9 Co-institutionalization
by Market and Society
9.1 INTRODUCTION
The first category of factors at the co-insttutio
gory of market and society. Market demand isa crucial factor inthe pro
ndustrial change. When markee demands change, this can cause
complete new businesses to develop and new industries to arise. When
public opinion changes and new issues are pu on the societal agends, this
fan be the stare of fundamental industrial change. Industry has to teact
fand adapt to what happens in its business environment, and since most
businesses exist and survive because of sufficient market demand and soe
etal support, they need t0 keep up with changes in markets and societies,
‘A key characteristic of market and societal change with respect to cco
innovation and sustainability i that these aspects are increasingly becoming
business-qualifying and business-winning factors, Sustainability i becom:
ing a driver behind new business and behind the rejuvenation of traditional
industry. Market and societal influence on business performance thus can
be significant, Business’ classic economic approach is to mect the explicit
or latent needs of customers, from the need for food, water, clothes, shelter
land transport to that for entertainment and personal development, In the
past, this approach has resulted in mass industrialization and in the mass
production and consumption of food, drinks, clothing, dwellings, cars, ai
als, buses, bikes and trains, jewelry, fashion, art, motion pictures and
media. A recent trend is that market and societal awareness of sustainabil
ity has become integrated into ths classical approach. It adds a fundamen
tal aspect to traditional business and forces business to stare thinking about
how to serve all the existing needs of consumers and make a prot, while
simultaneously addressing sustainability issues, Suddenly firms have to ask
themselves questions about the ecoreffetiveness and -effciency of their
snd supply chains, Nevertheless, just ask-
ing these questions will not be sufficient Fiems ate also required to come
tp with answers and solutions. Changing forces and de
and society stimulate organizations atthe co-innovation level to move their
pethaps eather tiny eco- and sustainably innovative businesses toward mass
production processes, products
sands in markethe cat
he pro
When
da, this
1 soc
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nstitutionalization by Market and Society
Figure 9.1. Covisitationalination by marke and sci
production and consumption. Market and society are the first element at
the co-insttutionalization level ofthe model of eco-innovation and sustain
ability management (see Figoee 9.1).
This chapter fis presents theory that forms the basis of the market and
society element of the model (Section 9.2). It then describes the methods
thar are used to explore the analytical validity ofthis element for industry
[Section 9.3) Iecontinues with an exploration of the analytical value ofthe
marker and society element in practice (Section 9,4) and in theory (Section
9.5). Ieconcluces with 2 summary (Section 9.6).
9.2. THEORETICAL BASIS
ln the past industrial decades, markets and society were, a8 they still are
organized in accordance with the virtual concept of abundance. Production
systems function asi Finite natural resources are infinite. Markets and soci
ties are organized around the mass production of goods and services. The
creed is “as much as possible, as efficiently as possible and as effectively as
possible,” with turnover and profit maximization as the main goals. Most98 Eeo-innovation and Sustainail
2» Management
natural resources, such as fossil energy resources and natural material, are
Finite, but the industrial production and consumption systems and patterns
donot integrate this into their accounting and mental procedures. In rece
years it seems that markets and society are becoming aware that this ap
proach is unsustainable and will not be tenable for the industrial decades
fo come. In a new, sustainable industrial era, the societal costs ofthe use of
finite resources may need toe integrated into the economic system, while
the benefits of the use and reuse of infinite resources ean be integrated too,
low this alli changing forthe beter i not sure, bu it seems that markets
and society are increasingly aking, for changes that will move industry to
‘ward new sustainable accounting snd mental systems.
