through the incorporation of ethical arguments to the products, processes and organizational

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modes of the company and results in changes in consumer behavior, changes within the enterprise and changes in the company’s relationship with the social and natural environment.

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Technical Environmental Innovations: Specific kinds of innovations that consist of new or modified products and processes to avoid or reduce the environmental burden. (Rennings et al., 2006).

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Chapter 7

Observe, Conceive, Design, Implement and Operate: Innovation for Sustainability Javier Alejandro Carvajal Díaz Universidad de los Andes, Colombia María Catalina Ramírez Cajiao Universidad de los Andes, Colombia José Tiberio Hernández Peñaloza Universidad de los Andes, Colombia

ABSTRACT Innovation within organisations permits the transformation of knowledge into applications for the development of new knowledge and new organisations that are able to respond to the needs and changes of the society. However, how can we establish a framework for acquisition of the skills needed to manage successful initiatives for innovation in organisations and how can we guarantee the sustainability of these innovations? In order to provide an answer to these questions, this chapter presents a proposal for the promotion of sustainable innovation based on the engineering cycle of Observe, Conceive, Design, Implement and Operate (OCDIO). For this purpose, we reviewed examples of innovation in some world class universities, analized cases of education for innovation and developed a case study. We conclude that the OCDIO cycle was set up in a framework that enables the development of sustainable innovations through a permanent cycle of observation and adjustment of the systems designed to resolve problematic situations. The phase of observation allows the professionals facing the challenges of innovation inside organisations to obtain the relevant information for the conception, design, implementation and operation of sustainable engineering systems that take into account the relevant economic, social, technical, environmental and cultural aspects.

DOI: 10.4018/978-1-61350-165-8.ch007

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Observe, Conceive, Design, Implement and Operate

INTRODUCTION “…The world is becoming increasingly more complex and connected, the advance of science is accelerating, and socio-technical problems are abundant” (Steiner, Ramírez, Hernández, & Plazas, 2008, p 141). This rapid process of change implies that organisations and society in general should be ready to constantly adapt to their changing conditions and evolve in order to survive in their environment. In order to accomplish this goal, innovation has become a key element that enables organisations to respond to the increasingly demanding and complex conditions of the market (Evans, Parks, & Nichols, 2007). Innovation within organisations permits the transformation of knowledge into applications for the development of new knowledge and new organisations that are able to respond to the needs of the society (Edmondson & Nembhard, 2009). “In the future, only companies that make sustainability a goal will achieve competitive advantage. That means rethinking business models as well as products, technologies, and processes” (Nidumolu, Prhalad, & Rangaswami, 2009. p. 1). In this sense, new companies with an innovative spirit are able to take the place of established companies which have become old and tired, creating an innovative attitude that generates a higher level of development (Thurik, 2009). However, how can we establish a framework for the acquisition of the skills needed to manage successful initiatives for innovation in organisations? In addition, how can we guarantee the sustainability of these innovations? In order to provide an initial answer to these questions, we need to develop a way to introduce innovation into the education of the professionals that are going to be part of organisations, promoting the development of innovative ideas from different fields of action or simply favouring a continuous process of innovation in the daily running of organisations. We have to keep in mind that innovation generates value in many different ways, and not only in terms

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of the final sale price; it also adds social value, intellectual value, improves the competences of the organisation (not only commercially but in terms of the quality of production) and helps to clearly define the objectives of the organisation (Organisation for Economic Co-operation and Development [OECD], 2004). Traditionally, engineering as a profession has been one of the disciplines in charge of leading the processes of innovation generated in the Academy or in the production sector. For this reason, many schools of engineering have highlighted the importance of the development of skills in order to tackle the challenges of innovation in the market, so that these skills may be used in the future to create successful projects (Siller, Rosales, Haines, & Benally, 2009). One initiative that had been gaining ground in recent years is the CDIO cycle, which aims to structure education in engineering based on the cycle of observe, conceive, design, implement and operate. This proposal is intended to assist the transformation of innovative ideas into real projects using the CDIO cycle (CDIO, 2010; Crawley & Brodeur, 2008). The aim is that the engineering professionals of the future will have effective communication and teamwork skills and an innovative attitude, which will allow them to successfully carry out sustainable innovation proposals based on the proposed cycle (Hernández, Ramírez & Carvajal, 2010). Sustainability is achieved through a permanent cycle of observation of the designed systems within a process of constant adjustment (Carvajal, Ramírez, & Hernández, 2010; Carvajal, Ramírez, Torres, & Arias, 2010). After several years of research, and obtaining pragmatic innovation results from student teams, a group of researchers proposed the introduction of an additional initial phase of observation into the CDIO framework (Steiner, Ramírez, Hernández, & Plazas, 2008). These researchers believe that a person (or a group of people) trying to develop an initiative for the purpose of innovation in any context must observe his/her context in order to attempt to

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understand it (market needs, restrictions in the systems, economic, technical, environmental and human conditions, the current situation, etc.). In order to innovate you have to know your customer, his community, his ideas (OECD, 2004). Based on such an understanding, a solution with which to tackle the observed situation is conceived; the solution is designed, taking into account the restrictions and projections for the future, and then the design is implemented and materialised in order to operate it. The cycle restarts, and the project is observed as it runs with the purpose of improving it in each iteration, thus making the solution (project) sustainable. This chapter starts by presenting cases of innovation training initiatives developed by prestigious institutions which operate in this area. It continues by presenting the OCDIO cycle as a framework for the development of sustainable innovation. Later, it presents the progress of innovations in Colombia such as the framework of the proposed OCDIO cycle. Afterwards, this research presents innovations and innovation training initiatives, and discusses the particular case of the School of Engineering at the Universidad de los Andes. Finally, this chapter presents the results of the application of the OCDIO proposal in specific engineering contexts. We conclude this research suggesting future work in this initiative and presenting some reflections on it.

INNOVATION IN ENGINEERING Innovation as a Concept The concept of innovation has several interpretations and meanings. Schumpeter (1936) propounded that innovation is the commercial or industrial application of something new: product, process or production process, market source of offer, organisational form. Cozzens and Kaplinsky

(2009, p. 58) added to that definition by stating that “innovation provides the private producer with competitive advantage or allows the social producer to better meet the needs of consumers with a given resource cost”. For Chesbrough (2003), innovation is an invention implemented and taken to the market. However, Zoltan, Audretsch and Strom (2009) have stated that an innovative spirit allows new companies to take the place of those companies that are unable to develop innovative activity and promote a higher level of development. The National Academy of Engineering (NAE) (2000, p. 44) of the United States of America (USA) defines innovation as “the transformation of an idea into a marketable product or service, a new or improved manufacturing or distribution process, or even a new method of providing a social service”. Although reaching a consensus regarding the definition of innovation is outside of the scope of this chapter, the proposed definitions allow us to create a framework with which to introduce a concept that is more relevant for us: the innovation process. Davenport reinforced the idea of innovation processes by stating that it is clear that innovation is the introduction of something new, but that “we presume that the purpose of introducing something new into a process is to bring about major, radical change” (Davenport, 1993, p. 10). Innovation processes are combinations of structures for the development of work oriented towards achieving visible and measurable results with a clear business objective (Davenport, 1993). Taking into account that it is more important to focus on the processes of innovation than the concept of innovation, we will then present the OCDIO cycle with the aim of answering our two questions relating to the necessary skills for innovation processes and the sustainability of innovation.

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Education for Innovation: Several Cases Several schools of engineering across the world are working to structure innovative engineering curricula, which will include the challenges of engineering in the 21st century as identified by organisations such as the Accreditation Board of Engineering and Technology (ABET). The objective of these curricula is to respond to the needs and requirements of existing organisations regarding the professional education of engineers in particular. At the same time, an awareness of the development of the necessary competences for innovation has been developed as one of the pillars of economic development and the growth of society. Institutions such as the Franklin W. Olin College of Engineering (Olin College), the Massachusetts Institute of Technology (MIT), the Chalmers University of Technology (Chalmers), the KTH Royal Institute of Technology (KTH) and Linköping University (Linköping) have developed successful initiatives for the purposes of education in innovation; the first three in the USA and the remaining three in Sweden (Bankel et al., 2005). MIT, Chalmers, KTH and Linköping, as well as being known for their success in the field of innovation, lead the CDIO initiative that had been spreading to several universities around the world (Crawley & Brodeur, 2008). Olin College, which does not belong to the CDIO initiative, has developed a curricular structure which is consistent with elements of the CDIO framework. The cases of these universities allow us to understand the role of education (in this case in engineering) as a key element in the development of the competences required for sustainable innovation in organisations. Let us begin with the case of the engineering curricula at MIT that have been structured around three large domains: “science and technology, culture and society, and the prior preparation and aspiration of students” (MIT, 2006, p. 1).

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Based on these domains, MIT has created a flexible curriculum in which the students receive a solid education in basic sciences (mathematics, chemistry, biology and physics). The students can choose from different education cycles in humanities, arts and social sciences. Alongside these components of the curriculum, the students receive specific education in an area of engineering of their choosing. During their education, the students apply the concepts and skills they acquire in the different areas of their curriculum in their undergraduate curriculum by developing real engineering projects. These projects are developed based on the CDIO framework guidelines, combined with the “…research teams that confront the great scientific challenges that we face today” (MIT, 2006, p. 7). The education model at MIT aims to aims to develop skills which can be integrated with the knowledge the students possess. Therefore, they expect that innovative ideas will emerge as a result of the intersection between science and technology, humanities, arts, social sciences and the academic interests of each student (MIT, 2010). Meanwhile, Chalmers bases its curricula on the “knowledge triangle”, the base of which is composed of education and research. On the top of the triangle is innovation, which forms a primary objective of education at Chalmers (see Figure 1). This innovation is developed within the framework of the five areas of advancement: energy, the science of materials, nanoscience and nanotechnology, production, and transport. In order to achieve this goal, Chalmers structures its curricula around a sound education in the basic sciences that provides the students with enough knowledge to build an excellence profile in an active field. “Excellence profiles are areas where we take a national responsibility with the potential to meet the challenges of today and tomorrow. They are positioned in the international forefront of research, education and innovation with a mission to meet the long-term needs from society and industry” (Chalmers, 2010a).

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“Active fields on the next level describe research areas within or between excellence profiles. They include excellence centers, research programs [sic], clusters of research groups and international networks, coupled with education and innovation activities in collaboration with research institutes, industry and society. The research is very often carried out at several departments in joint effort where both applied and basic sciences are vital parts” (Chalmers, 2010b, p. 2). This model indicates that Chalmers is the leading university in Europe for providing support for the creation of businesses’. Chalmers is well known for the development of systems of innovation based on the creation of companies that exploit research applications in the commercial arena (Chalmers University of Technology, 2010c). These activities are closely connected with government efforts, the business sector and initiatives by the University itself (Chalmers University of Technology, 2010c). “Chalmers is an open arena in which the forces of innovation are gathered together. And Chalmers’ researchers are also successful as regards creating a stimulating collaboration between the business world and the university” (Chalmers University of Technology, 2010a).

Figure 1. Chalmers’ knowledge triangle

KTH and Linköping, as Swedish universities, have structured their curricula in the same fashion as Chalmers, which, in part, accounts for their position as the three universities (along with MIT) leading the development of the CDIO framework. Regarding innovation, “KTH is to be positioned as an entrepreneurial university that values innovation and entrepreneurship in education and stimulates the creativity and innovative attitude of students and researchers” (KTH Royal Institute of Technology, 2009, p. 31). Meanwhile, Linköping aims to continue developing its skills as a university which combines basic and applied research in innovative contexts. Olin College (USA) was established in the autumn of 2002 as a result of an initiative to prepare “...students to become exemplary engineering innovators who recognize [sic] needs, design solutions, and engage in creative enterprises for the good of the world” (Kerns, 2001). Olin College does not see itself as a teaching institution where the faculty teaches something new to a group of students who are only going to be in the University for a couple of years (Kerns, 2001). In this sense, the faculty and the students “…will nurture a culture of innovation, inquiry, problem-solving, entrepreneurship, research, [among others], to ensure the faculty stay current with the latest developments in their field, that they are encouraged to explore interdisciplinary areas, and that faculty transmit the results of this intellectual vitality to students both in and outside of the classroom” (Kerns, 2001). In addition, Olin College developed the conceptual framework known as the “Olin triangle” (see Figure 2a). “At the peak of the Triangle was Superb Engineering, supported by the Arts, Humanities and Social Sciences (“AHS”) (encompassing Design, Creativity and Innovation) and by Entrepreneurship (including Philanthropy and Ethics)” (Greis, 2009, p. 25; Kerns, Miller, & Kerns, 2000).

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Figure 2. Olin College’s triangles

Based on the “Olin triangle” framework, Olin college has designed an engineering curriculum structured around four years of education, as follows: “…two-year foundation course and project work, a third year of specialization in which the student focuses on a particular area of interest and a fourth year (realization) during which the expertise is applied to a project of professional caliber” (Greis, 2009, p. 25; Kerns, Miller, & Kerns, 2000). In the first two years, the students work in projects based around “…integrated course blocks (ICBs), large course blocks that combine two areas of study (say, engineering and biology) and an interdisciplinary project” (Greis, 2009, p. 26). “The ICB…provides teamwork opportunities for faculty and students…the fourth-year senior capstone project, pairs student teams with businesses to develop a solution that incorporates the students’ specialized [sic] skills and meets the business clients’ requirements and schedules” (Greis, 2009, p. 26). In their final year, the “…students not only learn the fundamentals of engineering science, but also can apply these techniques to the solution of real-world problems” (Greis, 2009, p. 26). Through this curriculum structure, Olin College aims to “…prepare leaders who can predict, create, and manage the technologies of the future”

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(Kerns, Miller, & Kerns, 2000, p. 105). Olin College has presented a second triangle in which the courses are related (in terms of curricular content) with competences (skills such as team work, effective communication and an innovative attitude, among others) and the incorporation of spaces in the development of projects. Olin College considers that the development of competences through the application of content in real projects permits the creation of innovative ideas, while spaces based only in courses with disciplinary content (traditional spaces) do not necessarily guarantee such innovation. Another common element in the listed universities is their participation in their innovation systems. These tight links with companies, business people, local and national governments, research groups and international networks of innovation have allowed these institutions to generate meaningful contributions to the economic and social development of Sweden and the USA. This relationship among the actors in their innovation systems has resulted in the success of innovative projects that have become productive organisations with a direct impact on the economic indicators in these countries. In later sections, we will present the experience of Colombia regarding the running of its own innovation system.

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We have presented the innovation process as raised by Davenport (1993); this concept is tightly linked with the idea of educating professionals and developing their competences in order to develop innovation processes. The leading team of universities in terms of the CDIO have structured their educational programmes around the integration of areas of knowledge such as the arts, humanities, social sciences and exact sciences. At the intersection of these areas is where these universities have managed to capitalise on opportunities for the development of innovative projects that include engineering as a basis for their development. At the same time, the development of innovative ideas is based on the framework of CDIO that began in courses included in the engineering curricula. Lately, these universities have begun to hope that their alumni develop similar processes in the organisations that they go on to work for. The core of the CDIO framework is the development of skills to be used at each of the stages of the proposed cycle. These skills are acquired by the students through their study programme and used by them throughout their entire professional career. In this way, we can start to form an answer to the question regarding the creation of a framework for the acquisition of skills for the successful development of initiatives for innovation in organisations. This is because CDIO is the framework for the development of competences that will allow workers to conceive, design, implement and operate systems (projects) for innovation in their organisations. Regarding our second question, we will propose an initial stage in the CDIO framework: observation. This stage has been proposed by the research team of Universidad de los Andes in order to guarantee the sustainability over time of the innovations achieved through the OCDIO framework.

OCDIO AS A PILLAR OF SUSTAINABLE INNOVATION: A MODEL OF EDUCATION IN THE FIELD OF INNOVATION IN ENGINEERING Engineering as a profession has been experimenting with changes in its education-learning models, with the purpose of educating the engineers who will face the challenges of this particular discipline in the 21st century (Siller, Rosales, Haines, & Benalli, 2009; ABET, 2004). One of the most relevant changes has been moving from the knowledge transfer paradigm to the development of professional skills paradigm (Hernández, Caicedo, Duque, & Gómez, 2004; Siller et al., 2009; Witt, Alabart, Giralt, Herrero, Vernis, & Medir, 2006). Examples of these changes have been reviewed by various global institutions such as the NAE (Siller et al., 2009) and the ABET in the USA. Nonetheless, the teaching-learning of these skills is difficult, especially for faculties that are looking to find a balance between the need to include or increase the technical content in the curriculum (Siller et al., 2009) and the formation of engineers who are able to apply such content and acquire new skills through what is known as lifelong learning (McCowan, 2002). In response to the new challenges involved in education in the field of engineering, a group of globally renowned institutions (MIT, Chalmers, KTH and Linköping) developed a proposal based on the CDIO cycle for engineering projects (Crawley & Brodeur, 2008). The proposal has three main principles: (i) scientific breakthroughs and technological developments; (2) internationalisation; and (3) the skills and attitudes of first-year students of engineering. Scientific breakthroughs and technological developments: With regard to technological developments, the question is whether schools of engineering have enough resources to be able to develop applied research, or if there is a way to

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integrate engineering programmes into industry developments. The closeness between engineering programmes and the industry is fundamental to a country’s technological development. The CDIO initiative allows students to experience learning in pragmatic terms in the midst of a social context in which engineering can add value (Cutkosky & Fukuda, 2004; Froyd & Ohland, 2005; Lloyd et al., 2004). Internationalisation: Globalisation demands that engineers have the capacity to adapt very quickly to contexts that are different from their own. Such is the case in European student exchange programmes such as the Erasmus European programme and the Socrates programme, where professionals with the ability to adapt to different environments are sought after. In the USA and Canada, the same thing happens with Chinese and Indian students (CDIO, 2010). According to the Asociación Colombiana de Facultades de Ingeniería (Colombian Association of Engineering Faculties, ACOFI), engineers are being drawn to developing countries other than their own. In this sense, additional efforts should be made in order to include analyses of different contexts as an integral component of their training. The skills and attitudes of first-year students of engineering: One of the main concerns of schools of engineering is the level of knowledge in basic sciences which is applied in projects developed by engineering students (Cutkosky & Fukuda, 2004). It is necessary to generate curricular processes in which knowledge of engineering and basic sciences is integrated into the development of real projects. This requires a widespread effort at every educational level (school, undergraduate and postgraduate). With this in mind, the CDIO initiative promotes the development of hands-on activities that allow the integration and implementation of a scientific basis into real projects. Taking into account the challenges highlighted by the NAE and the ABET, which have been discussed in multiple schools of engineering throughout the world, and the principles of the CDIO cycle,

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the School of Engineering at the Universidad de los Andes has proposed a curricular space which is designed to develop some of the skills proposed by the ABET together with students, professors and businessmen. As a contribution to the CDIO framework, we have proposed an additional initial phase of observation. This phase allows a careful investigation process based on a literature review and creativity workshops that allow us to explore the technological conditions that surround us and to approach potentially problematic situations that could be addressed from the point of view of different fields of engineering. This first phase of what we have decided to call the OCDIO cycle provides the necessary information to start the conception of ideas as proposed in the CDIO cycle. The CDIO framework starts with the conception of an idea that will later be designed, implemented and operated through a project. “The Conceive stage includes defining customer needs; considering technology, enterprise strategy, and regulations; and developing conceptual, technical, and business plans” (Crawley & Brodeur, 2008, p. 138). These activities are important immediately prior to the design of a solution and are the basis for the structure of a project that executes the design. However, a research group of Universidad de los Andes proposed that before an idea can be conceived, a rigorous observation stage is required (Ramírez, Carvajal & Hernández, 2010). In this stage, opportunities for innovation are identified, as, by observing the world around us, its variables, its agents and the iteration among them, we can understand the different complexities that surround us and we can propose mechanisms (solutions) that could absorb part of that complexity (innovations) (Vest, 2000). For this reason, we believe that the first stage in the OCDIO cycle should be the observation stage. Connecting these ideas with the proposals of the CDIO leadership team, it is possible to argue that in the crossover between the social sciences, arts and humanities lies opportunities for the

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development of innovative ideas. However, for the identification of such ideas to be possible, the development of the observation processes we have previously discussed is absolutely necessary. If we move to the final stage of the cycle (operate), we find that it is necessary to develop a new process of observation of that solution (or system) which has been designed, implemented and is now operating. Based on these new observations, we could conceive, design, implement and operate new solutions or improvements to the same solutions in the OCDIO cycle. This stage of the initial-final observation process allows us to ensure the sustainability of the solutions developed in the CDIO framework. However, the question remains of why this is so. The reason is that in a constant and systematic process of observing the results and the behaviour of implemented and operating solutions, there is the possibility and opportunity to improve with each iteration, by finding the shortcomings and obstacles that can then be overcome in new versions of the OCDIO cycle. In this way, we can guarantee that over time, innovative engineering solutions will adapt to these new conditions, challenges and requirements identified in the observation process. Therefore, we have established that the CDIO cycle is an adequate framework for the acquisition of the skills required for successful innovative ideas. We have included an initial stage of observation that guarantees the sustainability of those innovations over time. In this way, we will carry on building an answer to the two questions that guide this chapter. In the next section, we will present the details of the educational contexts in which we used the OCDIO framework for the development of sustainable innovative ideas. For this, we believe it to be important to present the context in which these education spaces are developed. Therefore, we will present elements of the Colombian innovation system as the environment of the School of Engineering of the Universidad de los Andes.

