Sustainability within product portfolio management

Sustainability within Product Portfolio Management

PhD Candidate

Design for Sustainability group, Faculty of Industrial Design Engineering Landbergstraat 15 2628 CE Delft The Netherlands Phone: +31 (0)15 2782120 Fax: +31 (0)15 2782956 E-mail: r.wever@tudelft.nl www.io.tudelft.nl/dfs Casper Boks Professor

Department of Product Design, Faculty of Engineering Science and Technology Norwegian University of Science and Technology (NTNU)

Kolbjørn Hejes vei 2b NO-7491 Trondheim Norway Phone: +47 73 590102 Email: casper.boks@ntnu.no Conny Bakker Assistant Professor

Design for Sustainability group, Faculty of Industrial Design Engineering The Netherlands

Phone: +31 (0)15 2789822 E-mail: c.a.bakker@tudelft.nl

Abstract

On both a strategic level and a product level a lot is known on how to integrate sustainability aspects. On the intermediate level of product portfolio management this is not true. Here the strategic sustainability goals of a company need to be translated into products. A company wanting to innovate in a green way automatically has to make product portfolio decisions through the choice of where to start. Resources and time are always limited, so a company will want to utilize its R&D capacity most effectively. This process of prioritization has received little academic attention. This paper identifies the different decisions that companies can take related to product portfolios. Of those, the decisions that are ill-addressed by classical EcoDesign tools and methods (namely decisions relating to products

220

Introduction

EcoDesign has traditionally focused on the individual product level, with little attention for product portfolio management considerations. However, (re)design choices cannot be seen separate from their consequences for a company’s product portfolio; rather, such considerations usually come before more detailed decisions on product development, as companies first have to decide how to invest their often limited resources in greening an existing product portfolio, given an internal and/or external incentive to do so. Such incentives could be related to new legislation, but from a product portfolio perspective it is more suitable to consider consumer or competition driven incentives.

The stage of the innovation process where decisions about new product development are taken is in general design theory referred to as the Fuzzy Front End (FFE); see the left side of Figure 1. This is when a company realizes its need for innovation and considers changing or expanding its product portfolio. At this stage however, there is no clear idea yet about the product or service that needs to be developed, nor has a decision been made on the target group of customers. The FFE can be seen as the time prior to an organization’s first screen of a new product idea (Reid & De Brentani 2004). General design theory presents several tools and methods for idea generation in the FFE, such as SWOT analysis, road mapping, trend analysis, and scenarios (Koen et al. 2002). As such, the FFE can be regarded as the first part of the New Product Development (NPD) process as well as part of product portfolio management. Although the FFE is focussed on finding ideas for new products, it may also yield pointers for decisions related to the current products in the portfolio.

Existing EcoDesign literature largely ignores the FFE part of the NPD process (see Figure 1), although the need for including sustainability issues early in the process has been recognized for over a decade (e.g. Bakker, 1995, Bhamra et al, 1999, Cramer, 2000); the common rationale for this was however the notion that on a product level, significant environmental improvements are difficult to realize once a product development is already well on its way. In addition, most existing literature discusses the incorporation of environmental issues as selection criteria (Eagan & Hawk, 1995, Jose, 1996, Cramer, 2000, Ölundh & Ritzén, 2004), i.e. as restrictions instead of as a driver for product ideas. It is the proposition of this paper that by treating sustainability as an opportunity for product portfolio innovation a wealth of possibilities may present itself.

Figure 1: EcoDesign tools focus on the part of the NPD process after a product idea (i.e. the function that will be fulfilled) has been determined. Little or no sustainability tools are related to the Fuzzy Front End of the NPD process.

F

u

zz

y

F

ro

n

t

E

n

d

start

policy

new product idea

product

design

new business activity

?

Typology

Previous research by the authors has suggested that several avenues of action for incorporating sustainability concerns into a product portfolio are open to a company (Wever & Boks, 2006). Building on that, a typology is proposed in Figure 2. This typology clusters the different portfolio decisions in three groups (see Figure 2). The first group of actions focuses on existing products in the product portfolio:

Phasing out or discontinuation from the current portfolio due to inferior performance on sustainability criteria,

Actions to increase the relative market share of the most sustainable product in the current portfolio compared to less sustainable alternatives within the portfolio,

Actions to increase the relative market share of the most sustainable product in the current portfolio compared to competitors’ products, using superior sustainability performance as a source of competitive advantage, for example through green marketing.

Obviously, the feasibility of decisions aiming at manipulating market shares needs to be evaluated on basis of common criteria such as financial considerations, appropriate consumer research related to the functionality and value perceptions of greener products in a greener product portfolio, and competitor activity. Environmental benchmarking has described by Boks and Stevels (2003) as a successful tool for this.