Market
thange
Inthe literature, the concept of changing markets and markets that in
dluce industrial novation fs commonly accepted. Market change can be
the driver of innovation, but when market demand is stable and asks for
the same products, markets are also drivers ofr ‘and variability
Sustainability, green thinking and eco-awareness are often not in the DNA
of the average customer and it scems that most people still do not know
that these concepts are or can be. Sheth, Sethia and Srinivas (2011) address
the influence of customer demand in their work, which takes a customer
centered approach to sustainability. They document chat the effectiveness
Of industry in dealing with sustainability will define as success in the near
future. Their argument is based on the concept that sustainability is multi
dimensional and integrates environmental, social and economic elements
They concentrate on the relation between the consumer and sustainability
and introduce the concept of customer-centric sustainability which they de-
fine as "the consumption-mediated impact of marketing actions on environ
rental, personal and economic well-being of the consumes” (p. 24). In this
definition, the economic wellbeing ofthe consumer i defined as the “health
nd human well-being consequences of environmental change ensuing from
consumption” (p. 24); the personal wel-being of che consumer is “individ
al well being or quality of life, and associated welfare of the community
24); and the economic wel-beng ofthe consumer is defined asthe “finan
cial aspects such as debt-burden, earning pressure, and work-life bal
p. 24), According to Sheth, Sethia and Srinivas 2011), 2 key challenge for
Trsiness i en serve al these types of explicie and latent aspects of custom
cers demand for well-being. The goal of green production and consumption
should be to sell and buy products and services with an environmental foot
print over ther total lifecycle that ean be carried by the earth. Sheth, Sethia
and Srinivas (2011) continue that although consumers inreasingly say that
they want to buy and consume sustainable products and services the mar
ket shares of sustainably produced products and services remain relatively
lowe With growing populations and growing numbers of people who want=
z
ba in
fan be
ls for
ibility.
DNA
enow
sires
omer
he near
silt
nen
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hey de
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Seis
fy that
he mar
atively
ho want
Covinstitutionalzation by Market and Society 98
their share of consumption, the environmental burden on a global scale
wll keep on growing. Even relatively popular eco-innovative and sustain
able products, such as hybrid ears, organic food and green detergents, have
‘modest marker shares, below 10 percent worldwide. The authors conclude
that sustainable consumption may be necessary but has not yet been real:
laed, A robust change in market demand and consumption patterns toward
ststainabilty can be accelerated by the adoption of what Sheth, Sethia and
Srinivas (2011) call “mindfal consumption.” Mindflly consuming people
take account, in thought and behavia, of the consequences of their con-
Sumption habits and patterns, Mindful consumption can change custom
fs” perception of prdicts and servies in favor of sustainable, tempered
Sand high-quality consumption, Sheth, Sethia and Srinivas (2011) contend
thar the well-known four Ps of marketing—producr, price, promotion and
place—can be useful concepts go make buying behavior and people's con
Sumption patterns more sustainable, Products, for example, can be designed
to make them more durable, Price can be used to regulate use, for example,
ifthe price of unsustainable products and services is increased. Promotion
‘an be used eo inform the consumer about the superior quality of sustain
able products and services through advertising and communication state
ies. Finally, the place element of marketing can be used by creating service
‘enters that provide easy acess tothe repair and reuse of products
Societal Change
Society seems to be increasingly awae that it has to solve environmental,
social and societal problems in the coming decades. This awareness is in-
fenced by studies and publications of prominent international taskforces
and prominent offcils. The Club of Rome (Meadows, 1972), the World
Commission on Environment and Development (Brundsland and Khalid,
1987), the United Nations Conference on Environment and Development
(UNCED, 1992) and, recently, Al Gore (Gore, 2006) have proclaimed that
patural resoueees ate exhaustible, chat the earth’ eapacity to renew itself i
finite and that natural balance can and will be disturbed and maybe even i
reversibly and dangerously changed (sce also Carson, 1962; Hawken, 1993;
Lovelock, 1980). In recent decades, people's awareness of possible envi
ronmental dilemmas has seemed ro be growing, Environmental problems,
such as climate change, los of biodiversity and the depletion of natural
resources, are becoming issues on the agendas of many countries’ govern
ments, industrial consortia and socital interest groups (Paramanathan, Fae
rulkh, Phaal and Probert, 2004),
Dominant international issues of environmental sustainability are the
