Formulating problems for commercializing new technologies: The case of environmental innovation

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SCAMAN-887; No. of Pages 11 Scandinavian Journal of Management (2014) xxx, xxx—xxx

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Formulating problems for commercializing new technologies: The case of environmental innovation ¨rkdahl a,*, Marcus Linder a,b,1 Joakim Bjo a

¨teborg, Department of Technology, Management and Economics, Chalmers University of Technology, 412 96 Go Sweden b ¨teborg, Sweden Viktoria Swedish ICT AB, Lindholmspiren 3A, 417 56 Go

KEYWORDS Environmental innovation; Green; Problem formulation; Problem solving; Shared vision; Sustainability vision; Environmental vision

Summary Prior research on environmental innovation has highlighted the importance for the firm of a shared environmental vision but has not empirically explored why or what are its effects. The purpose of this paper is to analyze the effect of an environmental sustainability vision for the development and commercialization of environmental innovations. We conduct an in-depth, multilevel investigation of the development of green product lines in a multinational manufacturing firm, based primarily on interview data collected over five years. By analyzing the interaction between environmental vision and the product development process as an interaction between problem formulation and the search for problem solutions, we explain how and why a shared environmental vision can accelerate environmental innovation. Specifically, we show that a shared environmental vision can lead to an increase in the number of application areas, and increased sales of previously customized solutions but that the efficacy of the shared vision is dependent on a good match between the environmental problems being focused on, and the core competencies of the firm. # 2014 Elsevier Ltd. All rights reserved.

Introduction The interest of firms in environmental considerations is growing (Haanaes et al., 2011; Keeble, Lyon, Vassallo, Hedstrom, & Sanchez, 2005). The drivers for companies to become greener and develop environmental or green offer-

* Corresponding author. Tel.: +46 31 772 1948. E-mail addresses: [email protected] (J. Bjo ¨rkdahl), [email protected] (M. Linder). 1 Tel.: +46 708 745185.

ings include a range of factors. First, as population and economic growth increase the pressure on, e.g., waste, water, and consumption of fossil fuels and raw materials, the economics of scarce resources is calling for new solutions effective with respect to the environment. Thus, green initiatives often are directly related to the opportunity to decrease resource consumption and increase efficiency (Florida, 1996). Second, employee morale and a socially responsible firm image are important drivers of firms’ corporate sustainability initiatives (Keeble et al., 2005), and many firms are incorporating energy savings and carbon dioxide (CO2) reduction into their corporate social responsibility policies. Third, regulation is an important aspect of corporate green

http://dx.doi.org/10.1016/j.scaman.2014.05.001 0956-5221/# 2014 Elsevier Ltd. All rights reserved.

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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initiatives (Porter & Van der Linde, 1995) and includes regulation aimed at internalizing negative externalities, plus subsidies for certain technologies and deregulation of certain markets. Fourth, arguably, there will be increased demand from both consumers and firms for environmentally friendly products, services, and production processes (Keeble et al., 2005). Fifth, and partly as a result of the first four drivers, many firms see major opportunities from involvement in environmentally friendly innovations for differentiation (Mont, 2004; Porter & Van der Linde, 1995) and other types of competitive advantage (e.g. Sharma & Vredenburg, 1998). To date, research on environmental initiatives has focused largely on demarcation (what is or is not green) and the drivers of corporate sustainability initiatives (why firms should care). Although there is some research that looks at the ‘how’ of creating environmental innovations (e.g. Carrillo-Hermosilla, del Rio Gonzalez, & Ko ¨, 2009; Epstein, ¨nno ¨la 2008; Esty & Winston, 2006; Hoffman, 2000; Hutchinson, 1996; Lankoski, 2008; Mont, 2004; Porter & Van der Linde, 1995; Roome, 1992; Sharma & Vredenburg, 1998; Stead & Stead, 1995; Steger, 2004), there is still much we do not know. It has been argued that the development of environmental innovations requires a shared environmental vision and explicit goal-setting by top-management (e.g. Figge, Hahn, Schaltegger, & Wagner, 2002; Hart, 1997; Larson, 2000). However, we know comparatively little about how these aspects affect the development of new, environmentally differentiated offerings in established firms. Since there is no reason to assume that a specific environmental vision will lead to profitable environmental innovation in all firms, we need to investigate in depth the relationship between an environmental vision and the commercialization of environmental innovations. The purpose of this paper is to analyze the effect of an environmental sustainability vision for the development and commercialization of environmental innovations by an established firm. To achieve this, we apply a problem-solving perspective (Nickerson & Zenger, 2004) to analyze the process by which an explicit environmental vision leads to the commercialization of environmental offers. We study a Swedish multinational corporation (MNC), referred to here as Bearing Co.,2 and several of the products in one of its business areas — automotives. We contribute to the literature on environmental innovation by highlighting the importance of matching the firm’s environmental vision with its core competencies. We also provide a theoretical explanation for how, under the right conditions, the process can be accelerated.

