Entrepreneurship, Innovation and Sustainability

Marcus Wagner

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781906093730
• eBook ISBN: 9781351277747
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

This book addresses the intersection of entrepreneurship, innovation and sustainability (EIS), presenting high-quality research illuminating the relationship between the three fields. The EIS nexus is particularly relevant from a European point of view given the focus of the European Commission on corporate social responsibility (CSR) and sustainability, as well as their prominent role within the European Union in general. Also, the rapid economic growth witnessed especially in the BRIC countries in recent years requires that firms reconcile sustainability aspects with profitability and innovation, and entrepreneurs are seen as key diffusers of these aims. Sustainability requires both radical and incremental innovation at many different levels (technology, product, process, system). In many cases, such innovations come from small and medium-sized enterprises and so the role of the entrepreneur is key to their success.

The book is split into six sections. The first section examines the nexus in detail focusing on system-oriented connectivity between sustainability, innovation and entrepreneurship. The second section looks at how to nurture corporate entrepreneurship for sustainability; and the third considers "mature" industries such as automotives, chemicals and electronics and how sustainability aspects can be integrated into innovation process and strategy. The fourth section examines the nexus through the lens of developing countries in Africa. Sustainable entrepreneurship is identified as a hugely beneficial way to foster development. The fifth section of the book concentrates on SMEs; and finally the EIS nexus is approached from a network perspective and focuses on inter-organisational partnerships, which are often an important facilitator or spark for EIS initiatives.This book will prove to be essential for researchers in the EIS nexus and be of invaluable help to practitioners, governments and inter-governmental bodies attempting to encourage sustainable entrepreneurship and innovation.

1
Entrepreneurship, innovation and sustainability

An introduction and overview¹

Marcus Wagner
Julius-Maximilians-University of Würzburg, Germany

This volume addresses the intersection of entrepreneurship, innovation and sustainability, aiming at the provision and presentation of high-quality research illuminating the relationship between the three fields. The nexus of entrepreneurship, innovation and sustainability is particularly relevant from a European point of view given the focus of the European Commission on corporate social responsibility (CSR) and sustainability as well as the prominent role of the latter in the Framework Programme of the EU (e.g. European Commission 2008). Also the Lisbon Agenda, with its focus on the quality of life of European citizens, requires that firms reconcile sustainability aspects with profitability, and innovation and entrepreneurship have been identified as key to defuse sustainability demands, which immediately leads on to the question of how innovation can be directed to specific forms of technological progress (beyond policy-makers attempting to merely influence the rate of innovation).

Important starting and reference points in this respect are the entrepreneurship and innovation management and economics literatures. Notably these distinguish between radical and incremental innovation (Arrow 1962; Henderson and Clark 1990) on the one hand and into product, process, service (e.g. car sharing), organisational (e.g. environmental management systems), institutional (e.g. eco-clubs), system-oriented (e.g. industrial ecosystems) and function-oriented innovation (Afuah 1998; Kirschten 2005) on the other.² Furthermore, the product innovation literature increasingly distinguishes discrete and complex product architectures because the appropriation of profits from innovation differs between these two types with implications especially for business model choices (Davies and Brady 2000; Hall and Martin 2005).

Sustainability-improving innovation seems to require both (technologically) radical innovations that massively improve the environmental or social performance of goods or production processes while not altering consumer benefits, and utility and incremental (product- and process-related) innovations in the existing production and consumption systems due to (partly irreversible) path dependencies causing at least temporal lock-in and inertia. Under these conditions incremental innovation can make an important contribution by improving the eco-efficiency of production processes and environmental performance of goods in the short term at least to some degree. Yet incremental innovation is frequently unable to realise a globally optimal system configuration in a multi-dimensional production and consumption system space (Larson 2000; Frenken et al. 2007).

