The Vanguard of New Product Development

ARTICLE 13 ORANGE PAPER

The Vanguard of New Product Development

An Article 13 insight research report October 2004

ARTICLE 13 ORANGE PAPER

Since 1998, we have reviewed, researched and commented on the social, environmental, economic, and ethical trends shaping organisational performance (public and private sector). This research - ‘Article 13 Orange Papers’ - represents our commitment to the dissemination of knowledge and good practice which is critical to the transition to a sustainable society.

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The Vanguard* of New Product Development

“In the future, UK companies will have to compete more and more on the basis of unique and innovative products and services. This will require inspirational leadership, stronger management skills, a highly-trained and motivated workforce, a flexible labour market that promotes diversity and fair treatment, and workplaces that recognise environmental issues and the need for greater resource productivity.”

Competing in the Global Economy: the Innovation Challenge, Department of Trade and Industry, 2003

*Vanguard can be defined as the foremost or leading position in an army and/or a new intellectual trend or movement.

Article 13 (www.article13.com) are specialist advisers on issues of corporate governance and responsibility. We help companies, governments and not for profits meet the growing pressure for better performance, whether it be social, environmental, ethical or economic.

This pressure is based increasingly upon cold, commercial reality. Good governance is no longer optional.

We are innovators. Through our practical work with organisations, our research and networks, we can identify the key issues and emerging trends for business responsibility.

Acknowledgements: Defra’s support through the ‘Taking it On’ consultation is gratefully acknowledged as well as the candid and constructive input from the presenters and participants at two Article 13 workshops on sustainable production and consumption held in 2004.

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Contents Executive Summary 5 Introduction 7 Method 9 Sustainable Consumption and Production - Why It Matters to Business 9 What Business Can Do 13 Products and Sustainability 13 Making the Breakthrough 17 Barriers to Action 17 Ideas from Practitioners – Communicating Sustainability 20 Communicating Sustainability 20 Ideas from Practitioners – The Business Case 21 Ideas from Practitioners – Quick Wins 22 Appendix 1 - Case Studies 23 Case study 1 23 Case Study 2 24 Case Study 3 25 Case Study 4 26 Case Study 5 27 Case Study 6 28 Case Study 7 29 Appendix 2 Sustainable Consumption and Production and the Global Agenda 30 Table 2 - Business-critical world issues Adapted from Business Unusual, Article 13, 2004 31 Appendix 3 Models of Innovation 32 Appendix 4 Market Interventions – the Role of Government and Business 32 Bibliography: 34

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EXECUTIVE SUMMARY ‘The Vanguard of New Product Development’ reveals that less than one fifth of the FTSE-100 companies have explicitly communicated the significance of new product development (NPD) in delivering positive social and environmental benefits for their customers and wider society, and so enhancing the long-term value of their businesses.

Whilst half of the FTSE-100 makes reference to new product development, only one fifth comments on the role of sustainability-focused approaches to NPD, i.e. 40% of all the companies that mention NPD include sustainability as one element of their approach.

The greatest focus on sustainability-focused NPD is identifiable in the retail and food sectors (n-13), where although only half of companies mention NPD, over 60% of those that make such reference also comment on sustainability-related aspects of this innovation.

Yet Article 13’s latest research study highlights that, for the vanguard companies, the introduction of a sustainability perspective to the new product development process can genuinely support a forwardlooking and risk-focused approach to business – an approach designed to reflect and respond to changes in the investment and regulatory environment as well as the expectations of wider society.

Two Views on Sustainable Consumption and Production Changing Patterns: UK Government Framework for Sustainable Consumption and Production, DTI / DEFRA (2003)

Is the Future Yours? Youth Research Project, United Nations Environment Programme (2001)

Building on the WSSD definition, the UK Government defines the core of SCP [Sustainable Consumption and Production] as:

Sustainable consumption is about attempting to find a balance between our rights as free consumers and our responsibility towards others (our children for instance) and the Earth.

Continuous economic and social progress that respects the limits of the Earth’s ecosystems, and meets the needs and aspirations of everyone for a better quality of life, now and for future generations to come…

Given that there are limits to the capacity of the Earth’s ecosystems to absorb pollution and provide natural resources, the only way to maintain economic progress in the long term without approaching these limits is to decouple economic growth from environmental degradation…

In practical terms this means getting more from less.

In practice sustainable consumption could mean: To think: Do I really need the product I am buying? Who made it? Was it produced under the same conditions I would accept for myself?

To prefer appliances, furniture, clothes, shoes, which can easily be repaired.

To move in the city with public transport, a cool bike or roller-blades.

To make careful use of water: for instance, to close the tap when brushing your teeth.

To make careful use of energy: for instance, do you need all the lights and heating on?

To make noise and ask companies governments for more sustainable products policies.

and and

The innovations identified in this document range from modest modifications to products and processes to transformations in the market: Developing efficient production processes – lowering cost through reduced consumption of raw materials and energy; Modifying existing products and services – building a niche customer base with products that have a more positive impact on society and the environment;

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Transforming the product offering – generating new market space through product innovations with positive sustainability impact.

In each of these cases, a sustainability perspective has been incorporated in the heart of the new product development process – from the generation of the idea to concept development and commercialisation. And in order to succeed, the cases show that sustainability should not be the sole preserve of the specialist, with companies paying close attention to clarifying the commercial and community benefits of a sustainability perspective across the entire organisation.

No one should be misled; the barriers to change – and the creation of competitive advantage - remain profound. Customers are largely unwilling to shell out for sustainability, and are often sceptical of the companies that claim to be doing so. And, whilst the gut instinct of many managers acknowledges consumer interest in social and environmental issues (and hence the potential for a business The Business Opportunity: Sustainable consumption…sustainable production…the terms have become a common currency for government and sustainability practitioners, joining the jargon of social responsibility, stakeholders, social capital and sustainable development.

But what, if anything, do they mean to business? Do customers really care about sustainability: will they switch brand loyalties (or even pay more) for products that benefit the environment or poorer communities.

If customers aren’t concerned, perhaps sustainable production will become a pointless phrase – an imprecation from the government (or perhaps the corporate board) that is irrelevant to the day-to-day pressures on managers to create, market and sell viable products and services?

Yet if customers do care (or if they might care in the future), could there be an opportunity for business to innovate in their production processes and product offerings?

Could sustainability-focused new product development become a major source of competitive advantage?

opportunity), they must work within a commercial environment that remains unconvinced and does not always reward the innovator: the sustainability leader takes a double risk - the inevitable challenge of breaking new ground is combined with an approach that is at odds (or appears to be) with the traditional expectations of business and the mainstream ‘MBA-competencies’ of the professional manager.

Through the voices and opinions of those who are grappling with these challenges, The Vanguard of New Product Development identifies the varied approaches to creating long-term business and societal value from product and service innovation. In doing so, the report highlights the potential for others to transform the value proposition of their business, and so to create the next wave of innovation.

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INTRODUCTION The topic of sustainable consumption and production is becoming a regular feature of global policy discussions. Yet if the debate has caught attention internationally, most people – in business and government, and acting as private citizens – are unsure how to proceed.