The second alternative is to redesign products currently in the product mix, by considerably lowering the environmental impact of one (or more) of its products, or by introducing a program to gradually reduce the environmental impact of all products in the portfolio.

The third group of actions would be to introduce one or more new products or services in the product mix:

To design and introduce a new product specifically for a low environmental impact, which could or could not be specifically communicated/marketed as such. This could be done on either a product level, or a product-system level, involving additional third parties in the supply chain. It could span incremental to radical innovations from a functionality and technology perspective, but would exhibit significantly lower environmental impacts than previous or other products in the portfolio. (Of course, this could also be achieved through acquisition of a company that already provides these products or services)

To introduce a product aimed at solving an external sustainability problem, a so called ameliorative product (a term coined by Ryan et al 1992), which is a product (or service) that is aimed at reducing an existing social and/or environmental problem that is not caused by the product’s life cycle itself, but rather helps in dealing with a problem that was already there (see Table 1 for a categorization and some examples).

222

Green Product Portfolio decisions

C la s s ic a l E c o D e s ig n

! Increasing the relative share of exiting greenest product within the product mix.

! Discontinuing products with bad sustainability profile

Existing products Redesigns New products

! Introduce an

ameliorative product ! Promoting existing

greenest product in product mix as compared to competitors (i.e. green marketing)

Introduce a new product with low environmental impact. Elements in a new product that might previously not have been present in the portfolio could be: ! a product-service-system

based concept

! supply chain involvement ! radical innovation ! Integrate sustainability

in the product design process, thereby continuously lowering environmental impacts of products on an incremental basis ! Redesign an existing

product to lower its environmental impact considerably

Figure 2: Typology of product portfolio decisions from a sustainability perspective.

Types of ameliorative products Example products Preservation of resources (most commonly

focused on energy and/or water saving)

Grey water systems to flush the toilet

Systems for letting daylight in rooms with little or no windows

Furniture specifically aimed at allowing flexible offices

Prevention, containment and cleaning of pollution

A floating device for quick containment of oil spills in yachting marinas

Protecting human health UV watch, that signals maximum exposure to solar radiation

Disaster relief and Base-of-the-Pyramid* The Lifestraw, a hand held filter that allows people to drink from contaminated water

Table 1: Types of ameliorative products with examples (For further examples also see Ottman, 1992, p.165-166). *The inclusion of this type of products depends on how extensive the social component of sustainability is taken.

Companies will find ample guidance in how to address the issues which are tagged as “classical EcoDesign” in Figure 2 (e.g. Brezet & van Hemel 1997; Tischner et al 2000, Remmerswaal 2000, Crul & Diehl 2006), even though it is an—in literature largely neglected—academic question how to choose between the various options in the first place. One important factor in determining which avenue is most suitable to a company will be their reasons for pursuing a greener product portfolio. If the driver is legal compliance or risk management the actions to take will be different from situations where the driver is a market opportunity or intrinsic motivation of corporate leaders.

Such guidance is only limitedly available for the first group in Figure 2 of decisions relating to products in the current portfolio, and not at all for the option of developing ameliorative products. Hence both will be elaborated in the next sections.

Existing product portfolio

A limited body of literature has been published on sustainability-related product decisions related to current products in the portfolio (Eagan & Hawk, 1995, Jose, 1996, Cramer, 2000, Ölundh & Ritzén, 2004). Their focus is on adding environmental considerations in product portfolio reviews, and setting directions for R&D processes in case design improvements are necessary. A bad score in the business analysis, combined with a bad sustainability profile leads to the suggested discontinuation of a product (Eagan & Hawk, 1995, Jose, 1996).

In practice there have been examples of these strategies related to existing product. Recently it was rumoured in the news that GM is considering selling their Hummer brand, partly due to a negative environmental image. An example of promoting one product over other products in a business portfolio is the promotion of energy saving light bulbs over incandescent bulbs, which is done by companies as Osram and Philips.

Ameliorative products

What most of the options in Figure 2 have in common, including the shift in market shares, is that they focus on green fulfilment of a certain function. The company continues to fulfil the (perceived) consumer need they have always focused on. There is an alternative to this, namely the ameliorative or sustainable-function product. This section will look more closely at this concept, which is defined here as ‘a product (or service) that reduces a negative impact in its surroundings to such an extent

that the reduction exceeds the impact caused by the product’s lifecycle itself’ (Wever & Boks, 2006.

see also Table 1).

This innovation strategy is not a widely followed one. The Eco-Design handbook by Fuad-Luke (2002), which contains hundreds of examples of eco-design products, shows only a few that would fit the definition above. This raises the issue whether companies lack the inspiration and creativity to design such products, whether such products are not interesting enough to be noticed and tagged as sustainable products, or whether there is simply little potential for this type of products. With the objective of understanding possible obstacles in finding successful ameliorative products and to identify potential extensions to current design methodologies, a study of existing ameliorative products was undertaken. In this study, several ameliorative products and the businesses behind them were studied in order to understand how the idea was found and subsequently developed into a new business activity.