Theoretical framework We begin this section with a brief review of the relevant prior research on environmental innovation. Environmental innovation is generally seen as embracing all those technologies, products, solutions, processes, services, and new management and business methods that are more environmentally friendly than relevant alternatives, and which at the same

2 The name of the corporation has been disguised for confidentiality reasons.

time add economic value via lower costs and/or improved profitability (Foxon & Andersen, 2009). Environmental innovation has been studied fairly thoroughly from a profitability and business model perspective but we need to know more about the practical implementation of environmental innovations in established firms. This re-emphasizes the topic of corporate environmental visions as relevant for further study. The problem-solving perspective of the firm (Hsieh, Nickerson, & Zenger, 2007; Pounds, 1969) is adopted to analyze the role of problem formulation for innovation activity. We summarize some key points and provide a conceptualization of environmental vision, innovation, and value proposition, utilizing problem terminology.

Environmental innovation Academic researchers have studied the phenomenon of environmental innovation for several decades (e.g. Ashford, Heaton, & Priest, 1979; Hart, 1995; Horbach, 2008; Runge, 1987). The literature focuses on two main areas: (1) the role of policy and other institutions in the development of environmental innovations (e.g. Jaffe, Newell, & Stavins, 2002; Kivimaa, 2008; Porter & Van der Linde, 1995; Wallace, 1995), and (2) the study of competitive advantage in relation to environmental innovations (e.g. Hart, 1995; Hoffman, 2000; Sharma & Vredenburg, 1998; Steger, 2004). While the first of these literature streams could be understood as focusing on potential implications for firm strategy, the second is more aligned to the topic of this paper. Some of the literature on competitive advantage related to environmental innovations focuses on the average profitability of the environmental innovation and appropriation of its economic value. In terms of the profitability of environmental innovations, the empirical studies so far have been inconclusive — or at least not convergent. Some studies find a positive relation (e.g. Hart & Ahuja, 1996; Klassen & McLaughlin, 1996; Russo & Fouts, 1997), no relation (e.g. Johnson, 1995; Lanoie, Laplante, & Roy, 1998; Repetto, 1995), or a negative relation (e.g. Cordeiro & Sarkis, 1997). Ultimately, it seems that under some circumstances there are green business opportunities for some firms (e.g. Carrillo-Hermosilla et al., 2009; Dunphy, Griffiths, & Benn, 2002; Esty & Winston, 2006; Hoffman, 2000; Porter & Van der Linde, 1995). This leads to the question of under which circumstances is environmental innovation profitable? Part of the answer is related to the appropriation of economic value from environmentally differentiated offers. This is a fairly wide and dispersed research area. Productservice systems research (e.g. Mont, 2004), for example, focuses on business models (i.e. the conceptual logic related to how a firm creates and appropriates economic value — Bjo ¨rkdahl, 2007, 2009; Osterwalder & Pigneur, 2010) that are conducive to exploiting environmental innovation, while other studies focus on the role of branding, institutions, and lobbying to identify strategies suitable for exploiting environmental innovations (e.g. Borchers, Duke, & Parsons, 2007; Linder, 2012; Ozaki, 2011; Pacheco, Dean, & Payne, 2010; Roe, Teisl, Levy, & Russell, 2001). However, arguably of more practical concern is how managers of established firms can create processes and routines for the effective development of profitable environmental innovations. It is often

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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Formulating problems for commercializing new technologies argued that in order to achieve environmental innovation, sustainability must be part of the firm’s core strategy (e.g. Epstein, 2008; Hoffman, 2000; Hutchinson, 1996; Maxwell, Rothenberg, Briscoe, & Marcus, 1997; Roome, 1992). For example, Maxwell et al. (1997) argue that successful implementation of an environmental strategy hinges upon the visible commitment of senior management, and good integration between environmental issues and other business operations. A variant of this is a stated corporate vision (Hart, 1995, 1997) and the setting of ‘‘big hairy audacious goals’’ to integrate sustainability into the corporate strategy (e.g. Hutchinson, 1996; Werbach, 2009). The importance of integrating sustainability into the firm’s strategy is supported empirically in Larson (2000) which discusses the importance of a clear environmental vision and goal for the achievement of environmental innovation. However, there is a lack of empirical research that describes in detail the specific case of how the practice of using a corporate environmental vision can relate to the development of novel environmental innovations in firms or their business areas. Conceptualization and analysis of the effect of environmental visions and management goals is not trivial. Both vision and potential novel offering may be vague and illstructured phenomena. Organizational theory suggests that the initiatives of a complex organization are not always simply a direct response to management goals (e.g. Cohen, March, & Olsen, 1972). To address these issues, this paper draws on the literature on managerial problem formulation (Pounds, 1969), and the perspective of firms as problemsolvers (e.g. Hsieh et al., 2007).

Environmental visions and innovations as problem formulations and solutions Many authors have focused on the profitability of pursuing environmental innovation, and examined the business model and appropriation logic as important for being able to realize value from environmental innovation. We take particular note of the claim that the ability to produce environmental innovations requires sustainability to be part of the firm’s vision and explicit managerial goals. Unfortunately, there is a discrepancy in the literature; it ignores the finding, framing, and formulating of problems related to environmental sustainability and their solutions (innovations), how these problems are solved, and how solutions are implemented. A problem-solving perspective is useful for examining the relation between an environmental vision and environmental innovation for two reasons. First, it provides a well-established terminology for analyzing the interaction between problem-formulation (vision development and interpretation) and problem-solving (offer development). Second, it allows us to utilize the generalizability of the well-developed theory on problem-solving and apply it to the special case of vision-driven environmental innovation. For example, Pounds (1969), and more recently Baer, Dirks, and Nickerson (2008), show that managers are often particularly challenged by poorly formulated problems; this finding is reinforced by Lyles (1981) and Ackoff (1969) who emphasize that problemformulation is often the most important determinant of problem-solving success.