Article 13’s research, through its report Business Unusual (Article 13, 2004) and further consultation with its networks, suggests that: Business managers are struggling to realise the commercial opportunities of sustainability, uncertain of their capacity to enhance the quality of life in the societies in which they operate; Governments are grappling with the alternative instruments to influence business and consumer behaviour, whilst considering how to improve the impacts of their own procurement decisions; Customers appear to be unwilling to pay for sustainability, yet a majority clearly state their preference to purchase and consume more ethically.

The Vanguard of New Product Development does not provide any easy answers to these complex challenges. Instead, it lays out the state of current thinking, drawing in particular on the opinions expressed during a major consultation facilitated by Article 13 as part of the UK government’s review of its sustainable development strategy, the report seeks to help business managers in four inter-linked ways: Illustrating the changing expectations of government, investors and customers; Demonstrating the diverse approaches to sustainability-focused new product development; Clarifying the organisational barriers to more effective sustainability-focused new product development approaches; Providing leading-edge case examples from UK and international businesses to demonstrate the variety of routes into the subject and subsequent practical ways that this vanguard is making their approach to sustainability focused new product development a reality.

Capturing the Potential of Sustainable Consumption and Production

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…an understanding of how to build sustainable development into mainstream business thinking… …parallels from the different case studies regarding the leadership capabilities to drive the new product development agenda… …approaches, concerns and priorities regarding sustainable production… …new ways to integrate sustainability into products and services… …what sustainable consumption means for business…

‘What you’d like to get out of today?’ - sample responses from a Defra consultation on sustainable consumption and production, facilitated by Article 13 in July 2004.

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METHOD Desk review of the literature on sustainable consumption and production, innovation and new product development.

Detailed analysis of the annual reports and CSR websites of the FTSE-100 companies, to identify examples of new product development and the role of sustainability issues in contributing to this process.

Review of websites that explicitly identify a link between sustainability and new product development.

Cross sector workshop with 12 key thinkers and practitioners in sustainable development in April 2004. This meeting used interactive technology and innovative visual techniques to consider the concept and reality of sustainability-focused new product development.

Workshop with over 50 people from business, government and NGOs in July 2004 on sustainable consumption and production. The event was facilitated by Article 13 as part of the government’s consultation on the UK sustainable development strategy, Taking it On. As with the earlier workshop, visual minutes and interactive technology were used to encourage the involvement of all participants as well as capture the diversity of their views.

Desk research and interviews to develop seven case studies of sustainability-focused new product development.

SUSTAINABLE CONSUMPTION AND PRODUCTION - WHY IT MATTERS TO BUSINESS Changing Expectations – Investors, Government and Opinion Formers Sustainable consumption and production is - by its name - concerned with the social, environmental and economic impacts of products and services throughout their life-time. As the UK Government report, Changing Patterns (DTI/Defra 2003), explained, SCP requires “taking a holistic approach that considers whole life-cycles of products and services…” – from production to marketing and transportation, to product-use and disposal.

This product lifecycle perspective is a central interest of many of business’ stakeholders – from investors, to government and regulators to key opinion formers in society. A few examples illustrate the point: The Disclosure Guidelines of the Association of British Insurers (ABI) highlight the interest of investors in receiving adequate information on the social, ethical and environmental performance of business. The Disclosure Guidelines, first introduced in 2002, propose that companies report on corporate structures and systems for the

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Disclosing Performance The reporting of information on social and environmental commitments, policies and performance is becoming a standard element of communication amongst Britain’s largest companies.

These disclosures typically emphasise that corporate responsibility is a strategic business issue, and not merely a philanthropic or a frivolous public relations gesture.

ABI’s analysis from 2003 in its report, Risk, Returns and Responsibility, suggests that 23% of the FTSE-100 made ‘full disclosure’ against its guidelines, whilst another 57% made ‘ moderate disclosure’ and 20% ‘some disclosure’; amongst the FTSE-250, the respective percentages were 2%, 46% and 41%, with another 11% making ‘no disclosure’.

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management of social, ethical and environmental risk, with a particular focus on board responsibilities. In 2004, Henderson Global Investors confirmed their intention to incorporate social, ethical and environmental factors into their voting policy for company AGMs, using performance against the ABI guidelines as an objective benchmark.

A broader range of stakeholders have been involved in the development of other leading guidelines for reporting and assurance, such as the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines (2002). The GRI Guidelines, which outline a set of recommended reporting principles and indicators, include product indicators relating to the “significant environmental impacts of principal products and services”, as well as measures for product responsibility issues, including customer health and safety, product information and labeling, advertising and the respect for privacy.

The nature of sustainability reporting is being shifted by regulation as well as best practice.

The Government has published draft regulations for consultation on the Operating and Financial Review (OFR) and the Directors' Report (2004), for example, which, if implemented, will require all UK quoted companies to produce an Operating and Financial Review (OFR), including information to the extent necessary on “a) the employees of the company and its subsidiary undertakings; b) environmental matters; and c) social and community issues”. The review was based on the belief that “a successful company is one whose directors look at long-term as well as short-term issues and who take all the factors affecting the company’s relationships into account.”

But the emergence of guidelines and rules don’t mean that debate is over – either on what sustainable consumption and production means, or what business could or should do about it.

Two-thirds of the participants attending the Article 13-developed and facilitated meeting, hosted by the Department of the Environment, Food and Rural Affairs (Defra) in 2004 as part of its consultation on the UK’s Sustainable Development Strategy, declared that they were participating to gain a better understanding of the debate and to gather new ideas; in contrast, only one sixth of attendees stated their primary purpose was to contribute to the consultation, and another sixth to meet other people.

The complexity is heightened by the diversity of approaches in various sectors. The diagram below – from a group at the workshop considering the food industry – illustrates just one stream of thinking on potential paths to sustainable production.

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Society’s expectations of business are therefore changing; but is this having an impact on the products that customers are purchasing? Given that business must provide products and services that consumers will purchase at a profitable rate, does the demand exist for products (or brands or companies) in which sustainability considerations form part of their core characteristics?

Changing Expectations – Consumers Advocates for sustainable development regularly trumpet the growing level of consumer interest in social and environmental issues. But most marketers hearing this data will only raise an eyebrow: the professionals see remarkably little evidence that such consumer aspirations or statements of personal concern are reliably translated into purchasing behaviour.

But why aren’t people’s concerns, often deeply felt, being translated into demand for more sustainable production processes; and why, perhaps more challengingly for business, are these concerns not influencing high overall levels of consumption in the world’s developed economies?

The evidence from the Defra workshop points to a number of critical factors. In some cases, the unwillingness to purchase ‘sustainable’ products is due to flaws (whether actual or perceived) in the product quality; the sustainability brand is a problem rather than a solution, as one participant remarked: “Recycled has an old stigma attached to it…virgin products are seen as clean, bright and attractive; recycled products are viewed as old and battered.”

