Is your business embracing the disruptive forces of a low-carbon world as Ford and Ben & Jerry’s are? Over the next 10 years, climate change will drive industrial disruption at rates that previously seemed unimaginable. In response, policy makers must come to terms with the need to keep the mean global temperature rise to 1.5°C.
Hyperbole, you say? We are already seeing rampant climate-induced change in every corner of the economy. Just look at the food, transportation, and energy sectors. According to the IPCC, climate change has already reduced wheat, rice and corn mean yield in tropical and temperate zones and will continue to do so. New U.S. CAFE rules are driving innovation in the automotive sector. The largest U.S. coal company recently filed for bankruptcy. These changes will be as big or bigger than the technology-induced disruptions at the turn of the century, such as new business models (Amazon), new industries (smartphones), and democratized information (Google).
Businesses intent solely on driving manufacturing efficiencies in their operations and tweaking logistics and packaging will not take us to the 80-90 percent GHG reductions needed by 2050. Companies limiting themselves to these approaches will find themselves displaced by startups with new models or competitors with a more comprehensive strategy based on product innovation.
Science-Based Targets as a Driver of Product Innovation
With science-based greenhouse gas targets calling for indexed reduction targets of 6 percent per year, no company can deliver with an approach limited to simple enhancements to products and services. Companies need to embrace a more complete set of strategies – including next-generation platforms, radical breakthroughs, and open innovation.
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“Ben & Jerry’s climate strategy reflects the reality that the sooner we act to solve climate change, the less economic, environmental and societal disruption there will be,” stresses Andrea Asch, Manager of Natural Resources. In the wake of a highly visible 2015 campaign to encourage consumers to take action on climate change, global ice cream maker Ben & Jerry’s recently announced its intent to develop a science-based carbon target. The company had already established an internal price on carbon to fund innovation in its dairy supply chain, which is responsible for more than 40 percent of its life cycle GHG emissions.
Ford is also thinking differently. Its latest corporate report states, “To remain successful, we need to adapt and transform. That’s why our strategy has one foot in today and one foot in tomorrow, encompassing our core business as an automaker and new opportunities in mobility.” Under Ford’s climate change strategy, “to develop products and practices that reduce our impact and tackle the challenges of climate change,” the company is pursuing improved fuel economy, lightweighting, and alternative fuel vehicles. It has also committed to invest $4.5 billion in electrified vehicles and to produce 13 electrified models by 2020.
Ford’s strategy also includes working on mobility and connectivity by building smart cars to improve the driving experience and help guide drivers to their destinations. The company is searching for solutions that enable vehicles and other modes of transportation to interact with one another and non-automotive infrastructure such as trains, pedestrian walkways, buses, and bikes. Ford’s recent investment with Google to develop driverless cars is a form of collaboration and breakthrough innovation that will trim emissions through more efficient driving. Solving these social, economic, and environmental challenges could be a $130 billion business opportunity for the automotive market, and Ford, the other incumbent manufacturers, and newer innovators such as Tesla all seek to take part in this opportunity.
Fear Not the Innovator’s Dilemma
The radical innovation environment prompted by climate change doesn’t bode well for established companies – at least that’s the argument laid out in Clayton Christensen’s best-selling book, The Innovator’s Dilemma. Christensen’s argument draws on the asymmetric incentives between entrants and incumbents. New entrants get excited about a small niche market and invest at an early point and gain first-mover advantage and momentum. Incumbents, the theory goes, face high opportunity costs and cannot invest - they will only enter the market when it’s too late. Think about personal computers disrupting main frames and minicomputers or cell phones disrupting landlines.
So what are the keys to success?
Follow a diverse innovation strategy, one based on a balance between enhancements, innovations, and truly disruptive projects. Make sure the leaders at the forefront of your company’s innovation engine understand that climate change may be the ultimate moonshot.