3 To define the concept of environmental problem, we start with the general definition of a problem proposed by Pounds (1969) as the difference between a perceived state of affairs and an imagined future preferred state of affairs. An environmental problem is a subset of this concept in which the preferred state of affairs is more aligned to the conditions of a sustainable society. In this paper, we use the four system conditions3 outlined by the natural step foundation and related research (e.g. Holmberg, 1995; Robe ´rt et al., 2002), to define the system conditions for a sustainable society. We do not take a particular stance in the debate over what is regarded as environmentally sustainable. We believe that the arguments developed in this paper apply equally to other definitions of environmental sustainability which consider the energy-saving properties of a product as beneficial. In light of the above definitions, a value proposition for an (environmental) innovation can be conceptualized as (an environmental) problem formulation. It is a problem formulation from the point of view that a current and a desirable future situation can be derived from it (by the prospective buyer). It is the formulation of an environmental problem to the extent that the desired situation is more aligned to the four system conditions for a sustainable society (Holmberg, 1995; Robe ´rt et al., 2002). A corporate environmental vision statement — in fact, any explicit managerial objective related to environmental impact, can be conceptualized as the ‘‘desired situation’’ part of an environmental problem formulation. By its nature, as a vision (or goal), it describes a future desired situation. If there is also a description of the current state of affairs, or a description of the required change, then the required components of a problem formulation exist. To advance our knowledge of how firms formulate environmental problems to commercialize new technologies, and the role of an environmental vision, we investigate the case of a manufacturing firm that launched complete product lines based on solving environmental problems. We address the following research question: How does an environmental sustainability vision impact on the development and commercialization of environmental innovations?

Research design and method This paper builds on an exploratory case study (Dul & Hak, 2008; Eisenhardt, 1989; Ragin, 2008) to provide an in-depth illustration of a social phenomenon not tackled in existing research. Data were gathered between 2009 and 2013, collected from interviews, marketing information, sales material, product brochures, corporate website, trade press, annual reports, and legal documents. We selected interviews as the primary data collection method because they provide a

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The System Condition for social sustainability is stated as 1) Concentrations of substances extracted from the Earth’s crust, 2) Concentrations of substances produced by society, 3) Degradation by physical means, 4) That society’s human needs worldwide are met (Robe `rt et al., 2002, p. 198).

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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rich account of informants’ experience and knowledge (Fontana & Frey, 1994; Holstein & Gubrium, 1997). We conducted semi-structured interviews with managers, typically at or close to executive level (e.g. chief technical officer, business development director, director of corporate sustainability, vice presidents, and sales managers). The interview questions were adapted to the interviewee’s background and function in the firm. The initial interviews aimed at obtaining an overview of the environmental vision and the development of environmental innovations. We then conducted semi-structured interviews with those directly involved in the environmental problem formulation and solution process. In order to limit bias emerging from the emphasis on the firm’s environmental vision, we followed many products that were either initially or eventually classified as environmentally friendly products, and that outperformed previous products in the automotive business area, interviewing those responsible for those products. Hence, we conducted cases within a case, and interviewed managers involved in specific projects aimed at implementing environmental product innovations. These typically were business development managers, product development managers, and sales managers. In order to identify the different types of issues related to the question being investigated, interviewees were asked to describe how the firm formulated and addressed the environmental problem, how solutions were implemented, and the underlying rationale from a technical, commercial, and organizational perspective. We asked interviewees how the above mentioned aspects would grow profit — from an environmental portfolio perspective or from individual environmental innovations, depending on the interviewee’s function in the firm. Fifteen interviews with 14 interviewees were conducted at Bearing Co. (see Table 1), each lasting between one and two hours. Interviews were recorded making it possible to consult the recording. Desk research based on material provided by the firm, and trade press, was used in the development of the interview guides for the different interview rounds, and to complement the information derived from the interviews. Most interviewees were identified by looking at key positions in the firm related to the questions of interest, and by identifying relevant environmental Table 1 The function of the interviewees and number of interviews. Function

Interviews

Chief Technology Officer — HQ Vice President of Sustainability — HQ Business Development Director — HQ Product Development Manager — Automotive Business Development Manager — Automotive Manufacturing Director — Automotive Product Development Director — Automotive Quality and Six Sigma Director — Automotive Sales manager — Automotive Global Segment Manager — Automotive Senior manager — Automotive Senior vice president — HQ Director renewable — HQ Director Venture Management — HQ