In other cases, people are reluctant to pay a sustainability-premium; sustainability, at best, is a tie-breaker when people are happy with the core functionality and price of the product. As

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Mike Longhurst, Senior Vice-President of McCann-Erickson, argued at another major policy dialogue on sustainable consumption (2004), hosted by the UN Global Compact: “It is price, performance, prestige, design and emotional reasons that lead the consumer to a purchasing decision.”

Other people emphasise the supply-side of the consumption-decision: on this view, consumers might shift to a more sustainable product-choice, but are hindered by a lack of appropriate products, or information about these products. The environmental NGO, the Worldwatch Institute, argues, for example: “Today’s global economy has a tendency to insulate consumers from the various negative impacts of their purchases by stretching the distance between different phases of a product’s lifecycle.”

One solution widely touted to address the lack of information is to encourage product certification to sustainability standards. As two participants at the Defra seminar declared: “Create a charter / code of practice by which companies would be judged on the way they conduct their business – incorporating rewards such as tax advantages for those that comply. This would differentiate those companies that adopted good practice and create competitive advantage.”

“Government must encourage the development of a green industry standard.”

Another ‘supply-side’ argument identifies the weakness in consumer demand for sustainable products in the dominant market power of leading companies; on this view, the smaller companies – that have taken an ‘ethical’ stance – cannot influence the wider market: “The skills of advertisers must be used to support more sustainable product choices. When you compare the advertising budgets and the slickness of adverts for soap powder, etc, from massive FMCG companies, is it any wonder that brands such as Ecover are not more mainstream?”

According to this argument, the responsibility lies with the leading companies to change the market: “Lead by example. If leading household names are seen to be taking the issue seriously, it will be easier to convince other consumers to follow. Make sustainable consumption an option that consumers don’t need to think about.”

Whether or not this critique of big business is accepted, it is clear that consumers will not deliver change alone. As one participant recorded in the Defra seminar, “It is hard to put a business case forward as long as it is driven by economics – it requires a change in culture by both the producer and consumer – or some form of legislation?”

Changing Consumer Attitudes – Encouragement or Shame For some, the key issue of sustainable consumption is not which products are used – whether more or less environmentally-friendly – but the overall level of consumption. From this perspective, a participant at the Defra workshop argued: “We need to find a mechanism where the public feel shamed for over-consumerism.”

Yet many reject this approach. E.g., Klaus Toepfer, Executive Director of UNEP, has argued: “Messages from governments, exhorting people to drive their cars less or admonishing them for buying products that cause environmental damage, appear not to be working. People are simply not listening.

Making people feel guilty about their life-styles and purchasing habits, is achieving only limited success.”

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WHAT BUSINESS CAN DO The Power of New Product Development NPD has long been recognised as a critical element in business growth and competitiveness, representing around 35% of firms’ overall annual revenues (Griffin, 1997). Situated at the start of a company’s value chain, NPD makes a critical contribution to the overall impacts of a business’s activities throughout a product or service’s lifecycle.

NPD can therefore represent a critical point of leverage in the delivery of value to a variety of stakeholders – a means to generate competitive advantage through cost efficient process, but also by pre-empting regulatory pressures, creating product differentiation, and via the creation and reinforcement of brand value.

Products and Sustainability The European Commission has highlighted the following characteristics of products to explain the significance of their contribution to sustainability: “their overall quantity is increasing. the variety of products and services is increasing. innovation constantly creates new types of products. products are traded globally. products are becoming more complex. the product can be designed perfectly, but inappropriate use and disposal will cause significant environmental impacts.

The Defra seminar – supplemented by further products now involve a greater variety Article 13 research (see method, page 10) of actors throughout their lifecycle.” highlighted a range of cases, which appear to fit into one (or more) of three main categories of innovation identified by Article 13 during this research: Production approaches that reduce resource and energy requirements, e.g. manufacturing industries using recycled components or lower levels of resources; Marketing and distribution approaches that reduce the requirements for packaging and / or product materials; Social and environmentally focused niche consumer products, e.g. organic foods, fair trade products, etc.

These examples can also be mapped to a ‘ladder’ of activity, which illustrates how embedded the innovations are in the ongoing work of the business (see Figure 1). This ‘ladder’ indicates the nature of the innovation, but is not intended to indicate the overall sustainability impact of the innovation; nor does it account for the other activities conducted by each of the case study companies, and the contribution these make to the companies’ overall social, environmental and economic performance. (Appendix Four builds on classic management theories to illustrate another approach to assessing the sustainability-focused new product innovations.)

Table 1 - Examples of Sustainability-Focused New ‘Products’ or ‘Services’ Identified by participants in the Defra workshop, in answer to the question ‘Please identify examples of best practice sustainability focused new product development’.

Hand wound clockwork appliances Vertical axis wind generators

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NPD Category (see page 15 ) Niche Consumer Production & Niche

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Identified by participants in the Defra workshop, in answer to the question ‘Please identify examples of best practice sustainability focused new product development’.

Building techniques that utilise body and solar heat Recycled glass as a filtration mechanism – replacing sand Using recycled glass in brick manufacture – can produce a stronger brick, and the brick can be fired at a lower temperature Industrial symbiosis. Recycled glass aggregate for roads Making pencils out of plastic cups Fair trade products – coffee and chocolate Digital music downloads from the Internet Farmers’ markets Lightweight soft drinks containers made from aluminium, which is recyclable Nettle-based textiles BedZED Sustainable timber products – B&Q (see case study page 27) Recycled fuel ash products – ScotAsh (see case study page 28) Recycling programme - London Remade (see case study page 31) Knowledge management technology to enhance packaging solutions – Boots (see case study page 26) Lifecycle analysis of EHS risks – 3M (see case study page 29) CSR Health Checks highlight product risks and opportunities - BT (see case study page 32) Fuel – BP Ultimate performance fuel (see case study page 30)

Core product range Product development processes

Specific product opportunities

New ventures or business units

NPD Category (see page 15 ) Consumer Niche Consumer Production Production & Niche Consumer Production Production & Niche Consumer Niche Consumer Distribution Distribution & Niche Consumer Production & Niche Consumer Niche Consumer Production Production & Niche Consumer Production & Niche Consumer Production Production Production Production & Distribution Production & Niche Consumer

•London Remade – strategic partnership to increase the markets for recycled products, and develop an entrepreneurial recycling supply chain.

•BT – CSR Health Checks help to identify sustainability risks and opportunities across the business units, informing short-term product opportunities and long-term innovation •3M – EHS lifecycle analysis across product range.

•Boots – developing a knowledge management technology to enhance the sustainability of packaging across all new products.

•B&Q – sourcing and marketing sustainability-focused products, e.g. sustainably sourced timber.

•BP – BP Ultimate performance fuel, with improved efficiency and reduced emissions.

•ScotAsh – Lafarge and Scottish Power creating a joint venture to market and re-use the waste products from Scottish Power’s power stations.

