Product & Service Innovation

Overview

In recent years, sustainability has become a major driver of innovation. Mega trends, continual improvement management approaches, and circular economy concepts, support this shift. Now more than ever, sustainability innovation is helping companies get ahead of the curve and gain a competitive advantage.

In many ways, sustainability work requires innovation. How else do you remain profitable, while eliminating your negative impacts? How else do you create a market for new, more sustainable products? How else do you transition a company profile to enable success in emerging sustainability-oriented markets? Many companies use sustainability planning and project implementation activities to foster the innovative thinking required to thrive in a globalized, low-carbon, and resource-constrained future.

The aim of product and services innovation is to help a company improve sustainability performance, considering the entire lifecycle of a product or service: from material inputs to the production process to the use phase and end of life. All along the value chain there are opportunities to innovate. For environmental aspects, this means improvements such as lower or no GHG emissions, recycled content, and water efficiency. For social aspects, this means improvements in areas such as safety, usability, health, and human development. The research and development (R&D) process for designing and creating these kinds of new products or processes requires teams to consider sustainability goals and ESG criteria, and apply new ways of thinking about doing business. In doing so, companies are able to address unique needs of markets.

A key component of sustainability innovation is a forward-looking, long-term perspective that engrains ethical governance and environmental and social stewardship into business culture. Activities that enhance innovation toward this type of business culture promote meetings among people who otherwise work in silos. These activities are designed to encourage cross-pollination of ideas, knowledge, and information, including new business models for getting innovations to market.

Life cycle assessment

Products and materials have long and often complex life cycles. The life cycle includes all related activities and impacts, such as raw material extraction, material transport and processing, product manufacturing, distribution and use, repair and maintenance. It includes all wastes and emissions associated with a product, process, or service, including all end-of-life reuse, recycling, or disposal.

Life cycle assessment (LCA) is a method to identify the impacts that are associated with a product, at all stages of its life cycle. It is a systems-based approach, one that examines the environmental and human health impacts associated with a product or material over its entire life cycle.

LCA focuses on the resource use or inputs (e.g., energy or water), and the environmental impact of outputs (e.g., waste and releases of pollution) at each stage along the value chain. It uses environmental performance measures to identify opportunities for improving resource use, reducing environmental impacts, and targeting the parts of the life cycle where the greatest improvements can be made.

Why is life cycle assessment important?

Life cycle assessment:

Evaluates the true sustainability of a product
Provides a common set of accepted metrics to measure specific impacts
Identifies trade-offs and hot spots
Identifies opportunities for resource optimization
Highlights externalities and hidden costs and impacts
Provides a better understanding of the environmental impacts of processes for a better decision-making for production systems
Identifies key impacts at the life cycle stages of system
Identifies information gaps

LCA gives you a complete picture of a product’s environmental impacts. It lets you see during which parts of its life cycle the product most negatively impacts the environment. LCA analysis helps advance strategic sustainability by identifying areas and direction for product improvement and innovation.

LCA and purchasing

Gathering cost factors during an LCA informs purchasing decisions and allows your company to identify the whole range of costs and impacts associated with products. Life cycle costing enables clear comparisons between products, with all externalities, costs, and impacts captured. For example, a product that has a low first cost to purchase may have operating or maintenance costs that far surpass those of another higher-priced product.

LCA standards

The development of LCA began almost 50 years ago, in the building products sector, and today is recognized as a well-developed (although still evolving), internationally recognized discipline. The process of conducting an LCA can now be guided by ISO 14040 and 14044, which makes assumptions and practices standardized.

LCA limitations

LCA is subject to some significant limitations (and criticisms), most of which point to:

Complexity. Performing an LCA according to the ISO standard requires calculating a full inventory of flows to (inputs) and from (outputs) for the product. These inventory flows can easily number into the hundreds for many products, so practitioners need to be skilled at handling complex models.
Different results for similar products. These results are often because of complexity, heavy reliance on assumptions or using data of questionable validity (outdated, untested, etc.). In a complex analysis, it can also be difficult to see where someone might have manipulated assumptions or data to dictate results.
Availability of affordable tools. Tools have been developed to create the models needed, but they are quite expensive. One exception is the Athena Sustainable Materials Institute’s Impact Estimator for Buildings, a free online tool.
Social and economic impacts are often excluded. Standard LCA does not include any way of calculating social impacts associated with products. It was developed to identify and assess environmental impacts only. In 2009, the UNEP published a separate LCA approach for social and socio-economic impact called Guidelines for Social Life Cycle Assessment of Products. It is in line with the environmental ISO 14040 and 14044 standards, but studies and measurement tools have yet to be as fully developed as in environmental LCA. Because of these limitations, the two approaches need to be conducted in separate assessments.

