7 Co-innovation in Businesses 7A. INTRODUCTION “The thied category of organizational forms atthe co-innovation level is the category of businesses, The sustainably innovative business stands for the ‘commercial firm or several cooperating firms that transform the sustainable ‘ideas that originated at the co-deation level into innovations that can be sold to the customer, The sustainably innovative busines differs from the traditional business in the sense that it delivers value that is sustainable; integrates economic, ecological, biological, social and socictal value. A sustainable business ties to find new ways co delight customer groups, and offen an organization has to cooperate with other organizations ro create ize new business propositions. Selecting, finding and choos ing partners to co-innovate with are essential elements of the innovation process and can take a lot of time. Once organizations agree on the joint business proposal ro be developed, they may stat a joint venture, alliance kind of cooperative organizational form. In these organizational structures, they can develop the desited innovations and exploit these in fone of more market segments. The eco-innovative and sustainable business aims to preserve the environment and tries to add additional environmental, Social and societal valu. It seeks synergy and improvements by integrating and balancing the economic, environmental, social and societal specifica tions of the products and serves it develops. Moreover, it wants to serve shareholders as well as all kinds of other stakeholders inside and outside the firm, The sustainably innovative business is highly aware that growing sroups of customers may be willing to pay a price for sts and focuses on this. astainably innovative businesses are needed to tans form the ideas that ate generated by the key individuals atthe co-ideation level into innovations, Eco- and sustainably innovative the third element a the co-innovation level of the model of eco-innovation and sustainability management (see Figure 7.1. “This chapter fist organizes the theory that forms the hasis ofthe ss tainable business element of the model (Section 7.2). It then describes the methods used to explore the analytical validity ofthis element for industry nable qualityis the or the inable an be the sable; ue. A sand hos ance sonal etal ting ofa side ming aly ans the Co-inmovation in Businesses | Figure 7.1 Cosinnovation in busines, (Section 7.3), continues with an exploration of the analytical value of this element in practice (Seetion 7.4} and in theory (Section 7.5) and concludes with a summary (Section 7.6). 7.2. THEORETICAL BASIS [New businesses are often developed by several cooperating and co-innovat ing teams working on various projects and in one of more organizations, To conquer the market, the innovative ideas that originated at the corideation level can be realized in an organizational structure that enables mass pro- duction and mass marketing. A characteristic of a successful sustainably innovative business is tha itis developed and exploited by a combination of ‘operating commercial fms and public organizations, Often two or more ‘organizations join forces to fight for new market share. They collaborate to transform the innovative ideas into business proposals, develop partnee ships ro combine and share one anothers complementary competences and fesources and establish joint ventures to produce and exploit the innova ions on the marketplace. An ecorinnovative and sustainable business wants76 Beorinnovation and Sustainabi ment to create extra value, It uses renewable resources, has clean production pro cesses and owns aesthetic and ergonomic quality New Sustainable Business Development le business consider the Many organizations that develop new sustaina commie opportunities and risks of co-innovation with other companies 11002; George and Farris, 1999). On the one hand, these other sourees 0 (Fisher and Varga companies need technological and financial support fe ‘develop something new; on the other hand, cooperation with ot means that companies have to share knowledge, tumover and profits. At first sight, cooperation seems less beneficial than going it alone. While it cl be beneficial to broaden the innovative firm's horizon and to share, combine and synergize other companies complementary resources, it can cost con fiderable dime and money to find the right partner. On top of this, when che Tiahe partner is found, it can be difcule to align firm cultures and business routines (Kreiner and Schulz, 1993). Inthe process of searching for one or tote partners, the frm ean be confronted with several questions. What does itapecifcaly want to develop? What does it need from a partner? At what out? And in what kind of cooperative structure? The literature indicates {hati is difficult for firms to explicate these aspects of the co-innovative process. The literature als stresses that new business development isa pro- Riss of making and keeping agrecments between partnering organizations {Ring and Vane de Ven, 1994), Partnering organizations have to deal wih problems such as how to agree on each partner's input and exploitation of Fesourees, how to jointly organize new product and sereice