INNOBLOG

The ongoing "greening" of the corporate world is a wonderful thing. As our industrial titans shift towards sustainability our environmental footprint decreases, consumption of finite resources becomes more rational, and we all get exposed to fewer toxins and chemicals.

The move towards sustainability also provides an instructive live case study of market evolution and innovation; as "green quickly becomes an essential performance characteristic in all sorts of products and businesses, companies are scrambling to innovate in order to take advantage and differentiate themselves from their traditional competitors, or if someone else has already done so, hop on before getting left in the dust.

The underlying phenomenon driving the emerging importance of sustainability is growing consumer awareness of the problems posed by unsustainable practices and products. This renders sustainability increasingly valuable to more people in more contexts (and, it should be noted, environmental regulations like fuel efficiency standards and carbon taxes cement such perceptions in law, forcing the economic calculus to account for externalities the market might otherwise ignore).

Taking a step back, all products and services can be thought of as aggregates of performance attributes I like coffee, for example, that is hot, strong, fresh, affordable, fairly traded, and sustainably harvested. When any performance characteristic becomes increasingly valuable others necessarily become relatively less valuable, be they price (e.g., people are willing to swallow the premium for organic food), convenience (theyll go to the one Whole Foods in town rather than the market down the street), reliability (they ditch the brand theyve trusted for ages in exchange for a new green product from a company theyve never heard of), or even quality (theyll settle for scratchy but 100% post-consumer recycled tissues). Understanding the impact of the increasing importance of sustainability in any given context is critical to projecting the nature and extent of the "green revolution and the best ways to innovate in response.

Disruptive innovation often takes place in these sorts of situations, when the dimensions of performance shift, when, for a variety of reasons, the market reassesses the value of specific characteristics in a product set. Those that figure out how to deliver the right set of performance characteristics succeed, while those that fail to do things differently just fail.

Consider consumer products giant Cloroxs recent behavior: last fall they purchased leading natural products company Burts Bees for $925 million, then perhaps more interestingly in this context, earlier this year they unveiled Green Works, a new set of eco-friendly and Sierra Club-endorsed products touted as "the first line of natural cleaners developed by a major consumer products company.

Clorox recognized that the market landscape had shifted, that more and more consumers were valuing green product attributes, and they adapted accordingly. That recognition enabled it to apply its corporate muscle and know-how to the challenge. It can reach into its pockets and swoop up an emerging competitor Burts Bees but it can also marshal its scientists to create compelling green chemical formulas for new products, its sourcing and manufacturing capabilities to harness economies of scale and bring down prices, its channel relationships to place sustainable products in Wal-Marts and supermarkets everywhere, and its market researchers and marketers to understand and reach mainstream consumers.

In short, Clorox can deliver products that meet the sustainable performance threshold (they are all natural, biodegradable, recyclable, not tested on animals, and so on) but that also adequately satisfy more traditional performance metrics like efficacy, affordability, reliability, and accessibility. As long as it understands the true market need and tailors its business model and product set accordingly, Clorox has the chance to outpace many of the startups and pure plays that make up the green products market today.

So what are the lessons for big companies looking to navigate market shifts such as the emerging importance of sustainability? Early adopters are the canaries in the coal mine watch them closely in order to understand the new dimensions of performance they prize and the tradeoffs they are willing to make. A close reading of their evolving performance tradeoff profiles will clue you into the nature and extent of underlying shifts in the relative valuation of distinct performance attributes. Then, look at the thresholds for mainstream consumers how acutely do they feel the shifts that are motivating early adopters? What are the barriers that stand in their way today from consuming in the same way as the evangelists? You just might find that big company resources and capabilities, applied intelligently, can innovate around those barriers by, say, getting affordable and effective all-natural and sustainable cleaning products into Wal-Mart.