Disruptive innovation

The concepts discussed above reflect activities and behavior that give rise to disruptive innovation toward a more sustainable future.

A few cutting-edge companies have become leaders of disruptive innovation. US electric car company Tesla is a good example of an organization with a robust R&D program for creating a new product that is sustainable by design and disruptive in intent. The program considers many environmental and social aspects of product design, and is innovative in how it extends beyond product design to drive change in the market. The company works to prime the market for electric vehicles by reaching into related areas like battery storage and distributed energy. They are innovating to transform the transportation sector to renewable energy by going beyond traditional product R&D.

The Circular Economy

Another innovation-driving way of thinking about how we do business and create products is the emerging concept of a Circular Economy. The circular economy aims to transition from a linear, take-make-waste model to a circular, borrow-use-return model of industrial production and consumption. In a circular economy, every product is imagined, designed, and built to keep its usable component parts in use, even after the product’s useful life is over, for restorative use and reuse of resources. Innovative companies are seizing this emerging opportunity to rethink traditional models and create circular-based business practices.

The Ellen MacArthur Foundation, a global leader in the movement toward a circular economy, defines the circular economy as “[A]n industrial system that is restorative or regenerative by intention and design. A circular, closed-loop economy eliminates waste through careful design of materials, products, systems, and, within this, business models.” This new circular economy is based on limited resource consumption and elimination of waste.

New economic realities are creating market opportunities for companies that focus on solutions and embrace innovation. New markets created as part of the shift to a low-carbon economy are creating more demand for low-impact products.

Key drivers toward a circular economy include:

increases in resource scarcity
costs of waste disposal
corporate capacity to create innovative solutions

Experts predict the circular economy will be one of the most important economic opportunities of the 21st century. Leading companies are developing strategies for cradle-to-cradle product development as part of the move toward a circular economy. They are designing products to facilitate reclaiming valuable raw materials at the end of a product’s useful life so that they can capture, rather than waste, those raw materials for use in new products.

Industry leaders are taking steps to build strategic relationships. They are collaborating with other companies, as well as NGOs, to support research and development of circular economy approaches to industry problems. This helps companies pursue opportunities for low-impact innovation and reimagine and realign their business models to launch low-carbon products and services.

Resources

Towards a Circular Economy: Business Rationale for an Accelerated Transition

Product transport management

Containers & packaging

For businesses, transportation management is important for increasing operational efficiencies, reducing costs, and improving environmental performance. Globalization allows companies to circulate products around the world in greater volumes and at faster speeds than ever before.

Transporting products can be costly, economically and ecologically, depending on a number of factors. Most products travel many avenues to reach the final consumer. A single piece of clothing – for example a cotton T-shirt – could represent thousands of miles traveled from cotton farm to final consumer. The cotton might be grown in Texas, shipped to a Chinese textile mill, flown to a Bangladeshi garment factory, and eventually shipped back to the United States for sale.

Most companies rely on intermodal transport to deliver their goods. Transport by air is faster, but has greater environmental impacts and higher costs. At every step along the way, impacts include greenhouse gas emissions (GHG emissions) and air pollution.

Transportation Management Systems (TMS) provide real-time, global communications between manufacturers, carriers, and retailers. TMS allow companies to see vendors’ specific routing plans — when shipments will arrive, how many units there are, and the chargeable weight — far advance of delivery. This visibility allows them to optimize logistical flows to reduce GHG emissions, save money, and increase efficiency. TMS’s are becoming more advanced and easier to implement.

Another way companies are working to improve is by joining with NGOs and other transportation-related government initiatives. For example, the SmartWay initiative helps businesses save money by moving goods in the cleanest, most efficient way possible. To date, U.S. businesses that are SmartWay partners have saved 170.3 million barrels of oil and $24.9 billion on fuel costs.

Reducing product transport impacts

To evaluate whether your product transport is optimized, consider tracking the following metrics:

Environmental impact by Modal Type This metric helps companies measure and document the environmental impacts caused by transporting products, specifically regarding the modes of transport. The metric can be normalized by distance and weight/volume) for comparative analysis.
Utilization of Transportation Assets This metric shows how efficiently a company utilizes its transportation assets (e.g., by packing containers to maximum capacity, no empty returns).
Carrier GHG emissions The carrier selection metric shows whether a company engages its contracted carriers in reducing GHG emissions (e.g., by requiring all carrier partners to be SmartWay participants) to combat climate change.

