Giving Compass' Take:

• In this excerpt from Can Business Save the Earth? authors Michael Lenox and Aaron Chatterji outline an innovation model to create sustainable disruption. 

• How can funders best participate in this model? What are the limitations of relying on business for social and environmental advancement? 

• Learn how to increase the odds for a positive triple bottom line. 

Value-laden pleas about what businesses should or could do cannot help us understand what they will do. Similarly, blind faith that markets will “figure things out” ignores the broader institutional context and the imperfections of markets. Economists are often cited for their advocacy of free markets, but they have also long pointed out the potential for market failures. Pollution is a classic example of one such failure, what is referred to as a negative externality—where individual efforts create a negative by-product that causes many to suffer.

Ultimately, the extent to which businesses will innovate disruptive, sustainable technologies is determined by a complex interplay between markets and various institutional actors: innovators who champion new sustainable technologies, investors who see market opportunities in these sustainable technologies, executives who steer large organizations toward profitable and sustainable opportunities, customers who are willing to pay for these sustainable technologies, activists who pressure businesses to invest in green innovation, and governments who incentivize new sustainable technologies through regulation, taxes, and other policy levers. Each of these players influences the degree to which businesses invest in and develop sustainable technologies.

We propose a model of innovation as a system. At the core is the process of innovation; the steps by which a concept is advanced into a viable product or service that disrupts existing markets or creates new markets. There are many ways of characterizing this process, but we suggest a simple four-step process from research to development to commercialization to scaling and diffusion. Each step is part of a critical path toward disruption. Not every concept will eventually scale and diffuse. In fact, most will not. The innovation process is as much a process by which concepts and technologies are winnowed with a few winners emerging in the end. Innovation is sometimes characterized as a funnel where thousands, if not millions, of ideas enter with only a handful exiting the funnel as disruptive technologies in the end.

Read the full article about sustainable disruption by Michael Lenox and Aaron Chatterji at Stanford Social Innovation Review.