1 1 1 2 1 1 1 1 1 1 1 1 1 1

innovations launched by the firm, and those responsible for their development and implementation. Since data were collected over different time periods, we obtained both retrospective and prospective views of the development of the environmental vision and the launch of environmental innovations in the automotive business area. It was hoped that this would avoid exaggerated post hoc rationalization of the firm’s actions and would make it possible to follow up on the performance of the environmental vision and individual environmental offers. The data collection process was followed by writing-up and analysis of the case, and triangulation of the different data sources (Jick, 1979) to increase the robustness of our results. We employed the method of constant comparison, moving between data collection, analysis, and further data collection, based on emergent themes (Corbin & Strauss, 2008). Data analysis was a three-step approach: First, we wrote up short descriptions of each interview in relation to how the environmental problem was formulated and solved for the individual products. Second, we organized and grouped the data on individual cases for the various environmental product innovations. In this step, analysis was conducted primarily according to what Miles and Huberman (1994) refer to as a ‘‘prestructured case’’, i.e. a sequence of events describing the case was identified and mapped before final data collection. In our case, initial sequence mapping was done after several interviews. The mapped sequence was tested and revised in light of interviews conducted three years after the initial set of interviews. Third, we assessed the outcome of the different cases and the roles of environmental vision and top management. Although the initial inquiry was based in part on existing theory, the ultimate purpose was to develop new insights through iterations between theory and data. To develop these insights we used the constructs of problem formulation and problem solving. We were interested in three specific aspects of the problem-solving process. First, how firms find, frame, and formulate environmental problems that enable the firm to create and appropriate value? Second, how firms search efficiently and create valuable solutions to chosen environmental problems? Third, how firms efficiently implement solutions to create and appropriate value (Nickerson, Yen, & Mahoney, 2012)?

Case study: environmental problem formulation and problem solving This section illustrates the process of environmental problem formulation and problem solving at Bearing Co. The section is structured in three parts: 1) The role of top management and the environmental vision, 2) illustrations of some selected problem formulations and the search for problem solution processes in one of the firm’s business areas, where we focus on one particular product area, and 3) the effects of the environmental vision and problem reformulations on the business.

Vision and role of top management Among Bearing Co.’s recent challenges, one that has been prioritized is climate change. In mid-2000 its motivation for

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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Formulating problems for commercializing new technologies increased commitment to environmental sustainability was (and still is) that energy prices were likely to increase because of resource limitations and carbon pricing. At the same time the firm was in a unique position to do something about this (Bearing Co., internal document, 2012). For several years, Bearing Co. had been working on and achieved considerable success in reducing its carbon and energy requirements in its manufacturing operations. In mid-2000, the firm had acquired a broader understanding of the environmental performance of its activities during different stages in the value chain. It realized that every stage in the value chain — from raw materials selection and processing, to utilization of its products by customers — had an environmental impact that could be reduced. Applied research and development showed that how its products and solutions were utilized, and how they performed in applications or processes — the use phase — had the greatest potential for reducing environmental impact. In the words of the Chief Technology Officer: We found that the net environmental impact [of the product] depends on the application. And by that I mean the specific use of the product in a specific situation. The motivation for increased commitment to environmental issues was initiated by the firm’s new CEO. During a twoday executive seminar with CEOs arranged by one of the authors and other colleagues, the CEO of Bearing Co., during a session that included a leading scholar in climate change, recognized that climate change presented both risks and opportunities for his firm. He believed it demanded a clear vision and new goals to help customers to reduce their carbon dioxide (CO2) emissions. Hence, although the firm was manufacturing products that were considered energy efficient (the core competence of the firm), the CEO realized that the firm could make significant contributions to improving energy efficiency and reducing climate change through the formulation of a new environmental vision. The environmental vision was initiated at corporate level and, to a large extent, was driven by the CEO. In the words of the vice president of sustainability at Bearing Co.: If this were a one man show, it would be the show of the CEO. . . . His personal involvement was, and still is, crucial. The firm’s environmental vision is expressed as ‘‘achieving a net positive contribution to the environment’’ (Annual report, 2010). In 2005, a concept called Netplus was launched to define the firm’s commitment to this vision. It consists of two environmental goals, formulated as: 1) to reduce the negative environmental impact deriving from Bearing Co.’s operations, and 2) to increase the positive environmental impact delivered by Bearing Co. solutions by innovating and offering new technologies, products, and services with enhanced environmental performance characteristics. A member of the top management team explained: We have an environmental vision to show that top management believes this is important. By doing so we will be able to make things happen in the business areas. . . The vision is critical in order to show the value it stands for and the ambition is that we shall communicate, and that it should be understood, in the whole organization that

5 energy efficiency in the customer application is important. (Senior vice president). Worth emphasizing is that the goal of the vision and the development of the solutions were not only to provide a positive environmental impact: There has to be a business case for the solutions. By showing that top management pushes for environmental innovation by establishing a clear vision we can change the culture in the firm to think in terms of energy efficiency, but it has to contribute to our business as well in terms of profits. (Senior vice president). Netplus is also a portfolio of environmentally friendly products that have to meet difficult and stringent environmental performance requirements. Since there are no established standards for calculating the environmental performance of products and services during the customer use phase, Bearing Co. developed its own methods incorporating concepts and standards such as life cycle assessment. Therefore, although the vision covers all potential products and solutions, not all of these are included in the Netplus portfolio. We have many products that are environmentally friendly and that do not reach the criteria to be incorporated in the Netplus portfolio and far from all new development that aims to be incorporated will be that. . . We have high demands and high ambitions. In the beginning of year 2013 we had a turnover of s290 million from the 14 products in the Netplus portfolio and we will increase this four times by year 2016. (Senior vice president). The vision’s goals can be seen as the critical goal part of a problem formulation in line with Nickerson and Zenger (2004). So how do firms find solutions to environmental problems? In Bearing Co. the vision is realized in the way that all business areas develop and launch their own solutions, based on the vision statement: Within each business area there is a report system. The development and progress need to be reported and presented in the group management meetings. It is the presidents for the business areas that are responsible for the goals and it is the responsibility of these presidents to make it clear for their business area about the vision. If everything had been working as it should, the CEO and top management team would not have been engaged in this. However, we have seen that it does not work without the CEO and the top management not being involved. It is a signaling value. (Senior vice president). We next focus on one of the business areas in order to investigate how they formulate and search for problem solutions, and examine the role of the vision in the process.