By engaging carriers and advocating for efficiency and reduced impacts, companies can help change the landscape of the shipping industry to become more sustainable. By encouraging shipping carriers to become SmartWay partners, industry leaders foster sustainability in their transportation networks.

End of use

Products are typically disposed of as waste at the end of their useful life. Many companies are finding opportunities to convert their products into end of use resources, creating circular or closed-loop processes and reducing negative impacts by keeping the still-usable resources embedded in their products out of landfills. This often requires redesign to facilitate recapture and remanufacturing. Many companies that succeed in finding a reuse or recycling capability for their products have instituted take-back programs to encourage consumers not to put them in a landfill.

Use phase

Use phase innovation focuses on reducing or eliminating social and environmental impacts of using product or service. Companies that create products or services with fewer use impacts curry favor with consumers. Creating energy efficiencies that minimize a product’s energy demand during use is a common approach. Virtual meetings for services delivery is another. Innovations in durability and reparability can also add valuable in the use phase.

Production

Innovation to make a product’s manufacturing phase more sustainable looks for improvements to the production processes. This includes changes in production techniques, equipment, or technology. Production innovations can decrease costs and increase quality.

Inputs

Innovating to change product or service inputs to more sustainable materials is beneficial if the new materials are renewable,make the product reusable or more recyclable, or significantly reduce or eliminate negative social or environmental impacts at any point over the life cycle of the product or service. Inputs include both raw materials and processed materials.

Customer offerings

Logistics & transport modes

Containers & packaging

Transportation

Transportation is a central pillar of our economy and society. It enables people and goods to move around the world. It has become essential for societal growth and development.

Despite the substantial socioeconomic benefits, transport systems pose serious environmental and societal costs. The challenge for sustainability is not to do away with transport, but to make it sustainable, energy-efficient, and less dependent on fossil fuels.

Air pollution

Air pollution poses significant risks to human health and the environment. Vehicles produce air pollution during manufacturing, operation, and disposal processes. These pollutants can lead to health problems like respiratory illness such as asthma, as well as other problems like smog and acid rain.

Climate change and GHGs

Transportation also has a significant impact on climate change through greenhouse gas (GHG) emissions. The majority of GHG emissions from transportation come from the combustion of fossil fuel based products, like gasoline and diesel fuel, in internal combustions engines. Over half of the emissions created by the transportation sector are a result of passenger cars and light-weight trucks. The remainder of greenhouse gas emissions from transportation comes from other modes, including freight trucks, commercial aircraft, ships, boats, and trains as well as from leak in pipelines and lubricants used in the transportation industry.

According to the EPA, transportation is one of the largest sources of GHG emissions in the US. In 2014, transportation accounted for roughly 26% of total US GHG emissions, as shown in the graphic below.

For every kilometer traveled, there is a large disparity in the amount of emissions produced by the different modes of transport. For each metric ton moved one kilometer the following emissions are produced:

Plane (air cargo): 500g
Truck: 60-150g
Train/Rail: 30-100g
Ship: 10-40g

To put those measurements in perspective, a one-ton shipment from Bangladesh to the United States by air emits 6,609,500 grams of CO2. The same shipment by waterway, using the highest estimated emissions figure, emits 528,760 grams of CO2.

Biodiversity and land impacts

In addition to the impacts from pollution, transportation has other social and environmental costs such as road crashes, traffic congestion, and damage to natural habitats and biodiversity. Water runoff from roadways is polluted by oil, rubber residue, and road salts. Roads dissect wildlife habitats, causing habitat fragmentation, which leads to a decrease in biodiversity among species.

Transportation management

Approaches to managing the energy and environmental impacts of transportation include:

Reducing the number of miles traveled
Operating vehicles more efficiently
Using low-carbon fuels
Creating or adopting new and improving existing vehicle technologies

The approaches to transportation management listed above cover a range of activities. To get an idea of what’s involved, take a look at a few examples of transportation-related projects:

Managing transportation logistics to reduce fuel requirements. Use logistics to plan and create more efficient routes (speed caps and routing to minimize driving through city traffic) to reduce fuel requirements and emissions.
Selecting building site near public transportation. Identify and consider transportation distances when selecting office or distribution sites.
Encourage environmentally friendly or reduced travel. Educate the workforce to prioritize modes of transportation to have the least environmental impact. Encourage employees to ride share and carpool.
Incentivizing use of public transportation. Adopt benefit programs that provide employees with incentives to use public transportation and reduce individual car travel such as pre-tax flex-spending or subsidy benefits public transportation and free transit passes. Provide incentives for use of local car/bicycle share programs and companies to enable public transportation commuting by making cars and bicycles readily available for transportation requirements during the workday.