Pilot initiatives

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Figure 1 – An initial map of the Innovations identified from the Table 1 (Note the ladder serves to demonstrate different approaches not that one rung is ‘better’ than another) The Breadth of Innovation By exploring this mix of initiatives, it becomes clear that the potential for sustainability-focused NPD is not constrained to any one sector, product or service. This finding was originally identified with the initial feedback from our first cross-sector workshop in spring 2004, which asked a dozen experts which sectors faced the greatest opportunities and risks from sustainability-focused new product development. Responding independently, the experts identified the following: food producers and retailers; utilities; energy and mining; automotive; construction; chemicals; tourism; information technology; and all those with significant social and environmental impacts directly and through their supply chains. This list does not sharply narrow down the range of industries, but it does highlight the features of some of the most promising sectors for sustainability-focused innovation, for example, where: The production process has a major environmental impact, e.g. energy, mining, food, utilities, chemicals, construction, tourism, automotive.

The production process involves a supply chain in less developed countries, energy, mining, food, tourism.

The application/consumption of the products and services involves major environmental and social impacts, e.g. automotive.

The consumption of the products are critical to the health and security of people, in particular the poorest people, e.g. food, pharmaceuticals.

The sector is not yet mature and offers major potential for innovation, e.g. IT. The products are closely connected with the production processes and product-use in other critical sectors, e.g. automotive, IT. Moving Forward The potential for social and environmental benefit from business innovation is therefore apparent; and the array of examples highlighted in corporate communications such as any web search of sustainability reports as well as the Article 13 workshops suggests that there may be compelling economic arguments for these innovations.

Yet these examples can appear peripheral to the mainstream of business activity – fringe activities that represent an unlikely source of competitive advantage. The optimistic hopes of efficiency savings from recycling and the emergence of a stronger ethical consumerism do not yet appear to be convincing the average strategist, marketer or product developer: the size of the market for sustainability-focused products is not yet certain and the costs of change have not been adequately defined.

It is perhaps, therefore, no surprise that our survey of the FTSE-100 companies demonstrates that few of the UK’s largest companies are making a public link between their sustainability commitments and the potential contribution of new product development to improve their social, environmental and economic performance.

Fifty per cent of the FTSE-100 identifies (in the companies’ annual reports, sustainability reports or websites) how new product development processes contribute to business success (see Figure 2 below). Unsurprisingly, examples are most frequent in service-related sectors, including telecommunications, financial services and retail (see for example case studies,

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page 26 on). A significant proportion of pharmaceutical and other health companies refer to their NPD processes, but examples from other manufacturing and primary sector companies are less common.

100% 90% 80% 70% No mention of NPD

60% 50% 40% 30%

NPD mentioned

20% 10%

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Figure 2 - References to New Product Development in FTSE-100 Disclosures However, whilst half of the FTSE-100 makes reference to new product development, only one fifth comment on the role of sustainability-focused approaches to NPD, i.e. 40% of all the companies that mention NPD include sustainability as one element of their approach (see Figure 3 below).

The greatest focus on sustainability-focused NPD is identifiable in the retail and food sectors, where although only 50% of companies mention NPD, over 60% of those that make such reference also comment on sustainability-related aspects of this innovation.

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100% 90% 80%

No mention of NPD

70% 60% 50% NPD mentioned (but not sustainability)

40% 30% 20%

SustainabilityFocused NPD mentioned

10%

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Figure 3 - References to New Product Development and Sustainability-Focused New Product Development in FTSE-100 Disclosures The data demonstrates that whilst many companies recognise (and advocate) sustainability as a core aspect of corporate strategy, it has not yet deeply influenced the product development process.

How then can more companies capture the benefits from sustainability-focused new product development? What are the barriers to action, and how can the breakthrough be made?

MAKING THE BREAKTHROUGH Barriers to Action Failure rates for new product development are frighteningly high, averaging at 40% (Griffin 1997). Does sustainability-focused new product development face a similar (or more extensive) challenge, or can a sustainability focus reduce the failure rate? The traditional challenges to product innovation appear equally relevant in the case of sustainability-focused NPD – from the requirement for excellent research to understand the product need, to an effective decision-making process that challenges the product at each stage of its development. A sustainability focus undoubtedly adds further complexity. Five key barriers are illustrated in Figure 4 below, each has the potential to influence the product development process (adapted from the classic Booz, Allen Hamilton model outlined in Wilson & Gilligan with Pearson 1992).

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Statement of the new product development strategy

Idea generation

1. Awareness

2. Scepticism Initial screening

Concept development and testing

Development of the marketing strategy

4. Cost

Business analysis

Product development

3. Competencies

5. Organisational Culture

Market testing

Commercialization

Figure 4 – Barriers in Culture to a Sustainability Focus in the New Product Development Process Employee and customer awareness and knowledge of sustainability issues; Scepticism concerning the relevance of sustainability to individuals’ day-to-day jobs and the business case for sustainability-focused innovations; Sustainable development competencies, including technical, organizational and people skills; Cost implications, including short-term set-up costs and ongoing expenditure; Cultural aspects, including teamwork and participative approaches to product development.

Overcoming the Barriers How, then, can these barriers be addressed? The participants in the Defra seminar emphasized the potential role that government could play – in educating consumers as well as businesses, and in providing incentives for more sustainable production (see Appendix Four).

Turning to the role of business, a review of the success stories of sustainability-focused new product development suggests two factors are paramount: Making it systematic – make sure sustainability isn’t just an after-thought; ensure that a sustainability perspective lies at the heart of the new product development process; and to support this process.

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Communicating and learning – ensure that sustainability isn’t the sole preserve of the specialist; build awareness and understanding of the potential of sustainability-focused new product development throughout the organisation.

This, of course, is easier said than done. And so we conclude The Vanguard of New product Development with more advice from the participants in the workshop: ideas on three key issues that will be critical in building and communicating a systematic approach to sustainability-focused new product development: Communicating the term sustainability (see Ideas from Practitioners, pg 23); Making the business case for sustainability-focused new product development (see Ideas from Practitioners, page 24); Creating the quick-wins that can build momentum for a sustainability-focused approach (see Ideas from Practitioners, page 25).

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IDEAS FROM PRACTITIONERS – COMMUNICATING SUSTAINABILITY Communicating Sustainability Products that have sustainability as a criteria in their development.

Creating a market opportunity out of enabling people to have more fun whilst using less stuff.

Product development that considers the world's bottom line as well as the business' bottom line, reflecting the full lifecycle cost to this and future generations.

NPD that enables profitability, and responsible consumerism by the company and consumers.

Developing new products which will give our organisation a different (better) return - a different route to get to a different place!

Innovative development that looks beyond the immediate perceived demands of consumers by developing new concepts that are sustainable longer term but may not be apparent now.

Thinking holistically about the idea, the need, the resources required and what will happen to the materials in the end.

A process of defining sustainable design based on efficient resource use and socially beneficial.

An approach to new product development that does not imply the irreversible consumption of scarce resources and which threatens no damage to the environment or the community, either by the product's man manufacture or use.

By trying to explain with the help of a example of a product that is sustainable and considers the opportunity to develop a healthy product.

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IDEAS FROM PRACTITIONERS – THE BUSINESS CASE The Business Case Risk reduction: Future proofing our business by acting now to reduce emerging risks / costs.