THE INNOVATION SYSTEM IN COLOMBIA There are plenty of opportunities to develop sustainable ideas for innovation in countries with the current characteristics of Colombia. We will present the main reasons for this fact in the following section. One indicator of a country’s competitiveness in terms of research and development is the publication of scholarly articles as a measure of scientific activity and knowledge production (Jaramillo, Lugones, & Salazar, 2001). Between 1997 and 2002, the Colombian participation in bibliographical production in Latin America relating to publications in indexed journals was 2.42%, which is higher than that of Bolivia (0.33%), Costa Rica (0.96%), Ecuador (0.45%), Paraguay (0.11%), Peru (0.85%) and Uruguay (1.35%) (Jaramillo, 2003). However, Colombia ranked below the production of countries such as Argentina (18.10%), Brazil (43.77%), Chile (7.99%), México (18.54%) and Venezuela (4.08%) (Jaramillo, 2003). Figure 3 shows the increase in the Thomson Scientific (ISI) publications in Colombia between 1975 and 2005. Figure 3 shows that between 1980 and 1995, the number of publications in Colombia, as is usual in a developing country, increased slowly. Since 1995, with the appearance of science and technology policies and investment in international cooperation (see Figure 4), a rapid and sustained increase in the number of publications emerged. From then on, the increase inclines, once again, towards moderation. The question that arises is why the behaviour of Colombian publications changed after 2005. It seems that the country reached its peak in terms of production capacity, and does not have the institutional infrastructure to support any further increase in new knowledge production. When comparing the results for Colombia with those of more developed countries, such as Brazil, similar patterns are found but with significant

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differences in the number of publications, which in the case of Colombia is in the hundreds whereas in Brazil it is in the thousands (see Figure 5). Furthermore, both countries have a growing number of publications, but in Brazil the growth in faster than in Colombia. The relevance of Brazil is based on two reasons: (i) Brazil is the most developed country in the region (South America); and (ii) economically speaking, Brazil is one of the strongest countries in the world (it is a member of the G20). The academic development of Brazil is closely related with its innovation system that, as a result of the relations between the different actors that participate in it, generates a high level of knowledge and sustained economic growth. Colombia has been advancing in terms of the structure and consolidation of its innovation system since the nineties; however, this initiative has not yet been as successful as the Brazilian equivalent. Colombia has made new efforts via legislative initiatives to foster scientific and technological innovation. Examples of these efforts include several bills that are being discussed in the Colombian Congress and which aim to improve the institutional infrastructure regarding science, technology and innovation. There is an initiative for the creation of a Ministry of Science, Technology and Innovation, a National Trust for the Funding of Science, Technology and Innovation and a National System of Science, Technology and Innovation. These initiatives ratify the clear need for Colombia to be introduced into the knowledge society and to improve its position in the regional context and worldwide. These initiatives are aligned with Colombian history regarding the creation of an innovation system which will be consolidated in the coming years. Figure 2 shows the milestones that allowed Colombia to advance towards its incorporation into the knowledge society, which demonstrate their efforts to develop social, institutional, human and financial capital. In this manner, the National

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System of Science and Technology (SNCyT) and the National Innovation System (SIN) have been consolidated, with the aim of supporting and improving knowledge production and its subsequent application in order to foster economic growth. Two characteristics of the incipient Colombian innovation system in terms of human capital are presented by Gómez (1999) as the common aspect for Colombians: on one hand, their capacity to solve individual problems and, on the other hand, their incapacity to solve collective problems. The latter issue is aggravated because of a lack of resources and investment. For the resolution of collective problems, there is a clear need for engineering and other disciplines to immerse themselves in topics such as security, environment, infrastructure, public health, and knowledge, among others. Public goods related to knowledge are those that “are most urgently needed in Colombia. This lack makes extremely expensive the production of private goods” (Gómez, 1999). These assessments by Gomez pose two challenges: increasing the investment in knowledge development so as to enhance competitiveness, and increasing the ability of Colombians to work in teams, aiming towards the same collective goal. With regard to the first challenge, private investment in technology in Colombia, according to the National Planning Department, oscillates between 15% and 20% of the national budget, whereas in countries such as Mexico and Brazil that percentage in 2003 was 29.8% and 39.8% respectively. In the period 2002-2004 in Colombia, an average of 0.03 patents per 100.000 inhabitants were issued, while in Chile the same indicator was 0.13 and in Argentina it was 0.53. The total expenditure on investigation and research as a percentage of the Gross Domestic Product GDP in 2004 in Colombia was 0.37%. The number of researchers per 100,000 inhabitants in Colombia was 109 in 2003. These indicators show that Colombia is on the right track but lacks the driving force required to boost its economic growth.

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Figure 3. Increase in Colombian ISI publications (Source: General Research Office of the Universidad de los Andes)

Figure 4. Milestones in the creation of the Colombian innovation system

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Figure 5. Brazilian ISI publications

In countries such as Colombia, companies should coordinate with national research groups and universities in order to find sources of proposals for new products, processes and services (National Research Council, 2007) which would reduce the gap between these organisations and multinational companies with specialised departments and a budget for research and development. This joint work may be modelled on the processes developed by the universities presented above. Regarding the second challenge, proposals like the one set out by the School of Engineering at the Universidad de los Andes seek to strengthen the competences of teamwork, observation and conception in constantly changing scenarios (negotiation processes and technology, among others). This has a huge impact on the competitiveness of companies, fostering a culture of innovation in new generations of professionals as an essential practice for the economic development of their country. This will allow the national industry to participate to a greater extent in the international market. Taking this into account, we will present the generalities of the OCDIO proposal and contextualise it with an example of its application in the School of Engineering at the Universidad de los Andes. 116

THE CASE OF THE SCHOOL OF ENGINEERING AT THE UNIVERSIDAD DE LOS ANDES In the aforementioned scenario, the University of Los Andes has been a key actor. The School of Engineering has made explicit its aim of contributing to the country’s competitiveness through innovation. The strategic postulates (mission and vision) of the School Development Plan 2002–2005 refer to innovation capacity based on technology as one of the core characteristics that its undergraduate alumni must have, and to adding value to companies as one of the focal points of the School of Engineering. It also express it intention to have a positive impact on the competitiveness of the country through research. For the period 2006–2010, the School kept on track in terms of the previous plan concerning innovation, but introduced an additional element: the level of participation that it must have in the technological renovation processes in national industry. These principles are based on the University’s interest in participating in the Colombian innovation system and becoming a relevant actor in the transferral of knowledge from the academy to the production sector.

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There are several diverse initiatives created by the School with the objective of developing its capacity to promote and support innovation in national industry. In the 1990s, it participated in the establishment and direction of INNOVAR, an institution dedicated to the incubation of businesses with the potential to succeed. In the same decade, at the end of 1993, it created the Innovation and Technological Development Centre (CITEC) with the expectation of helping to increase the welfare of citizens through its participation in the industrial development of the country. The CITEC established its objective as the execution of projects with a high component of innovation, oriented towards the solution of problems in the field of engineering. In 2000, the newly available infrastructure of facilities and laboratories and the realisation of the importance of working closely with the production sector motivated the School to reflect on how to formally incorporate the innovation process into the institutional dynamic. Under the name of InnovAndes, a proposal was prepared for the creation of an innovation centre building upon the experiences gained through the CITEC, with the aim of boosting the development of the graduate School through applied investigation. The idea was to open spaces up for effective interaction among research groups and companies, with the aim of solving the relevant problems in the field of Colombian engineering. Other initiatives such as the Centro Guía (Guidance Centre) or the Red de Empresas Asociadas a la Universidad de los Andes (Network of Companies Associated with the Universidad de los Andes), both in an alliance with the Business Management School, also tried to offer the participating companies a way to resolve their management and competitiveness problems through the transfer of the appropriate technology. The Universidad de los Andes (and particularly the School of Engineering) had been working to reinforce the activities of teaching and investigation related to innovation. The University cited

conducting high level research as one of its institutional aims, which means producing its own knowledge about relevant problems. With this objective in mind, the School focussed on activities such as strengthening its master’s and doctorate programmes, using its own resources for research, subscribing to international scientific databases, upgrading its infrastructure, equipping its laboratories with the latest technology and educating and assigning its professors staff for research purposes. In 2007, the university created the Vice Rector’s Office of Investigations, which was focussed on managing the accomplishment of these objectives. As a result of these initiatives, the Universidad de los Andes has experienced a sustainable growth in indicators such as the number of ISI publications (see Figure 6), placing itself in 5th place in the ranking of Ibero-American research institutions. The results presented in Figure 6 accompanied a significant growth in the rate of production of ISI articles per professor: 0.36, 0.45 and 0.59 for 2007, 2008 and 2009 respectively. In the same way, 20 of the 130 research groups at the University are in the highest category of the National Administrative Department for Science and Technology (Colciencias) in terms of the quality and frequency of their publications and researches results.

Model of Education in Innovation in the Field of Engineering: The OCDIO Cycle in the Context of Undergraduate Students of Engineering at the Universidad de los Andes Taking into account the national context and the context of the Universidad de los Andes, the School of Engineering has been consolidating a space for the development of engineering projects from the first semester until the end of the undergraduate programme (see Figure 7).

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Figure 6. Growth of the number of ISI publications of the Universidad de los Andes

Figure 7 presents the undergraduate engineering programme and the points in the course at which certain projects are developed. These projects are developed across the curriculum and aim to be a way of integrating the students into the curriculum. In the following sections, we will develop two of these points in the course as part of the OCDIO model of education for innovation.

First Semester In the first semester, the students of all of the engineering programmes undertake a project which is based around a specific topic that is defined according to the context of the different introductory courses to the engineering programme. This active learning scheme is called ExpoAndes. At the end of the semester, around 150 groups of students present projects that aim to provide an initial approach to innovation in engineering with regard to a specific problem (Ramírez & Hernández, 2008). This phase of the undergraduate programme is intended to start the development of an innovative attitude through activities with an emphasis on the observation and conception of engineering projects. Activities intended to foster the design of these projects are also supported,

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although with less emphasis. Without a doubt, the main strength of ExpoAndes is its capacity to generate in the students the ability to come up with teamwork solutions. There are some very interesting issues concerning this matter. In the evaluation of the ExpoAndes process, the most positive opinions regarding teamwork belonged to the students in the final semesters of their undergraduate programmes. The a priori hypothesis of the research team is that these were the students that first had the opportunity to work in interdisciplinary teams. This was the first phase of change for ExpoAndes, in which engineering projects were undertaken by teams composed of students of industrial engineering, chemical engineering, computing and systems engineering, and general engineering. This process required a complete integration of the students with the group and with the professors in charge. The identification and resolution of the problems being addressed showed that knowledge from each discipline was necessary. Another interesting result concerns the development of the students’ communication skills, due to the interdisciplinary nature of the teams. It is noticeable that the teams (both the ones composed of students from the programme as well as those

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Figure 7. Projects in the education of engineers at the Universidad de los Andes

composed of students of different engineering programmes) were unable to develop their oral expression skills. The researchers relate this to the fact that the students presented their projects only once, in a very demanding and pressure-filled open exhibition with more than 2000 guests (including parents, business people, engineers and professors). Even though the students have shown some resourcefulness in presenting their projects in the proper way, it would be sensible to create opportunities for smaller oral presentations during the semester. In this way, permanent systematic training of this skill would be guaranteed. Regardless of its limitations, ExpoAndes presents itself as an opportunity for professors to guide the students in the process of observation, identification and design using an engineering approach. Although it is clear that the students will be unable to solve a problem like engineers in the first semester, we want to them to experience what they will be doing in their professional lives. The results show that there are good perceptions of different relevant actors regarding this matter. A learning process such as ExpoAndes aims to develop an innovative attitude in the engineering students from the first semester, so that the students will be able to identify opportunities to add real value to their society. The senior students perceived that the greatest strength of ExpoAndes is the development of the capacity for innovation applied to the resolution of a problematic situation. The students who had just gone through ExpoAndes had contrasting opinions.

One hypothesis (which may be too strong) is that these contradictory results may be associated with the different approaches that ExpoAndes has employed in recent years. The new students had to design their solutions using only their knowledge of their own engineering discipline. The question that arises is whether or not interdisciplinary teamwork promotes innovation in the design of an engineering solution. These preliminary results may indicate that this is in fact the case. In that sense, it is important to explore in depth such a strong asseveration in the middle of a learning process. In this way, ExpoAndes is an initial opportunity for students to develop their capacities as entrepreneurs. There is a significant and potentially big research opportunity in exploring whether or not this competence develops in the same way for the students of each different engineering programme. The preliminary results show, for example, that the perceptions of students regarding their innovative attitudes were more positive for chemical engineering students than industrial engineering students. This result is interesting if we take into account that in the industrial engineering department, the students have more courses in which to develop an entrepreneurial attitude. This may lead us to assume that, at least initially, the industrial engineering students were more critical of what they did in the first semester, because they had more opportunities to develop opportunities for entrepreneurship. This discussion is important, but should be explored in future research.

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The Middle of the Study Programme The next point at which the students engaged in the elaboration of an engineering project with a special emphasis is called the intermediate project. In this project (like in ExpoAndes) the students work in teams to develop more compelling projects than those they made in the first semester. In this process, the activities for the elaboration of their projects are defined with a strong emphasis on observation, conception and design. In addition, the aim of this project is for students to develop the first activities relating to the implementation of the prototype they have developed (see Figure 8). Both in the first semester and in the middle of the study programme, the project is intended to foster attitudes which are conducive to teamwork, the design of engineering solutions and effective communication, among other aspects. This is the reason why the CDIO framework with the proposed additional observation phase forms a good context for the design of these projects (Hernández, Ramírez & Carvajal, 2010).

In particular, in recent years the OCDIO framework has been used in the course known as the “middle study programme project”. This course is taken by students in the fifth and sixth semester of the study programme. In the following section, we will present the details of the process developed by the students in each of the stages of the OCDIO cycle in the “middle study programme project”. In this course, the students work on problems related to information and communication technologies (ICT). Observation: Conception Over a period of six weeks, the teams engage in four activities that require the participants to develop observation skills. The students make a presentation referring to the technological changes in the world and the central role of information technologies. For this purpose, a panel of engineer-entrepreneurs is assembled, and the research teams make presentations on tendencies and opportunities. Parallel to these national interventions, there are videoconferences with project development experts in

Figure 8. Application of the OCDIO proposal in the middle of study programme course with ICT

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other parts of the world. With these presentations, the students not only begin to visualise potential areas for their engineering proposals both nationally and internationally, but also start to make connections with entrepreneurs who could eventually become their mentors. In the next step, the students begin, on an individual basis, a bibliographical research process, in which they produce written technical reports about engineering proposals that may or may not have been particularly innovative. This second activity seeks to strengthen their research skills through a systematic review of the relevant texts, as well as strengthening their written communication skills. For that purpose, the students receive feedback on their reports from their professors. This process is repeated several times during the semester. During the third and fourth weeks of the semester, the students participate actively in an observation for innovation workshop. During the first three hours of the workshop, the students observe and make comments on images of projects that have been acknowledged for their creative content and innovation. After this, teams of five students are drawn up, who have to identify during the following week a situation that has attracted their attention, essentially because it refers to the behaviour of a representative sample of people in the communities that surround them. The situations may be as commonplace as the behaviour of people riding on public transport, in an lift, inside the classroom, writing a text on a mobile phone, etc. Once the situation is identified, they must make an audiovisual record of the different behaviours at different times during the week. With the audiovisual material obtained by each team, all of the students get together and the chosen situations are presented. For three hours, each group produces a visual 3D presentation and an intervention proposal for the selected situation. The team should construct their presentation using materials such as paper, cardboard, photographs from magazines, etc. At the end of the session, each team shares their proposal with the rest of

the students. The following week, each team must integrate the result of their proposal with the information gathered in the bibliographical research, stressing the added value supplied by information technologies. The entire process of observation for the innovation workshop is repeated, with each team choosing a different situation. The intention of the workshop is that the student will sharpen his/her observation skills and start to work successfully with other students in a team. At the end of this observation stage, the students attend a presentation of the advanced projects of teams that are one semester ahead. The goal of this final activity of the observation stage is that the students who are beginning their projects observe and analyse the work of other teams that are ahead in their innovation proposals with information technologies. This phase ends with the presentation of ideas for the conception stage of the project. Conception: Design In this stage (during four weeks), the groups must capture their observations and produce a project proposal that must be presented and refined based on the critique and contributions made by entrepreneurs, professors and students. This stage, like all of the following ones, is characterised by cycles of teamwork, feedback and coaching sessions with an engineer-entrepreneur and the professors. After one week of work, a proposal with the initial project requirements must be generated. It must be presented in a written report that identifies the problematic situation in which the students intend to intervene using engineering tools, establishes the objectives of the project, defines the field of technological relevance and determines the niche in the market in which the proposal would have a potential impact. Teamwork plays a fundamental role in this process of helping students to reach their learning goals. Based on a communication-feedback process, a full session (poster-session) is held with the

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participation of the engineer-entrepreneurs, the professors and the students. In this session, each group presents its proposal orally and exhibits a poster with the main features of the proposal displayed on it. Each group has seven minutes for its oral presentation, which must be focussed on the results of their observations and the initial conception phase of their proposal. This is followed by immediate feedback (three minutes of questions and commentaries), and an evaluation given by the engineer-entrepreneurs and the professors based on effectiveness of the teamwork and the development of their innovation abilities. The efficiency of the teamwork is evaluated according to criteria which are related to the oral and written presentations, as follows: support material; oral expression; time management, structure of the document; written expression, and proper use of the bibliography. The development of innovation abilities is evaluated according to criteria which are related to: project content; project objective; state of the existing prototype; projects referred to; deliverable definition of the innovation with an information technologies showcase; knowledge and technologies involved, and work schedule. At the end of the presentations, the engineerentrepreneurs offer another round of questions, this time more specialised, to each group. At the end of the poster-session, each entrepreneur chooses the two projects that captured their attention the most. From then on, each entrepreneur follows their two chosen projects. The engineer-entrepreneur assists the team in the strengthening of their communication, teamwork and innovation with information technologies skills. These skills are assessed based on numerical criteria, in which 1 means that the student has not developed the skill and that he/she may still improve. Entrepreneurs may choose the groups that are of the most interest to them. At this point, the coaching process begins. Successful cases such as the ones presented by the University of Texas at Austin, UPC and Stanford University, provide evidence that if a couching process is

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conducted by entrepreneurs, the potential for innovation, effective communication, knowledge development and the capacity to work in teams increases considerably (Evans, Parks, & Nichols, 2007; NAE, 2000; Skogstad, Currano, & Leifer, 2008; de la Hoz, & de Blas, 2009). From the sixth week onwards, the design phase becomes more relevant in the development project. Two-week cycles are defined by meetings with the engineer-entrepreneur who is assessing the project. The purpose at this stage is to make progress in terms of the relationship between the requirements of the selected situation and potential alternative solutions derived from the application of information technology. The entrepreneur helps to analyse the project, encourages teamwork, provides oral and written expression tools to the students, and assists them so that the prototype has a concrete application that generates value in a determined area. This teamwork between businessmen, teachers and students generates value within the learning process in the sense that each member brings the expertise and perspective of his or her own field to the collaborative task (Edmondson & Nembhard, 2009). After the first two weeks of the cycle, there is a presentation and feedback session with the group of professors. Design: Implementation Over a period of four weeks, the design must be consolidated, based on teamwork and assistance from the professors and entrepreneurs. Ideally, by the end of this phase, the project will have its first prototype to illustrate the proposal and a defined implementation programme. This phase is the last one of the first semester in the teamwork and innovation learning period, and, at the end, there is a Public Showcase of Innovation with Informatics Technology in which the first results of the implementation of the proposal are displayed. The public display lasts for one day, with students and professors from the university attending,

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along with entrepreneurs invited by the School of Engineering and the engineer-entrepreneurs who have assisted with the projects. The process described above takes place during the first semester of the third year of study in the engineering course. The teams can either pass or fail the semester. If they pass, they enter the second semester of the third year, in which there are four phases, each of which culminates in a communication-feedback activity. Operation The best projects participate in the Innovation Contest that takes place at the end of the semester. The jury for this contest is made up of entrepreneurs who evaluate the students’ development in terms of teamwork and innovation skills using criteria such as the establishment of an objective, target market determination, precision in the presentation of the solution design, sustainability analysis (economic and technological), innovation (design, price, technology), endeavour (planning, understanding the problem, understanding the solution). The winners of the contest receive incentives to put their proposed prototype into operation. During the next year, they have access to a space in one of the faculty laboratories, economic resources (1500 US dollars) and the coaching of a board of directors made up of two entrepreneurs and a professor. During the fourth year of the course, the teams can strengthen their proposals and plans using the academic resources that are at their disposal (courses, course projects, laboratories, coaching from entrepreneurs and their graduation project), thus attaining a very high level for competing in international contests of innovation using information technology and endeavour. During public presentations, the groups have to explain criteria such as “sustainability” which are very important in an education in engineering.