development, production and marketing, and how eo distribute financial costs and ben- hes This all means that firms that want co engage in new business develop: trent have to be able to deal with the pros and cons, gains and costs and Ulffculies and advantages of interfirm co-innovation. The co-innovative process cat be complex and receives a lot of attention in the literature, arate on the influence of regulation, markets and tices (Bianchiy 1996). Other issues Ivhich, for example, ela Societal issues on firms” innovation pr that are fequently addressed in the lieratore ae the lengthy process of Finding ways to cooperatively innovate (Bonte and Keilbach, 2005) and the ‘negotiation processes partnering firms have t0 go through fo ensure that they all inves in and benefit from the cooperation (Baraldi and Stromsten, 12009}. Various research project delve into the oral and written contracts that partnering fitms use in the co-innovative process (Chiesa and Man rin’, 1998), what partners can do to establish and govern a joint venture (Hakanson, 1993; Rampersad, Quester and Troshani, 2010), and how they ‘organize production (Cala, Guerrini and Moura, 2007) and exploitation of alia, Guetrni and Moura, 2007). * of co-innovative new business development can be described seorge and joint innovations ( The proc asa trajectory of sequential activities (Fisher and Varga, 2002in Businesses 77 Far, 199% Kciner and Schl, 1993) tha partnering organization can through and star, interop and repeat all he tine to argany thle operative ambitions (Ring and Van de Ven, 1994), The Hnear eee fy of oinovating fin can be esc follows Fs hat dono tes of connotation wth oes (elPEa and Vern 200% Spore, Gaye a Knockacr, 2010) pertely sd eutoyseoae jn (Bua and Stine, 2009: Nieto and Santamaria 2007) Tey ake Sons of cont and evens (Christensen, sen and Kj 2008; Neo an Soremaria, 2007} When organo are sil merce in eae ofthe cons and the revenics (Christensen, Olesen and Kiet ADS; Vola tod Hamer, 2006 On the bai of chse contacts and agacement ts whch innovations thy watt produc, how they will cooperate aad wha the individual and sbaed reponse ae (Va and Hamer, 2008 are oing to devcon the innovations they Hamed (Rampead, Guster [and Troshani, 2010; Vuola and Hameri, 2006). This organization can have many forms; it may bean alliance, a oint venture, a learning network, of a &cD consortium (De Man and Duysters, 2005; Rampersad, Quester and ‘Troshani, 2010; Thorgren, Wincent and Oreqvist, 2009). The cooperating ‘nganizaions decide which governance structures they want to use o man age the joint organizavion (Rampersad, Quester and Troshani, 2010 Thor. sen, Wincent and Orrgvst, 2008) and then sat realize the innovations The co-innovating organizations use traditional management methods uch 48 project management and control systems, to plan and control the iano ‘ation processes (Calia, Gueerini and Moura, 2007}, To sell the innovative products and services, the organizations intensively communicate vith the marker (Calla, Guerrini and Moura, 2007; Ritter and Gemtinden, 2003) and position their innovations in ane of more market segments (Ritter and Gemiinden, 2003; Van de Veande, De Jong, Vanhaverbeke and De Roche: mont, 2008) New Sustainable Business Exploitation Once the innovations are realized and the business is developed, the eo perating organizations can focus on the exploitation of thet innovative products and services. The sustainable products, services and business pro fesse tha originate from the new business development process constitute the firms’ new business design. This new business design has several char ‘czeristics. Parrish (2010) introduces four sustainability requirements that8 Eco-innoustion and Sustainability Management need to be taken into account by organizations that wish to exploit thie innovations, According to Parish (2010), co-innovating organizations have to perpetuate resources, strategically satisfy a complex of eriteria, stress th production of sustainable quality, and serve multiple stakeholders. A new business that perpetuates resources “produces benefit streams by enhancing and maintaining quality of human and natural resources for the longest possible time” {p. 517). Parrish (2010) continues that a sustainable new brsiness design has to be embedded in its business environment, and the “foundational task of organizing is justifying the existence of an enterprise based on a common purpose" (p. 517). The new business also needs to stack benefits, strive for economic and sustainable goals and serve multiple stakeholders in the firm and in society. This “can he achieved by reaching 2 certain threshold rather than the constant striving for maximization of one single, prioritized outcome... [andthe]... structuring of enterprises so that as many beneficial outcomes for as many different stakeholders as possible” are realized (pp. 517-518}, Parish (2010) contends that to real tae these goals, new business exploitation must be focused on creating and realizing quality, specially sustainable quali, The firms in anew sustain able business organize their new product and service development activi- ties around creating extra envitonmental, social and societal quality. The criteria for decision making in new sustainable businesses are particularly Concerned with producing and offering better products and services and are based “on a logic of outcome quality rather than quantity” (p. 519). 