Essential to longer term survival of business ... Essential to competitive position in the marketplace ... Essential to longer term survival of society (and hence of business).

Any business that doesn't embrace sustainable development is cutting off the branch it's sitting on.

Volume: More people using our products / services i.e. an increase in volume.

More people being able to be champions and advocates for our service/product - because they've been involved in developing it, and it delivers real benefits for them.

It’s a growth market: where the 10% are now the 90% will follow. In many countries there is a business opportunity in helping people to leapfrog straight over polluting and wasteful technologies, you can show investors that you are reducing risk (e.g.) from rising energy prices or green taxes.

Competitive edge: New market opportunity, move before compliance makes you, competitive edge.

New markets: People are increasingly aware and motivated to buy, your successful competitors already do it, tomorrow's shareholders will demand it.

People are interested to try the new product, it has created opportunity for new groups.

Market position - longer term future for product if sustainability is built in.

Complicated, I think we need to split issues, marketing, company responsibility and consumer wants and needs.

Smart economics and socially responsible development.

Market leader & vision.

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IDEAS FROM PRACTITIONERS – QUICK WINS

Quick Wins Article 13 asked a dozen experts attending its first cross-sector workshop for one line on what they identified to be the quick-wins for sustainability-focused NPD: Leadership required I would like to see a group of advertising agencies who have set themselves up as a CSR forum changing the ball game on how they communicate aspirations in the automotive industry and IT area of a different type of consumerism, maybe linked to quality and not to high turnover.

Challenge, challenge, challenge ... Become the voice in the wilderness that draws attention to the longer-term threats AND opportunities.

It is a challenge and there are no quick wins. Perhaps research and serious thinking will be required at all times. It requires flexibility and the ability to think non-conventionally and beyond profit.

Moral high ground (limited appeal); cost advantage if resource/energy requirements reduced; become market leaders rather than followers.

No quick wins, as action is required on all fronts....some things like government policy will take time to implement...wins will come from entrepreneurs and risk takers.

Yes, based on the more rigorous environmental audit and evaluation of the design concept.

Incentives required Incentivising manufacturers through tax breaks to build a sustainability factor into their R&D programme - e.g. getting Ford to address alternatives to the car.

Places to start Identifying the markets where sustainability focused NPD can make a marked shift in consumer behaviour.

Sustainable homes - homes are close to everyone's heart, sustainable ones are cheaper to run, better for the planet and more trendy: hook up a cheaper green mortgage and you're away. Make sustainable homes a must-have life-style accessory for conspicuous consumers 'you DON'T have solar panels - how quaint.’ Using IT to address the barriers preventing sustainable development in specific sectors.

Small changes to existing products to make them more sustainable, e.g. biodegradable packaging, fair trade components, renewable energy in production.

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APPENDIX 1 - CASE STUDIES (Refer also to page 16)

CASE STUDY 1 Boots Boots is a leading UK retailer, selling health and beauty products as Boots the Chemists, as well as own-brand products internationally, through Boots Retail International.

From its foundation in 1849, Boots has always believed in and practiced what is today known as Corporate Social Responsibility. The company is proud of this heritage and its “strong sense of social responsibility…. Today it is reflected in our values and behaviours and made explicit in our statement of business purpose. We seek to respond to the legitimate concerns of our stakeholders - whether they be in the marketplace, the workplace, the communities in which we operate or the environment that affects us all."

The company has recently developed a new approach to integrating technology and sustainability issues into product and packaging development. Known as Product Bank, the process is ordered in four stages: First phase; Technology Research - covers the generation of ideas to prove the principle behind a new solution; Second phase – Technology Development – the marketability of the idea is addressed; Third phase – Product Bank – covers the manufacturability of the idea; Fourth phase – NPD – the idea is developed into the retail product.

Sustainability issues are addressed at each stage of the process. However, the development of Product Bank, a knowledge management system, is of particular significance in enhancing the social, environmental and economic performance of Boots’ new product development processes. The Bank has three key functions for Boots: i) Ensuring that products meet the company’s core quality standards; ii) Acting as a gateway for sustainable innovation; iii) Helping to replicate innovations in other related product offerings.

As the company states, “Product Bank is providing an interface between CSR recommendations and the Packaging teams to develop a true Boots understanding. In addition, new material types that are developed to be ‘friendly to the environment’ will be reviewed and developed where required.”

The investment is predicated on the belief that sustainability can act as a key driver for innovation within the business – helping to influence the creativity of new products, as well as the way the products are packaged and distributed.

To date, the key benefits have come from a reduction in the amount of packaging used by the business and an increase in the recyclable content. An example of this was the redesign of the packaging for the Medisure monitored dosage system for tablets. This yielded a material reduction of up to 35%, saving around 34 tonnes of packaging material per year. These ambitions tie in with Boots’ environmental policy to make the best use of resources, and also directly support Boots’ communication of its key performance indicators, which cover energy, transport, carbon dioxide and global warming, waste, packaging, and water.

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CASE STUDY 2 B&Q B&Q is a home improvement retailer, selling through large warehouses and smaller superstores. It states that its social responsibility programme is designed “to reflect our purpose and values, by being a 'better neighbour' to, and by improving the quality of life of all the people our business touches. That includes the people who work for us, the people making our products, their families, the people living near our stores, our customers and even our investors. It is our belief that by understanding and managing our social, economic and environmental impacts, we will become a stronger, more efficient business whose stores are welcomed in communities across the world.”

Hilary Thompson, Social Responsibility Manager at B&Q, presented at the Article 13 event for Defra on sustainable consumption and production and then answered the audience’s questions: “What can you do about products that customers don’t want, to get them to want them?

You have to first offer a better alternative, then help them understand why they should buy it. But B&Q can’t do this alone.”

“What is the evidence that staying with a product to influence the market is more effective than boycotting?

We stay with tropical hardwood for our garden furniture because we believe through working with Tropical Forest Trust we are actually helping to improve forests in Asia. Many companies are boycotting Indonesian wood, but how does that help the Indonesian forester?

We have also been asked to drop paint stripper containing dichloromethane. But by offering the alternatives, which are DMN free we are switching customers at the point of sale. Better to be ‘at the party ‘influencing than outside..”

“Why are B&Q following a sustainable agenda when their customers seem to be more concerned about price?

Because we want to be a responsible and sustainable company – we want to answer the needs of all our stakeholders, and investors can be key here. We believe we are a few years ahead of our customers in answering these needs; but when they do switch on to this issue, and they eventually will, we will be in a good place and have the right product.”

“You can have a big influence on customers’ attitudes, so why don’t you tell them more about environmental issues?

We are trying – we did a lot this season in store regarding sustainable timber, but it is worth noting that when we asked customers where they wanted us to talk about environmental and ethical issues they said ‘on product’. They do not want us to use billboards or general ads; they want to see anything like this close to the point of purchase, to assist them with their buying decision.”

“Does B&Q think that sustainable consumption is about buying more stuff from your stores but less stuff overall? Or is it just about more consumption of better products?