change of substance cycles, the depletion of raw material sources, che deple-
tion of finite energy resources, climate change, acidification of the atmo
sphere, the drying of surface and soil and the degradation of biodiversity
(Blackiurn, 2007; Est, Levy, Seebornjak and Sherbinin, 2005}. First, the100
Eco
tom and Sustainability Manageme
problem of changing substance cycles is caused by human activity. Human
activity accelerates natural substance flows and puts new flows of sub
stances in motion. Because there i insufficient control of the cycling of ma
terials from extraction to use to possible reuse to final disposal, substances
are emitted into the environment atthe wrong time, in the wrong place and
in the wrong form. Concomitantly, the polation problem arses and waste
builds up. Second, the depletion of raw material sources can be a problem
because of the finiteness of the commodity stocks of the earth, Single use
fof raw materials and then their designation as waste can lead to.a rapid
depletion ofthe earth’ inventory of raw materials. Thied che possible prob
lem of the depletion of energy resources is a consequence ofthe fniteness
of fossil fuel stocks. Mose current energy consumption is stil hased on the
use of fossil fuels. IF no solutions are devised, energy shortage may be a
consequence. Solutions can be sought by using infinite energy sources such
1 wind and solar energy. Fourth, the possible problems that are elated
to global warming can be major. The prevailing view is that emissions of
carbon dioxide (CO,) contribute to the emergence and further increase of
tlobal warming, the so-called greenhouse hazard. Industry is also causing
this problem. For example during production and transportation of ma-
terials, CO, is emitted into the environment. Fifth, acidification of the a.
mosphere can lead to damage to forests, natural area, cultural areas and
drinking water because ofthe emission of chemicals such as sulfur dioxide
{80,), nitrogen oxide (NO,) and ammonia (NH,). These sulstaners are re
leased during the production and application of various materials used in
production processes. Sixth, the drying of surface and soil represents the
possible problems associated with maintaining surface water and ground
‘water. The consumption of water in various areas is not always adapted t9
the abilities of surface water sources and groundwater sources in the im-
mediate vicinity. Seventh, the degradation of biodiversity includes possible
problems related to the extinction of species and other organisms. Orga
isms release oxygen and nutrients, contribute to degradation of waste and
provide for regeneration of soil. They also facilitate material cycles in which
pollutants are converted into harmless substances or substances that are of
service for the further development of the environment. The extinction of
‘organisms or a disturbance of the relationships hetween types of organise
can have a debilitating influence on the ecological bass forthe well-being
of humans
pon
93. RESEARCH METHOD
Additional empirical and theoretical studies ate performed to further in
‘crease the analytical value ofthe market and society element ofthe model of
‘ecorinnovation and sostainability management for industry.Covinstitutionalization by Market and Society 101
step 1. Shaping the Research Model
‘This chapter builds om the results from the initial study of Bossink (20113
see Appendix 1) te focuses on the market and society element ofthe model
{Section 9.2) and conducts empirical research in various Dutch industries to
study how the market and society element ofthe model holds for other em
pirical contests (Section 9.4), Ie carries out a literature review ofthe infla-
Ence of market and society on sustainable industry in order to explore how
this element of the model can be shaped toward a broader analytical valu
for industry (Section 9.5)
Step 2. Conducting Theoretical and Empirical Studies
Literature databases are consulted for research papers on the influence of
market and society on environmental, ecological, green, socal, societal, bio
logical and sustainably innovative initiatives in industry. In addition to this,
thirty managers and experts in various Dutch industries ace interviewed and
asked to reflect onthe influence of marker and society on sustainability i
‘sues (lindran, 2008),
Step 3. Analyzing and Synthesizing the Studies? Outcomes
The market and society clement in the initial model (Bossink, 201 1a) is com
Fronted withthe additional empirical and theoretical studies. On the basis
of the outcomes of this analysis, the characteristics of the marker and so-
ciety clement atthe co-nsitationalization level are articulated for industry
(ection 9.5)
9.4 EXPLORING THE EMPIRICAL FIELD
“The exploratory interviews indicate that market and societal demand is
changing in favor of eco-innovation and sustainability bue that this change
is taking place relatively slowly. Respondents confiem that once consum
ts and society perceive sustainability as a quality aspect that inc
value of products and services, markets for sustainably produced
grow steadily. This section i the authors interpretation of Indriani (2008),
tnd quotations are taken from that source.