7.3. RESEARCH METHOD Additional empirical and theoretical studies are performed to further increase the analytical valve of the business element of the model of eco innovation and sustainability management for industry. Step 1. Shaping the Research Model “This chapter builds om the results from the initial study of Bossink (20113) {see Appendix 1). Ie focuses on the business element of the model (Section 7.2) and conducts empirical research in various Dutch industries to invest sate how the business element of the model holds for other empirical con: texts (Section 7.4). Iecarries outa literature review of eco-innovative and sustainable business in order to explore how this element of the model ean be shaped toward a broader analytical value for industry (Section 7.5) Step 2. Cond Literature databases are consulted for research papers on fiems and busi nesses for environmental, ecological, green, socal, societal, biological and ting Theoretical and Empirical Studiestheir ishave ss the Anew arcing jngest ye new aa the vipise bis 10 alple ching ron of prises ders as p real rand sain py The eslarly and are further of cco | | 11a) a fea lien ‘i Co-innovation in Businesses 79 sustainable innovation, In addition to thisy en managers and experts in var ‘bo industries inthe Netherlands at interviewed and asked to reflect on the Sestainabity issues they think are of importance for sstinably innovative bpsiness(Mahawat Khan, 2 Step 3. Analyzing and Synthesizing the Studies’ Outcomes The business element in the initial model (Bossink, 20112) is confronted with the additional empirical and theoretical studies. On the basis of the butcomes of this analysis, the characteristics of the business element atthe ovnnovation level are articulated for industry (Section 7.5}. 74 EXPLORING THE EMPIRICAL FIELD The picture that arses from the interviews is a picture of public organiza tions and commercial companies that try to develop new sustainable busi hesss in @ business landscape that sills not used to sustainable initiatives ‘This section isthe author’ interpretation of Mahawat Khan (2010), and quotations ae taken from that source New Sustainable Business Development Several respondents stress the necewity of regulation a a aeans wo force firms to star developing new sustainably innovative business. One oftheir typical arguments is that as long a there is no peessure, there is no incentive tor change. Once there is pressure, for example from new regulation, fms start to feel and calelate the risks and advantages of (noncompliance. Risk avoidance and opportnity-secking behavior then can move them in a more sustainable direction. As one ofthe respondents puts it boldly: "You have sting and stab actors before they start to fight courageously and feerlesly {p- 35}. All respondents recognize that interaction with other organizations can be of benefit co their own organization. Because ofthis, it would be logical for the respondents’ firms to engage in collaborations with other firms, Nevertheless, this is not always the case. The respondents say that there i a serious reason for not to be too open. This reason is either inad ‘equate or total lack of trust. Several respondents stare that they do not col Taborate and that is difcule to star a co-innovation pracess with another firm or organization, It can bea valuable undertaking bat also a dangerous fone, The question always is: Who can be trusted in terms of appropria: tion of knowledge and power, and who cannot? And another question i How will the counterparts behave in the future, with the knowledge and experience they gained from their partners? Firms that want to engage in | covinnovative process have to make a judgment about the opportunities And risks of collaboration and must weigh aspects of collaboration suchiy M 80. Eco-innovation and Sustain as knowledge leakage and changing distributions of power. This is articw lated by one of the interviewees in a short and clear statement: “It is re ally simple, knowledge is power, ing you want to share” (p. ; not all respondents agree with this, They criticize this way of looking at competition and competitive dynamies and doubt this vew’s adequacy. With respect to this, a respondent states that “think: ing in terms of competition is old thinking, In this networked and digitized conomy you can have a leading role for just wo months, after this period the whole world knows what you are doing, and how you are doing it” {p. 35) Both points of view exist atthe same time, and most interviewees are aware ofthe tension between erasting partners and sharing information and knowledge on the one hand and being competitive and protecting the key resources ofthe frm on the other. Respondents indicate chat they constantly explore what kind of organizational structures and procedures they can use to organize cooperative in ess but that is also restricted by suspicion and secrecy. The firms of some of the interviewees, for example, experiment with setting up faclires and meeting nd power is not some 2). Howe ovation that is based on east and of