That’s the $64,000 question! In the long term, it’s about buying better products and so we have to offer better products.

Our concern is that to the layman this argument seems to be about selling less and having less and that the developing world can’t have what the developed world have already got. It’s a tricky one to communicate and it isn’t being well communicated at present.”

“Who has the final say before you put a product on the market? Do they listen to the sustainability argument?

The business. But we have a number of buying standards that ‘assist’ the decision making process. We have timber buying standards that require them to only buy FSC timber; we have a peat policy that requires a move away from peat alternatives; we have a paint policy that requires a move to lower VOC content in all our paint, etc., etc.”

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CASE STUDY 3 ScotAsh ScotAsh is a 50-50 joint venture between Scottish Power and Lafarge Cement UK, selling ash from coal fired power stations directly to the construction industry – to be used in cement, grout and lightweight aggregates - or as part of value-added building products.

Running since 1999, ScotAsh is a creative commercial initiative, delivering value to both its parents. Scottish Power had earlier created an embryonic business selling low quality ash from its two power stations in Scotland, thus reducing the requirement to pay landfill tax on disposal. Despite, the relatively low quality of its product, Scottish Power had made some inroads into LaFarge’s cement sales from its Dunbar site.

With an investment of £4m from each party, the new business was able to invest in new facilities that could produce a lower carbon content – and more valuable - ash. On the basis of ScotAsh’s £7.5 turnover in 2003/04, the company estimates that Scottish Power saved almost £1m on its landfill tax payments, having recycled 80% of its entire ash output.

Alongside the commercial opportunity, the new products delivered environmental benefits by closing the loop of raw material usage. By using the high quality ash in its products, Lafarge reduced CO2 emissions in the production of cement at the Dunbar site: in 2003, ScotAsh estimates there was a reduction in the use of 40,000 tonnes of CO2 by utilising the ash in cement products. Other environmental gains include the potential re-use of the low-grade ash as a fuel at the power station, and the use of the high-grade ash cement product in the foundations for Scottish Power’s wind farms in Scotland. In addition, half a million tonnes of virgin aggregate were saved by using ash and ash products in the recently constructed Kincardine Bypass. Information on the environmental performance of the company has been utilised by both Lafarge and Scottish Power in the environmental reporting, including EMAS statements.

The quality of the product can also generate environmental benefits through various of its applications. The idea of sustainable roads technology, for example, has been developed through partnership with Edinburgh City Council. By combining ScotAsh’s pulverised fuel ash (PFA ) product with the materials removed in creating a trench, a construction team can avoid the use of a complete set of new materials in filling the trench.

Building on the new product innovation, ScotAsh has invested in new ways to market and apply its products, which have the potential to generate financial savings for its customers, as well as delivering social benefits. ScotAsh estimates that the local authorities spend £1m annually on claims for personal injury on roads. The company has invested in research at Heriot-Watt University to understand the strength requirements of stone in diverse circumstances, e.g. under heavy articulated lorries in city centres. The ash product can then be used appropriately – as part of a performance-based system of stone, mortar and grout– to provide a clean, secure and long-lasting paving product.

The primary strength of the ScotAsh opportunity was its ability to create an immediate cash-generating financial opportunity for both parties; however, both companies had strong environmental credentials and could also see the opportunity from realising and promoting the environmental benefits of the new products that would become available.

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CASE STUDY 4 3M For 100 years, 3M’s success has come from developing innovative technologies and products to meet customers’ needs. 3M continues to affirm its commitment to sustainable development, an approach most notable in its voluntary adoption of a Pollution Prevention Pays (3P) programme in 1975, based on the idea that pollution prevention is an effective environmental and commercial strategy.

Its current sustainability policies and practices are directly linked to its corporate values: Satisfying our customers with superior quality and value; Providing investors an attractive return through sustained, high-quality growth; Respecting our social and physical environment; Being a company that employees are proud to be part of.

Roy Stubbs, Product Responsibility Specialist at 3M UK presented at the Article 13 event for Defra on sustainable consumption and production and then answered the audience’s questions: “Is the driver sustainability, or do you develop and then look for ‘green’ selling points?

Generally we start by considering the product's intended use and then look for risks or factors that might hamper the sale. We also look for ways in which we can improve or modify the product, from a sustainability point of view, that might help marketing position the product as superior to the competition. We also apply innovative thinking to identify potential opportunities where new product development may bring mutual benefits. In many cases, we are identifying possible ways for customers to provide improvement for their processes or their customers.”

“Are environmental / sustainability objectives included within 3M’s overall business strategy? Are executive bonuses linked to sustainability impact measures in addition to financial measures?

Yes, through training and education at all levels of the organisation, it is made clear that our corporate policies – including those relating to sustainability - are to be used to guide and inform business strategy. Our performance on sustainability issues is monitored rigorously by our shareholders and by investment analysts, and that will be ultimately reflected in our share price, which then is reflected in our senior management's reward and remuneration.

Another bellwether is our performance in the Dow Jones Sustainability Index.”

“Innovation is great – what can be shared without losing competitive advantage so that all producers share best practice?

Mmmhhh! Difficult one this. It depends on the specific circumstance; but patents are one way to help in this.

Appropriate industry standards may be another way to raise overall standards and then leave businesses to elect their most appropriate strategy to go beyond mere compliance.”

“Do you make any assessment of the cost of moving to a new, greener product vs. possible clean-up costs if a dirtier product was used?

LCM is not only about ‘green’; all environmental, health and safety aspects are included. Cost will also come in there as part of the risk assessment, but it is rarely invoked as a reason not to do something which improves the potential environmental impact of a product and never in my experience. It also depends what is regarded as ‘dirty’.”

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CASE STUDY 5 BP BP is one of the world’s leading energy businesses; it serves the consumer market – with domestic and vehicle fuels – as well as the commercial market – with fuels for aviation, marine & automotive transportation, gas & power, lubricants, petrochemicals, bitumen, and solar & other renewable energies.

Innovation is a core value of the business, an approach that runs throughout the company from the top of the organisation. But innovation cannot happen alone, and BP emphasises the importance of working closely with third parties to mutually understand and develop solutions to emerging customer needs.

Sustainability is also a critical issue for BP, witnesssed in a wide variety of social and environmental monitoring and reporting initiatives. The challenge of climate change and the peaking of fossil fuel supplies have critical implications for the consumption of the company’s core fuel products; and the company’s extractive activities can have significant impacts on local environments as well as the communities in the vicinity of pipelines and other facilities.

With a wide-ranging product portfolio, the impact of sustainability issues on BP’s new product development process is quite diverse. The solar and wind businesses mark one clear, but small scale, approach to changing the company’s business mix. Another example – and this time a core product – is BP Ultimate, the company’s latest fuel product, which is marketed as “the performance fuel that isn’t just for sports cars.”

BP Ultimate, which is provided in diesel and unleaded versions, delivers “improved efficiency and a cleaner engine as [the fuels] clean valves and fuel injectors sprays. By doing this it results in fewer harmful emissions.” Thus, while the company’s literature acknowledges the environmental credentials of the product (also see the Q&A below), the marketing emphasis is on fuel performance, taking a ‘quality’ positioning similarly adopted by Shell’s Optimax fuel.