The Interflush™ is a water saving device that can be retrofitted in existing toilets. It causes the water to flush only for as long as the handle is pushed down. Hence, once the pan is clean and the handle released, no unnecessary water is spilled. The people behind this product saw themselves confronted with the spilling of water and came up with a solution. This process took three years of design work, after which they took the best solution into production by starting their own business.

The Energykeeper™ is a device that can be installed between a computer and the socket in order to cut off power supply once to computer is switched off (see Figure 3a). PCs and their peripherals continue to consume energy when the PC is switched off. This type of stand-by energy consumption amounts to a substantial amount of total domestic electricity use. Actually the inventor came up with this product when confronted with a newspaper article stating that the domestic stand-by power consumption was as high as 10 to 15% of the total consumption. Based on his invention he started his own company.

224

Figure 3a (left): The Energykeeper (www.energykeeper.com) Figure 3b (right): The Evening Breeze bed (www.evening-breeze.com)

The Evening Breeze™ is an air-conditioned bed, designed for resorts in tropical regions (see Figure 3b). This product idea resulted from the observation of the high energy consumption of the air-conditioning in hotel rooms (80% of the total energy consumption of a hotel room). In an attempt to address this problem, two avenues were combined, first natural ventilation of the rooms (which is sufficient for daytime cooling) and secondly, limiting the air-conditioning to only affect the area around the bed, which is the only area that needs cooling when hotel guests are sleeping. The Evening Breeze uses an integrated bed, mosquito net and air-conditioning. Again the idea was generated outside established business settings. In this case it was further developed together with students from Delft University of Technology. The original initiators and the students started a company around the idea, which is currently testing in real-life settings in the Dutch Antilles and Southern Africa. These three cases illustrate that a focus on solving/reducing external sustainability problems can present a wealth of business opportunities. Although all three products ideas started out from the start as environmental conscious products, none of them originated from an innovation process in established companies aimed at finding new product ideas, nor from traditional EcoDesign projects.

Sustainable FFE tools

To assist designers and managers in incorporating sustainability in the FFE several tools are available, usually in the form of adaptations of existing FFE tools. Eagan and Hawk (1995) and Jose (1996) describe different versions of a matrix tool to assess current product performance. Wever and Boks (2006) discuss a matrix for the generation of ideas. This approach basically resembles the right upper quadrant of an elementary SWOT analysis, but extends it with explicit sustainability options and criteria. It focuses on strengths of the company (such as a competence in a sustainable technology, efficiency in logistics, participation in innovation networks), and matching them with opportunities external to the company (such as increasing customer awareness, opportunities for subsidies for green projects, an environmental problem or environmental legislation faced by the current target group of the company), see Figure 4.

Figure 4: An opportunity-strength matrix used to generate search areas for product ideas, specifically extended to include sustainability aspects on both axes. *In some cases, environmental legislation applicable to a company’s customers can be a strong driver for developing ameliorative products.

Besides generating options for developing a potentially more sustainable product portfolio, companies need to (be able to) decide which action should be given priority. An additional tool that may be useful for this is the EcoDesign matrix. This tool was originally developed for evaluation of (re)design options. It is a qualitative tool that lists the different options generated, and analyses them first regarding their benefits (environmental, social & economical) and than analyses them for their feasibility (technical & financial). This tool can be applied to the Fuzzy Front End decisions as well, as long as different options have been generated (see Table 2). It will force the R&D team to consider potential bottlenecks early on in the project.

External drivers and opportunities

Sustainability drivers and opportunities 1 … ₂ … ₃ … ₄ … ₅ … _Sub si d ie s Env. Legi slati on* W a st e p ro b le m C o m p e tit io n s tr a te g ie s … 1 … 2 … 3 … 4 … C o m p a n y st re n g th s 5 …

Specific material expertise Waste management system Energy efficient plant … S u st a in a b ili ty st re n g th s …

Avenues Environmental _benefits Customer _benefits Social _benefits Economical _benefits Technical _feasibility Financial _feasibility Managerial _feasibility Option 1

Option 2 Option 3 …

226

Corporate practice

Several companies have publicly communicated how they treated the prioritisation of sustainability projects. A well-known example is P&G who have made environmental studies concerning the total energy consumption related to their portfolio (White, 2007; Sauers, 2008). For the products in their portfolio, they found that the energy consumption during use of detergents was the dominant factor by far. Hence they prioritise their efforts towards lowering the temperature of washing, both trough technical innovation of detergents, and through marketing campaigns to get people to wash at 30°C.