Market Cl
A challenge for business to provide superior product and service perfor
‘mance o customers on the bass of ecological, social and societal features
Various respondents think that this i not easy. Fom the perspective of
consumes the fist question is what a product or service ean do for him orinability Management
co-innou
1. The question what it does to others is maybe important but s not the
primary question of many consumers. One of the respondents articulates
this as follows: “I do beieve—and that applies to all products—t
sumers decide on quality and price, and very little on environme
or hsness therefore isto articulate the
al and so
Sustainable aspects of their pradction processes and products and services
in terms of the primary quality perception of the consumer. This, for ex
ample, means that a cleaner ear can be sold tothe customer asa cheaper eae,
Ifa cleaner car is not cheaper but instead is more expensive, it cam be up.
‘graded by extraordinary design and image that appeals tothe primary buy
ing behavior of the customer. On the other hand, some of the respondents
ate convineed thatthe customer is increasingly aware of sustainability; they
think that when two products are identical, many customers will choose the
‘more sustainable product. The problem is thac che sustainability scores of
most products are not transparent, and when they are transparent, is not
clear how these scores compare tothe scores of competing product. This
is clearly explained by a respondent who thinks that “sustainability is im
portant for most consumers, but Lalso think hat a lot of consumers do not
Enow what sustainability i. The role ofthe government and companies here
isto inform consumers to inform them about the advantages of envion
mentally fiendly products or services” (p. 40). Ths implies that latent cus
tomer awareness can be triggered and served by busines. Despite this, the
respondents’ answers indicate that they are not sure whether large constimer
marke segments will buy and use sustainably produced products and ser
viees. Lemay be that asta celatvely small market segment is willing to pay a
higher price fora product of premium (sustainable) quality. An interviewee,
for example, ays that “perhaps 5 ta 10 percent ofall consumers are ver
ingerested [in sustainable products} and willing to pay more, another 15 «0
20 percent are interested but not willing to pay more ... most consumers
donot want to pay more” (p. 44). This suggests that marketing strategies of
ems may need ta target each segment diferently and with diferent mixes
of pricing, product features and promotion activities. In addition, respon
“ents state that business not only should improve communication about
‘sustainably improved products but also as to develop and design radically
rw sustainable products that outperform the old products. One ofthe in
terviewees in this respect, for example, states that “tis dificult to compete
‘with existing products... . You should really have something new" (p. 46).
Consumers tend to use and stick to traditional procts they are used to,
bur at the same time they adopt new prodits and services because this can
be psychologically exciting and rewarding,
Societal Change
Firms are increasingly aware ofthe opportunites of changing societal di
‘mands and of changes in publie opinions, Most multinational firms dedicateno the
geulates|
pat
fad 80
te the
for ex:
ser et
nbe Up
iy buy
oadents
ys they
pose the
as, This
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ted (0,
this can
fetal de
dedicate
Covinstitutionalization by Market and Society 103
4 chapter in their annual reports to sustainability and corporate social re
sponsibility. Moreover, they appoint corporate sustainability directors who
have to develop the corporate sustainability policy ofthe frm. Fiems know
that society expects them to transform into sustainable firms. They thus
Change operations, analyze their value chains and supply chains ¢0 look
Ghat can be improved and communicate to stakeholders whae exactly has
been changed and what that means to society in terms ofthe firm's ecological
footprint. Fim can invest in societal development, for example, by donat
ing goa nongovernmental organization like the World Wild Fund for Nature
‘WWF} or by introducing eco-cetficates and eco-abels for their products
about eco-labeling, see Appendix 4). With respect to these eco
certificates and eoo-labels, an interviewee says that his frm, a Dutch malk-
national in the food industry, has “several initiatives. We certify sustainable