This careful balancing act highlights one of the most significant challenges for BP: how to handle the pace of change, satisfying customers’ current requirements, whilst simultaneously encouraging a shift to a more sustainable set of fuel products. The example clearly demonstrates how sustainability-focused new product development must encompass the complete development process from design through to commercialisation, as well as address the short- and the long-term requirements of customers and the company.

Q. More performance, less pollution - surely you can't have it both ways?

A. With BP Ultimate you can. BP Ultimate burns more efficiently and cleans your engine as you drive to deliver sharper acceleration and improved responsiveness while producing less harmful emissions. You should expect a cleaner engine to last longer. And BP Ultimate gives you a significantly cleaner engine than regular fuels. Plus you get more mpg.

Source: www.bp.com

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CASE STUDY 6 London Remade London Remade is a strategic partnership between the business sector, London Boroughs, regional government, waste management companies and the not-for profit sector.

It manages an innovative programme, which aims to increase the markets for recycled products, and develop an entrepreneurial recycling supply chain.

Tina Perfrement, Market Development Manager at London Remade, presented at the Article 13 event for Defra on sustainable consumption and production and then answered the audience’s questions: “Any problems being encountered with recalcitrants?

Yes! There are quite a few sceptics. The main issue is to find markets for all that material that we diligently recycle rather than creating mountains of waste/resources which are not used. Life Cycle Assessments are recognised in the industry; unfortunately, due to the lengthy process and expense involved there has been some hesitation to use them.”

“What is the evidence of research into what consumers are willing to buy and how much they are willing to pay?

Extensive research was conducted in the development of the Mayor of London’s Green Procurement Code, which found that buying recycled had to be cheaper or match existing prices, products needed to be fit for purpose and be able to be delivered in a timely manner. All of the reasons consumers use to determine one product over another are used when deciding to buy recycled.”

“What are the specific examples of success?

London Borough of Camden worked with their recycling collector and their glass sand provider to develop ‘integrated contracts’ whereby the more glass sand they purchased the higher the price they received for the glass bottles collected throughout the Borough for recycling.

London Borough of Lewisham engaged the environment department and the property services department to ensure that all property services contracts ask for quotes to be provided for recycled content products.

Canary Wharf Contractors have used recycled construction products and streetscape products. They have introduced their existing suppliers to recycled products and used their commitment to the Mayor of London’s Green Procurement code to encourage their suppliers to stock these products.”

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CASE STUDY 7 BT BT provides communications solutions for domestic, business and public sector customers in the UK, with a global reach in business and public sector markets. It offers network services and solutions for wholesale customers, whilst in the retail market it provides traditional telephony services, mobile technology, internet access and web-based services. BT also has a research and technology business, BT Exact, which delivers solutions into the other group businesses.

BT’s new product development is influenced by diverse parts of the group: the overarching direction is driven by corporate strategy, informed by group and business-unit strategy teams; market opportunities are identified by customer facing parts of BT Retail, BT Wholesale and the broadband business, BT Openworld; blue-sky thinking occurs in the research business, BT Exact; and technical innovation is managed by the R&D function, which employs over 3,000 people.

BT’s sustainability team plays a critical supporting role to encourage the consideration of sustainability issues throughout the group. ‘CSR Health Checks’ help operating groups to identify where the sustainability agenda offers risks and opportunities to achieving their commercial objectives.

This facilitative approach influences the long-term thinking of BT Exact as well as the nearer-term product requirements of the wholesale, retail and ICT businesses. It is supported by a variety of performance management systems - procurement staff, for example, have sustainability criteria explicitly included in their divisional scorecard and by staff incentives - a Sustainability Award is offered in BT Exact for strategic innovations informed by a sustainability perspective and with the potential to generate new revenue streams.

BT believes that sustainability considerations can add value to its customer proposition in a number of ways, in particular: Supporting relationship-building with customers and suppliers; Providing differentiation in the market place; Identifying new revenue streams Recent sustainability-focused services include an online environmental management system for government departments and a venture with Liverpool City Council that allows elderly people live at home longer thus removing pressure off the residential care system. BT recognises, however, the prevailing disinterest of the domestic market regarding sustainability issues, and hence the significant challenges in building income through this approach.

The greatest short-term opportunity therefore appears to reside with multi-national business and government customers; and if government realises its commitments to increase the prominence of sustainability in procurement decision-making, BT will be well-positioned to build its market share - a major opportunity given that £1 billion of tenders on which BT worked in the 2003 /4 financial year included some form of sustainability performance criteria.

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APPENDIX 2 SUSTAINABLE CONSUMPTION AND PRODUCTION AND THE GLOBAL AGENDA Sustainable consumption and production is slowly appearing on the global policy agenda. At the World Summit on Sustainable Development (WSSD) in Johannesburg, 2002, participating governments made the commitment to “accelerate the shift towards sustainable consumption and production to promote social and economic development within the carrying capacity of ecosystems by addressing and, where appropriate delinking, economic growth and environmental degradation through improving efficiency and sustainability in the use of resources and production processes, and reduce resource degradation, pollution and waste.”

This initiative was followed at the end of September 2003 by the UK Government’s publication of Changing Patterns: UK Framework for Sustainable Consumption and Production, “the first major national statement on how to approach in practice the [WSSD] commitment”, and an integral part of the Government’s sustainable development strategy.

The debate has caught attention internationally, and it is apparent from the many conversations that people are unclear how to proceed: the UN Global Compact - an international initiative involving business, unions and government to improve business’s impact on society - recently facilitated a The Millennium Development Goals policy dialogue on the role of marketing and communications in delivering more The Millennium Development Goals set targets for 2015 in each of the following areas: sustainable consumption; participants Eradicate extreme poverty and hunger; concluded that “there is a need to deepen the understanding of the Achieve universal primary education; issues at hand and expressed their Promote gender equality and empower women; wish to receive further guidance.”

Reduce child mortality; Why have these issues reached the Improve maternal health; table of government? A first factor is Combat HIV/AIDS, malaria and other diseases the increasing interest in issues of sustainable development more Ensure environmental sustainability; generally, based on a recognition of Develop a global partnership for development. the challenges of climate change, urbanisation, corruption, and inequality, to pick on just a few of the biggest names. At a global level, these issues have informed the development of the Millennium Development Goals, an ambitious set of targets set by global leaders in 2000 for reducing poverty and improving people’s livelihoods.

In addition, business is inextricably linked to the delivery of these goals (a fact recognised by the formation of the multi-sectoral, business-focused UN Global Compact). See Article 13 Business Unusual Research 2003 which highlighted the relevance of key social, environmental and economic trends to the activity and success of business, identifying a series of business-critical global issues, ranging from conflict and post-conflict situations, to technology, water scarcity and governance; all these issues would be relevant to the delivery of the UN’s Goals as well as to the commercial success of individual businesses (see Table 2 overleaf for a full listing of business critical global issues)

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TABLE 2 - BUSINESS-CRITICAL WORLD ISSUES ADAPTED FROM BUSINESS UNUSUAL, ARTICLE 13, 2004 Global Issues

Role (and Expectations) of Business?

