November 2011Strategy

Making Green by Going Green: Smarter Innovation Leads to Sustainability Successes

going green

Think about sustainability and innovation and what comes to mind is likely solar panels or electric cars. It's products like these that grab headlines. But as the push toward greater sustainability continues, its influence is becoming more widespread. Profiting from green innovation is not just about manufacturing any more.

"Many service companies have come late to the innovation party," says Wharton professor Christian Terwiesch. His Strategic R&D Management program is one of the longest running of its kind. It offers a structured, process-driven approach that merges innovation and strategy based on the successful book Innovation Tournaments that Terwiesch wrote together with his colleague, Karl Ulrich. "A decade ago, we were teaching mostly pharma, automotive, and consumer goods executives. Today, financial and healthcare services, Google, and Microsoft are coming. It's interesting to see how institutions like hospitals and banks, which 10 years ago weren’t really interested in innovation, are now into it in a big way."

It's easy to understand why auto makers seek better innovation strategies; Terwiesch notes that often the first trigger for sustainability innovation is regulation. Firms don't innovate because they want to, but because they have to. "When you're faced with new emissions and gas mileage standards, innovation must play a determining role in your strategy.” But he also cites a second trigger: the consumer. "You may not be compelled by laws to become greener," he says, "but you may observe that your customers are asking questions. If they don't perceive you as green, they may go to your competitor." It’s that blend of customer interest and competition that is driving service companies to improve their innovation capabilities.

Terwiesch uses Innovation Tournaments in Strategic R&D Management to show executives from any industry that one process-driven approach can be applied to anything from creating new services for investors to movie making to the development of a new drug. "Most companies do a great job managing processes like recruiting and sales training, but fail to do much of anything when it comes to innovation. But the management of opportunities on which innovation tasks are focused can be standardized and systematized using Tournaments."

In the program, participants have one day to come up with a promising idea. They create, score, and evaluate each others' conjectures. Terwiesch explains, "What they inevitably discover is that two-thirds of the ideas are total garbage, another 20 percent are lukewarm, and only a handful of ideas are really good. But those very good ideas were discovered systematically. They weren't the result of a creative process that’s shrouded in mystery."

Because so much of innovation today involves sustainability, Terwiesch is now testing participants' innovation muscle with a new simulation in which they must help a city work on reducing its environmental footprint. "It's designed both to strengthen their view of innovation as a process, and to actually do the innovating. They could come away with consumer insights and internal efficiencies that could create a competitive advantage and considerable savings."