RESULTS OF THE IMPLEMENTATION OF THE OCDIO PROPOSAL AT THE SCHOOL OF ENGINERING (UNIVERSIDAD DE LOS ANDES) Through the aforementioned methodology for learning and developing engineering projects, it is intended that students will develop the necessary skills for eventually becoming innovators in their own organisations, as well as making those innovations sustainable over time. One of the groups which formed during this learning process was among the top four in a national entrepreneurship award (“Santander Award: Entrepreneurship, Science and Innovation 2010”), which had more than 400 contestants. Similarly, another group, whose members are now graduates from the engineering programme, formed a company and recently became one of the five winners of the Ventures 2010 national contest, which had more than 1200 participants. DataTraffic received the award for the project with the greatest potential for growth, and received $10 million COP in shares granted by the Colombian Stock Exchange. The projects summarised below were developed with the aim of providing innovative ICT solutions in the context of transportation in big cities.

Information System of Routs and Transportation (Sistema de Información de Rutas y Transporte, SIRT): The intensification of urban development in cities during the twentieth century, caused by rapid population growth and the concentration of people in urban areas in search of opportunities, made engineers, architects, politicians and economists think about what the formula could be for building viable cities and making them sustainable over time. Such sustainability would largely depend on mobility. Nowadays, this issue is a priority in Bogota (Colombia), because we are at a critical

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point at which the decisions made today will have a major impact on the future. Bogota’s Master Plan for Mobility proposes that it is necessary to integrate different forms of public transportation, and therefore the passengers should have access to all available information regarding routes, stations and times of arrival. Currently, such information is not available for the public bus system (excluding Transmilenio), and therefore its users cannot easily find answers for questions such as which bus to take, where to take the bus and where to get off, or where to walk in order to reach their final destination. From the perspective of a city in the not too distant future, using public transportation should be an enjoyable experience. From this perspective, SIRT was born with the intention of intention of making a contribution to the city, by enabling people to better organise their time. In order to achieve this, this group is proposing a solution that informs users of the estimated time of arrival of the next bus in two ways: 1. The user tells SIRT where he/she is located and where he/she wants to go; 2. The user tells SIRT where he/she is located and which route he/she wants to take; The project is being carried out in phases. The first one was developed in the second semester of 2008. In this phase, a prototype was designed which informed the user of the estimated time of bus arrival using a Java based simulator. The information travelled across the cellular network (GSM) and text messages (SMS). The preliminary model of the prototype is presented in Figure 9.

DataTraffic This project develops innovative solutions using digital maps which generate value within the processes of its clients, through the development of solutions which are focussed on the areas of logistics, maintenance and marketing, among others, in order to increase control over the em124

ployees, supervise their functions and increase their efficiency. In its short trajectory, DataTraffic has participated actively in the development of solutions for the Urban Development Institute, the Transportation Secretary Office, and the Bogota Emergency Telephone Number. These projects are examples of the results of the sustainability of the OCDIO learning proposal for developing the innovation, company-building talents and skills of our students, and of the mentoring and advisory work carried out by teachers and businessmen who are interested in technology and encourage the building of knowledge. Both groups have been acknowledged by academic and business entities as projects with a high potential for sustainability. This sustainability has been conceived in the learning model comprised of the OCDIO cycle. There are several results which appear to show that the students’ and professors’ attitudes to innovation were strengthened through the elaboration of projects in the first semester and in the middle of the study programme. The current synergy between professors and students shows a high level of connection between the courses, which exists in order to promote an innovative attitude in engineering students. Every year, around 300 Figure 9. SIRT’s project

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projects are developed, with the participation of 1,500 students and 20 professors from all of the engineering programmes. Some of these projects are reinforced later on thanks to the knowledge of basic sciences acquired later on by the students. Some of them are resumed in the middle of the study programme, where we have been able to strengthen the synergy between the professors involved. Regarding with Innovation Projects with ICT course, we have managed to develop 40 projects annually with the participation of 10 business leaders, professors and students from several study programmes, particularly students of Computing and Systems Engineering and Industrial Engineering. Without a doubt, one big achievement has been the consolidation of an educational space where students from several study programmes are in constant communication with one another in order to identify problems that can be addressed using engineering and to share multidisciplinary knowledge to facilitate the design of solutions. In the last years, 5% of these projects have transformed into final study programme projects. In addition, some groups have achieved important positions in competitions such as “Imagine

Cup 2009 - Colombia”, “TIC Americas 2010 - ECO CHALLENGE 2010”, “2010 Computer Society Student Competition” and “Calling All Innovators”. The professors have written nearly 10 articles about this subject and presented them in congresses and national and international magazines. With these results, we are starting to generate a mass of criticism that is having an impact on the Universidad de los Andes, its environment and other universities in the country. In order to evaluate the development of competences in the engineering students who participate in the Middle Study Programme Project with ICT, the people who attended the Innovation Showcase (businessmen, professors, researchers, MSc students and PhD students) evaluated different aspects of the activity. Figure 10 shows the average perception of the different evaluators of the work done by the students who had been part of the education space during the last three semesters. These results show favourable and sustained evaluations in areas such as the capacity of the students to identify problems, their innovative attitudes, and the quality of the proposed solutions among others. The results are motivating and confirm those mentioned before.

Figure 10. Results of the OCDIO cycle in the Middle Study Programme Project with ICT

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CONCLUSION AND FUTURE WORK A diverse range of engineering education institutions across the world has developed initiatives for the education of professionals in the field of innovation, particularly for engineers. These institutions have successfully incorporated themselves into the innovation systems of developed countries and of others that are searching for economic development. In this way, they contribute to the development of favourable conditions for the development of innovative ideas that have a positive impact on society. Colombia, being a country that is seeking to move from a feudal-capitalist economy to a knowledge-based economy, is working to consolidate an innovation system with the participation of the government, companies, business people, research centres and society in general. This intended alliance requires certain characteristics and competences for the fundamental players of an innovation system: the engineers. In this way, the School of Engineering at the Universidad de los Andes seeks to educate engineers so that they may be able to face the challenges of innovation and transfer their knowledge later on to the market in the shape of products, services and business models. The purpose of the School of Engineering, as part of the innovation system in Colombia, is that its alumni may develop innovative attitudes and the capacity to work in teams through effective processes of communication, not only with engineers from several disciplines but with professionals from other areas. This school intends to achieve this objective through the undertaking of curricular activities framed in the CDIO cycle with an initial phase of observation that guarantees the conception of ideas as proposed by the CDIO framework and warrants the sustainability in the time of the innovations which are developed. In this way, the OCDIO cycle has established itself as a framework with which to educate the engineers of the future to face not only the challenges of the engineering as a profession, but of society

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in general, where projects have an increasingly short lifecycle and where it is necessary to have a significant capacity for observation, adaptation, learning and change in order to respond to these challenges. The OCDIO proposal was set up in a framework that enables the development of sustainable innovations. This is achieved through a permanent cycle of observation and adjustment of the systems (solutions) designed to resolve problematic situations in a particular society. The additional phase of observation that has been proposed as a complementary initial stage of the CDIO framework allows the professionals facing the challenges of innovation inside organisations to obtain the relevant information for the conception, design, implementation and operation of sustainable engineering systems that take into account the relevant economic, social, technical, environmental and cultural aspects. We may be able to argue that we obtained incipient results from this education proposal, which would allow us to continue the development of this initiative in other universities, with the aim of it becoming a successful and replicable model that results in a positive impact on the performance indicators relating to the development of the economy, science, technology and innovation in Colombia. The OCDIO framework has been examined during this chapter which has focused on the education of engineers, but the researcher team believes that the proposal can be replicated in other areas such as basic sciences, social sciences, and in general in the interdisciplinary work which has become a motif in society. In this sense, the OCDIO proposal can become a point of reference for other professions. For future investigations, we intend to refine our instruments of evaluation and the ways in which the innovation projects that arise in the proposed context of engineers’ education are monitored. In order to consolidate this investigation, it is very important to observe in detail the

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development of the sustainable innovative engineering projects which arise from the education of the engineers until the consolidation of their projects in organisations. Similarly, it is important to monitor the development of their innovation skills and their contribution to entrepreneurship in Colombia the contribution made to entrepreneurship in Columbia by the groups formed during this process, such as the ones presented in this chapter.

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Chalmers University of Technology. (2010a). Retrieved from http://www.chalmers.se /en/sections/ collaboration Chalmers University of Technology. (2010b). Areas of advance. Retrieved from http://www. chalmers.se/ en/areas-of-advance/ Documents/ Areas%20of%20advance%20print.pdf Chalmers University of Technology. (2010c). Retrieved from http://www.chalmers.se/ en/sections/ about_chalmers Chesbrough, H. W. (2003). Open innovation: The new imperative for creating and profiting from technology. Boston, MA, USA: Harvard Business School Press. Cozzens, S. E., & Kaplinsky, R. (2009). Innovation, poverty and inequality: Cause, coincidence, or co-evolution? In Lundvall, B. A., Joseph, K. J., Chaminade, C., & Vang, J. (Eds.), Handbook of innovation systems and developing countries: Building domestic capabilities in a global setting (pp. 57–82). Cheltenham, UK: Edward Elgar Publishing Limited. Crawley, E. F., & Brodeur, D. R. (2008). The education of future aeronautical engineers: Conceiving, designing, implementing and operating. Journal of Science Education and Technology, 17, 138–151. doi:10.1007/s10956-008-9088-4 Cutkosky, M., & Fukuda, S. (2004). Global PBL design course: A way to design our life and future. 2004 ASME Curriculum Innovation Award Honorable Mention. Retrieved from http://files. asme.org/ asmeorg/ Governance/Honors/4850.pdf Davenport, T. H. (1993). Process innovation: Reengineering work through Information Technology. Boston, MA, USA: Harvard Business School Press.

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De la Hoz, J., & de Blas, A. (2009). ‘Learning by doing’ methodology applied to the practical teaching of electrical machines. International Journal of Electrical Engineering Education, 46(2), 133–149. Edmondson, A. C., & Nembhard, I. M. (2009). Product development and learning in project teams: The challenges are the benefits. Journal of Product Innovation Management, 26(2), 123–138. doi:10.1111/j.1540-5885.2009.00341.x Evans, R. S., Parks, J., & Nichols, S. (2007). The idea to Product® program: An educational model uniting emerging technologies, student leadership and societal applications. International Journal of Engineering Education, 23(1), 95–104. Froyd, J. E., & Ohland, M. W. (2005). Integrated engineering curricula. Journal of Engineering Education, 94(1), 147–164. G ómez, H. (1999). H acia dónd e v a Colombia?Bogotá, Colombia: Tercer Mundo Editores. Greis, G. P. (2009). From the ground up: The founding and early history of the Franklin W. Olin College of Engineering, a bold experiment in engineering education. Needham, USA: Olin College. Hernández, J. T., Caicedo, B., Duque, M., & Gómez, R. (2004). Engineering school renovation project. Proceedings of 4th International Workshop on Active Learning in Engineering Education, Nantes, France. Hernández, J. T., Ramírez, C., & Carvajal, A. (2010). Formación para la innovación con tics: Un proyecto conjunto Facultad de Ingeniería Empresarios. Revista Educación en Ingeniería, 9, 12–20.

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Jaramillo, H. (2003). Políticas científicas y tecnológicas en Colombia: Evaluación de impacto durante la década de los noventa. Bogotá, Colombia: CEPAL. Jaramillo, H., Lugones, G., & Salazar, M. (2001). Normalización de indicadores de innovación tecnológica en América Latina y el Caribe: Manual de Bogotá. Bogotá, Colombia: Colciencias. Kerns, D. V. (2001). The Olin College curriculum vision: Fall 2001. Retrieved from http://www.olin. edu/ academics/ olin_history/vision.aspx Kerns, S. E., Miller, R. K., & Kerns, D. V. (2000). Designing from a blank slate: The development of the initial Olin College curriculum. In National Academy of Engineering (NAE) (Ed.), Educating the engineering of 2020: Adapting engineering education to the new century. Washington, DC, USA: The National Academies Press. KTH Royal Institute of Technology. (2009). The strategic plan 2009-2012: KTH in the service of humanity, for the society of tomorrow. Retrieved from http://www.kth.se/polopoly_fs/ 1.9709!devpl09.pdf Leta, J., & Chaimovich, H. (2002). Recognition and international collaboration: The Brazilian case. Scientometrics, 53(3), 325–335. doi:10.1023/A:1014868928349 Lloyd, J. R., Hinds, T. J., David, K., Chung, M. J., Gonzalez, M., & Timmer, D. (2004). INTEnD: A dispersed design team approach for the globalization of engineering education. 2004 ASME Curriculum Innovation Award Honorable Mention. Retrieved from http://files.asme.org/asmeorg/ Governance/Honors/4852.pdf Massachusetts Institute of Technology. (2006). Report of the task force on the undergraduate educational commons: To the president of the Massachusetts Institute of Technology. Retrieved from http://web.mit.edu/committees/ edcommons/ documents/ tf_full_report.pdf

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McCowan, J. D. (2002). An integrated and comprehensive approach to engineering curricula, part two: Techniques. International Journal of Engineering Education, 18(6), 638–643. National Academy of Engineering (NAE). (2000). Educating the engineering of 2020: Adapting engineering education to the new century. Washington, DC, USA: The National Academies Press. National Research Council (NRC). (2007). Innovation policies for the 21st century: Report of a symposium. Washington, USA: The National Academy Press. Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, (September): 2009. Organization for Economic Co-operation and Development. (2004). Science and innovation policy: Key challenges and opportunities. Retrieved from http://www.oecd.org/ dataoecd/18/17/ 23706075. pdf Ramírez, M. C., Carvajal, J. A., & Hernández, J. T. (2010). Innovation and teamwork training in undergraduate engineering education: A case of a computing engineering course. International Journal of Engineering Education, 26(6), 1536–1549. Ramírez, M. C., & Hernández, J. T. (2008). Teamwork and innovation competences: A 1st -semester engineering students’ hands-on course. SEFI Annual Conference 2008, Aalborg, Denmark. Schumpeter, J. A. (1936). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Cambridge, USA: Harvard University Press.

Siller, T. J., Rosales, A., Haines, J., & Benally, A. (2009). Development of undergraduate students’ professional skills. Journal of Professional Issues in Engineering Education and Practice, 135(3), 102–108. doi:10.1061/(ASCE)10523928(2009)135:3(102) Skogstad, P. L., Currano, R. M., & Leifer, L. J. (2008). An experiment in design pedagogy transfer across cultures and disciplines. International Journal of Engineering Education, 24(2), 367–376. Steiner, M., Ramírez, C., Hernández, J. T., & Plazas, J. (2008). Aprendizaje en ingeniería basado en proyectos, algunos casos. In Duque, M. (Ed.), Ciencia e ingeniería en la formación de ingenieros para el siglo XXI: Fundamentos, estrategias y casos (pp. 129–147). Bogotá, Colombia: Asociación Colombiana de Facultades de Ingeniería-ACOFI. Thurik, A. R. (2009). Entreprenomics: Entrepreneurship, economic growth and policy. In Acs, Z. J., Audretsch, D. B., & Strom, R. (Eds.), Entrepreneurship, growth and public policy (pp. 219–249). Cambridge, UK: Cambridge University Press. Vest, C. M. (2000). Educating engineers for 2020 and beyond. In NAE (Ed.), Educating the engineering of 2020: Adapting engineering education to the new century. Washington, DC., USA: The National Academies Press. Witt, H. J., Alabart, J. R., Giralt, F., Herrero, J., Vernis, L., & Medir, M. (2006). A competencybased educational model in a chemical engineering school. International Journal of Engineering Education, 22(2), 218–235. Zoltan, A., Audretsch, D., & Strom, R. (2009). Entrepreneurship, growth and public policy. Cambridge, UK: Cambridge University Press.

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Section 2

Organizational Networks and Innovation

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Chapter 8

The Integration of Independent Inventors in Open Innovation Gavin Smeilus University of Wolverhampton, UK & Caparo Innovation Centre, UK Robert Harris University of Wolverhampton, UK Andrew Pollard University of Wolverhampton, UK & Caparo Innovation Centre, UK

ABSTRACT Whilst current academic literature points to the growing importance of Open Innovation as a means of companies capturing new products from sources other than internal R & D facilities; the integration of independent inventors, a source of innovative new products, within Open Innovation has proven challenging. This chapter presents a series of preliminary Critical Success Factors, driven by current academic literature, which are intended to positively contribute towards independent inventors becoming more successful suppliers of new product ideas to businesses operating an open innovation model; with the intention that adherence to such factors may have a positive influence on the effectiveness and future sustainability of Open Innovation.

INTRODUCTION The Open Innovation model, at a theoretical level, allows for independent inventors to become suppliers of new product ideas to companies. There is little evidence however, to suggest that the practical integration of independent inventors as suppliers, to businesses operating an Open Innovation mechanism, has been fruitful. Indeed, data DOI: 10.4018/978-1-61350-165-8.ch008

from an existing open innovation centre suggests that just 0.7% of new product ideas supplied by independent inventors resulted in the business launching a new product on to the market. This statistic raises concerns as to whether open innovation models operated by companies, which rely on inputs from independent inventors, are sustainable. The chapter will present a series of preliminary Critical Success Factors, driven by academic literature, intended to positively contribute towards

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The Integration of Independent Inventors in Open Innovation

Figure 1. The closed innovation model (Chesbrough, 2003)

independent inventors becoming more successful suppliers of new product ideas to businesses operating an open innovation model; with the intention that adherence to such factors may have a positive influence on the future sustainability of such operations. The chapter is structured as follows; firstly a summary of the key principles behind Open Innovation is outlined. Secondly, a discussion suggests what is currently understood about independent inventors and then finally, a series of preliminary critical success factors are proposed, underpinned by current academic literature. The identification of Critical Success Factors will guide independent inventors to operate as successful suppliers of new product ideas to businesses following an Open Innovation model.

Open Innovation Principles A formal definition of Open Innovation is suggested by Chesbrough, Vanhaverbeke & West (2006, p.1) “Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.” Essentially a mechanism for organising innovation related activity within large R&D led busi-

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nesses (Chesbrough, 2003); the Open Innovation model provides a relatively new and contrasting approach to the Closed Innovation model, which is historically prevalent amongst large innovative companies. The traditional Closed Innovation model relies heavily upon the internal capabilities of businesses to develop and commercialise a new product or service with little or no input, regarding the innovation process, coming from external sources. Within the Closed Innovation model, businesses typically generate the innovative concepts, perform R&D related activities that facilitate the metamorphosis from concept to innovative product, then complete commercialisation related activity in the form of marketing through to distribution (Chesbrough, 2003). The diagram in Figure 1 proposed by Chesbrough (2003) summarises this process very effectively: In interpreting Figure 1, the critical aspect is research investigations and development projects reside within non-permeable firm boundaries. As such, there is a heavy reliance upon the company’s internal science and technology base to originate, research and develop innovations. The figure illustrates the funnelling effect experienced as research investigations are filtered down in number as go/no-go decisions are reached, regarding in-

The Integration of Independent Inventors in Open Innovation

Figure 2. The open innovation model (Chesbrough, 2003)

dividual projects, potentially through a stage-gate process. In terms of outputs, the company is constrained to direct commercialisation of its development projects.

Open Innovation The Open Innovation model, as proposed by Chesbrough (2003) has two distinct elements: “Inbound Open Innovation” and “Outbound Open Innovation”. Inbound Open Innovation is directly related to the aspect of the model that allows the company to search for and integrate innovative concepts and products from sources outside of the company (Chesbrough, 2003). Outbound Open Innovation is concerned with using external routes to commercialisation (Chesbrough, 2003). It can be argued that a useful source of innovations for a business is through researching best practice in industries and markets outside of its own. The Open Innovation model allows inter-industry exploration and collaboration to take place. The diagram in Figure 2 proposed by Chesbrough (2003) provides an effective illustration of this opportunity.