This raises the question as to what the conditions are for spontaneous emergence of sustainable entrepreneurship or sustainability-improving innovation (be it in larger or smaller firms or for the mass market or an initial niche, respectively) and a key requirement for such spontaneous emergence seems to be indeed the existence of a business case. Table 1.1 summarises different realisable combinations with regard to a business case and the type of innovation and also relates these to the seminal paper of Teece (1986), who argues that profiting from an innovation ultimately depends on the interplay of complementary assets, appropriability regimes and the existence of a dominant design (Utterback 1994).³

Table 1.1 Relationship between business cases based on Teece 1986 and innovation

Type of innovation/ phase	Appropriability regime strong and no complementary assets needed	Appropriability regime strong and complementary assets needed	Appropriability regime weak and no complementary assets needed
Product innovation before dominant design	Eco-entrepreneur or social entrepreneur (e.g. Tesla, Ballard Power, Shai Agassi)	Incumbent managing or administrating sustainability or eco-entrepreneur	Social entrepreneur or lead user (e.g. car-sharing, especially relevant in case of service innovation), less strong incentives for eco-entrepreneur
Process innovation after dominant design	Incumbent can take over innovation lead (e.g. Honda, GM Volt, Smart)	Incumbent takes over innovation lead (e.g. photovoltaics, wind energy)	Incumbents can take over, but more difficult than with complementary asset need
Early diffusion	Regulation to push/ accelerate diffusion (e.g. feed-in tariffs for renewable energies) has strongest impact because entrant does not depend on negotiations to access complementary assets	Regulation to push/ accelerate diffusion but problematic because mainly incumbents would benefit (may acquire eco-entrepreneur)	Regulation to push/ accelerate diffusion but problematic because entrants and incumbents both can imitate more easily
Advanced diffusion	Entrant or incumbent can take over market, but may not be achieved if process innovation does not reduce cost to commodity level (vertical product differentiation or market segmentation in 'light' green mass and 'dark' green niche suppliers is a likely result)	Innovation takes over the complete market (if process innovation brings down cost to commodity level without compromising sustainability benefits) and incumbent takes over full market	Diffusion less often pushed/accelerated by regulation because imitation is very easy (high potential that takes over the complete market but also prices quickly move to commodity level and profits are low)

Sustainability-improving innovation that is suitable for the mass market is often system- or function-oriented innovation. However, such system- or function-oriented innovation often builds on more basic product and process innovations (e.g. new forms of data available at reasonable cost in the case of car-sharing) and on a sequence of more radical and more incremental innovation (Utterback 1994; Hall and Vredenburg 2003).

Importantly, in the context of this volume, many sustainability-improving innovations (which tend to require some level of technological radicalness) are carried out by smaller firms, reflecting the theoretically and empirically well-established negative association between firm size and the level of technological radicalness of an innovation (Schumpeter 1934; Markides and Geroski 2005; Harms et al. 2010; Schaltegger and Wagner 2011). This implies a significance of entrepreneurship for the nexus of sustainability and innovation. Therefore addressing the entrepreneur-ship–innovation–sustainability nexus from the point of view of small and medium-sized firms is an important contribution.

Concerning innovations that are not suitable for the mass market, but can survive in a niche, these frequently go along with providing supply for a peer group initially, and this is especially related to startups. For example, the supply of ecological food products can often be traced back to founders emerging from the green movement that start out their activities with customers from a specific milieu/peer community.

This coincides with an interesting logical paradox: namely, the question of whether there can really be a business case.⁴ Defining sustainability as bundle of public goods (intra- and inter-generational equity, improvement or preservation of environmental quality, and protection of human health), if a firm pursues a sustainability-oriented or socially responsible activity with the intention to profit economically or financially from it, then that would imply that stakeholders (especially critical ones, see Mitchell et al. 1997; Phillips et al. 2003) voice concerns about the true social benefit of this. As a result, the reputation of the firm may be tarnished, leading to lower sales volumes and/or lower price levels. Thus such activities, if initially pursued with an instrumental stance aiming for economic benefit to the firm, rather than out of altruistic motives, would ultimately lead to just the opposite situation. The firm will experience difficulties in benefiting economically from these activities because they are not perceived to be very socially beneficial but rather driven by enlightened self-interest and hence the initial assumption is contradicted.