Illustration of problem solutions in the automotive area The case illustration explores a problem solution search process conducted by the automotive business area, which resulted in the introduction of its new family of more energy efficient bearing solutions, referred to by respondents in the firm as part of ‘the green line’. The bearings were engineered

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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and manufactured to reduce power loss by up to 40% beyond the already efficient, standard bearing solution, and to help customers to reduce their energy consumption and CO2 emissions. In 2005, a German car manufacturer, a customer of Bearing Co.’s automotive business area, consulted Bearing Co. about a problem. The customer was searching for a low friction solution with certain performance dimensions, for a transmission setup. Bearing Co. initially saw this as a business opportunity to design and sell a solution. However, after estimating the costs involved in the search for a solution, Bearing Co. decided against committing the resources required to find a solution. In other words, Bearing Co. did not consider it a valuable problem. A year later, in 2006, Bearing Co.’s automotive business area was contacted by a supplier in the automotive industry, which had a similar problem to the one posed by the German car manufacturer in 2005. This customer had decomposed the problem into different tasks. In particular, it had been defined by the customer as focused on achieving a given degree of stiffness in the automotive supplier’s application — again, a transmission system — in addition to the more general problem of power loss. The technical challenge was quite substantial, as suggested by the fact that the customer had already tried to find a solution using its usual supplier of bearing solutions, and since this had been unsuccessful, the customer had turned to Bearing Co. Bearing Co. recognized the business opportunity and this time decided to try to solve the problem. The development team set up in Bearing Co. realized that the solution did not comprise just a single bearing arrangement, but involved a ‘‘unit concept’’ — a solution consisting of several bearing types in a preassembled unit — to achieve more stiffness in the arrangement. Bearing Co. developed the solution, which the development team referred to as ‘‘the unit concept’’ according to the product development manager. An important part of the process leading to this solution consisted of further decomposition of the problem specified by the customer. Bearing Co. then sold this solution to the customer and according to the business development director, ‘‘the commercialization was considered a success in the business area’’ although the market for it was quite limited. As already mentioned, in 2005, a new vision and environmental goals were launched by corporate headquarters, and this started to influence the business and development of the unit concept. Simultaneously, European fuel efficiency regulation was high on the agendas of original equipment manufacturers in the automotive sector. In summer 2005, the European Commission issued a high profile Proposal for a Council Directive on Passenger Car Related Taxes (COM(2005) 261), which was approved in 2006 by the European Parliament, with amendments (although was not finally passed until 2009).4 The result of these events in the context of the vision was that in 2005 and 2006 Bearing Co.’s automotive business area identified the need to prioritize another potentially valuable customer problem: increased fuel efficiency.

4 After approval from the European Parliament, the Council reached only partial agreement (ec.europa.eu/prelex, 2009-12-22) and discussions ensued. The resulting legislation was finally passed on April 23, 2009 (Regulation (EC) No 443/2009).

The rationale was the close connection between fuel consumption and CO2 emissions in modern internal combustion engines. The development team immediately redefined the power loss and friction in the transmission problems as a fuel efficiency problem, and consequently also within the unit concept already developed. In other words, the firm identified an additional problem that was solved by the already developed solution. This then became an additional benefit that could be delivered using the same solution. Consequently, the offer provided the solution to the two problems of (1) insufficient stiffness, and (2) poor fuel efficiency. Hence, the problem formulation had changed and Bearing Co., in the words of the business development manager, had developed a ‘‘completely new bearing unit’’. In 2007 the automotive business area at Bearing Co. (along with its customer industry) was focusing increasingly on the general problem of fuel efficiency in vehicles, driven in part by European regulation. In the course of its investigations, the automotive business area at Bearing Co. eventually identified a large set of potential problems related to power loss that could be resolved by solutions similar in principle to the one already developed. As a result, development of several variations of the ‘‘unit concept’’ commenced. In the case of many of the applications, the problem formulations and solutions were very similar to the original ones, and were what one interview described as ‘‘basically copies’’. In other cases major (technical) parts of the original solution were applicable to the solution to the new problem but minor parts needed to be customized. The consequent development projects in the automotive business area of Bearing Co. ran in 2007 and finished in terms of new products in 2008. The projects involved several separate teams of engineers in the business area but were coordinated by the original core team of four people — two managers and two developers — who used their internal networks to orchestrate the projects’ resources. During the development of these solutions, understanding of — and subsequently formulations of — the valuable customer problems being resolved, increasingly began to include environmental aspects. The first time that the environmental aspects of a resolved customer problem were actively communicated externally was in 2007. The automotive business area had developed one of its more successful follow-up products, the internally famous hybrid-pinion unit. Bearing Co. brought up the customer value from solving the environmental problem early on in discussions with customers, and it ‘‘was quite easily accepted’’, according to the product development manager. For subsequent solutions, the environmental aspects of the problems were made clear to customers by Bearing Co. to achieve confirmation of their relevance to the environmental problem. A complement to the solutions developed at that time was a piece of advanced modeling software developed by Bearing Co., which allowed estimations about fuel savings and CO2emissions in complex systems such as vehicles. This software was referred by several interviewees as important for communicating to the customer the value of the problems solved. One interviewee recalled a sales meeting with a customer where Bearing Co. presented the savings from using the product related to reduced friction. The customer seemed positive but asked for numbers that were more relevant to his own firm. The product development manager described it thus:

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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Formulating problems for commercializing new technologies There was a presentation at a customer, I remember, where we presented these products — and he said: ‘Well you can reduce the friction with a certain value’, then the customer said ‘Well, ok, but what is it in fuel economy? Tell me, what do I save in terms of fuel or in CO2? I need these figures! You can tell me a lot about friction, but in the end it is the CO2 or the fuel which counts’ In 2008, CO2-savings eventually became part of the core problem-formulation and consequently allowed Bearing Co. to identify new customers. This change in problem formulation began when the original development team wanted to communicate the value of its solutions to a broader audience and decided to participate in a conference on transmission systems, scheduled for autumn 2008 in Berlin. Before submitting the presentation, one of the managers of the product development team contacted the marketing and communication team in the automotive business area of Bearing Co. for support. The contact between the development team and the marketing team soon led to extensive work on the value proposition — the valuable customer problems that could be solved by the solutions — including and emphasizing the environmental problems. The work on the value proposition was at first organized between the original four-person development team and the marketing and communication team. The work on the value proposition was extended to include all the units in the automotive business area and involved several days of joint workshops. All this was closely related to the preparations for the large marketing campaign in 2008. The new solutions were considered ‘‘a nice fit’’ with the planned marketing campaign, and were quickly integrated into it, and the environmental aspects of the problems solved by the new solutions based on the unit concept were communicated widely externally. When the campaign was launched, the solutions were marketed based on the same value proposition as applies currently. They carry a branding label representing ‘‘energy efficiency’’, and are listed as one of the 12 main product categories on Bearing Co.’s website. The solutions are available for a wide range of important customer applications, and are marketed with an emphasis on their environmental sustainability. For example, product brochures use terms typically related to environmental sustainability, e.g. ‘‘CO2 emissions’’, ‘‘global energy consumption’’ and ‘‘sustainability’’ while displaying images of a sunrise over a blue planet as viewed from space (Bearing Co., internal document, 2009). The solutions can achieve smaller power losses than most, if not all, comparable bearing arrangements. In terms of the trade-off, buyers looking for bearing solutions often take several technical performance attributes into consideration, depending on the application. These performance attributes typically include noise, friction, life, and geometry and carrying capacity per bearing size. It should be noted that although the energy efficient solutions have improved performance significantly in terms of friction and power loss attributes, this sometimes comes at the cost of a rebalancing between some of the other performance attributes, in particular carrying capacity. The environmental problem addressed by the energy efficient solutions is the energy wasted due to avoidable friction and power loss. Thus, the energy efficient

7 product-line is a solution to an environmental problem that is application specific, a view that was repeatedly stressed by several respondents, for example the vice president of sustainability at Bearing Co said that: It’s not the product in itself, it’s the product in a particular application that is more sustainable. The problem addressed is an environmental problem in the sense that its solution helps to alleviate some of the pressures on the four system conditions for a sustainable society (Robe ¨cker, 2000). In the case ´rt, Holmberg, & Weizsa of the energy produced by the combustion of fossil fuels, the breaking of the first system condition is alleviated in part by the use of energy efficient solutions. In somewhat more practical terms, this means reducing CO2 emissions that contribute to climate change. For car manufacturers, the energy efficient products enable the production of more fuel efficient cars, resulting in lower total operational costs for customers and lower future penalties based on CO2 regulation (e.g. the EU Regulation (EC) No 443/2009). To summarize, the process leading to the current ‘‘green line’’, as the solutions were referred to by respondents, was initiated by a specific customer request not specifying an environmental problem. The first time the relevant problem was identified, it was not solved. However, the same problem was presented to Bearing Co. managers a year later by another firm but this time was decomposed and formulated to focus on one performance attribute: stiffness. It was then recognized by Bearing Co. as a valuable problem and was eventually solved. The subsequent search by Bearing Co. for additional attractive problem-solution pairs then interacted with an unrelated simultaneous problem formulation process, the development of the firm’s environmental vision which had led to the explicit formulation of another type of problem addressed by the same and similar solutions. This problem of fuel efficiency and CO2-emissions was quickly decomposed into problems related to friction and power loss. Although not initially recognized as very important, the areas of fuel efficiency and CO2-emmissions eventually became very prominent in the value proposition. Current offers based on the original customized solution are branded as ‘‘energy efficient’’, and referred to in the firm as ‘‘the green [product] line’’. Another example of an automotive industry product that was eventually included in the Netplus portfolio, is the Rotor Positioning Bearing. The Rotor Positioning Bearing was designed to improve the performance of automotive electric power steering systems and also to reduce fuel consumption by around 0.2—0.3 l per 100 km, and to reduce CO2-emissions. In particular, and initially, the bearing was designed as an integral component of Stop-Start systems for micro-hybrid vehicles, which consists of an alternator with a motor to restart the engine. The evolution of the development and market entry followed the same process as described above of a large customer approaching Bearing Co. to solve a problem that the customer was unable to solve itself. In the words of the senior manager for mechatronics solutions: The customer came to us with the problem to find an accurate and reliable solution for their start alternator for hybrid vehicles. Hence, they formulated the problem for us and we solved the problem based on our technologies.