In interpreting Figure 2, the important point is research investigations and development may originate within the company or be in-sourced through permeable firm boundaries. As such, reliance upon the company’s internal science and technology base to originate, research and develop innovations is reduced as input can be taken from external sources. In terms of outputs, the company can launch new products directly into current markets, form spin-out companies to carry the technology into a new market or license the intellectual property rights to a third party company who subsequently launches it into the market. The contention is made that innovation has, and potentially still is, undergoing a “…paradigm shift from a closed to an open model” (Chesbrough & Crowther, 2006, p.229); although some acknowledgement should be made that there is the potential for huge variation across industry sectors, since innovation is never homogenous. A number of environmental factors have contributed to this alleged paradigm shift, including: an increase in the number of and quality of external suppliers, the growth and apparent success of the venture capital sector, which has facilitated the development of new, usually relatively small businesses that

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hold the intellectual property rights to innovative technology and the increased freedom enjoyed by knowledge workers (Christensen et al., 2005). It is also possible to suggest that factors such as: a general trend towards outsourcing, strengthening of international patent law and globalisation may be contributory. This chapter focuses on the inbound element of the Open Innovation model that facilitates the use of external parties, specifically independent inventors, as suppliers of new product ideas.

A Profile of Independent Inventors Independent inventors are characterised by two factors; firstly their inventive activity is conducted outside the confines of an established business and secondly, the independent inventor has no formal obligation to invent (Lettl et al., 2009; Whalley, 1991) From a demographic perspective independent inventors have historically tended to be male rather than female (Parker et al., 1996). This appears to reinforce Albaum’s (1975) research which, based on a sample of 103 independent inventors who had approached the Experimental Center for the Advancement of Invention and Innovation at the University of Oregon between 1974-1975, suggested that female inventors were responsible for just 10-11% of invention. A number of studies (Albaum, 1975; Parker et al., 1996; Sirilli, 1987; Hisrich, 1985; Weick and Eakin, 2005) make an attempt to identify the typical age of an independent inventor. Whilst the age categories used in some studies, Parker et al. (1996) for example, makes the result too broad to be helpful, the results of three studies suggest that independent inventors are likely to be in their late forties to early fifties. Sirilli (1987) suggests an average age of 46.5 years; Weick and Eakin (2005) conclude an average age of 50-years and Albaum (1975) 54 years of age. In terms of future demographic trends within the independent

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inventor community, there is an expectation that the average age of independent inventors will increase as more retired people take up inventing (Richards, 2002) With regard to educational attainment, independent inventors appear to be more educated, in a formal sense at least, than the general public (Parker et al., 1996). 68% of those independent inventors studied by Parker et al., (1996) had been in receipt of college training. This view is supported by Albaum (1975) who suggests that of respondents to his study 30.1% had some Higher Education experience, 11.7% had an undergraduate degree, 18.4% undertook post-graduate training and 16.5% held a post-graduate degree. In terms of profession, independent inventors are not heavily concentrated in any particular occupational classification, however those in technical, skilled and farmer occupations were represented to a greater degree in the sample of 141 independent inventors used for the study conducted by Parker et al., (1996) than they were in the general population; as determined by the Statistical Abstract of the United States, 1990. In addition to demographic characteristics, the current body of literature on independent inventors suggest a number of other interesting characteristics. Firstly, independent inventors place a significant importance on both “…autonomy and individuality.” (Weick & Martin, 2006, p.10). Whilst the definition of independent inventors does not prescribe an autonomous approach to working, the ability to work alone when required appears to be important to this group. Secondly, independent inventors have a particular skill in the identification of problems (Weick and Martin, 2006). This suggests that independent inventors may be well equipped to operate a market pull, as opposed to technology push strategy for invention; firstly identifying problems and then developing an inventive solution. Thirdly, surprisingly few independent inventors aspire to be an entrepreneur (Parker et al.,1996).

The Integration of Independent Inventors in Open Innovation

Types of Independent Inventors

Inventive Activity

Meyer (2005) illustrates the diversity of inventors by suggesting that there may be as many as four different types. The first category identified is: “Inventor-Entrepreneurs”, which denotes an inventor that attempts to use their invention in an entrepreneurial sense by setting up a startup company as a vehicle to commercialisation. The second category: “Proprietor-inventors” are inventors that already operate a company and are seeking to exploit the invention through this company. The third category: “Licensing/transfer inventors” relates to inventors that opt to either license the intellectual property behind their invention to a third party or sell the intellectual property to a third party, in its entirety. The final category: “Academic Inventors” denotes inventions developed by academics within the HE sector (Mayer, 2005, p. 115). In reflecting upon the definition of the independent inventor provided by Whalley (1991) and its emphasis on the inventor being external to a corporate institution, it is easy to see how independent inventors could stem from both the “Inventor-entrepreneur” and “Licensing/transfer inventors” group. It is slightly more difficult, although not impossible, to imagine that inventors categorised as “Academic Inventors” or “Proprietor-Inventors” have the corporate independence necessary to be classed as independent inventors. Clearly, in the case of the “Inventor-entrepreneur” it could be that inventing is not part of the job role, but the inventor chooses to commercialise the invention via his or her existing company. Likewise in some parts of the world academics have no obligation to invent but do assume the full rights to intellectual property they develop and as such could be classified as an independent inventor.

Weick and Eakin (2005) present an insight into the activity undertaken by independent inventors. Their study, based on a sample of 351 questionnaires from full-time and part-time independent inventors, produced a number of interesting findings, firstly they noted that an average independent inventor had progressed six inventions to the stage of having a working prototype, however they acknowledged that the median and modal average was considerably lower; 2 and 1 respectively. In terms of the nature of the inventions developed, Weick and Eakin (2005) identified that the most common areas for inventions were: • • • •

Hardware/Tools (23%) Household Products (23%) Novelty Items (15%) Toys/Games and Hobbies (15%)

The nature of these innovations is consistent with the view of Astebro (1998) who made the assertion that independent inventors were most likely to develop inventions that are technically uncomplicated and demanded relatively lower financial investment. The findings of Weick and Eakin (2005); Dahlin et al. (2000) and Astebro (1998) seem to suggest that independent inventors are most likely to concentrate their efforts in industries that follow the Schumpeterian type I pattern of innovation, often referred to as “Creative Destruction” or “Widening” (Breschi et al., 2000). Conversely, the industries where fewer inventions were developed by independent inventors, include: Mineral recovery/processing, 2%; Biological/ microbiological, 2%; Marine/ocean technology, 3%; Telecommunications, 3%; (Weick & Eakin, 2005 p.10) appear to fit the characteristics of the Schumpeterian type II pattern of innovation (Breschi et al., 2000): patent applications often originate from a small number of companies that

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already hold a significant number of patents and hold established market leading positions; the knowledge upon which innovations are developed is likely to be strongly rooted in scientific principles; investment of significant sums of money is no guarantee of developing an innovative new product, however for new ideas that are developed they are likely to be patentable and founded on knowledge developed through prior innovations (Breschi et al., 2000).

Typical Commercialisation Paths Used by Independent Inventors Weick and Eakin (2005) found that in their survey of independent inventors, 16% made no attempt to take their innovation to market, whilst Mayer (2005) found that commercial success was not the objective of all independent inventors with some inventors believing that their efforts are validated by non-commercial success such as: placing the invention in the public domain to enhance accessibility, improving public wealth or pursuing an innovation because it was interesting from a technical perspective. None the less, commercialisation remains the intention of the majority of independent inventors (Weick & Eakin, 2005). Weick and Eakin (2005) suggest that there are potentially four commercialisation paths that can be utilised by independent inventors: 1. A start-up business maybe formed specifically to act as a vehicle to carry a new innovation to market. 2. The inventor is already the proprietor of a business that will be used to carry the innovation to market. 3. The inventor chooses to license the intellectual property rights behind their innovation to a third party company, typically in return for a royalty on sales.

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4. The inventor decides to sell the intellectual property rights behind the innovation outright to a third party organisation. In analysing the degree to which these potential routes to market are utilised by independent inventors, Weick and Eakin (2005, p.11) identified that licensing the intellectual property rights behind an innovation to a third party company was the most frequently used route to market with 44% of the 351 respondents to their study having employed this strategy. The second most popular commercialisation path was via a company inventor that distributes the innovation, but outsources the manufacturing element to a third party. This strategy was utilised by 29% of the independent inventors surveyed by Weick and Eakin (2005). Almost as frequently used was commercialisation through a company inventor that undertakes both the manufacturing and distribution of the innovation. 26% of respondents to the survey conducted by Weick and Eakin (2005) indicated that they had employed this commercialisation strategy. Of those independent inventors that responded to the survey, selling the innovation to another company in its entirety was the least utilised strategy with just 16% of respondents indicating that they had pursued this option. Whilst the licensing of the intellectual property behind an invention is the most commonly used commercialisation path by independent inventors, consideration also needs to be given as to the extent to which the various commercialisation paths yield sales. Weick and Eakin (2005) make the assertion that those independent inventors that employed a licensing strategy were more inclined to achieve a higher level of sales than inventors that engaged with one of the other commercialisation paths: commercialisation via their own company or selling the rights to the innovation to another company outright.

The Integration of Independent Inventors in Open Innovation

PROPOSED CRITICAL SUCCESS FACTORS Central to this chapter is the notion that independent inventors can enhance the prospect of achieving commercial success and become more effective suppliers of innovations to businesses, via an Open Innovation model, by paying heed to critical success factors. The 12 critical success factors proposed are driven by current academic literature and represent our view of the key factors that emerge across multiple published texts (see Table 1). We acknowledge the omission of factors relating directly to the product/innovation under development as these reside outside of the scope of this particular study.

1. Time Commitment There is a small portion of academic literature that discusses the extent to which the time commitment made by independent inventors to inventive activity impacts upon the level of commercial success achieved. Weick and Martin (2006) suggest a positive correlation between the time an independent inventor commits to inventing and the potential for commercial success. In the first instance, full-time inventors are more productive when it comes to developing prototypes when compared to their part-time equivalent. In terms of commercialisation, full-time inventors are more likely to take a product to market, achieve sales and make a profit than part-time inventors (Weick & Martin, 2006). This led Weick and Martin (2006, p.10) to conclude that the “…level of sales was a function of making a full-time commitment to inventing…” In a similar vein, Whalley (1991) notes that family commitments can impact upon the effectiveness of independent inventors. For those independent inventors that do have a family and invent in their spare time, which is often the case

Table 1. Proposed critical success factors 1

Time commitment

2

Use of intellectual property protection

3

Advice, support and guidance received

4

Timing of approach

5

Access to resources

6

Access to formal and informal social support networks

7

Ability to adopt a credible business persona

8

Willingness to share information

9

Ability to identify and gain access to potential commercial partners

10

Ability to select an appropriate commercialisation path

11

Alignment of inventor and corporate objectives

12

Experience of the inventor

(Mayer, 2005), family issues may create an obstacle to committing time to an innovation. Moving away from literature relating directly to independent inventors, Poolton and Barclay (1998) identify the need for long-term commitment to innovation projects as a critical factor in achieving new product introduction success at company level. In addition, Cooper and Kleinschmidt (2007) reinforce the importance of time commitment by suggest that many new product introduction attempts, at a business level, are hampered by a lack of time available to perform key tasks properly. Thus, the availability of time is viewed as potentially critical to successful new product introduction.

2. Use of Intellectual Property Protection In addition to the time committed to invention, Weick and Martin (2006) note the importance of independent inventors being willing to invest in patents. Indeed Dahlin, Taylor & Finchman (2000); Khan and Sokoloff (1992) and Dagenais et al. (1991) are in agreement that the commercial success achieved by independent inventors

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is closely coupled with their use of the patenting system. Whalley (1991, p.223) claims that patent protection “…turns the use value of the idea into something that has commercial possibility.” Reflecting on this statement there certainly appears some logic. For example, if an independent inventor sought to commercialise their innovation via a start-up company then a patent adds to the commercial legitimacy of the business case by providing a legally founded mechanism for restricting competing products that infringe upon the technology outlined in the patent. This is an important issue when seeking investment in the new business. Perhaps more importantly, in particular for this research inquiry is the pivotal role patent protection plays in new product introduction via a licensing deal. As Whalley (1991) suggests, the innovation developed by the inventor may have intrinsic value in so much that it resolves an acknowledged problem, but the innovation only has commercial value, in this instance, if it is patented. This is true in so much that a licensing deal works on the basis that the inventor agrees to allow a third party manufacturer to utilise their intellectual property (patent), for a given period of time, within a specified territory; in return for a predetermined royalty on sales. Without a patent, the inventor has little to exchange in return for a royalty, so the basis of the exchange breaks down and a commercial deal is unlikely to be brokered. Bakos and Nowotarski (2003) add to the debate by suggesting that the existence of a patent for an innovation is not, in itself, enough to ensure a licensing deal because the patent still needs to be viewed as being credible in the eyes of the potential licensee. In discussing credibility, Bakos and Nowotarski (2003) suggest that a credible patent application is one which under review of a professional Patent Agent would be expected to be granted with the majority of its original claims still in place. Whilst we believe that this is a reasonable statement to an extent, in that it attempts to mitigate against patents that become

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very narrow as claims get removed and amalgamated, it does suppose that the originally drafted claims were of a reasonable scope to begin with.

3. Advice, Support and Guidance Received Meyer (2005) suggests that the social and business skills possessed by an independent inventor have a considerable bearing on whether that individual is able to successfully commercialise their innovation. Unfortunately, Mayer (2005) also suggests that commercialisation of innovations is hampered by the skills set that many independent inventors actually possess. As a result of this apparent deficiency in skills; the advice, support and guidance received by independent inventors from third party sources becomes critically important to the prospect of commercialisation. For example, Parker et al. (1996) make an assertion that the progress made by independent inventors towards commercialisation of their innovation is positively influenced by the business, including marketing, advice and mentoring that they receive. Mayer (2005) suggests that independent inventors in receipt of intellectual property guidance and advice, early in the development process, are more able to select the most commercially relevant invention from their invention portfolio and as a result pursue the development and commercialisation of fewer ideas that are flawed, from an intellectual property perspective, from the outset. Weick and Martin (2006) suggest that independent inventors should engage with the growing support structure and resource pool accessible via the Internet, as a means of ensuring they pay closer attention to financial and market factors during the development and commercialisation phase. In identifying the types of advice, support and guidance required to negotiate the new product introduction process, Cooper and Kleinschmidt (2007) suggest that, at company level at least, market and technical assessments and clear

The Integration of Independent Inventors in Open Innovation

product definition are essential to success. This is reinforced by Lynn et al., (1999) who emphasise the need for a clear appreciation of the market and it dynamic characteristics, if successful negotiation of the new product introduction process is to be achieved.

4. Timing of Approach In addition to the time commitment allocated to the invention process, Mayer (2005) suggests that the innovations developed by independent inventors are susceptible to the issue of timing. Innovations that are ahead of their time are likely to suffer at the hands of conservative or unconvinced investors or potential licensees, whilst those innovations that are too late are unlikely to appeal to potential investors or licensees. Indeed, Sun and Wing (2005) in their review of critical success factors for new product development in the Hong Kong toy industry identified the need to make innovations accessible to customers at the right time. With regard to timing, independent inventors would appear to have a more difficult job satisfying the criteria than commercial inventors. Whilst independent inventors may have difficulty in knowing what the current state of technological development is in an industry and the types of new innovations that are being sought, particularly given that they are by definition inventing outside of a corporate structure; commercial inventors may have cues as to what type of innovations are required and will almost certainly be aware of the current state of technological development in their industry much of which development is hidden.

5. Access to Resources The capacity for an independent inventor to commercialise their innovation appears to be influenced by the resources they have available to them. From a financial perspective, Whalley (1991) claims that the majority of independent

inventors are reliant upon their own personal funds or the financial support of their family to finance the development and commercialisation of their innovations. Access to inventive space, raw materials and appropriate tools is also identified by Whalley (1991) as an important resource requirement. This would appear to be particularly appropriate when considering physical, mechanical innovations, where the absence of these resources and manufacturing equipment may prevent the invention being developed (Whalley, 1991). Indeed, evidence at company level suggests that a lack of resources is the scourge of new product introduction projects and often results in inadequately executed commercialisation attempts (Cooper and Kleinschmidt, 2007)

6. Access to Formal and Informal Social Support Networks If innovation networks theory is applied at independent inventor level then those individuals with enhanced network linkages would appear to benefit, both prior to invention conceptualisation and during the new product introduction process. In the first instance, the act of innovation arguably occurs as the result of knowledge being transferred or shared through networks, independent of spatial definitions, whereby said knowledge is either utilised in its original form or reapplied in a new innovative way (Coe & Bunnell, 2003). As such, independent inventors that interact with corporations: businesses, universities, government and research institutes; those that can strike up social relationships with knowledgeable individuals; and those that access and utilise knowledge from published sources, such as patent databases, newspapers, conference papers and academic journals should be better placed to generate innovative ideas in the first place (Coe & Bunnell, 2003 p.452). Post innovation origination, Whalley (1991) proposes that the effectiveness of independent

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inventors is influenced by the degree of social support they receive; partially because of their need for feedback on their inventions and social confirmation that what they are doing is useful. In this respect, the role of family and friends in providing a social support network can be viewed as essential (Whalley, 1991). Interestingly, Whalley (1991) suggests that, family and friends aside, individual inventors lack the mutual support groups that can be found in other creative disciplines. Whilst this was perhaps a valid assertion to make in 1991, a simple Google Search of the term “UK Inventor Clubs” yields a list of organisations in East London, Wessex, Birmingham, London, Malvern, Sheffield, the Black Country, Kingston and Liverpool, which certainly points to this issue being addressed, although not resolved. Indeed, Von Hippel (2005) argues that the trend towards making innovation more democratic, through mechanisms such as open innovation, has resulted in a rapid increase in the number of support communities, which should positively influence the ability of independent inventors to develop commercially successful innovations. Interestingly, the work of Lettl et al.,(2009) points to the fact that independent inventors who actively engage with social support networks and communities are more able to access resources that are usually reserved for corporate inventors. Indeed, the Black Country Inventors Club in the UK is a good example of this, as it allows a group of independent inventors to operate as a collective with enough critical mass to enlist the assistance of an Intellectual Property Rights specialist at favourable rates.

7. Ability to Adopt a Credible Business Persona A potentially significant obstacle for independent inventors to overcome, when attempting to commercialise their innovation, is the negative perception held by industry and potential investors. Parker et al. (1996 p.7) makes the following

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statement: “The independent inventor has often been portrayed as something of a mad scientisttype individual or an uneducated dreamer in search of the holy-grail. The result of this perception is that the independent inventor no longer is viewed as a serious source of product innovation.” Whalley (1991 p.225) suggests that manufacturers, potential licensees in many cases, are all too willing to believe the negative image of inventors as “…odd, even crazy…” A view which is corroborated when inventors not only lack business expertise, but perhaps more importantly, do not adopt accepted business conventions and “…do not want to play by the rules that manufacturers think are appropriate.” (Whalley, 1991, p.225). Whalley (1991) suggests that this may not be intentionally contrary behaviour on the part of independent inventors, simply the result of many years of segregation from the commercial world of inventing and the socially accepted norms that are associated with it. Although speculative at this point, it would appear that the more capable an independent inventor is at adopting appropriate business etiquette, speaking the language of business, using the correct terminology and following modern business practice, the greater the potential for commercial success. If we are to make the assertion that independent inventors should behave in a more business like fashion when presenting their innovation to potential licensees then extant best practice literature surrounding successful new product introduction becomes pertinent. At a basic level there is a need for good communication skills, indeed Lester (1998) highlights the ability to effectively communicate information, regarding the product and associated opportunity, to management is a critical element of successful new product introduction. In addition, Cooper and Kleinschmidt (2007), in their paper on critical success factors for businesses introducing new products, identify a number of constructs under their “A high-quality new product process” Critical Success Factor that are potentially valuable

The Integration of Independent Inventors in Open Innovation

to this research inquiry. Firstly they suggest that assessments are made of the technical and market potential for the proposed innovation, prior to its development. These assessments may move from preliminary overviews of potential into increasingly detailed insights. Key components in these assessments, include: market research with potential end-users focussing on the identification of customer needs, desires and requirement; assessment of technical requirements: possible manufacturing methods, technical viability of proposition, costs associated with production, timescale and resource requirements; analysis of the financial case at different levels of sensitivity (Cooper & Kleinschmidt, 2007) In addition to providing documented evidence of market and technical assessments of the innovation, Cooper and Kleinschmidt (2007 p. 7) also identify the importance of being able to precisely define key aspects of the business case, namely: “…the product – its target market; the concept, benefits and positioning; and its requirements, features and specs…” Although purely conjecture at this point, it would appear that independent inventors who have a working knowledge of the early stages of the new product introduction processes that businesses are accustomed to will be able to talk about their project and the introduction process, with potential licensees, in terms they are familiar with. As such they may be viewed as more credible.