rooms for their workers. These facilites enable people to interact with rep resentatives from other companies and to informally explore the collabora five opportunities long before their frms top managers decide to exchange Crucial and competitionsenstive information. One ofthe interviewees is fry enthusiastic about this new organizational feature and states: “I think wwe developed the way to cope with problems related to trast and compet on” {p. 34). Some of the respondents ga few steps further. They advo. {ate the concepe of geographic areas with high conceatrations of frms with complementary financial resources, knowledge, capabilities and ambitio Such as Silicon Valley in the United States, Silicon Valley has a high concen: tration of high-tech startup firms and is considered by many to be one ofthe most important areas for innovation development and exploitation. Some interviewees stess che importance of similar breeding places for innovation To quote one of the proponents of geographic clustering: “Silicon Valley is the most telling example of significant innovation. We need something like that” (p. 33). New Sustainable Business Exploitation Respondents acknowledge that although the environmental issue receives ‘rowing attention, iis still not completely legitimate for theic firms to invest allinancial resources knowledge and people in eco-innovation and sustai ability, Firms sill doube whether customers want to pay extra for sustai able products and struggle withthe question of how sistainable quality ean test be sold to the customer. One of the respondents inthis espect remarks that markets for sustainable products are sometimes not fully formed or ronexistent: “Before demand can be influenced, i is important thatthe sus tainable energy solution can be labeled as legitimate. Without legitimacyreise doubt ink = period Co-innovation in Businesses 81 a market will noe arse” (p. 49), Most respondents stress that thei fems sil seudy and experiment with ways to combine financial profitability with sustainable production and exploitation models. In addition to thaty firms Struggle with the issue of how to build business propositions thae integrate traditional financial objectives with new sustainable measures and how to ‘atisly all sakeholders atthe same time, Some of the interviewees, for ex fmple, state that itis impossible to serve all stakeholders, One of them fren sutimarizes cis into advice for the Dutch nation: “In the Netherlands we have the habit to discuss everything with involved actors, and to listen to them regardless of the consequences. This needs to stop now” (p. 38), Moreover, another respondent states that “agreement is fine, but for some decisions you have to be aware of the fact that you cannot expect support from some actors” (p. 40). Ia general, the interviewees indicate thatthe spetifications oftheir rms" eco-innovative and sustainable busines designs are “under construction.” The future success of the business designs will de pend on the fies’ ethical decisions and how they handle trade-offs between Fancial and sustainable prois. Some respondents argue that products and services with environmental quality can lute castomers from unsustainable substitutes because natural resources will become scarce and customers will increasingly appreciate clean solations and environmental, social and so etal quality 7.5. DEEPENING THE THEORETICAL BASIS Te literature review indicates that “resources” can be seen a6 one of the main elements on which frms can build their competitive positon, viability and perspectives, ‘Star and Rands (1995) and Shrivastava (1995) contend that society nceds ecologically sustainable organizations. The sustainable firm minimizes its environmental impact per unie of production and invests in creating en vironmental, socal and societal value. Aa ecologically sustainable industry forms a counterweight against overpopulation, overconsumption and the depletion and waste of resources. In similar line of reasoning, Hart (1995) coins the “natural resource-based view of the fim.” Hart (1995) builds "pon insights chat ae developed by business stategy researchers, who con tend that resources ate the basic source ofa firm's competitive advantage in business, Resource hased theorists se firms as "bundles of resources” (Ru smelt, 1984), comprising all tangible assets (eg, land, factories and equip ment) intangible asses (eg, patents, brands and technical knowledge), and ‘organizational processes (eR prodvct development, internationalization land marketing) from which managers can develop value-reating strategies (Gingham and Eisenharde, 2008). Taking the fiem as the unit of analysis, this theoretical stream argues char firms in a particlar industry tend to bre heterogencous with respect to the strategie fesources that they own or82. Eco-innovation and Sustainabil Management control and that hese resources may not be perfectly mobile across fim, Consequently, resource heterogencity berween firms may be long, lasting (Bamey, 1991), and resources can become the basic means by which firms distinguish themselves from one another. In line with this, Hart (1995) that firms’ "bundles of resources” also consist of their competences Feduce their environmental impacts