agriculture [and in cooperation with several other multinationals} cooperate
directly with suppliers” (p. 46) to improve sustainability throughout the
production chain. Respondents perceive an ecovlabel as a means to appeal
to the latent needs of customers for sustainable quality. One ofthe respon
dents states that eco-abels provide “information on the packaging about
the environmental isues concerned. The CO, label is an extensive label. Ie
‘ualifes the amount of CO, emissions per unit of production. Another label
isa sovcalled “airplane logo’ on products, Ths label comes from the debate
‘on food miles; there should be as litle as possible” (p. 47). Interviewees
gree onthe influence of popular media om socictal awareness with regard
I phenomena
nabiley and ecorinnovation. Media attention £0
sch as obesity, food quality and toxicity of packaging informs society and
triggers industry to progecttheie business, While this can be taken care of
‘with lawsuits and ather defensive reactions, espondents comment that ther
firms want to take the route of business improvement. The, for example,
redace the number of calories in their food products to fight obesity. An
Jnterviewee from a nongovernmental organization observed that “we pub-
lished an article, which proclaimed that [obesity] also isa responsibilty of
industry. «The next day we got a phome-call from [a multinational food
‘company]” (p. $8) chat wanted to cooperate and work with us on solutions
‘This san example of societal change and is influence on busines. This pro
css of give and take, action and reaction and question and answer berween
sociey and business can be a driver of increasing sustainable business. The
interviews indicate that frm interact with society and that this interaction
results in ongoing business and societal change
9.5 DEEPENING THE THEORETICAL BASIS
“The review of the literature farther uncovers che prominent position of
changing eustomer behavior and societal awareness as factors that conteib-
tte tothe insitationalization of eeorinnovative and sustainable practiceinnovation and Su
bility Management
hero, MeDonagh and Dobscha (2010) argue that consumers’ mo-
tives for buying sustainable, green of eco-innovative produces and services
have certain constant characteristics and that gr
cgorized. Prothero, MeDonagh and Dobscha (2010) introduce a typology
Of four consumer types. Their fist category is the so-called blind green con:
Sumer, The blind green consumer buys gecen products because they provide
Certain benefits, which do not have to be related to the sustaina
SelP interests the main motivation co buy. To this type of consumers, sus
tainabilty is nota priority. Other isues are more important, uch as cost
Savings. The blind green consumer, for example, euses goods because this
saves money. The next type of consumer is che individual green citizen. The
individual green citizen is environmentally aware and buys products and
services for reasons of self-interest thae directly relate co the sustainability
spect. The sustainability aspect ofthe product or service provides the buyer
a desired experience and feeling, Such a consumer ype
for example meat from chickens that had plenty of space in a natural en
vironment and were not imprisoned ina breeding plant. They buy this be
cause they believe tis healthfl. The thied consumer type is the collective
jgreen consumer The collective green consumer is driven by the a
that buying behavior can have a large impact on society. The collective
jreen consumer is motivated by concer forthe common interest. This con
Sumer type knows that buying behavior can have an influence on environ
mental issues. Ircan change industry and change environmental footprints
For example, this consumer inty buy a electric car and, by doing $0,
to contribute change in the automobile industry. The fourth type of
customers isthe collective green citizen. The collective green citizen i ike
the collective green consumer, interested in conteibuting to industrial change
ward sustainability, bat inthis case not by means of buying, The collec
five green citizen focuses on stot baying, on reuse and redistribution and on
alternative types of consumption. Collective green citizens want to reduce
their dependence on buying patter and the associated production systems
land act to develop new alternative systems that are less unsustainable, An
example isa person who buys clothes from a secondhand store. Prothero,
MeDonagh and Dobscha’s (2010) typology provides insights into how to
appeal to consumers’ neds and mental patterns that direct buying behavior.