8. Willingness to Share Information The ability to share information concerning an innovation may aid the early stages of the development. At a more advanced stage, the sharing of information is critical to obtaining investment in the innovation, whether to enable a new business to be formed or at the point of negotiating a licensing agreement or outright sale of the intellectual property rights. The problem is that independent inventors often feel unable to share information concerning

their innovation. Whalley (1991) suggests that the legislation governing intellectual property protection acts as a constraint, hampering the independent inventor’s ability to disclose details of their innovation. This is presumably a reference to the notion that in order to obtain patent protection the intellectual property behind an idea cannot be in the public domain. In addition to the restricting force of intellectual property legislation (Whalley, 1991), the degree of trust between the independent inventor and the third party is seemingly central to the prospect of invention commercialisation. Mayer (2005 p.115) notes that: “Inventors have developed a mistrust towards manufacturers and innovation professionals partly because of bad experiences with the world of business professionals and also fraudulent support services.”

9. Ability to Identify and Gain Access to Potential Commercial Partners Appropriate selection of commercial partners is by no means an easy task. Firstly, businesses often do not welcome new ideas, regardless of their origin (Whalley, 1991) and those that are open to external ideas will not deal with independent inventors because of the associated costs of administering the enquiries when compared to the probability of successfully launching and generating profit from an innovation brought into the company via this source (Whalley, 1991). Those independent inventors that are able to identify a commercial partner that has access to manufacturing methods appropriate to the requirements of the innovation; is able to provide a route to market that allows penetration of domestic and international markets (Mayer, 2005) and then is able to identify and gain access to key decision makers in that organisation are likely to fare well commercially. Interestingly, Kotabe et al., (2007) note companies are increasingly moving away from centralised research and development decisions

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towards a decentralised approach. From a UK independent inventor perspective this may be critical, since it would theoretically provide access to a larger base of potential licensees.

10. Ability to Select an Appropriate Commercialisation Path Mayer (2005, p.114) points to the fact that: “Those inventors, who choose to commercialise their inventions on their own, in the form of a start-up company, face the full complexity of the business world. Starting up a business is a challenging endeavour requiring different skills at different times.” This appears to imply that the independent inventor needs to carefully align his or her skills set and willingness to commit time against the requirements for each of the potential commercialisation paths open to them. Those that do this most successfully would appear to stand a better chance of realising commercial success.

11. Alignment of Inventor and Corporate Objectives The degree to which the independent inventor and commercial partner have aligned commercial objectives is a potentially important success factor. Whalley (1991) notes that independent inventors and businesses often have divergent opinions concerning commercialisation and that, for example, whilst a business may be heavily biased towards income generation, income generation may not be central to the wishes of the independent inventor. With regard to expectations over the financial rewards for the innovative endeavour, independent inventors need to have some appreciation that the spectre of failure looms large over potential licensees and as such independent inventors should be modest in their expectations over the licence fee, especially since a modest fee reduces the probability that the potential licensee will seek to challenge or infringe upon the patent (Bakos and Nowotarski, 2003).

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12. Experience of the Inventor The extant literature points to the fact that independent inventors with greater experience of the development and commercialisation of innovations are more likely to have commercial success than inexperienced inventors. Whilst Eakin and Martin (2006) suggest that experienced inventors are more likely to have access to the informal networks that enable commercialisation and experience of attempting to take a previous product to market is beneficial in later attempts, Von Hippel (1988) and Henderson and Clark (1990) make the assertion that inventors with direct experience of the industry in which they are inventing in are more likely to achieve commercialisation. The effect of previous experience is also evident when consideration is given to new product introduction at company level. Lynn et al., (1999), for example, identify the need for relevant experience and the ability to learn lessons from previous projects as fundamental to new product introduction success. In the US Insurance industry, 75% of new patents emanate from independent inventors with the vast proportion specialists in that field: Actuaries, underwriters, and programmers (Bakos and Nowotarski, 2003). Indeed, Lettl et al. (2009) in their study of 1681, medical equipment, patent families from the Derwent World Patent Index filed between 1980 and 2005; found evidence that focussing inventive efforts in an industry where the independent inventor has some specialist knowledge, rather than inventing for disparate industries, is very beneficial to the prospect of an impactful technology being developed. Whilst not all impactful technologies go on to become a commercial success there is certainly grounds to argue that commercial success appears more probable in this instance.

The Integration of Independent Inventors in Open Innovation

CONCLUSION This chapter proposes 12 preliminary critical success factors that we anticipate will enhance the prospect of independent inventors achieving commercial success and becoming more effective suppliers of new products to businesses, via an Open Innovation model. We have amalgamated the current body of academic literature surrounding independent inventors and new product introduction in order to identify these factors. At this stage, no critical success factors are eliminated. The following chapter will take the preliminary critical success factors proposed in this chapter and utilise them as priori constructs (Eisenhardt, 1989) as evidence is sought through case study for their presence or non-presence in a practical context.

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Khan, B. Z., & Sokoloff, K. L. (1992). Schemes of practical utility: Entrepreneurship and innovation among the great inventors in the United States, 1790 - 1895. The Journal of Economic History, 53(1), 289–307.

Pellet, J. (2002). Inventors for hire (p. 9). Chief Executive.

Kotabe, M., Martin, X., & Domoto, H. (2003). Gaining from vertical partnerships: Knowledge transfer, relationship duration, and supplier performance improvement in the U. S. and Japanese automotive industries. Strategic Management Journal, 24(4), 293–315. doi:10.1002/smj.297 Lester, D. H. (1998). Critical success factors for new product development. Research Technology Management, 41(1), 36–43. Lettl, C., Rost, K., & Von Wartberg, I. (2009). Why are some independent inventors ‘heroes’ and others ‘hobbyists’? The moderating role of technological diversity and specialization. Research Policy, 38(2), 243–254. doi:10.1016/j. respol.2008.12.004 Lynn, G. S., Abel, K. D., Valentine, W. S., & Wright, R. C. (1999). Key factors in increasing speed to market and improving new product success rates. Industrial Marketing Management, 28(1), 320–329. Mayer, M. (2005). Independent inventors and public support measures: Insights from 33 case studies in Finland. World Patent Information, 27(1), 113–123. Munsch, K. (2004). Outsourcing design and innovation. Research Technology Management, 53(1), 27–30. Neff, J. (2004)... Advertising Age, (n.d.) 3–4.

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Poolton, J., & Barclay, I. (1998). New product development from past research to future application. Industrial Marketing Management, 27(1), 197–212. doi:10.1016/S0019-8501(97)00047-3 Quinn, J. B. (2000). Outsourcing innovation: The new engine of growth. Sloan Management Review, 41(4), 13–28. Richards, B. (2002). Light bulb moments: More inventors are finding their creative juices begin flowing later in life. Wall Street Journal, 30th September. Sirilli, G. (1987). Patents and Inventors: An empirical study. Research Policy, 16(1), 157–169. doi:10.1016/0048-7333(87)90029-1 Sun, H., & Wing, W. C. (2005). Critical success factors for new product development in the Hong Kong toy industry. Technovation, 25(1), 293–303. Von Hippel, E. (1988). The sources of invention. Oxford, UK: Oxford University Press. Weick, C. W., & Eakin, C. F. (2005). Independent inventors and innovation:An empirical study. International Journal of Entrepreneurship and Innovation, 6(1), 5–15. doi:10.5367/0000000053026400 Weick, C. W., & Martin, J. D. (2006). Full-time and part-time independent inventors: Rising with the creative class. Entrepreneurship and Innovation, 7(1), 5–12. doi:10.5367/000000006775870460 Whalley, P. (1991). The social practice of independent inventing. Science, Technology & Human Values, 16(2), 232–256. doi:10.1177/016224399101600205

The Integration of Independent Inventors in Open Innovation

KEY TERMS AND DEFINITIONS Independent Inventors: Independent inventors are characterised by two factors; firstly their inventive activity is conducted outside the confines of an established business and secondly, the independent inventor has no formal obligation to invent (Lettl et al., 2009).

Open Innovation: “Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Chesbrough, Vanhaverbeke & West, 2006: p.1)

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Chapter 9

An Examination of Independent Inventor Integration in Open Innovation Gavin Smeilus University of Wolverhampton & Caparo Innovation Centre, UK Robert Harris University of Wolverhampton, UK Andrew Pollard University of Wolverhampton & Caparo Innovation Centre, UK

ABSTRACT Open Innovation allows independent inventors to become suppliers of new product ideas to businesses. Unfortunately, only a small percentage of independent inventor approaches, to companies operating Open Innovation mechanisms, result in a commercialised product. Preliminary Critical Success Factors proposed in the previous chapter seek to improve the ability of independent inventors to operate as effective suppliers of new product ideas to businesses through Open Innovation. This chapter will take the preliminary critical success factors proposed in the previous chapter and utilise them as priori constructs (Eisenhardt, 1989) as evidence is sought through case study for their presence or non-presence in a practical context. A case study on the Caparo RightFuel, an automotive device originating from an independent inventor and commercialised through an Open Innovation model, forms the basis of this chapter.

INTRODUCTION Open Innovation provides a mechanism for independent inventors to become suppliers of new product ideas to businesses. Unfortunately, only a small percentage of independent inventor approaches to Open Innovation schemes result in a DOI: 10.4018/978-1-61350-165-8.ch009

commercialised product. The figure for the Caparo Innovation Centre open innovation programme, at the time of writing, stands at 0.7%. Preliminary Critical Success Factors proposed in the previous chapter seek to improve the ability of independent inventors to operate as effective suppliers of new product ideas to businesses through Open Innovation.

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

An Examination of Independent Inventor Integration in Open Innovation

This chapter reinforces the previous chapter by focusing on a case study - The Caparo RightFuel, an automotive device originating from an independent inventor and commercialised through Open Innovation. The case study examines the presence or non-presence of the proposed critical success factors in an actual open innovation context.

BACKGROUND Caparo is a multinational manufacturer of steel, automotive and general engineering products. With its headquarters in London, England Caparo was founded in 1968 by the industrialist the Lord Paul of Marylebone. In 2002, in response to increased competitive pressure from low-cost Far-East manufacturers, Caparo took a strategic decision to supplement its steel processing and manufacturing activity with product ownership. In particular, the organisation were keen to introduce a portfolio of technically innovative new products that benefited from patent protection, as a means of generating alternative higher-margin income streams. Of particular interest to Caparo were mechanically engineered products that have a good synergy with manufacturing processes conducted within the organisation or the markets they currently address: • • • • • • • • • • • • •

Aerospace Agriculture Automotive Commercial Vehicles Construction Defence Furniture Industry Leisure Marine Oil and Gas Power Generation Railways

The physical manifestation of the strategic move towards product ownership was the formation of the Caparo Innovation Centre (CIC), a collaboration between Caparo and the University of Wolverhampton, which was launched in 2003. The CIC’s remit was, and continues to be, the identification and sourcing of innovative new products, typically of a mechanical or engineered nature, that display commercial potential, either through exploitation by Caparo directly or as a revenue stream from a license with an alternative commercial enterprise. The CIC source innovative ideas exclusively from independent inventors and have, at the time of writing, received 805 approaches since inception. By supplementing traditional sources of innovative new products, through internal R&D teams, with an external source of innovation, Caparo have implemented an Open Innovation strategy skewed towards inbound open innovation (Chesbrough & Crowther, 2006, p. 229).

METHODOLOGY One of the innovations successfully commercialised via the Open Innovation model employed by the Caparo Innovation Centre is the Caparo RightFuel, which will form the basis of this case study. This chapter utilises the preliminary critical success factors proposed in the previous chapter, as priori constructs (Eisenhardt, 1989); as evidence is sought through case study for their presence or non-presence in a practical context (see Table 1). The Caparo RightFuel, an automotive device originating from an independent inventor, Martin White, and commercialised through an Open Innovation model, is used as a case study to contextualise twelve critical success factors (identified through current academic literature), in a “reallife” Open Innovation setting. A case study approach was selected for this exploratory research because it is an effective method of developing

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Table 1. Critical Success Factors enabling independent inventors to becoming more successful suppliers of new product ideas to businesses operating an open innovation model 1

Time commitment

2

Use of intellectual property protection

3

Advice, support and guidance received

4

Timing of approach

5

Access to resources

6

Access to formal and informal social support networks

7

Ability to adopt a credible business persona

8

Willingness to share information

9

Ability to identify and gain access to potential commercial partners

10

Ability to select an appropriate commercialisation path

11

Alignment of inventor and corporate objectives

12

Experience of the inventor

new theoretical notions that ultimately provide direction to future research inquiries (Dyer & Wilkins, 1991) The Caparo RightFuel case is one of four planned cases, selected through a theoretical sampling method (Glaser & Strauss, 1967) that emphasises the examination of ‘polar types’ (Eisenhardt, 1989 p.537). This particular case was hand-picked because it provides a good example of how an independent inventor can achieve commercial success through the licensing of their intellectual property rights to a company, via an open innovation model. Given the reliance on a single case study, the question of whether it is appropriate to make generalisations is pertinent. Reference is, therefore, made to the work of Flyvbjerg (2006) who lends support to the notion that generalisations are permissible from even a single case study. Indeed, Yin (1994) argues that the number of case studies completed is not in itself important, since the qualitative paradigm does not subscribe to the link between sample sizes and generalisability.

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Case Studies allow for a variety of data collection methods, including secondary data from archival sources and data emanating from primary data collection methods, such as: questionnaires, observations and interviews (Eisenhardt, 1989). For this particular research inquiry a series of three in-depth interviews with four key participants in the new product introduction process were undertaken. The interviewees1 were selected to provide a multi-perspective view of the integration of independent inventors in open innovation. This primary data was supplemented with secondary data in the form of the written documentation provided by Martin White to the Caparo Innovation Centre at their initial meeting. This data included: the initial PowerPoint presentation of the opportunity associated with the innovation and a formal Business Plan detailing the technical and commercial case for the innovation. Secondary data on diesel car registrations in the UK obtained from The Society of Motor Manufacturers and Traders Ltd and details of the inventor’s intellectual property position at the point of approaching the Caparo Innovation Centre, accessed via the UK Intellectual Property Office website and original patent documentation, were also considered. The Proquest database, which enables quantification of the number of times a particular search term is mentioned in Newspapers, was also used as a guide to the amount of coverage the act of “Misfuelling” received in UK Newspapers.

Semi-Structured, In-Depth Interviews The interviews conducted as part of the case study approach to this research inquiry were semi-structured and based on a series of interview prompts. Each interview lasted on average 61 minutes. Each respondent was given the opportunity to review and comment upon the transcribed interviews prior to their utilisation.

An Examination of Independent Inventor Integration in Open Innovation

CASE STUDY BACKGROUND: THE CAPARO RIGHTFUEL The Problem In relation to this chapter, the term misfuelling relates specifically to incidents of drivers incorrectly putting petrol into diesel powered cars. The effects of such action can be both far reaching and expensive. In most modern diesel engines the oil content within the diesel is essential to lubricate the engine; in the event of petrol being added and the engine being started, or primed, the potential for serious engine damage is considerable due to the lack of lubrication. In addition, the seals within a diesel engine are adversely affected by petrol, which causes them to soften, contributing further engine damage. The cost of rectifying this mistake can vary from less than one hundred pounds to have the fuel tank drained, up to tens of thousands of pounds for replacement parts for a sophisticated engine. Misfuelling a petrol car with diesel is very difficult because a diesel nozzle on a garage forecourt is too large to fit into the filling aperture on a petrol car; however the smaller petrol nozzle can easily be inserted into the filling aperture on a diesel car. Since the process of fuelling a vehicle usually involves little conscious thought and combined petrol//diesel pumps are commonplace the high incidence of misfuelling is understandable.

The Market According to the AA Motoring Trust, misfuelling diesel vehicles occurs in the UK approximately 120,000 times a year2 with the average repair costs standing at £70003. Fleet and Lease Vehicle operators are the most heavily affected by misfuelling incidents with data from Lloyds TSB Autolease indicating costs of £250,000 as a result of 750 misfuelling incidents in first 8-months of 20064

With sales of new diesel cars increasing yearon-year, both within the UK and parts of Western Europe, there is acknowledgment that misfuelling is becoming an increasingly common problem5 At the time the Caparo RightFuel device was initially presented to the Caparo Innovation Centre, Misfuelling Prevention Devices were being introduced as Original Equipment on the Ford Mondeo; however there was no evidence of competing retro-fit devices. This situation changed during the development programme when the inventor and licensee became aware of two competing development projects: SoloDiesel and the Fuel Angel.

The Product The Caparo RightFuel is a retro-fit device, which prevents motorists putting petrol in diesel powered cars. The device replaces the filler cap on the vehicles and is designed so that when a diesel fuel filler nozzle is inserted, a physical barrier incorporated within the device swings out of the way allowing fuel to be added to the vehicle. The device can distinguish between petrol and diesel fuelling nozzles and will not open when someone attempts to insert the smaller diameter petrol nozzle, therefore preventing the wrong fuel being added to the vehicle (see Figures 1 and 2).

The Inventor The Caparo RightFuel device was invented by Martin White. Martin is a retired Royal Navy Commander with a career that spanned 37-years. He lives in Somerset, England with his wife Teresa. Upon joining the Royal Navy in 1967, Martin was employed as an Airframes and Engines Artificer where his duties included the maintenance of Phantom, Vixen and Hunter Jets and Wasp and Sea King Helicopters. It was in this role that Martin developed his mechanical engineering

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Figure 1. The Caparo RightFuel Device (1)

Figure 2. The Caparo RightFuel Device (2)

Command Structure. His duties included creating the vision, concepts and detailed requirements for the future of intelligence within NATO, providing military advice to NATO HQ (Brussels) and the nations and the production of directives and plans for current military operations. In terms of formal education Martin has an ONC in Aeronautical Engineering from Dundrum Technical College, Dublin, Republic of Ireland. Martin makes use of the additional spare time he has in retirement by undertaking building design and construction tasks and developing innovations and fabrications in metal, wood and Glass Reinforced Plastic. Martin is a member of the South West Inventors Club, UK.

skills that he later applied to the Caparo RightFuel innovation. By 1975, Martin had been appointed into his first Air Traffic Control position and by 1998 he had risen up the ranks to Senior Royal Navy staff officer for Aviation Operations Support and Head of the Royal Navy Air Traffic Control Branch. In 2001, Martin served within Strategic HQ Allied Powers Europe (SHAPE) in Mons, Belgium where he was responsible for transformation of intelligence organisation within the new NATO

Findings

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Time Commitment The Caparo RightFuel case provides support for the notion that time commitment plays an important part in the capacity of independent inventors to act as effective suppliers of innovations to businesses through Open Innovation. The concept of an independent inventor operating as a supplier is reliant upon the inventor having something to

An Examination of Independent Inventor Integration in Open Innovation

supply. Without the time and importantly dedication to inventing this particular inventor would not have had a product with which to approach Caparo. “I had plenty of time having recently retired and I had always had an interest in innovation, I had several ideas in the past that I never had time to work on, but here was an ideal problem that needed a solution and because I thought the solution lay within my sphere of experience, I decided to dedicate quite a bit of time to it.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. “When I decided to run with this project, I did become quite single minded about dedicating a lot of time to it and there was one particular winter where I was quite happy to spend 10 hours at a stretch in a cold workshop cutting metal when I got to that phase, so, the time is very important and to be focussed on a project I think is quite important.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. In addition to both having free-time and the dedication to spend that time on innovation, the inventor reveals that devoting time to selecting a single innovation to pursue and then focussing fully on that innovation is more advantageous, in his eyes, than pursuing multiple innovations with less focus. “…an individual can’t have lots of great ideas that they’ve really worked through and can offer them as being of significant potential; you need a huge amount of research and time dedicated to this sort of endeavour to decide that the one project is worth proceeding with, so available time and dedication are quite important.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January.

Use of Intellectual Property Protection The inventor of the Caparo RightFuel demonstrated a willingness to invest in intellectual property protection, in the form of a Patent, prior to engaging with the Open Innovation programme operated by Caparo. A UK patent application, GB0524168.2, was filed by the inventor on the 26th November 2005 carrying the title of: “Diesel Vehicle Misfuelling Preventer”, whilst the initial approach to the Caparo Innovation Centre was made on the 29th August 2006, just over 9-months later. The inventor’s views on patent utilisation are particularly interesting. Whilst conventional wisdom may suggest that independent inventors are best served by having their patent application drafted by a professional Patent Agent, this course of action was not pursued by the inventor. Instead he chose to draft the patent application to the UK Intellectual Property Office himself, without professional assistance. “First of all I could easily decipher that this sort of product needed to be protected by patenting rather than any other form of protection and having spent a lot of time researching alternative prior art out there it seemed to me that it wasn’t that hugely difficult to put together some sort of a patent.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. Under questioning as to why he chose to file for patent without Patent Agent involvement the inventor revealed that five factors were influential. Firstly, he was confident in his ability to draft an application that covered the critical technical aspects of the innovation. Secondly, the financial cost of filing a patent application, via a patent agent, is notably more expensive than the inventor drafting a submission himself, so this approach minimised cost. Thirdly, the inventor expressed a view that having filed for a patent he felt more able to disclose details of the product to third parties enabling progress towards commercialisation.