and contribute to environmental qu ity. According to Hart (1995), sustainably competitive firms adope three natural resource-based tactics to build ther strategies pollton prevention, product stewardship and sustainable development. Pollution prevention is the reduction of emissions and wa Product stewardship is the reduction of the envigonmental burden imposed by the firm's prodicts and services throughout their lif eycle. Sustainable development i all the firm does to become clean prodicer making.a social and societal conteibation to stake: holders in industrialized and developing countries. Hatt (1995) envisions furore business landscapes in which firms minimize emissions, effluents and waste and, by doing this, have lower costs and increasing market shares Eventually, frme with sustainable business propositions and designs will have an advantage over competitors that stick to old, unsustainable strate ses. With natural resources becoming scarce and more expensive and with ' growing world population, itis imaginable that this vision is closer to realty than ever. With respect to this, Fowler and Hope (2007) contend that ‘companies that seck to incorporate sustainable business practices ita their egies perceive sustainability “as a continual process of organizational that begins with pollution comtot . .. even companies atthe forefront of sustainability have a lot more to do in order to reach the elusive goal of sustainable development” (p. 36). The natural resource-hased view of the firm proposes that a sustainability strategy can become a key strategy for ‘outperforming competitors and that obtaining a navure-based competitive advantage is a challenge that deserves a fim’s attention and investments, Although the creation of a narural resource-based stategy is a complex and difficult task that takes time and efor, it may be that ance a company achieves an edge over its competitors, it becomes relatively difficult fr other Firms to copy this strategic competence. This would explain why some firs have already started to experiment with sustainable business, ‘The research in this chapter indicates that eco-innovative and sustain able businesses have a central position inthe process of environmental and sustainable co-innovation. New business development and exploitation are the two key organizational concepts in eco-innovative business creation. The frame of reference in Table 7-1 shows the key characteristics of eco innovative and sustainable businesses. The essential message is thae firms have to be active in eco- and sustainably innovative business development activities such as knowledge and information exchange, negotiations, for mal and informal contracting and joint-venture formation. In addition to tha, firms can develop the ability ro exploit business models that generatebos fie ine so fol Pires eo io co pe and a mel e a eo es a = por bie pie i innovation in Businesses 83 Table 7.1 Frame of Reference for Bco-nnovatie and Sustainable Business ines Charset New sustainable New busines is developed with partes is based on usness acters complementary resources, depends on the Serelopment butcones of negotiations between the partner, formalized by mans of oral agreements and wien contracts between parr haves certain dee {dsjrse between partners x produced by jot ventures, New sustainable New businesses are designed t perpetuate resources business Seve multiple stakeholders, reali both economic and expltation Sustainable gol produce sustainable value and qual keep up with societal developments crate a compesine advantage by meas of pollton pcventions pot ‘tewardship sti sustainable development, ae exploited extra environmental, social and societal value, serve multiple stakehold fs, are economically and sustainably viable and are based on a natural resource-based strategy The rescarch in this chapter indicates tha the characteristics of sustain able businesses can contribute to the transformation of sustainably inne: vative ideas, concepts, visions and initiatives into. profitable, sustainable innovations in industry. 7.6 SUMMARY Business is the tied element at che co-innovation level of che model of eco innovation and sustainability management, The research shows that sos tainably innovative business has two characteristic aspects: new sustainable business development and new sustainable business exploitation. New sus ‘ainable business development comprises the efforts to organize the process ‘of corinnovation between partnering firms and addresses the aetvitis that are needed to exploit a sustainably innovacive join venture. In addition W this, new sustainable business exploitation includes the activites that gener ate nancial and sustainable prof from the sustainable business It aims 0 Perpetuate resources, create extra sustainable quality tothe custome, serve multiple stakeholders and implementa natural resource-based strategy that consist of pollution prevention, product stewardship and sustainable de velopment. The eco- and sustainably innovative business is an important ‘organizational form that stctures co-innovative activity. The fourth and final important organizational form at the co-innovation level isthe public Private partnership. This isthe subject of the next chapter,