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 markethe cat he pro When da, this 1 soc becom itional hs can explicit sheler Tn the es and sinabil dame pabout while 0 ask their ask narket petheie mass 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. Most98 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 pabilty hey de bs from svi nan slice’ befor iption al foot 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, the100 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 orinability 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 dedicateno the geulates| pat fad 80 te the for ex: ser et nbe Up iy buy oadents ys they pose the as, This donot es ere this the and ser are very 1S 10 egies of n about radically the in compete ‘i. 46) 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 practiceinnovation 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 firmservices 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 business106 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