The themes of technological innovation, entrepreneurship, and organizing

Social Innovation, Environmental Innovation, and Their Effect on Competitive Advantage and Firm Performance

Javier Amores Salvado

Universidad Complutense de Madrid, Spain

Jose Emilio Navas Lopez

Universidad Complutense de Madrid, Spain

Gregorio Martin de Castro

Universidad Complutense de Madrid, Spain

ABSTRACT

The proposal below provides a special emphasis on the relationship between businesses and natural environment. It is argued that the inclusion of environmental criteria to business activities promotes the creation of new core competencies, offering a creative and innovative perspective to the organization that can lead to the achievement of sustainable competitive advantages. More specifically, we analyze both the existence of a direct relationship between Environmental Innovation and Firm Performance and the existence of an indirect relationship between the two, which highlights the mediating role of the kind of competitive advantage generated. It also provides an innovative approach, as it explains the Environmental Innovation from the literature on Social Innovation, considering Environmental Innovation as an expression of Social Innovation through the incorporation of ethical arguments to products, processes and organizational modes of the company. The main contributions of this work can be summarized as follows: (1) It explains the nature of Environmental Innovation through the Social Innovation literature, which allows consideration of some key aspects of administrative and technologi­cal innovations that have not been taken into account the academic literature. (2) The different types

DOI: 10.4018/978-1-61350-165-8.ch006

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of environmental innovations are analyzed as a necessary step to understand the strategic options in the environmental field. (3) Environmental Innovation is related to business performance. The practi­cal implications of the relationship between environmental innovation and performance are of great importance, since it directly influence the type of environmental strategy chosen, allowing the company to choose from innovative strategies (based on pollution prevention) or more conservative strategies (emissions control).

INTRODUCTION

The concept of Social Innovation is directly linked to the idea of change. The systemic changes offer many opportunities for Social Innovation and the societies at large are immersed in learning new habits and rules. New forms of efficiency and new ways of seeing and doing things are discov­ered. The connection between Social Innovation and changing environments is confirmed by the words of the Nobel Prize Simon Kuznets (Pol & Ville, 2009). According to Kuznets, without the existence of firms and banks (both defined as social innovations), the industrial revolution had not taken place, and also would have been much more difficult the development of railways if they had not also developed securities markets.

Nowadays, our society is experiencing a time of change, the paradigm shift towards Sustain­able Development, defined by the Brundtland Commission (World Commission on Economic Development, 1987) in its report to the United Nations as the kind of development that meets the needs of present without compromising the needs of future generations (Sharma & Vreden - burg, 1998). Although industrial development of the last two hundred years has brought prosperity and wealth, it has unintentionally caused environ­mental degradation as well (Shrivastava, 1995). Industrial activity has grown to such an extent that has already produced irreversible effects on our global environment, including impacts on climate, biodiversity and ecosystems.

For these reasons, companies must be able to reduce their emissions and their levels of consumption of materials, developing new clean technologies that are more efficient than current and inclusive business models that facilitate the creation and distribution of wealth more evenly.

According to these arguments, in this chapter we will analyze the role of the Environmental In­novation (understood as an expression of Social Innovation) in achieving business results. Taking Social Innovation as starting point, throughout the chapter the nature, determinants and types of environmental innovations will be shown in order to show a complete picture of the topic. More specifically, both the existence of a direct relationship between Environmental Innovation and Firm Performance and the existence of an indirect relationship between the two will be analyzed, highlighting the mediating role of the kind of competitive advantage generated.

A broad concept of Social Innovation is used, which allows consideration of some key aspects of administrative and technological innovations that have not been taken into account the academic literature. Furthermore, the practical implications of the relationship between Environmental Inno­vation and performance are of great importance, since it directly influences the type of environ­mental strategy chosen, allowing the company to choose from innovative strategies (based on the creation of new core competencies via pollu­tion prevention) or more conservative strategies (emissions control).

The remainder ofthe chapter will be structured as follows: The first section discusses the concept of Social Innovation. A review of the major con­tributions made by the literature regarding the term is carried out. Additionally, a definition in line with the concept of Environmental Innova­
tion is proposed. The second section examines the concept of Environmental Innovation emphasiz­ing its nature, determinants and typology, and the third section highlights the relationship between Environmental Innovation with the economic performance of the company. Finally, the main conclusions will be provided.

SOCIAL INNOVATION

Social Innovation is an emerging field that remains under-researched (Social Innovation Exchange and Young Foundation, 2010). Very few are the efforts to classify and organize the various con­tributions. In this sense, is very interesting the contribution carried out by Pol and Ville (2009), which discusses some of the definitions given to the concept of Social Innovation elaborating a four group classification (understanding the concept as linked to institutional change, to social purposes, to the public good or to the satisfaction of needs not covered by the market).