Political: Political agenda Conflict – post conflict Social:

and

Poverty inequality

–

Education Health

Delivery of millennium development goals Public/private partnership Responsible procurement and governance

Generate secure employment Provision of food, shelter, healthcare, education and training Loans, micro credit Access to mentoring, capacity building and training Access, infrastructure for provision of health services Development and distribution of drugs Disease prevention Provide adequate health and safety programme Family planning and education

Demographics Technological: Technology internet

–

Access to technology (computers) Use of technology / training / engagement

Ethics: Governance – corruption, crime Individual versus community versus global

Promote transparent governance Abide by the laws (but unfair and unjust laws) Reform of laws Act local, think global, promote access of local services/products Staff involvement in the local community Partnership development Individuals working remotely Restructuring of board

Environment: Climate change Water scarcity Waste / reuse / recycle GMOs

Carbon neutral Energy efficiency and reduction Water recycling and reuse Reduce waste, increase re-use and promote recycling – leadership Develop products with less materials, energy Collect and communicate more information Implementation of precautionary principle

Cross over: Sustainable production and consumption (responsible consumerism)

Communicate benefits of sustainable production Improve labelling and communication of information of products Maximise efficiency of products and consider by-products Use components that have been produced in a socially and environmentally responsible manner

APPENDIX 3 MODELS OF INNOVATION Three models for innovation have informed this report and are outlined below: 1. Booz, Allen Hamilton: The consultancy’s two by two matrix has become the classic model of innovation. This approach, which originated in New Product Management for the 1980s, considers firstly the newness of products to the market and secondly the newness of products to the company. Recent survey evidence suggests “12 percent of … new products introduced are new-to-the-world products - new products that create an entirely new market.

Another 19 percent are me-too products – new products that allow a company to enter an established market for the first time. An estimated 35 per cent are line extensions – new products that supplement a company’s established product lines, and 34 percent are product modifications – products that are modifications of existing products.” [Lukas, Hult and Frolick, Reducing Cycle Time in the New Product Development Process: A Best Practices Investigation] 2. O’Reilly III and Tushman (2004): A second model – focused on the technological aspects of innovation - is outlined in The Ambidextrous Organisation, Charles A. O’Reilly III and Michael L. Tushman, HBR April 2004. This outlines three types of innovation: Incremental innovations - small improvements in existing products and operations; Architectural innovations - technological or process advances to fundamentally change a component or element of the business; and Discontinuous innovations - radical advances that may profoundly alter the basis for competition in an industry.

3. The Chartered Institute of Marketing (2004): A third model – focusing on the marketing side of innovation – is outlined in The Creative Dilemma. It covers: Zone 1 - Basic Innovation: Minor product or service enhancements. An example of this is the new VW Golf.

Zone 2 – Relative Innovation: Innovations that build on existing products/services to new markets. E.g. the Mach razor for women.

Zone 3 – Concept Innovation: Innovation which creates new concept products or services, breakthrough value propositions and business models. An example is budget airline, easyjet, who successfully changed the business model for air travel.

APPENDIX 4 MARKET INTERVENTIONS – THE ROLE OF GOVERNMENT AND BUSINESS Article 13’s workshop with Defra highlighted education – along with market interventions, and improving procurement practices – as one of three key ways for government to support sustainability-focused innovation in the UK. As the following comments illustrate, education should be targeted at business and consumers: “Ensuring that similar initiatives are adopted in other big cities in the UK.” “Helping businesses by giving them advice.”

“Educating and raising awareness amongst consumers is the key to all this.”

“Raising the profile of sustainability so that it is higher up people’s minds.”

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“Work to educate producers and consumers such that sustainability is no longer viewed as a nice idea, but a real threat to both social welfare and the viability of the current business model.”

“Communicating extensively to both businesses and consumers, a) to understand the issues / raise awareness, and b) to provide detailed case studies and example business cases to support an increased focus on sustainability.”

The workshop also suggested that the barrier of ‘cost’ was unlikely to be overtaken in the short-run; given this assumption, government may have a role to intervene, although several participants emphasised the need for a shared role with business. A selection of comments follows: “Unlikely that sustainable will be cheaper in the near future, so it requires either some form of tax break or legislation to ‘impose’ sustainable products – but this goes against the current trend towards ‘choice’.”

“Don’t believe that voluntary measures and agreements will work.

There are almost no examples where voluntary agreements have worked, except where the agreement was

extremely weak to begin with – chemicals, aggregates, pesticides, etc.”

“Create new planning regulations so that all new buildings must use renewable energy in the structural development” “Competitive advantage only comes from business. Government can help by getting the general economic and other framework conditions right and producing coherent policy using the available levers – including regulation and standards. Business must be involved in the development of policy from the start.”

“Working to ensure effective EU regulations for high levels of recycled/recyclable content in new products sold in the EU zone.”

“There is general agreement that over-development in the south-east and London is making the area unsustainable. Redirecting growth to other UK regions would help improve sustainability and enable local recycling and resource efficient economies to develop.”

“Increasing taxes on new goods, making recycled goods zero rate VAT.” “Defra and other departments need to have political will and guts to ensure that it is cheaper to recycle, re-use, etc. E.g. increasing costs of some raw materials where quality recycled materials exist.”

“Support the development of technologies to allow recycling to occur.”

“Increase funding for innovators to create new products through a collaboration between SMEs and universities with a clear allocation to each party involved.”

“Existing waste regulation (especially packaging waste) gives no credit for use of recycled materials.”

“Business case would be much stronger if costs internalised through correct price signals: taxes on packaging; higher landfill tax; waste collection fees by weight, etc.”

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BIBLIOGRAPHY: Article 13 (2003) Business Unusual, London, UK (www.article13.com) The Chartered Institute of Marketing (2004) The Creative Dilemma, Henley, UK Department for Environment, Food and Rural Affairs (2003) Changing Patterns: UK Government Framework for Sustainable Consumption and Production, London, UK (www.defra.gov.uk) The Department for Trade and Industry (2004) Draft Regulations on the Operating and Financial Review (OFR) and Directors’ Report, A Consultative Document, London, UK (www.dti.gov.uk.cld/financial review.htm) The Department for Trade and Industry (2003) Competing in the Global Economy: The Innovation Challenge, London, UK (www.dti.gov.uk/) Global Reporting Initiative (2002) Sustainability reporting Guidelines, Boston, USA Griffin, A (1997) Drivers of NPD success: The 1997 PDMA Report, PDMA Association, USA (www.pdma.org/certification/references.php) O’Reilly III CA and Tushman M (April 2004) ‘The Ambidextrous Organisation’, HBR United Nations Environment Programme (2001) ‘Is the future yours?’ Paris, France Wilson RMS and Gilligan C with Pearson DJ (1992) Strategic Marketing Management, Oxford, UK

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