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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J. Bjo ¨rkdahl, M. Linder

The project started at approximately the same time as the environmental vision was announced, and the people behind the solution took account of the environmental vision and its ideas: We had a focus to take into account the requirements of these ideas so in the second phase of the project [after the solution and production to the customer] we started to reformulate the initial customer problem. To do this we started to create tools and methods for calculating CO2 reductions during the usage of the products. By reformulating the problem for the Rotor Positioning Bearing and accounting for the problems in the environmental vision, the firm was able to attract new customers with variants of the first solution that enabled the firm to go into mass production. Basically, as the sales manager for the Rotor Positioning Bearing explained: the reformulation helped us to find many new customers that were not possible given the first problem.

Effects The identification and formulation of the environmental problem addressed, helped Bearing Co. identify a wide array of seemingly unrelated applications for the originally customized solutions. The environmental vision had large impact on reformulation of the problem. The reformulation helped Bearing Co. scale up the number of applications and users where the original solution might be suitable. The identification and later formulation of the environmental problem addressed, affected the value propositions for the related products, which enabled Bearing Co. to create and capture more value from its solutions. It affected how originally customized solutions are marketed today, and increased the number of targetable customers. In the words of the interviewed business development manager: For us increasing environmental concern is an opportunity. We see it as a possibility to introduce our products and services to a larger customer base than before. Hence, when Bearing Co. search for business opportunities in line with the environmental vision these are not niche offerings that are adjacent to the core business and the core competencies. As the senior vice president emphasized: We do not try to look for niche offerings that disappear among our other offerings, it is rather the opposite. We search for the big problems where the solutions have a major impact and that draw on our core competencies. At the same time the environmental vision has become a journey for the firm in terms of its culture. The vision has resulted in major cultural change in the development of profitable environmental offerings that push the organization in new directions and enable the project teams to feel proud of being part of the Netplus program. In relation to sales, the environmental problem formulation had three positive effects. First, when products are

included in the Netplus portfolio they get more market exposure and reach more potential buyers. For example: to be able to communicate something it has to be clear. To isolate a part of a population and to classify it according to something is a good way to reach out on the market with a message. In our case it is Netplus. . . It sells more. (Senior vice president). Another explained that; in terms of global sales and global market penetration, the vision will be an important driver to increase our presence in the market. (Senior manager, automotive). Second, problem formulation often triggers discussions with existing and potential customers and engenders more interest. As argued by a sales manager in the automotive business area, ‘‘it can open up for new customers as it helps to promote the products to many new customers’’. Third, given that the products get special attention and are well recognized within the organization, the sales people often promote these solutions during contacts with existing or new customers. Many other innovations are lost in the firm’s overall offers, and some sales staff are unaware of them or forget about them.

Discussion The paper set out to explain the role of environmental vision and goals for the development and commercialization of environmental innovations in an established firm. In the introduction we discussed several reasons for developing offers with improved environmental performance, including internal and external branding, cost efficiency, anticipated regulation, and competition. Prior research says little about the interaction between an environmental sustainability vision and the product development process in an established firm. The literature emphasizes the role of top management commitment, shared vision, and explicit goal setting to enable environmental innovation (Hart, 1995; Larson, 2000). However their importance is mostly not explained, and is often implicitly assumed to be a result of the organization simply engaging in developing novel solutions to satisfy the environmental goals set by management. We have tried to show one way that firms formulate and subsequently solve environmental problems and their relation to the environmental vision. We examined the case of a multinational supplier in the ball-bearing business, which successfully developed environmental product innovations. The case illustration is characterized by how the problem formulations for solutions changed over time, although in many cases, the same solutions applied to different problems. We believe that this demonstrates that this process, like any problem solving process, is iterative and bi-directional. The products in the studied case were not developed so much in response to the environmental vision; rather they were morphed and reprioritized by the business area in response to the environmental vision. Therefore, the commercialization of the green product lines was able to proceed more quickly, and arguably with more market success than would have been the case if the products had been developed from scratch in response to an environmental vision.