On this first contribution, and taking as refer­ence the characterization of the different types of businesses proposed by ProfessorYunus (Yunus et al., 2010), two basic directions can be identified in the existing definitions in Social Innovation litera­ture as shown by the four quadrants of Figure 1.

On the one hand, companies can be seen as profit-maximizing businesses, and on the other, non-profit organizations exist to fulfill social objectives. In between, we can find social busi­nesses that at the same time have to cover opera­tions cost but also are more cause-driven than profit-driven. Both, companies and social busi­nesses have the potential to act as change agents for the world and also be economically viable. On the contrary, not for profit organizations, usu­ally, are not economically viable, and their objec­tives are more aimed to meet the social needs of those more disadvantaged than to create a global change.

The distinction outlined above fits perfectly with the two main streams on the literature on Social Innovation. Thus, as Pol and Ville (2009) pointed out, some authors associate the term Social Innovation with the idea of institutional and social change (Lewin, 1947; Scherhorn et al., 1997; Duchin, 1999; Mumford, 2002; Martin, 2006; Hamalainen & Heiscala, 2007; Centre for Social Innovation, 2008). This approach provides
a wide-ranging concept, since it does not focus only on meeting specific social needs but also understands the term as a necessary instrument that accompanies the change in values, ways of acting and thinking and institutions. Understand­ing the company as an agent of social change (Bies et al., 2007), one can see that this conception of Social Innovation is perfectly compatible with the entrepreneurial phenomenon. Following Yunus et al., (2010), within this category can be included some businesses whose objective is to maximize the economic benefits such as those based on the use of green technologies or social businesses in general (understanding these as those that maximize social benefit and are also financially sustainable). (Figure 1, top and bottom right).

In contrast, other authors, in defining Social Innovation emphasize its social mission (Taylor, 1970; Gabor, 1970; Forum on Social Innovation (OECD); Mulgan, 2006; Phills et al., 2008, Pol and Ville, 2009). So, they argue that Social Inno­vation’s mission is to satisfy unmet social needs. This conception does not explicitly links Social Innovation with the idea of change, meaning that the Social Innovation fulfill its mission if social needs are met, even ifthis does not mean a broader social change. This emphasis on the social aspect of the term, place it near from philanthropic activities and away from the idea of economic benefit. Within this category can be included those activities carried out by nongovernmental organizations (NGO’s), most of which are not created to recover the full cost of their operations (Yunus et al., 2010). (Figure 1, bottom left).

Once exposed the different approaches given to the term, this chapter will focus on the devel­opment of the former. That is, starting from the idea of Social Innovation and change we will try to reconcile the achievement of economic returns with the Sustainable Development paradigm through Environmental Innovation.

The authors that associate the term Social In­novation with the idea of institutional and social change, provide different definitions ofthe concept (Table 1). Lewin (1947) conceives the researcher as a strategist for Social Innovation and demands the production of theories for the transformation of society.

From another point of view, changes in life­styles or behavior of consumers are often defined as Social Innovations (Scherhorn et al., 1997). Duchin (1999) argues that the idea of Social In­novation is new and requires not only new tech­nologies but also new lifestyle dynamics.

In the same vein, Mumford (2002) consid­ers the Social Innovation as the generation and implementation of new ideas about how people should organize their interpersonal activities or social interactions to get one or more common goals. It adds that the Social Innovation can lead to the development of new business practices, processes and procedures.

This view is consistent with Martin (2006) who stresses that social experimentation is beneficial for Social Innovation and claims that the biggest obstacle for Social Innovation is the drag created by entrenched interests.

Also emphasizing the idea of change, (Ha - malainen & Heiscala, 2007) understand Social Innovation as the changes in social structures that enhance the social and economic performance and the collective power of resources. Also, on the same line, mention must be made to the definition given by the Centre for Social Innovation, that trying to define the concept, understands as Social Innovations those new ideas that address current economic, social, cultural and environmental chal­lenges to benefit the planet and the people who inhabit it. Thus, authentic Social Innovations are the ones that change the system by altering the perceptions, behaviors and structures (Centre for Social Innovation, 2008).

As mentioned above, this orientation is typi­cal of companies that understand the changes as business opportunities. It is therefore considered that the fact of adding a social dimension to the value proposition of the company offers a new frontier in competitive positioning (Porter & Kramer, 2006).

Therefore, after consideration of the literature on Social Innovation and the various proposals that are encompassed within it, we understand Social Innovation as the combination of innova­tive activities carried out by the company with the potential to promote social change. This social change is expressed through the incorporation of ethical arguments to the products, processes and organizational modes of the company and results in changes in consumer behavior, changes within the enterprise and changes in the company’s rela­tionship with the social and natural environment.