Governmental, nongovernmental and commercial organizations can, for
example, orient their communication and promotion campaigns to these
fitferent types of consumers. Product development and design in fms ean
integrate aspects that ft with one or more of these consumer types. They do
fot require that consumers change. They suggest that business activity an
Change by appealing to consumers’ nceds and, by doing so, change ind
‘Steuret and Konrad (2009) present several guidlines fr ims coeporate
social responsibilty policy. According to Steurer and Konrad (2009), cor
porate responsibility means that fi
mental responsibilities, They state tha economic responsibilty drives a firmservices
me cat-
ppology
jprovide
y aspect
fas cost
suse this
cen. The
ets and
inability
he buyer
tc food,
ral en
plein
pls
fis con
pcs
pare of
is ke
i
cal:
Fieisce
pian
—
Bhow vo
fovion,
fr
othe
Ate do
ides
Brose
Dh co
—_
ba frm
i
(Co-institutionalzation by Market
ible 9.1 Frame of Reference for Market and Society's Inlucnc
Sistine Innovation in intey
Marker and ose ‘Character
‘Marker change Market changes can simulate fms to produce product and
‘Services hat contnbute to consumers well-being can
‘ulate firms to redoce hcie environmental fooepns,
ray ask firms vo come with sustainable products that,
appeal to coasuner’ primary a wel as leet needs
sce change
ral change an stile ems wo conebute to
international sustainability issues fg, change of
substance cycles, deplesion of exw material sources,
deplesion of Ente energy esouess, climate charg
aciifcation ofthe atmosphere, deying of surface and sil
tnd degradation ofboiezsy), can stimulate Br
are for sci, an mate Ses to take responsibil
to perform in a way that enables the company to continue for an indefinite
time” (p. 27). The firm thus must sure is financial performance, long
term perspectives and economic impacts. This can be taken care of by gen-
crating sufcient cash flow, turnover and profs. This economic aspect has
& sustainable side. It implies thar the frm must be competiive inthe vese
‘hati is durable. I must have an economic impact on various stakehold
crs fi isto survive in the long term. Stearer and Konrad (2009) contend
‘hata firm's social responsibilty i “to contribute co the social well-being of
the society and individuals” (p. 27). Wi respect to this, they elaborate on
the concept and meaning of “equity” and distinguish among several types
‘of equity, Firms, for example, can target an equal distribution of income
Within the firm. Morcoves, che frm can contribute ro good and improved
social conditions inside an outside the frm. In addition to this, Stenree and
Konrad (2009) define a fms enviconmental responsibility as its obliga
tion “to maintain natural capital co a certain (paradigm specifi) degree”
ip. 27) This definition implies thatthe sustainable paradigm or basi prin
ciple a fem chooses determines how and why natural capital s maintained
Steurer and Konrad (2009) write dat fiems most be transparent and report,
and communicate theie sustainable performance. They have to be reflexive
and open to suggestions from the outside world to repair environmental
damage they have caused. Progress on this must be reported, evaluated and
monitored,
The research in this chapter indicates that market and society are pow
erful dynamic forces and drivers behind insitutionalzation of sustainable
innovation in industyy. Market and societal changes put pressure on and
provide incentives for firms to generate substantive sustainable business106
Eco-innovution and Sustainability Management
The frame of reference in Table 9.1 shows the characteristics of market and
societal forces that drive eco- and sustainable innovation
Te research inthis chapter indicates that macket and society ean stimu
late organizations to grow their eco- and sustainably innovative business
96 SUMMARY
Market and society are the frst element atthe co-nstcutionalization evel
‘of the model of eco-innovation and sustainability. The esearch shows that
market and societal change can induce firms to
innovative and sustaizable. When market change and societal change are
in favor of cco innovation and sustainability, they cam stimulate firms to
strengthen their sustainable initiatives, They can inspire niche players that
focus on specialized markets to transform into mass producers of stain
able products and services. Market and society age an important insti
tional factor that can enable sustainably innovating fiems to grow large
‘conquer the market and change industry. The second important factor a the
¢o-nsttutionalizaion level is knowledge and technology This isthe subject
lof the next chapter
dapt and hecome eco