New markets access

Across the globe, a transition to a new economic model has been occurring. This change has come largely in response to the threat posed by climate change and the disruption of patterns of consumption and waste. Organizations working to develop sustainable business models are poised to enter this new economy and seize the opportunities that are emerging.

Opportunities in the Low-Carbon Economy

A significant portion of our energy supply is from carbon-based fuels. World energy demand is expected to increase by 40% by 2030. The threat posed by climate change is providing increased urgency to transition to a low-carbon economy. This transition is already underway. Emerging new technologies are altering the competitive landscape for business. This is creating opportunities for companies that can produce and manage low-carbon innovations in their markets.

Industrial and financial resources are necessary to create new, low-carbon infrastructure. Investments in low-carbon opportunities are occurring in a variety of industries. In addition to new energy technologies and related services, innovators are finding opportunities in communications technology, chemicals and materials, agriculture, law, financial services, accounting, and consulting.

Strategic relationships

Today’s environmental, social, and economic challenges are complex. Most companies cannot make a material difference by themselves. By participating in partnerships and other relationships that connect within and across industries, government, and civil society, companies can hurdle market barriers and create meaningful positive change. This is the essence of strategic relationships: they are collaboration-based partnerships with organizations that align with a company’s core values and strategic goals.

Strategic relationships create what Michael Porter calls Shared Value. Shared value lies at the intersection of society and corporate performance. It represents the simultaneous pursuit of economic and societal value by addressing needs and challenges that benefit both the company and society.

A key component of creating shared value lies in the ability of for-profit companies to collaborate with nonprofits. These partnerships between business organizations and NGOs are an important strategic relationship. Together, they can prioritize projects that target areas aligned with their mutual values for environmental and social responsibility. NGOs are able to share best practices, which companies can leverage to boost their own sustainability performance. Companies can contribute resources, time, and talent to support and partner with organizations focused on environmental and social responsibility. They can share resources towards and enhance capacity for achieving mutual goals.

Leading companies are creating strategic relationships in new ways. They establish relationships and partnerships with their stakeholders all along the value chain. They take a systems perspective, understanding how each part of the system is connected to the whole. They collaborate on efforts to explore and create new market opportunities for products and services that support key environmental and social goals in addition to creating market value. They even work with competitors to remove market barriers and open a new market within which to compete. Through partnership and collaboration, companies can make sustainability progress not otherwise attainable on their own.

Product lifecycle management

Product lifecycle management (PLM) is the process of managing a product through its entire lifecycle, from conception to disposal. The process advances through several stages to create the best possible product:

Conceive: imagine the new product and identify its basic specifications;
Design: define, develop and test the product;
Manufacture: produce and sell the product;
Use: operate and maintain the product;
End: retire and dispose or recycle/repurpose the product

Many companies use PLM systems to manage the processes and data for a product. A PLM system is a central information hub for everyone along the product lifecycle. It helps streamline the process of creating a product. It facilitates communication by capturing and managing processes and the roles of those involved. It is also a tool for managing product related data, including the materials used to create the product, the specification, the bill of materials, marketing plans, supplier data, project schedules, and customer feedback.

Some of the primary benefits of doing PLM are:

Faster path to market
Increased productivity
More efficiency in the design process
Increased product quality
Streamlined processes to lower new product costs
Insight into and improvement of business processes
Increased ability to influence materials selection
Better reporting capability and analytics

Using a PLM system to manage the roles involved in creating a product helps people organize their work and centralizes product data collection. It facilitates the most effective means of moving a product from one step in the process to the next step. Roles that can be integrated in the system include design, engineering, marketing, procurement, manufacturing, vendors, and sales. The product lifecycle is managed by completing tasks based on business processes. Each task completion initiates another task along the entire lifecycle.

The PLM database also manages all materials that are the building blocks of a product. The database can contain as much material information as necessary or desired.

In these ways, PLM provides a framework for capturing knowledge of the people (including suppliers and manufacturers) and materials involved at each stage of a product’s life. This means that sustainability information can be managed as well. Sustainability of materials can be managed and used for product development, marketing, and sales. Vendor information housed in the PLM system enables the product owner to capture sustainability details about the manufacturing and supply chain. In this way companies can use a PLM systems to manage the environmental impacts of the product that they sell.