Conversely if a firm pursues sustainability-oriented or socially responsible activities initially with altruistic motives in mind, the improved product or corporate image resulting from this can result (even if not at all intended by the firm) in higher sales volumes or prices (assuming that at least some customers have a positive willingness to pay for certain reputational characteristics of a product or service) which may again cause concern (subsequently voiced) for some stakeholder groups. The same applies to a sustainability-improving innovation that is pursued by a firm on purely altruistic grounds: that is, beyond any enlightened self-interest and without any short- or longer-term economic benefit. Again such action could enhance the (product or corporate) image of the firm, leading to higher sales which would logically contradict the basic assumption that the firm acts altruistically and without own benefit.

In summary, adapting the well-known economist’s saying, there is no such thing as a business case for sustainability, at least ex ante: paradoxically sustainability-oriented or socially responsible activities that are largely altruistic should result in higher reputation gains and hence economic benefits whereas if such activities are motivated by self-interest precisely this will likely reduce economic benefits or even cause disbenefits.

From this perspective it seems that the notion that corporate social responsibility is a moral imperative, and not an element of the tactics toolbox of companies to maximise profits, is in some way reconciled with Milton Friedman’s famous quip. This is what can be called the paradox of the business case for social responsibility and also sustainability at large and sustainability-improving entrepreneurship and innovation are crucial to resolve it. This is because innovation and entrepreneurship, leading to new combinations in the sense of Schumpeter (1934), are likely the best means to, at least to some degree, surmount the above paradox. Hence any (expost) business case for sustainability needs to be based on sustainability-improving entrepreneurship and innovation as a necessary precondition, which is why the topic of this volume is highly relevant also in this context.

While the original call for this edited volume was rather broad, inviting original research contributions (both empirical and conceptual) in areas as diverse as innovation and sustainable enterprise performance, the role of entrepreneurship for sustainability, integration of sustainability into innovation routines and innovation strategies, the analysis of capabilities required for sustainable innovation, linkages of open innovation and user innovation to sustainability and entrepreneurship, the role of policy instruments and regulation for fostering sustainability-improving innovation and sustainable entrepreneurship, sustainability-improving innovations in specific industries, diffusion aspects of sustainability-improving innovation and sustainable entrepreneurship, and innovation and entrepreneurship for sustainable business models and product-service systems, the ultimate outcome has interestingly narrowed down to a more focused set.

Specifically, the ultimate set of contributions in this edited volume fills an important gap by focusing on less studied areas at the nexus of entrepreneurship, innovation and sustainability. These concern especially the fringes of this nexus: namely, small and medium-sized firms, developing countries, weaker stakeholders and mature industries. While comparatively more has been written, for example, about high-technology startups and industries, the areas addressed in the chapters to follow help to provide a more complete picture of the field. Having defined and discussed different types of sustainable innovation and their relationships to sustainable entrepreneurship, next an overview of the different chapters is provided, putting these into an overall context.

The first section of this edited volume comprises two chapters dealing with integrative views at the nexus of innovation, entrepreneurship and sustainability (EIS). In Chapter 2, Dyerson and Preuss make a case for a multi-level approach to analysing this nexus in order to reveal a connectivity that operates at the level of the individual, the level of the firm, the level of the infrastructure that surrounds innovations and the level of society. This call is in fact supported by empirical research that shows how different levels interact in bringing about entrepreneurial action with high societal benefits (Wagner 2011). Chapter 3 by Verhulst et al. similarly addresses from a conceptual point of view the implementation of sustainable product innovations, with a focus on human factors that influence this implementation process, and the emergence of sustainabl...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Foreword
• 1 Entrepreneurship, innovation and sustainability: an introduction and overview
• Section I: Integrative views of the EIS nexus
• Section II: Corporate entrepreneurship for sustainability-improving innovation
• Section III: EIS in mature industries
• Section IV: EIS in developing countries
• Section V: EIS in small firms
• Section VI: EIS in a network perspective
• About the contributors
• Index