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“There was no point in having a prototype and exposing it to other people unless I could also say that I had some form of protection in place…” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. Fourthly, the existence of a patent application was seen as adding credibility to the business case around the innovation, making it more appealing to potential investors. Finally, filing of a UK Patent acted as a holding mechanism, enabling the inventor to place a stake in the ground and secure a priority date at an early stage in the development process; before another party lay claim to a similar innovation. This was particularly important given that diesel misfuelling was becoming a nationally recognised issue, illustrated by the Telegraph newspaper article entitled “A Costly Mistake” published on the 27th August 2005, just 2-months before the inventor filed his UK patent application.

Advice, Support and Guidance Received The inventor had benefitted from particularly wide-ranging experience and was equipped to develop a credible technical and commercial case for the innovation in his own right. This fact is pertinent in so much as the inventor rarely sought advice, support or guidance from third party organisations. “I would rather spend a lot of time acquiring the machinery so that I could do it with my own hands rather than entrusting anything to a third party.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. Indeed the inventor only sought a professional opinion of his patent application after submission, when he received a free 30 minute consultation, and although he was interacting with an Innovation Councillor from a public-sector advice provider

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during the R&D process, he appeared to find this experience less rewarding than it might have been. “The one negative aspect in all this was that I was appointed an Innovation Counsellor who supported our Inventors Club and that linkage was quite useful, but my counsellor was of the opinion that private inventors very rarely break into the motor trade because the motor industry has huge amounts of R & D capacity and it’s quite difficult for an individual outside of that business to bring anything new to the party. But nevertheless I was undeterred because I still felt that the weight of evidence said there was a market there.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. A fascinating feature of this particular case is the extent to which the inventor appears to value the practical, first-hand experience of other inventors more than that offered by professional innovation experts. The tone and enthusiasm evident when discussing the advice he received from members of the South-West Inventors Club was in stark contrast to the air of disappointment articulated when discussing the views expressed by his appointed professional Innovation Councillor. “Fortunately I had identified an inventors club and joined that about the same time as I made the prototypes and found that there was a mine of information there, people who had succeeded and people who were struggling, but there were people here with lots of advice about non disclosure agreements, about the requirement to patent, about the limitations on the protection provided by patenting.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. A feature of the interview conducted with the independent inventor of RightFuel was the degree to which he was aware of the various organisations responsible for innovation within the UK.

An Examination of Independent Inventor Integration in Open Innovation

“Nesta produced quite a good paper about 8 years ago which talked about a strategy for invention, it floundered for lack of finance I guess and then later our own regional development agency in the South West instituted a study, lots of public money expended on revisiting work and brain storming with people in business and Universities and, they put together a new document which was called ‘The Strategy for Supporting Invention’but again it came to a full stop when it got beyond the concept…” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. To this end there is very little evidence to suggest that the inventor’s limited use of third party advice was attributable to a general lack of awareness over available support.

Timing of the Approach The Caparo RightFuel case does little to dispel the proposal that timing plays an important role in the effectiveness of independent inventors to act as suppliers of new products to businesses through Open Innovation. Whilst it is not possible to form an accurate judgement as to whether the inventor would have been more or less successful had his approach been made at a different point in time, the case study provides evidence that the timing of the approach from the inventor to Caparo was advantageous. Consideration is given to the following; the initial approach made by the inventor, to the Caparo Innovation Centre, was made on the 29th August 2006. As an automotive accessory, for use exclusively on diesel powered cars, the market potential for this innovation is intrinsically linked to the number of diesel cars on the road. Secondary data in the form of New Car Registration figures for the UK provided by The Society of Motor Manufacturers and Traders Ltd suggests that whilst diesel powered cars held a market share of just 14.1% of all new car registrations in the year 2000, the market share held by newly registered diesel powered cars, in the

UK in the year 2006, when the commercialisation attempt was made, was significantly greater at 38.3%. In volume terms this equates to an increase in the registration of new diesel powered cars of 65.1% over the 7-year period, between the year 2000 and 2006 (see Table 2). Whilst there appears scope to argue that the new car registration figures for the year 2000 may still have provided enough of an incentive for a prospective licensee to show interest in the product, the fact that an automotive device, designed to fit exclusively on diesel cars, was introduced to Caparo at a point in time when the number of newly registered diesel cars were at an all time high, was critical to the positive view taken of this innovation. This assertion is reinforced by the comments of the eventual licensee, Caparo AP Braking, who revealed that the decision to take on a new product was primarily data-driven. “Its data driven, it’s strategically driven where the business is looking at entering a market or entering a product range and financial yes.” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January. The data contained in Table 3 illustrates the extent to which the act of misfuelling gained prominence in UK newspapers between the year 2000 and 2007. At the point when the inventor filed his UK Patent application in 2005, there were double the number of newspaper articles containing the term misfuelling than the previous year, suggesting recognition of the misfuelling problem was growing. By the 17th October 2007, when the Collaboration Agreement was signed between the inventor Martin White, the Caparo Innovation Centre and the eventual licensee, the number of newspaper articles containing the term “misfuelling” had again doubled from 10 articles in 2005 to 20 articles in 2007. This suggests that either by luck or judgement the inventors timing in seeking to commercialise this innovation was impeccable.

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Table 2. New Diesel Car Registrations UK: Year 2000 - 2006 Year

Volume (cars)

Market Share (%)

2000

313,192

14.1

2001

436,591

17.8

2002

602,623

23.5

2003

704,637

27.3

2004

835,334

32.5

2005

897,887

36.8

2006

898,521

38.3

Source: The Society of Motor Manufacturers and Traders Ltd (2008) SMMT New Car Registrations 2003-2008 [online]. Available at: http://www.smmt.co.uk/search/searchresults2. cfm?fid=2&stid=1 [accessed 11th January 2010].

The following comment by the Managing Director of the Caparo AP Braking, who took the license for this technology, summarises the degree to which the inventor introduced the product at an appropriate point in time and the impact it had: “…at the time there was a screaming demand for something, you had companies saying how much they were spending on misfuelling and putting equipment right. It was a key thing in a lot of the newspapers ‘what can we do to overcome this problem.’You remember Top Gear playing around with different scenarios and then slating the simple solution or what was classed as rubbish solutions. There was a very clear demand and as I said diesel market, how big is it?” Geldard-Williams, N. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January.

Access to Resources The inventor of the Caparo RightFuel benefitted from access to potentially critical resources. Having recently retired from a military career spanning 37-years, at least part of which was spent in senior positions, financial constraints were

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not a significant barrier to the inventor’s ability to negotiate the early stages of the new product introduction process. Indeed, the inventor had purchased machining equipment, in the form of a lathe, to support his progress towards developing a working prototype, financed his own patent application and purchased the raw material and components required for several iterations of the prototype using his own money. In terms of non-financial resources, the inventor divulged during interview that he had access to a concrete resource, in the form of a workshop at his home, which provided him with space in which to develop his innovation in private. “…I just created a small workshop, I have got a reasonable size garage and I just found a home for the lathe, it’s quite a large machine, but I had various other little machine tools.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. In addition to traditional non-financial resources, the inventor’s mechanical engineering knowledge garnered as a Royal Navy Aircraft Artificer between 1967-73, was a most significant resource, giving him the ability to design, draw and craft in metal.

Access to Formal and Informal Social Support Networks Whilst extant literature points to the family being the primary source of social support for independent inventors (Whalley, 1991) it is notable that no direct mention was made of the inventor relying on his family for support during the development of this innovation. Seemingly more integral to his success was his involvement with the South-West Inventors Club. This organisation provided a formal social support network where the inventor could discuss his innovation with other inventors under the protection of a Non-Disclosure

An Examination of Independent Inventor Integration in Open Innovation

Table 3. Number of ProQuest Newspaper articles containing the term “Misfuelling” 2000-2007 (UK) Year

Number of articles containing the word “misfuelling”

2000

1

2001

0

2002

1

2003

1

2004

5

2005

10

2006

4

2007

20

Agreement. The shared practical experience of individuals in this network, combined with the absence of commercial business representation, was highly valued by the inventor. “Right from the outset they appeared to be a good group to expose ideas to because each meeting is proceeded by a non disclosure agreement where everyone around the table agrees not to discuss what has been exposed and usually new members will come to the club and they won’t say anything for the first time round, but very quickly they realise that it’s a friendly environment, there are no poachers, so I talked about my idea quite openly at the second meeting and people made various suggestions and I learnt a little bit more about patent protection and the forms of non disclosure agreements, so yes I found it was a an extremely beneficial environment to be involved in.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. Interestingly, whilst it might be assumed that the primary function of a social support network is to provide encouragement and morale support for the inventor in what has the potential to be an isolating activity; the inventor of the Caparo

RightFuel appeared to place greater importance on the frankness of the discussions that took place at the inventor club meetings. This is an intriguing consideration, whilst family members and friends may contribute positive and reassuring comments out of a close personal bond with the inventor, the formal structure of the inventor club environment coupled with looser personal ties appears to allow a frank exchange of views, regarding an innovation, that is potentially important to future commercial success.

Ability to Adopt a Credible Business Persona This case provides evidence of the importance of adopting a credible business persona. Consideration is given to the following two excerpts from the interview with a Caparo Innovation Centre representative: “…I think inventors are quite poor at presenting ideas and it is difficult to directly transfer the knowledge the inventor has derived straight into a company. There needs to be some manipulation of that first.” Lester, J. (2010) Personal Interview (views on the Caparo RightFuel programme), 13th January. “Martin came to us face-to-face and he had come especially well prepared really for an inventor. He had produced a well thought out business case and a written description and he had also produced a PowerPoint pitch presentation and really good prototypes. Just by coming so prepared is refreshing really because so many inventors come to us with little supporting evidence that to actually have this presented to us was a positive thing in terms of where Martin is concerned and we obviously sat and listened a little bit more.” Lester, J. (2010) Personal Interview (views on the Caparo RightFuel programme), 13th January.

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In considering the statements above, it is possible to draw a contrast between the almost formal business approach adopted by the inventor of the Caparo RightFuel, which contained a Business Plan, formal presentation and demonstration of prototypes, with the relatively ill considered and amateurish approach apparently taken by some independent inventors. The excerpts also provide a clue as to how much simpler it is for a receiving company to have information presented to them that requires little manipulation before use. Certainly, formal training, broad experience and exposure to both technical and business functions appeared to have been pivotal to the inventor’s ability to come across as credible to the licensee and product assessment team at the Caparo Innovation Centre. The following excerpts illustrate the technical, commercial and legal competence of the inventor: “These rely upon the lubricating properties of diesel oil to maintain the pumps and metering devices in the vehicle fuel system. If these are contaminated with petrol, metal-to-metal contact will quickly occur, producing fine swarf that can destroy components.” White, M. (2006) Personal Communication (Business Plan), 22nd September. “The main impediment to marketing is the belief by many owners that it will never happen to them. However, the following logic indicates otherwise. The device is a form of insurance and its retail pricing maybe influenced by the insurance analogy; for a one off payment the owner of an expensive product (diesel car) is insured for the lifetime of the vehicle from misfuelling repairs well over £1000 (Daily Telegraph average = £7000). Now consider the UK Statistical likelihood of misfuelling taking the 3.6 million cars (diesels under 6-years old) divided by 120,000 (incidents per year) = 3.33% over a period of 6-years of ownership = 20%. In other words, there is a 1 in 5 chance the average UK diesel user will misfuel…” White, M. (2006)

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Personal Communication (Business Plan), 22nd September. “The issue has been raised at EU Commission level, by MEP Liz Lynne …” White, M. (2006) Personal Communication (Business Plan), 22nd September. In addition to competence across engineering and business functions and adherence to formal business practices; the ability to speak the language of business was also evident in the case. This appears to have benefitted the inventor in so much as it made him easier to work with and ensured the licensee and assessment team fully understood the nature of his pitch and the advantages brought about by his innovation. “It was a brief business plan with the expected headings that you would generally see in a standard type of layout and it addressed a lot of the marketing type of qualification and justification issues, it also demonstrated Martins technical competence because he was a recognised engineer in the navy and it added to his case really and it left us some real good evidence to take away and to just check up on certain elements. It was a good written document.” Lester, J. (2010) Personal Interview (views on the Caparo RightFuel programme), 13th January. In forming a view as to how the inventor was able to achieve such a formalised business approach, consideration is given to the time the inventor spent as an aviation engineer in the military, which would have fostered a reasonable understanding of engineering principles and subsequent administrative duties undertaken as his naval career developed, which would have assisted with developing business acumen and the ability to adhere to common business etiquette.

An Examination of Independent Inventor Integration in Open Innovation

“I think given his background as a Naval Commander he has always been used to having structure, having not worked in an abstract environment that probably some of the other inventors have had…” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January. “…having been in the Royal Navy for 37 years but within that 37 years I had done so many different things from engineering in terms of actually cutting metal and making things, right the way through to dealing with an Industry and procurement. Understanding a little bit about contracts, about the difficulties of delivering services, but also in my years as a Staff Officer framing arguments and putting together arguments in a fairly concise fashion, the importance of presentation, so I felt that I had the administrative skills as well as the engineering background and then in the middle the aviation industry appreciation of safety factors, engineering out problems, understanding that for every modification you make to something there will be negative aspects as well as positive aspects…” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January.

Willingness to Share Information This case provides evidence of an inventor that was willing to share information concerning his innovation with others in a formal setting, but always under the protection of a Non-Disclosure Agreement or filed UK Patent Application. The provision of a written Business Plan and a formal pitch presentation provides evidence that the inventor was willing to share considerable amounts of information in order to convince potential licensees of the innovations value. Again referring to Caparo’s reliance upon data to inform the decision to take on a new product, it seems inconceivable that the inventor would have been successful had he not been willing to share information.

Whilst it may be assumed that trust is a critical ingredient in the willingness to share information concerning an innovation, the inventor took the view that he became more trusting of the licensee as time passed and their contact levels grew. This suggests that in the early stages of the new product introduction process, the lower levels of trust were mitigated by the presence of formal legal agreements that helped ensure confidentiality and facilitated a willingness to share information.

Ability to Identify and Gain Access to Potential Commercial Partners “The ideal prime licensee will be experienced in the automotive industry, be seeking a new marketleading product and will possess: The expertise to deal with the legal and business aspects Manufacturing capability or the experience and connections to source more effective production abroad.” White, M. (2006) Personal Communication (Business Plan), 22nd September. This statement made by the inventor in his initial business plan demonstrates that he had little problem in identifying the characteristics he desired in a potential commercial partner. However, the inventor also expressed a view that identifying the right people in an organisation and gaining an invitation to present to organisations is challenging. “Whilst I was waiting for a response from them I had prepared documents, PowerPoint presentation, a brief on the basic invention without disclosing too much and started short listing Industries, Companies that might be partners, written to a number of people and had lengthy conversations, managed to have interviews with about four Companies under non disclosure agreements and I started to realise that this was the real difficulty,

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this was the most difficult area for my invention, probably for most inventors, to convince people that the idea had a commercial future and that it was worth investing in at some risk.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January.

Ability to Select an Appropriate Commercialisation Path “The aim of this plan is to seek a licensing agreement with a capable firm …” White, M. (2006) Personal Communication (Business Plan), 22nd September. The inventor of the Caparo RightFuel identified his preference for commercialisation, via a licensing arrangement, at a relatively early stage in the development process; prior to prototype production. A key driver behind the decision to pursue commercialisation via a licensing agreement was the inventors desire to concentrate on aspects of the new product introduction process that he enjoyed. “…it goes back to the desire to use my engineering skills rather than spending a lot of time running a business… for me the passion of being involved in design, taking something from a concept through to a prototype was much more important than the administration of running the business.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. “…I really wanted to concentrate on engineering and for me the licensing route was always the natural choice.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. In commenting upon the selection of a commercialisation path, the inventor felt that early decision making, concerning a suitable commercial route, was critical to avoiding costly and unnecessary

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expenditure, especially in the area of intellectual property protection, where he argued that such protection was not always essential for success, depending on the planned commercialisation path, and occasionally a poor investment.

Alignment of Inventor and Corporate Objectives Whilst developing a solution to a problem he had personally experienced was a satisfying process for the inventor, the focus of the RightFuel project, from the inventor’s perspective, was always one of income generation; as such there was a good synergy between the inventor and corporate objectives. “I think his expectations of the product in terms of volume movement are certainly higher than where it is at the moment and so was ours.” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January. “…I never wanted to invest a lot of time without reward” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. In considering the expectations of the inventor towards the product commercialisation process, three important issues are illustrated by this particular case. Firstly, the inventor’s expectations and aspirations for the project were not onerous. “The inventor desires to be involved in the further development of this project only in so far as the licensee considers his services to be beneficial.” White, M. (2006) Personal Communication (Business Plan), 22nd September. Secondly, the inventor displayed a willingness to compromise and be flexible with his expectations as the development process progressed

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“I would appreciate the opportunity to discuss your quarterly reports in accordance with Clause 3.d. to our assignment agreement, but would be content to meet every 6-months.” White, M. (2008) Personal Communication (Meeting review schedule), 4th October. Finally, the inventor was professional in his conduct in instances when his expectations were not met. “…I think sometimes he is a little frustrated with the speed of progress but he is professional through and through and he doesn’t rant and rave at the Company which would be detrimental and he always provides his services if they need assistance with certain technical points.” Lester, J. (2010) Personal Interview (views on the Caparo RightFuel programme), 13th January. “He hasn’t gone up in the air and said you’re doing it wrong…” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January.

Experience of the Inventor Whilst the inventor revealed that he had no personal experience of new product introduction, prior to his attempts with the Caparo RightFuel, he had significant experience of operating within a technical field closely aligned with his innovation, which aided him in developing a relevant innovation and in supporting the development and commercialisation of the product. “…going back to my early days as an artificer, we had spent an awful lot of time in the classroom dealing with fluid dynamics, mainly to do with air and aviation but also to do with liquid fluid systems, air being a fluid as well, but to do with hydraulic systems and fuel systems but I had spent a lot of time setting engines and gearboxes to helicopters and jet aircrafts so I knew quite a lot

about fluid systems involved in those platforms, so in a way this particular project was a bit of a gift because again it was down to fluid dynamics, to control valves and a lot of the bits of metal that I was making I had some familiarity with, how they would be employed in an aircraft system so it was a joy to go back to my engineering days and to become familiar again with things I had known so many years earlier, certainly a gift.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. The case provides evidence that the inventor’s previous employment experience was important to the process of commercialisation and his ability to convince the eventual licensee as to the merits of the innovation. “I think that subconsciously that some of the guys when they talk to him out there and whatever, that knowing his background was as a Naval Commander they listened to him more …” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January. “He is not just a guy who has come in with an idea off the street, he’s a guy who has lived in the real world and he has obviously been to meetings where he has had to behave in that forum.” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January.

Emergent Critical Success Factors In addition to the proposed critical success factors presented in the previous chapter, “withincase analysis” (Eisenhardt, 1989) suggests three emergent critical success factors.

Ability to Operate within a Partnership Both the Caparo Innovation Centre and Caparo AP Braking identified the need for independent inventors to act as a partner to the commercialis-

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ing company. The ability to understand that the potential licensee is not a contract manufacturer producing a product to specification, but rather an entity that is invested in and committed to progressing and evolving an innovation is critical. “I think where Martin worked and I think as a general for inventors is that they have to understand that when they are bringing this to somebody, they are going to be working as a partnership and that partnership, like any partnership, whether it be person or business will go through rough stages and you will have to be able to bare your soul and be able to take on criticism when it’s intended to be from a positive point of view.” Sarel-Cooke, H. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January. “Martin came to the table wanting to work with us rather than us to do some work for him. The ownership was different, rather than us do work on a project that belonged to an inventor, it’s more like I have got this to share and we can take it together to get it commercialised. His whole approach was different from the outset.” Lester, J. (2010) Personal Interview (views on the Caparo RightFuel programme), 13th January.

Ability to Relinquish Control This case provides evidence that a critical factor in the inventor’s success was his ability to relinquish total control of the innovation and not hold on too tightly. As such accepting that the receiving company will have certain areas of expertise and putting faith in that expertise appears important. “…I didn’t have too much difficulty with the idea of them owning the project, taking it forward and taking a back seat because I suppose from the outset I had always had the view that concept to prototype and a bit of admin to convince other people to come on board was what I really wanted to do. I can see that other inventors who haven’t

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got a definite view on the licensing route might find that process difficult. If they had a mind perhaps to manufacture themselves or to set up a business or to be a partner within a business then they might find that detachment a little bit difficult.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. “…it is very important for them (the licensee) to start to view the project as their project and this business of relinquishing your control or ownership is very important for the overall success of the project. Other people have to buy into it and you have got to be prepared to be sidelined and to relinquish a lot of control. That’s a fairly necessary part of the licensing route and I suppose a lot of inventors find that very difficult to live with.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January. “…he has been pretty smart and took the back seat at times and been very supportive.” GeldardWilliams, N. (2010) Personal Interview (experiences from the Caparo RightFuel programme), 7th January.