Another example is logistics company TNT, which acknowledged that for their company (with a lot of transportation and real estate) CO2 emissions were the logical metric. They formulated a strategy aimed at becoming carbon neutral. For the implementation of their strategy they analysed their business, demonstrating a clear prioritisation based on CO2 emissions: first do something about transport, than about your buildings, and only in the end look at post boxes and postman uniforms. Actions taken so far are the purchase of electrical trucks and switching to green energy. Currently a project on cradle-to-cradle uniforms is being executed.

Conclusions

EcoDesign literature has so far mainly focused on product redesign, and has as such been little discussed in the context of New Product Development nor Product Portfolio Management. Scientific research has largely neglected to address how companies can determine which product portfolio strategies are most appropriate to their existing needs and wishes to profile themselves as companies active in sustainable product development.

Outside the scope of traditional EcoDesign two general approaches can be identified. The first is the manipulation of market shares of products currently in the portfolio, either against other product by the company itself, or against competitors. The second is the design of ameliorative products, i.e. products that are sustainable because they fulfil a green function instead of having a green fulfilment of a given function.

The methodological aspects of designing ameliorative products and of selecting the most appropriate portfolio actions need further research. However, some tools can be identified as helpful in this process, namely the opportunity-strengths matrix for sustainable-function products, in combination with the EcoDesign matrix for prioritizing portfolio actions.

Future research will focus on the appropriateness and effectiveness of variations of tools and methods focussed on incorporating sustainability in the FFE and Product Portfolio Management for multinationals, SMEs, design agencies and environmental consultancies.

Acknowledgements

The authors would like to acknowledge the cooperation of the three discussed companies and the collaboration of several students in collection of the data.

References and Sources

Bakker, C.A. 1995. Environmental information for industrial designers. Thesis (PhD) Delft University of Technology.

Bhamra, T.A.; Evans, S; McAloone, T.C.; Simon, M.; Poole, S.; Sweartman, A. 1999, Integrating environmental decisions into the product development process. Part I – The Early Stages, EcoDesign ’99 conference, Tokyo, 1-2 Feb. 1999

Boks, C. and Stevels, A. 2003, Theory and practice of environmental benchmarking in a major consumer electronics company, Benchmarking: An International Journal, Vol. 10 No. 2, pp. 120-35. Brezet, J.C.; Van Hemel, C. 1997, Ecodesign: A Promising Approach to Sustainable Production and Consumption. UNEP.

Cramer, J. 2000, Early Warning: Integrating Eco-Efficiency Aspects into the Product Development Process. Environmental Quality Management, Winter 2000, pp 1-10.

Crul, M.R.M.; Diehl, J.C. 2006, Design for Sustainability; A Practical Approach for Developing Economies, UNEP.

Eagan, P.D.; Hawk, G.W. 1995, Combining Business Decisions with Environmental Design Analysis. CONCEPT Clean Electronics Products and Technology, IEEE, 9-11 October 1995, pp. 94-99

Fuad-Luke, A. 2002, The Eco-Design Handbook, Thames & Hudson Ltd., London.

Jose, P.D. 1996, Corporate Strategy and the Environment: a Portfolio Approach. Longe Range Planning, 29(4) pp. 462-472

Ölundh, G.; Ritzén, S. 2004, Making an EcoDesign Choice in Project Portfolio Selection, Proceedings Engineering Management Conference, Singapore, 18-21 Oct. 2004, pp 913-917.

Ottman, J.A. 1992, Green Marketing; Challenges & Opportunities for the New Marketing Age. NTC Business Books, Lincolnwood, Illinois. (page numbers refer to 1995 printing)

Reid, S.E.; de Brentani, U. 2004, The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model, Journal of Product Innovation Mangement, Vol. 21, pp. 170-181

Remmerswaal, H. 2000, Milieugerichte Productontwikkeling (in Dutch), Academic Service, Schoonhoven, the Netherlands.

Ryan, C.J.; Hosken, M.; Greene, D. 1992, EcoDesign: design and the response to the greening of international markets. Design Studies 13 (1) 1992, pp. 3-22.

Sauers, L. 2008, Sustainable Innovation Products (PowerPoint presentation). Environmental Sustainability Summit for Food, Beverages and Consumer Products Industry. January 17-18, Washington, DC.

Stevels, A. 2007, Adventures in EcoDesign of Electronic Products 1993-2007. Delft University of Technology.

Wever, R.; Boks, C. 2007, Design for Sustainability in the Fuzzy Front End. Proceedings of Sustainable Innovation 07; Global Building and Construction, Farnham, UK, October, 29-30, 2007, pp. 199-205.

White, P. 2007, Consumer-driven Sustainable Innovation (PowerPoint presentation). Sustainable Innovation 07; Global Building and Construction, Farnham, UK, October, 29-30.