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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Formulating problems for commercializing new technologies Initially, customers conducted the first stage of decomposing the problem into more manageable sub-problems for Bearing Co. Thus, in line with the prior literature, decomposing the problem plays a role in finding a solution. Later, interaction occurred between the original problem and the corporate environmental vision. The vision was decomposed into two goals and criteria for inclusion in a prioritized product portfolio, constituting a statement of a preferred state of affairs, which is more aligned to the conditions for a sustainable society. Since it was combined with a thorough assessment of the current state of affairs, i.e. current environmental impact of Bearing Co.’s products over the product life cycle, it can be interpreted as the formulation of an environmental problem. The environmental problem formulation that eventually shaped the value proposition of the offers illustrated was eventually formulated in response to the environmental vision. In other words, the main problem addressed by the offers was partly formulated by corporate headquarters in an unrelated process, in parallel with the problem solution search process in the automotive business area. This interaction between problem formulations and already developed solutions enabled Bearing Co. to identify an increased number of problem-solution pairs, i.e. business opportunities, than was originally and independently identified by the business units. From the perspective of value creation and rent generation, the case description shows that the formulation of an environmental problem resulted in a situation where the appropriability domain of a technical solution was expanded. This problem solving perspective on events, contributes to the literature on the management of environmental innovation by providing an explanation of the mechanism enabling an environmental vision to influence the development of environmental innovations. That a causal connection exists, from an environmental vision to increased environmental innovation, has been suggested in other studies (Hart, 1995, 1997; Larson, 2000). While our design does not allow for empirical affirmation of causality, the analysis from a problem-solving perspective suggests and explains the iterative and bi-directional nature of such a connection. Thus, this paper contributes to our understanding of the practice and management of environmental innovation. From the perspective of the problem formulation and problem solving literature, the case description reinforces the observation that problem formulation and solving is a ‘messy’ process (Lyles, 1981; Mintzberg, Raisinghani, & Theoret, 1976; Nutt, 1984). More recent work by Hsieh et al. (2007), describes the process as sequential. That is, that the specific problem is first identified, followed by the search for a solution. Our findings contradict the temporal model assumed in Hsieh et al.’s theory about opportunity identification from the perspective of management as problem solving (i.e. Hsieh et al., 2007). Thus, our findings give more credence to the well-established iterative view of problem formulation. What we identified in our study was that the problem formulation process for an environmental problem, exemplified in the environmental vision, and the problem solution search process in the automotive business area exemplified in product development, initially were unrelated and were conducted in different parts of the firm. The cycling back to the problem formulation and reassessment of the

9 problem, resulted in the firm being able to create and appropriate more value. This paper and the cases described highlight the value of formulating environmental problems at a strategic level in order to facilitate the development of environmental innovations. By adopting a problem-solving perspective, we show that there are two ways in which profitable environmental innovations can be developed in firms. The first way, often implicit and given less space in this paper, is to develop novel solutions in response to already formulated environmental problems. The second way, which we focused on here, is to formulate environmental problems and let the organization identify already developed solutions, which together with the environmental problem formulation create valuable problem-solution pairs. Arguably, this second mechanism allows for faster and less risky commercialization, at least to the extent that the already developed solution will be better aligned with market knowledge and the firm’s core competences. Critics of environmental voluntarism (Newton & Harte, 1997) might see this argument as ‘greenwashing’, since Bearing Co. initially did not develop new green solutions but simply reformulated existing ones. However, we would argue that such criticism is unfair. By reformulating the problem addressed, Bearing Co. helped many customers who otherwise might not have bought the solutions, to decrease their downstream environmental impact. Whether the greenwashing label applies should not depend on which of two intertwined phases of problem-solving process (problem formulation or search for a solution) resources are targeted. Since these phases are inextricably intermingled and related (Smith, 1989; Volkema, 1986), committing resources to one should be seen equally as committing resources to the other. This study has some direct implications for management. The case description focuses on two examples of situations where environmental problem formulation expanded the opportunities for the solution owner. This illustrates that committing resources to the reworking of formulations of valuable problems in relation to existing solutions based on changes in the firms’ environment, is potentially valuable for the firm. Economizing on the problem formulation phase — the task of searching for the right problem — may result in identification of a limited application area. Therefore, an important task when choosing a suitable environmental vision is to select a suitable but delimited problem area in which existing problem solving capabilities apply. In our case such an area was found in the recent changes affecting the firm’s major customers. Recent regulatory initiatives based on greater awareness of eco-environmental aspects in many markets, are provoking such changes, bringing new customer and end-user demands. Thus, managers should neither overlook opportunities nor limit resources to possible reformulations of the problems addressed by the solutions and solution search capabilities already possessed by their firms, into environmental problems. Because this is a single case study, its generalizability is limited. However, by interpreting the phenomenon through a problem solving lens (Hsieh et al., 2007; Nickerson & Zenger, 2004; Pounds, 1969), we contribute to the environmental innovation literature. We can say that the parallel problem solving processes described here are a phenomenon that occurs in industry. We also provide arguments for why

Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001

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10 well-chosen environmental visions may lead to faster and more successful environmental innovation, compared to the often implicitly assumed sequential view of problem solving.

Conclusion While the importance of an environmental vision to effect environmental innovation is highlighted in the prior literature (e.g. Hart, 1995, 1997; Hutchinson, 1996; Larson, 2000; Werbach, 2009), the present study describes the actual organizational processes underlying the phenomenon. While our findings will perhaps not be surprising to readers familiar with the various problem-solving perspectives of firms (Cohen et al., 1972; Lyles, 1981; Nickerson & Zenger, 2004; Nutt, 1984), they have novel and practical implications for the field of environmental innovation. First, an important strategic issue for managers interested in accelerating environmental innovation is to define the environmental problem formulation so that it is aligned with solutions emerging spontaneously within the organization. Thus, successfully defining an environmental vision is as much about understanding the core competences of the organization as about understanding the impact of the natural environment on the firm’s market environment. Second, if this problem matching is successful, another implication is that the process from environmental goal formulation to commercialization could be achieved much faster than within a linear problem-solving perspective. Third, by accepting that problem formulation is as important and often as resource demanding for problem solving as the search for a solution, we highlight the importance of not cutting back on the problem formulation phase, and why relabeling existing technologies as ‘‘green’’ may not constitute greenwashing.

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Please cite this article in press as: Bjo ¨rkdahl, J., & Linder, M. Formulating problems for commercializing new technologies: The case of environmental innovation. Scandinavian Journal of Management (2014), http://dx.doi.org/10.1016/j.scaman.2014.05.001