Ability to Filter Out Unviable Innovations An apparently important factor for independent inventors seeking to become recognised as a viable supplier of new products is their ability to filter-out weak and unviable innovations to allow them to dedicate their resources effectively. This case provides a number of pieces of evidence to support this, in particular, instances where the inventor trialled ideas before discarding those that were deemed unviable. “I started drawing and over a very long period of time dismissed lots of ideas …” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January.

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The dangers of not filtering out innovations effectively lies in the misplaced allocation of resources, often in support of new product ideas that are flawed from the outset. “One of the most difficult things I guess is to tell people that actually their idea is rubbish and they need to go back to the drawing board, but I guess a lot of people have got to realise that. We have met individuals in our own Inventors Club who have invested a huge amount of money on ideas that are never going to return any of that money, because they missed a few steps at the outset, became obsessed with a view that they were right when patently they were wrong and no one ever really had the guts to stand up to them and say you need to look at this there is plenty prior art, this is on the market, think long and hard before you proceed any further.” White, M. (2010) Personal Interview (Caparo RightFuel), 14th January.

DISCOURSE This work acknowledges twelve critical success factors, proposed in the previous chapter. We find support for the twelve critical success factors, which are present within the Caparo RightFuel case study. In terms of Time Commitment both having time available and making a decision to commit that available time to innovation is important. It is our view that without the necessary time commitment made to inventing and developing the business case, independent inventors will find it difficult to firstly develop the innovations they wish to supply businesses with and secondly provide the level of data required to mitigate the increased risk associated with taking on externally generated innovations. In considering the Use of Intellectual Property a willingness to invest in Intellectual Property Protection is important. In addition, a patent application, which covers a multitude of technical

solutions to the problem in question, certainly appears to enhance the commercial value of the inventor’s business proposition, by making it more difficult to circumvent. In our opinion independent inventors must make every effort to familiarise themselves with the Intellectual Property Protection mechanisms open to them, how they are utilised in a commercial sense and whether investment in intellectual property is appropriate for their particular innovation, given the proposed mode of commercialisation, the industry sector they are hoping to enter and their available financial resource to both take out IP Protection and pursue those that infringe their rights. The importance of advice, guidance and support appears to be influenced by the extent of the inventor’s technical and commercial competence or previous experience of negotiating the new product introduction process. As such, in some instances support maybe vital whilst in other cases the inventor maybe able to fair well without additional assistance. In considering the type of advice, guidance and support provided for independent inventors it is important to note that reliance on professional innovation practitioners is not always desirable and that much can be gained from engaging the assistance of peers with practical experience of innovation and new product introduction, potentially via Inventor Clubs. There is reasonable evidence from the case study to suggest that the timing of the innovation approach is important. This perhaps reinforces the need for inventors to look for solutions to current problems and avoid the situation where they continue to invest in and promote an innovation that no longer meets need. Conversely, it may be difficult for independent inventors who propose products that speculate heavily on what the market may need in the future, as the associated risks in this situation are considerable and are likely to deter businesses.

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Access to resources whether financial, concrete, raw materials or suitable tools are critical to the inventors ability to prove the concept and produce a functioning prototype. At present independent inventors are overly reliant on their own ability to acquire these resources. The provision of community based inventor groups that provide the physical resources for inventors may therefore be worth considering. Consideration should also be given as to why there is so little financial support available to independent inventors, when there is so much available to SME’s. Access to formal and informal social support networks appears important, but not in the way extant literature seemed to indicate. Whilst the inventor’s family maybe critical in providing support, motivation and reassurance to independent inventors, formal support networks, in the guise of inventors clubs, provide a platform for a frank exchange of views regarding innovation. To a degree, the objective, constructive criticism offered by a formal support network provides a good counterbalance to the subjective support of family members and helps prevent inventors pursuing inventions that are commercially or technically unviable. The ability to convey a credible business persona is central to the success of independent inventors. The credibility of independent inventors is an important consideration in the review process undertaken for new products originating from outside a company. The ability to talk the language of business, operate in a formal business environment and present data in a fashion that facilitates understanding and minimises the need for excessive manipulation adds credibility to both the inventor and the business case. It would appear that previous experience of operating in a formal business context is advantageous or alternatively it would be helpful for independent inventors to undergo training in business practice and conventions. A willingness to share information is critical because of the effect good quality information has

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on the perceived risk associated with an externally generated innovation. Disclosure of information should be restricted to those instances where either a Non-Disclosure Agreement or Patent application is in place. The ability to identify and gain access to potential commercial partners is both important and challenging for independent inventors. Whilst inventors maybe able to take a view as to whether a business is operating in a suitable industrial sector it is much more difficult to identify the manufacturing capability, desire for new products and appropriate internal point of contact within a company. Whilst those companies that operate a formal Open Innovation Strategy may make this process less demanding, we believe that there continues to be a large number of businesses that are receptive to external ideas from inventors that do not make this known to the independent inventor community. The ability to select a commercialisation path early in the new product development process is beneficial in terms of providing focus to the new product introduction process and minimising the number of blind alleys the inventor travels down. In addition, selection of a commercialisation path early in the process can inform the degree to which IP protection is required and as such prevent unnecessary costs from being accumulated. In deciding upon a preferred commercialisation path, we would advocate the that the inventor appraise their skills-set and as such their ability to run a business, the extent to which they want to risk personal wealth, their desire to control and be involved in commercialisation and their expectations over financial reward, if any. Close alignment of inventor and corporate objectives seems beneficial to the chances of inventors operating effectively as suppliers of new products to business. The corporate objective of introducing a new product is biased towards generating a financial return. Inventors need to be aware of this from the outset and understand that many of the decisions regarding the product

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development and introduction will be governed by this objective. From how the product is manufactured, where it’s manufactured, what material it’s made from, through to the market it’s targeted at. The experience of the inventor is critical to the extent that specialist knowledge in a certain industry may be viewed as positive by potential commercial partners and in addition improves the potential that an innovation is market driven and relevant. Experience in a formal business context would appear be more useful in adding credibility to a business proposal. The findings from this research inquiry suggest a further three emergent critical success factors (see Table 4). Independent inventors should view commercialisation of new products via Open Innovation as a partnership arrangement. Despite originating the innovation, independent inventors need to acknowledge that the success of the project is often contingent upon the receiving company and inventor working together to fully understand the legacy of the product, garner specialist industry insight and minimise divertive actions. An ability to operate within a partnership is therefore critical. The ability to relinquish total control of an innovation is essential if independent inventors are to become effective suppliers of new products to businesses through Open Innovation. It is fundamentally important that the receiving company buys-in to the innovation. As such it is necessary for independent inventors to take a back-seat on occasion and allow the collective expertise of the business to add to the project.

Table 4. Emergent critical success factors Additional proposed critical success factors 13

Ability to operate within a partnership

14

Ability to relinquish total control

15

Ability to filter out unviable innovations

For independent inventors to supply the most commercially and technically viable product solutions to businesses they must make frequent assessments of their innovation and take on-board external input. If after research and consultation innovations appear flawed they should be filtered out and attention should switch to an alternative solution or project.

CONCLUSION Independent inventors have the potential to be effective suppliers of new product ideas to businesses operating Open Innovation. If the commercialisation opportunities presented by Open Innovation, for independent inventors, are to be maintained then inventors must become more successful suppliers. Within this chapter we find support for the twelve critical success factors proposed in the previous chapter. A further three emergent critical success factors are acknowledged and we will continue to investigate the significance of these as this research inquiry progresses. We believe that the biggest contribution made by these two chapters is the amalgamation and communication of critical success factors, from disparate academic literature, in a format that independent inventors and those businesses operating open innovation will find usable in a practical sense; by paying heed to these factors independent inventors should become more effective suppliers to companies operating Open Innovation and enhance the sustainability of such operations. Whilst this chapter is geared towards the steps that independent inventors should take to become more effective suppliers, there are some important implications for those individuals responsible for the management of Open Innovation. Firstly, management may wish to consider how they can improve their visibility as an organisation operating Open Innovation. Independent inventors find it difficult to identify companies to approach with their innovations and within those companies

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identify who the key contact is. Importantly, managers may wish to consider identifying themselves as being open to approaches from independent inventors. Open Innovation Managers may also wish to consider the proposed Critical Success Factors and determine how they can encourage independent inventors that want to engage with their business to operate accordingly. A prescriptive process that requires independent inventors to submit specific written details as part of the initial approach would help to ensure that inventors have given due consideration to key factors in advance of the first meeting. Whilst much can be learnt about a proposed innovation from reading documentation prepared by an independent inventor, the degree to which an independent inventor and business can work together is critical to success. As such we would advocate that managers operating Open Innovation request a face-to-face meeting with independent inventors early in their process. A potential concern of management operating Open Innovation models that allow independent inventors to act as suppliers is the cost of handling the high quantity of inquiries. Consideration should be given as to how administrative hurdles can be utilised to deter approaches from those that do not have the capacity or desire to see-out a potentially long development programme. A final consideration for those managers wishing to encourage independent inventors to act as suppliers is the stance they propose to take over confidential information. As a general rule independent inventors are unlikely to disclose information concerning a proposed new product without either having filed a patent application or completed a Non-Disclosure Agreement (NDA). Whilst smaller companies may feel able to sign up to NDA and adhere to the principles of this arrangement, many larger businesses feel this is practically impossible. As such independent inventors will need to file for patent.

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LIMITATIONS AND FUTURE RESEARCH This work identifies the preliminary findings of an exploratory larger scale research inquiry and as such should be viewed in the context of work-in progress. Although it represents a narrow view of a complex subject we believe that the case study approach to this inquiry has added valuable evidence in support of twelve critical success factors, and has identified three emergent critical success factors. It is envisaged that through the examination of further cases, the knowledge relating to this field of research will be extended. As mentioned earlier in the chapter, the value of the case study approach is in the formation of new insights that drive future research inquiries (Dyer and Wilkins, 1991). In terms of future research, studies that test the boundaries of the identified critical success factors by focussing on potential regional variations or variations across industry sectors would be valuable. It is important to acknowledge that the critical success factors identified in this chapter are intentionally focussed on improving the ability of independent inventors to become successful suppliers of innovative product ideas to businesses operating open innovation. This is of course one-side of the coin. As such, there is potential for shifting the research focus away from the independent inventor and on to the receiving company, licensee, to discover if critical success factors relating to their involvement in the integration of independent inventors in open innovation can be established.

ACKNOWLEDGMENT The authors wish to thank Caparo for allowing us access to their facilities during this research inquiry. In addition we wish to extend our thanks

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to Martin White the independent inventor behind the Caparo RightFuel.

REFERENCES Chesbrough, H., & Crowther, A. K. (2006). Beyond high tech: Early adopters of open innovation in other industries. R & D Management, 36(3), 229–236. doi:10.1111/j.1467-9310.2006.00428.x

Whalley, P. (1991). The social practice of independent inventing. Science, Technology & Human Values, 16(2), 232–256. doi:10.1177/016224399101600205 White, M. (2010). Interviewed by: Smeilus, G., Caparo RightFuel. Wolverhampton, U. K.: University of Wolverhampton. Yin, R. K. (1984). Case study research. London, New Dehli: Sage.

Chesbrough, H., Vanhaverbeke, W., & West, J. (2006). Open Innovation: Researching a new paradigm. Oxford, UK: Oxford University Press.

Yin, R. K. (1994). Case study research: Design and methods. London, UK: Sage Publications.

Dyer, W. G. Jr, & Wilkins, A. (1991). Better stories, not better constructs, to generate better theory: A rejoinder to Eisenhardt. Academy of Management Review, 16(1), 613–620.

KEY TERMS AND DEFINITIONS

Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550. Flyvbjerg, B. (2006). Five misunderstandings about case-study research. Qualitative Inquiry, 12(2), 219–245. doi:10.1177/1077800405284363 Geldard-Williams, N., & Sarel-Cooke, H. (2010). Experiences from the Caparo RightFuel Programme. Interviewed by: Smeilus, G. Leamington Spa, U. K.: Caparo AP Braking. Glaser, B., & Strauss, A. (1967). The discovery of grounded theory: Strategies of qualitative research. London, UK: Wledenfeld & Nicholson. Lester, J. (2010). Views on the Caparo RightFuel programme. Interviewed by: Smeilus, G. Wolverhampton, U. K.: University of Wolverhampton. Lettl, C., Rost, K., & Von Wartberg, I. (2009). Why are some independent inventors ‘heroes’ and others ‘hobbyists’? The moderating role of technological diversity and specialization. Research Policy, 38(2), 243–254. doi:10.1016/j. respol.2008.12.004

Independent Inventors: Independent inventors are characterised by two factors; firstly their inventive activity is conducted outside the confines of an established business and secondly, the independent inventor has no formal obligation to invent (Lettl et al., 2009). Open Innovation: “Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Chesbrough, Vanhaverbeke & West, 2006: p.1).

ENDNOTES 1



The interviewees were selected as they provided insight from three critical vantagepoints: the independent inventor; the open innovation contact team and the eventual company licensee. The interviewees were: Martin White (Independent Inventor); Jonathan Lester (Caparo Innovation Centre – open innovation contact team); Neil Geldard-Williams (Managing Director Caparo AP Braking – company licensee) and

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2



3



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Henry Sarel-Cooke (Sales Director Caparo AP Braking) AA Motoring Trust Report (Feb 2004) – Misfuelling: Don’t get caught out! Telegraph Motoring Section (27th Aug’05) – A costly mistake

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5



Fleet News Magazine (5th Sep’06) – Misfuelling hits new record level AA Motoring Trust Report (Feb 2004) – Misfuelling: Don’t get caught out!

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Chapter 10

Firm-Specific Factors and the Degree of Innovation Openness Valentina Lazzarotti Carlo Cattaneo University, Italy Raffaella Manzini Carlo Cattaneo University, Italy Luisa Pellegrini University of Pisa, Italy

ABSTRACT This chapter investigates the topic of how open innovation is actually implemented by companies, according to a conceptual approach in which open and closed models of innovation represent the two extremes of a continuum of different openness degrees; though, these are not the only two possible models. By means of a survey conducted among Italian manufacturing companies, this chapter sheds light on the many different ways in which companies open their innovation processes. Four main models emerge from the empirical study, which are investigated in depth in order to understand the relationship between a set of firm-specific factors (such as size, R&D intensity, sector of activity, company organization) and the specific open innovation model adopted by a company.

INTRODUCTION The concept of “Open Innovation” (OI) is often studied supposing an artificial dichotomy between closed and open approaches, whilst the idea of exploring different degrees and types of openness in a sort of continuum seems to provide a more interesting avenue (Chesbrough, 2003b). Prior research has highlighted that open innovation may DOI: 10.4018/978-1-61350-165-8.ch010

be pursued in different ways, which are identifiable in terms of organisational form of acquisition or commercialization, number and typologies of partners, phases of the innovation process that are actually open, the direction of opennes (inbound and/or outbound) and governance (hierarchical or flat). Moreover, previous research has also attempted to study the relationships among different OI models and several contextual factors, driven by the idea that these factors could explain or,

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at least, characterize the companies’ choices in terms of degree of openness. Lastly, different OI models, defined according to this concept (i.e. degree of openness and models within their specific context), have been analysed in some preliminary work in terms of their performance (Lichtenthaler, 2008; 2009). The objective of this chapter is thus threefold: first, to provide evidence in support of Chesbrough’s (2003b) theoretical proposition that businesses may be located along an Open Innovation Continuum, second, through the use of extensive study, to identify any potential intermediate states between the extreme points of the Continuum - Open and Closed Innovators - and, third, to identify the contextual factors that affect the choices firms make along the Open Innovation Continuum. In particular, for the identification of the potential intermediate states in the OI Continuum, we focalized on two variables representing the openness degree, which are not still deeply investigated: (1) the number and type of partners (partners variety) and (2) the number and type of phases of the innovation process open to external contributions in and/or out (innovation phase variety). It should be noted that we assume that the innovation process is composed of different phases: idea generation (identification of a technology opportunity through scouting, monitoring, market analysis, trends analysis); experimentation (from the idea to the prototype); engineering (transforming the prototype into an industrial project); manufacturing (defining and organising the “plant”); commercialisation (planning of commercialisation and promotional activities). The choices in terms of OI will be investigated in terms of those contextual factors whose role is still controversial (Lichtenthaler, 2008), or otherwise it can be better understood in light of the concept of openness suggested here. Our investigation was carried out in Italy, where empirical evidence about OI is still poor. However, there are many pressures, arising from institutions, too,

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towards the establishment of collaborative models (Global Business Summit, 2010). Thus, investigating if, how and with what results companies work together becomes a relevant issue for both Italian scholars and practitioners. We would also like to emphasize that our endeavour to identify any in-between states along the Open Innovation Continuum is the first attempt to research this topic and that the subject indeed requires further research in order to better characterise such intermediate states. The following sections are divided into subtopics: a description of the pertinent literature (so as to better understand the research questions we posed), a description of the empirical study we carried out and the methodology used, the main research results, a discussion of the results, conclusions and future research.

THEORETICAL BACKGROUND The Theoretical Framework and the Research Questions Traditionally, large firms relied on internal research and development (R&D) to innovate and, in many industries, large internal R&D labs were a strategic asset and firms could internally discover, develop and commercialize technologies. This approach has been labelled the “closed innovation model” (Chesbrough, 2003a). Although it worked well for quite some time, the current innovation landscape has changed. Due to labour mobility, increasing R&D costs, abundant venture capital and widely dispersed knowledge across multiple public and private organizations and the need for specialisation in knowledge production, enterprises can no longer afford to innovate on their own, but rather need to engage in alternative innovation practices. In this regard, Open Innovation (OI) represents an important innovation practice that can help firms to innovate without having to rely only on their inhouse strengths. Since Chesbrough published his

Firm-Specific Factors and the Degree of Innovation Openness

book in 2003, the concept of “Open Innovation” has received a considerable amount of attention from practitioners and researchers. A large number of studies are adopting this term to describe the phenomenon where firms rely increasingly on external sources of innovation, which means that ideas, resources and individuals flow in and out of organizations (Chesbrough, 2003a). While contributions are still growing (Gassmann, 2006; Enkel et al., 2009; Enkel et al., 2010), the debate on innovation management is enriched by studies that critically examine the Open Innovation concept by exposing its weakness and limitations (Dahlander & Gann, 2007; Trott and Hartmann, 2009). In particular, the concept of Open Innovation is criticized because of the widespread view that the concept highlights an artificial dichotomy between closed and open approaches. On the other hand, the idea of exploring different degrees and types of openness in a sort of continuum (i.e. the openness degree concept) seems to provide a more interesting and richer avenue to investigate, (Chesbrough, 2003b; Dahlander & Gann, 2007). Indeed, this view allows for a deeper and more real investigation into company behaviour and into the particular nature and context of innovation sources (Chesbrough, 2003b; Gassmann, 2006; Dahlander & Gann, 2007). In any case, the era of open innovation has begun and many firms are opening their innovation process to the outside world (Enkel et al., 2009). The way the innovation process can be opened has been studied in management literature from a variety of perspectives. Although the perspective that has received most of the attention in the literature is undoubtedly the direction of openness, other approaches have also been investigated. More specifically, these look at the number and types of partners, the kind of governance in the innovation networks, and the organisational forms chosen to define the links among partners (high vs. low integration level). As regards the perspective connected with the “direction of openness”, three models of

open innovation can be observed: the inbound, exploration or outside-in process, the outbound, exploitation or inside-out process, and the coupled process (Keupp & Gassman, 2009; Lichtentaler, 2008; Enkel, et al., 2009). Thanks to the outsidein process, firms aim at enriching the company’s own knowledge base through the integration of external knowledge sourcing, and hence increase their innovativeness (Enkel et al., 2009). Through the inside-out process, firms aim at earning profits by bringing ideas to market, selling IP, and multiplying technology by transferring ideas to the outside environment, in order to bring ideas to market faster than they could through internal development (Enkel et al., 2009). The coupled process combines the two abovementioned processes to simultaneously gain external knowledge and bring ideas to market. As regards the perspective connected with the “types of partners” (Enkel et al., 2009), literature has highlighted the interactive character of the innovation process, suggesting that innovators use ideas and knowledge of external actors in their innovation processes: firms rely heavily on their interaction with lead users, suppliers, and a range of institutions inside the innovation system (von Hippel, 1988; Lundvall, 1992; Brown & Eisenhardt, 1995; Szulanski, 1996). With each innovation source, an organization can achieve different intensity levels of collaboration (Laursen & Salter 2006; Keupp & Gassman 2009). Hence, it is possible to define different open innovation models depending on both breadth (i.e., the number of sources used for innovation activities) and depth (i.e., the intensity of collaboration with each source). As regards the perspective connected with the “kind of governance” in the innovation networks, there are two dimensions which need to be considered (Pisano & Verganti, 2008): openness, i.e. a large number of involved partners and hierarchy, i.e. the level of ‘democracy’ in decision making. On the basis of two such aspects, four open innovation models emerge: (1) the open/

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hierarchical model, in which anyone can offer ideas but only one company defines the problem and chooses the solution; (2) the open/flat model, in which anyone can generate ideas, and no one has the authority to decide what is or is not a valid innovation; (3) the closed/hierarchical model, in which a company selects certain participants and decides which ideas are to be developed; (4) the closed/flat model, in which a selected group offers ideas, while making critical decisions together. As regards the “organisational forms” chosen to define the links among partners (high vs. low integration level), there are four technology sourcing modes that firms can adopt: corporate Venture Capital investments, non-equity alliances, equity alliances and acquisitions. Each form carries with it different implications in terms of the investing company’s reversibility and commitment (Chiesa & Manzini, 1998; van de Vrande et al., 2006). More precisely, corporate Venture Capital investments and non-equity alliances are reversible to some extent and involve a relatively low level of commitment from the investing company, while equity alliances and acquisitions require a high level of commitment and are hardly reversible. In our opinion, all these contributions share two aspects: on one hand, they have a common interpretation of open innovation, while, on the other, they have a weakness. Regarding common interpretation, all these contributions share the understanding that the open innovation models which the firms follow are not exclusively open or closed, but rather show varying degrees of openness: i.e. between the two pure models – open or closed, which represent the two extremes of a continuum – there are many shades of grey (Chesbrough, 2003b). Indeed, according to Dahlaner and Gann (2007), the dichotomy between open vs. closed is artificial and it is necessary to explore different degrees and types of openness: this can yield more insight in understanding openness. With regards to weakness, the perspectives used in the previous contributions are not exhaus-

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tive in explaining the open innovation models followed by firms. In other words, the latest literature still does not fully explain in what ways the degree of openness can happen. Indeed, to the best of our knowledge, the literature does not address the question whether some firms conduct open innovation in many phases of their innovation funnel and if others focus only on a very few of them; if this is the case, we must consider which phases of the innovation funnel are open or closed. Hence, literature does not help companies to find the right balance between closed and open phases of the innovation funnel. Neither is it clear if the phases of the innovation funnel that are permeable are open to many or just a few partners. With few exceptions, it is not even clear if the involved partners are different in terms of typologies or not. For instance, De Backer et al. (2008) analyzed such a problem and found that universities and government research institutes are generally considered to be an important source of knowledge transfer for the innovation activities of companies, especially regarding more upstream/ research activities. On the basis of these premises, our objective is to contribute to the literature which sustains that business reality is not based on pure open innovation, but on companies that invest simultaneously in closed as well as in open innovation activities (Enkel et al., 2009) throughout the innovation funnel with different partners. Hence, we will introduce a new perspective that considers both the number/typology of partners and the number/ typology of phases, in order to understand if such a perspective can confirm the existence of different models of open innovation. Within this context we will try to answer the following specific research questions: • •

Do different firm-specific factors characterize the models of open innovation? Do such different models show a different level of innovative performance?

Firm-Specific Factors and the Degree of Innovation Openness

Figure 1 depicts the constructs of our theoretical framework. The operationalisation of each construct is reported in detail in the Appendix (all questions were measured on a four-point Likert scale to indicate the frequency of use, with 1 = disagreement and 4 = agreement). As explained in the introduction, the main objective of the chapter is to provide empirical evidence to the notion of OI as a continuum, that is to say that different OI models may exist. Before characterizing them by means of our empirical analysis, in the following we will analyze what the literature says about the relationships between some contextual factors (i.e. R&D intensity, size, type of industry, approach to innovation, company’s objectives for collaboration, managerialorganizational actions supporting open innovation) and OI models and their performance, by highlighting areas that are lacking which justify our subsequent empirical analysis. First, an analysis of the relationships between the firmspecific factors and the open innovation models will be made. Then, an analysis of the impact of the open innovation models on innovative performance will follow. Specifically, what is lacking in the literature has been highlighted for each of the relationships studied.

The Firm-Specific Factors and Open innovation Relationship between R&D Intensity and Open Innovation Models As regards the role played by R&D intensity, Lichtenthaler (2008), Lichtenthater and Ernst (2009), Calantone and Stanko (2007) and Sofka and Grimpe (2008) investigated this role from different viewpoints. Lichtenthaler (2008) and Lichtenthater and Ernst (2009) analysed the effect of R&D intensity and found that the greater the level of R&D intensity the greater the technological exploration. This provides support for the assumption that firms pursue external technology acquisition as a complement to internal R&D and not as a substitute (Cohen & Levinthal, 1990, Zahra & George, 2002). Calantone and Stanko (2007) underpin that firms’ exploration activities cannot occur frequently: therefore, given the high costs for developing specialized structures, firms are more likely to resort to outside expertise. Moreover, they state that firms performing a great deal of in-house exploratory research are likely to be led by this exploration away from their competencies, and will therefore be more likely to seek out outside expertise.

Figure 1. Theoretical framework

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Sofka and Grimpe (2008) studied the effect of internal R&D investments on “breadth” (i.e. extent of partner typology) and “depth” (i.e. intensity of collaboration for each partner) of research strategies. They hypothesize that internal R&D investments lead to deep research strategies rather than broad ones. With their survey, which involved firms from twelve European countries, they argue that firms building absorptive capacities through internal R&D have both broader and deeper research strategies. However, the effect on depth is stronger than the effect on breadth. In other words, committing internal resources to in-house labs and specialized scientists and engineers is therefore the primary path for innovation managers to achieve more depth in their search strategies. Hence, on the basis of these contributions, the role played by R&D intensity is studied in relation to two of the abovementioned perspectives, through which it is possible to investigate how the innovation process can be opened: the perspective connected with the “direction of openness” and the perspective connected with the “types of partners”. Thus, literature lacks the investigation of the role that R&D intensity plays with regards to the perspective offered in this chapter, which will consider both the variety of partners involved and the variety of stages in which companies collaborate.

Relationship between Size and Open Innovation Models Size is one of the most investigated of the contextual factors and it is still a controversial subject. On the one hand, empirical literature suggests that open innovation is mainly driven by larger companies. Empirical investigations show that size impacts on two variables representing the openness degree: the extent of both technology exploitation and exploration (Lichtenthaler, 2008; Lichtenthaler & Ernst, 2009). Indeed, as regards technology exploitation, larger companies seem to have a bigger technology portfolio than smaller

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companies and hence have wider technological knowledge that is potentially suitable for commercialization. As regards technology exploration, larger firms do not seem to be able to completely rely on internal activities due to the diversity of the technological knowledge that they use. In general, the fact that larger firms seem to drive the opening of the innovation process can be justified by the more systematic approach they have in their innovation processes (Lichtentaler, 2008) and the larger resources they possess with respect to small and medium enterprises (Lichtentaler, 2008; De Backer et al., 2008; van de Vrande et al., 2008). In addition, according to Lichtentaler (2008), it should be noted that the effect of size seems to be stronger in the case of technology commercialization than in technology exploration, in that commercialization is rather a newer phenomena than acquisition. As the external mode of technology exploitation has become a broader trend only in recent years, it is still driven by large pioneering firms, while the acquisition of external technology is distributed more evenly across firms of different sizes. Keupp and Gassman (2009) analyse the effect of size on two different variables representing the openness degree: the number of knowledge sources used for OI activities (i.e. the breath of OI) and the intensity of collaboration with each source (i.e. the depth of OI) and show that there is a positive and significant effect of firm size on both the breadth and the depth of OI. On the other hand, some literature emphasises that especially small companies, often lacking resources and competence to innovate by themselves, would have great benefits from exploiting the OI model. In fact, SME are increasingly adopting OI practices (van deVrande et al., 2008). Hence, on the basis of these contributions, it is possible to draw considerations similar to those regarding the role played by R&D intensity. Indeed, the role of size is studied in relation to the same two abovementioned perspectives: the perspective connected with the direction of openness and the perspective connected with the types

Firm-Specific Factors and the Degree of Innovation Openness

of partners. In addition, its role is still controversial. As a consequence, it is possible to assert that literature lacks the investigation of the role that size plays with regard to the perspective offered in this chapter (number/typology of partners and number/typology of phases).

Relationship between Type of Industry and Open Innovation Models Some authors investigate the impact that industry exerts on OI, interpreting industry as the typology of sector in which firms operate. Also in this case, literature is not unidirectional in that empirical findings show contrasting results. What’s more, the same Lichtenthaler in different publications (Lichtenthaler, 2008 and Lichtenthaler & Ernst, 2009), while referring to the same sample, finds different results. In fact, on the one hand, Lichtenthaler and Ernst (2009) show that a firm belonging to a particular industry does not produce any impact either on the external technology acquisition or on external technology exploitation. Similarly, Lichtenthaler (2008) states that his findings demonstrate the insignificant effect which industry differences have across the clusters. Thus, the openness of the innovation process does not seem to be determined principally by industry characteristics. On the other hand, the studies by Gassman and Enkel (2004) and De Backer et al. (2008) demonstrate the opposite. More in particular, Gassman and Enkel (2004) state that the relative importance of internal and external sources varies across different industries. De Backer et al. (2008), although focusing on particular aspects, such as patent licensing, find important differences among industries, with chemical/drugs, electronic/ electrical/semiconductors and machinery/equipment/computers as the industries where licensing deals take place more frequently than in others.

Relationship between Approach to Innovation and OI Models A relevant concept investigated in the literature is that of “technology aggressiveness” (measured by three items, among them “the emphasis on radical innovation rather than incremental innovation”)1. Lichtenthaler and Ernst (2009) find that technology aggressiveness is negatively related to the extent of external technology acquisition and is positively related to external technology exploitation, in that commercialization nurtures benefits in terms of setting industry standards, entering into new markets, and realizing learning effects. In another publication, Lichtenthaler (2008) studies the implications connected with firms’ emphasis on radical innovation and finds that the degree of openness seems to rise with the degree of emphasis on radical innovation, especially concerning the degree of external technology commercialization. There are two reasons for this: first, the opportunity to commercialize knowledge which, when not applied in the organization, turns out to be residual; second, the possibility to facilitate acceptance on the market and the creation of a standard. Lichtenthaler (2008) also finds that firms which emphasize radical innovation are obviously not able to develop all knowledge internally, but they have to strongly rely on complementary external sources and thus they use technology acquisition (Perrons et al., 2005). Hence we can draw even more restrictive considerations than those regarding R&D intensity: technological aggressiveness is studied in the literature in relation only with the perspective connected with the direction of openness. If we add that this factor’s role is still controversial, it emerges that new empirical investigation is needed to analyze the impact exerted by technological aggressiveness on OI models.

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Company Collaboration Objectives and OI Models The main reasons that push firms towards choices of open innovation are, on the one hand, the need to reduce innovation costs and business risks, and on the other, the need to extend skills, competences and creativity (Huang et al., 2009). As regards the objective of diminishing costs and risks, Calantone and Stanko (2007) analyze outsourcing as a tool for increasing staffing efficiency measured in terms of employee sales efficiency. They infer that the decision to reduce the number of employees is related to the outsourcing of innovation in the short run but not over the long term. Gassmann and Enkel (2004) state that research-driven companies usually aim at reducing the R&D’s fixed costs and sharing risk. Chiaroni, Chiesa and Frattini (2009) state that the reason for accessing external sources is the willingness to minimize risk by investing in technologies that are already proven in other applications. Another main reason for firms to undertake R&D outsourcing includes accessing specialized skill sets and creativity, which exposes the internal development staff to new knowledge, technology, and organizational development processes (Catalone & Stanko, 2007; Chesbrough and Teece, 1996; Linder, 2004; Lynch, 2004), even if this strategy has drawbacks in terms of opening the market to new entrants (Porter, 1980) and exposing core competencies to imitation and substitution (Piachaud, 2005). In comparison with the other firm-specific variables, the objectives of collaboration are studied in the literature even more restrictively; not only are they studied in relation to the perspective connected with the direction of openness, but also mainly in relation to one of the two directions, i.e. with the inbound process. Hence, for this firmspecific variable, too, there is a gap in the research literature which needs to be filled, that being an analysis of the impact exerted by collaboration objectives on the open innovation models.

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Managerial-Organizational Actions Supporting Open Innovation and OI Models Managerial-organisational actions allow open innovation to be pursued easily and more deeply, Some of these actions include the commitment of top management to promote the transition towards an open innovation approach (Vanhaverbeke, 2006; vandeMeer, 2007; Chiaroni et al., 2009, Pisano & Verganti, 2008); the need for a champion supporting the integration of external technology into an existing product development phase–gate process (Chesbrough, 2006; Chesbrough & Crowther, 2006); the exploitation of the personal relationship of the R&D managers for starting technological collaborations; the formal evaluation of collaboration objectives and risks, as well as the analysis and selection of the potential partners with a formal and explicit process (Sakkab, 2002; Huston & Sakkab, 2006). Although the works cited have shed light on how organizational and managerial factors facilitate the implementation of open models, we believe that enriching this line of inquiry with new empirical evidence is in any case quite important.

The Impact on Performance The debate is still open on whether and how openness degree and contextual factors impact on innovative and economic performance. The results are still quite limited and contradictory, although very recent contributions (Chiang & Hung, 2010; Sofka & Grimpe, 2010) shed more light on the topic. A widely accepted assumption is that the relations between openness degree and performance must be analyzed considering the moderator role of external environmental moderators (e.g. patent protection status: Lichtentaler, 2009; Slowinsky & Zerby, 2008; MacCormack & Iansiti, 2009). Indeed, regarding performance, it should be noted that the analysis of the company’s financial

Firm-Specific Factors and the Degree of Innovation Openness

performance is a complex topic due to the fact it can be explained only by considering a wide set of factors that can have contrasting effects. Probably, the concept of innovative performance (Chiang & Hung, 2010; Sofka & Grimpe, 2010) is more understandable. The impact of open innovation models on innovative performance has been analysed in terms of a company’s competence base, development costs, time to market and the level of innovation of new products/processes. Literature is unidirectional in showing the impact of the outside-in process on the access and integration of internal company capabilities with new and complementary knowledge of external firms (Gassmann and Enkel, 2004). Instead, literature results are not unidirectional as far as the reduction of development time is considered: for instance, on one hand, Gassmann and Enkel (2004) state that the benefits of co-operation are seen in an improvement in the competitive position and in risk minimisation, but not in a reduction of development time; on the other hand, according to Kolk and Püümann (2008) firms not concentrating on Open Innovation strategies fail, as rising development costs and shorter product life cycles make it increasingly difficult to justify investments in innovation. Other studies (e.g. Dahlaner & Gann, 2007) show that relationships with other actors help firms to increase the level of innovativeness. In summary, as suggested by the literature listed above, certain relationships between the selected firm-specific variables and the openness degree are still controversial or lacking in depth. Below, we suggest improving the empirical evidence available by adopting a perspective based on number/typology of partners and the number/ typology of phases, with particular reference to Italy, where partnerships are desired by many subjects, including institutional ones, though the issue is still poorly studied.

RESEARCH DESIGN AND METHODOLOGY Survey Design The empirical study has focused on companies located in Lombardy, a Northern Italian region; in 2008 the companies had applied for funding from the Chamber of Commerce to conduct innovative activities within different manufacturing sectors, including the mechanical and machinery sectors, as well as in sectors dealing with automotive, metallurgy, textiles, food, electronics, chemicals, pharmaceuticals, plastic, rubber, paper and paperboard, publishing and printing, wood and wood products (NACE rev.2 codes). This engagement in innovation by such companies, combined with the fact that Lombardy is marked by a particular propensity for innovation (if measured by the number of patents, Lombardy ranks first among the Italian regions according to the European Patent Office data for Italy elaborated by the Unioncamere Observatory of Patents and Brands, 2008) make them very interesting topics of innovation study. The data was collected by means of questionnaires distributed by email to participants. The advantages of such a method include low cost, completion at the respondent’s convenience, absence of time constraints, guarantee of anonymity and reduction of interviewer bias (Forza, 2002). Its shortcomings, on the other hand, are represented by lower response rate as compared to other methods, longer completion times and greater effects due to the lack of both interviewer involvement and open-ended questions. The survey tool was conducted as a questionnaire whose items regarded company characteristics (sector, size), innovation strategy; organization for innovation; collaborations and innovative performance, as will be clarified in more detail below.

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Before sending the questionnaire to the companies, a pilot test was conducted to assess the quality of the measure items. The items were tested by a group of senior managers and academics with working experience in innovation. They were asked to analyze the questionnaire in order to eliminate items not having strong content validity. After this stage, the resulting questionnaire was sent to the key informants of the companies that we identified as the R&D manager (if present in the company) or the company owner, if deeply involved in the definition of the company’s innovation strategy (as is very common in Italian companies).

Statistical Analysis Among the companies that have applied for funding (about 500) 99 firms have responded during a four-months period in 2009 (i.e. with a response rate equal to 20%). A general premise should be made as concerns company size (in terms of number of employees and revenues): except for few big subjects, the size of the studied companies can be classified as middle/small2. This imbalance can hardly be avoided because it is due to the intrinsic major sectoral composition in Lombardia, where the small size plays an important role. If, from the one hand, it is also found in non-respondents and thus it protects against the potential non-response bias, on the other hand it may prevent capture size differences when we will analyze firms characterized by different openness degrees. We must therefore bear in mind that this cannot make next comparisons between companies significant because of the intrinsic nature of the sample. However, this is the typical situation in Lombardia as well as in Italy. As clarified above in the theoretical background, we adopt the partner variety and the phase variety as relevant variables to represent and to investigate the degree of openness. Regarding their operation-

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alization, we used subjective measures based on four-point Likert-type scales (1=strongly disagree; 4 = strongly agree) as given in the Appendix. In order to better specify the partner variety and the phase variety we introduced the variables: intensity of collaboration with partner and intensity of collaboration on phases that make up the innovation funnel (measures also based on the Likert-type scale). The study of correlations between these two variables allowed us to understand which are the most typical combination partner/phase and thus to characterize the innovation process in practice. To study firms’ approaches to open innovation, we firstly carried out a cluster analysis (“complete linkage method”, recommended when researcher wants to identify groups which are distinct from each other as much as possible; Barbaranelli, 2006) based on the partner variety and the phase variety. Secondly, concerning the firm-specific variables, with which we intended to describe the companies belonging to different clusters, we carried out the following procedure. Items of the questionnaire were defined on the basis of scales already used in previous works or coming from partial reworking of such scales (still Likert-type). Anyway, we applied to the gathered data an exploratory factor analysis (principal axis factoring as extraction method and promax rotation in the case of initially unclear solution) in order to delete weakly related items and to understand the factor structure and the measurement quality. An evaluation of the Eigenvalues and the Scree plot were used to identify the number of factors to retain. In addition, all factor loadings were above the acceptance level of 0.50 (Hair et al., 2006; Barbaranelli, 2006; Cheng and Shiu, 2008), thus indicating the unidimensionality of the various factors. These were saved as variables and employed in the subsequent analysis. The factors/ firm-specific variables were the following (see the Appendix for detail):

Firm-Specific Factors and the Degree of Innovation Openness

Objectives of collaborations classified in two factors: 1. aims to extend skills, competences and creativity (three items, inspired by the work of Huang et al., 2009; Cronbach’s α: 0,71); 2. aims to share risks and costs (two items, based on Calantone and Stanko, 2007; Cronbach’s α: 0,84). Approach to innovation: technological aggressiveness with emphasis on radical innovation (five items, inspired by Lichtenthaler and Ernst, 2009, that use suggestion by Brockoff and Pearson, 1992. We re-adapted the scale also on SURVEY TOOL 2.1 basis, a questionnaire sponsored by Industrial Research Institute, Cronbach’s α: 0,71) Organizational and managerial actions for open innovation (five items, scale based on SURVEY TOOL 2.1, Cronbach’s α: 0,85) Some other variables, not presented in Appendix, were measured directly (and eventually transformed in logarithmic scale to improve normality), such as: • • • •

R&D intensity (i.e. percentage of R&D expenses/sales) Revenues (i.e. to operazionalize size) Number of employees (i.e. to operazionalize size) Indicators of company’s performance (ROA – Return On Assets - and ROS – Return On Sales).

As concerns company’s results, also a factor representing innovative performance was defined (five items reported in the Appendix, our scale based on Calantone et al. (2002); Cronbach’s α: 0,82). After all, dummy variables were included for: the type of industry; the existence of organizational unit specifically devoted to support collaboration; the type of organizational structure used by companies for innovation activities (inputoriented, output-oriented, matrix; Chiesa, 2001).

Finally, as concerns data analysis, we applied the one-way variance analysis (i.e. ANOVA), in order to appreciate differences among clusters in terms of scale variables, and Chi-square test to compare the frequency on nominal variables.

RESULTS Figure 2 illustrates the results of cluster analysis based on the partner variety and the phase variety. This has resulted in a solution with four groups of firms. The decision on the number of clusters has been determined by the criterion that suggests of stopping the aggregation process at the stage that precedes the one with the highest increase in the coefficient of agglomeration (Barbaranelli, 2006). In the four-cluster solution, the variance inside clusters is about 21% whereas the variance among clusters is about 72% (F-tests sig.