Mining Megatrends for Innovation: Making a case for bolder action in a changing climate

This article is one in a series of updates WRI’s Next Practice research team is sharing about its ongoing work with business to develop tools and guidance for sustainability strategies. It builds on themes introduced here and here with examples of how companies are currently acting on megatrends. It also appears on the Corporate EcoForum's EcoInnovator blog.

Long-term, large-scale trends like population growth, resource constraints, and climate change are reshaping buyers’ needs and business practices. These big shifts and other “megatrends” are creating major risks (think: geopolitical unrest) and opportunities (think: clean technology innovations).

WRI is working with partners in the private sector to make a compelling case for next practices — innovations that will help solve urgent challenges, like global climate change. In doing so, we can draw several lessons from how companies approach megatrends today.

Companies recognize “megatrends” as important, but are not necessarily acting on them.

In 2008, McKinsey asked 1300 executives [free registration required] how certain global trends would impact their profitability over the next five years. Many acknowledged links between global trends and profits but far fewer said they were acting on them. For example, while 700 of the respondents expected natural resource constraints to impact profits, only 400 were taking action to position themselves for these changes.

There were a number of reasons why the companies surveyed were not acting. In some cases executives said they lacked the skills or resources needed to address the trend. Others cited competing priorities. Businesses seem to have a gap to fill when it comes to actionable information on global challenges like natural resource scarcity and climate change.

Obstacles: time horizons and comfort zones.

One problem is time. For most companies, “long-term” means looking out two or maybe three years. Natural resources constraints and climate change have implications that stretch far beyond this timeframe. As such, they tend not to factor into business unit strategies or corporate financial priorities.

It can also be difficult to match action with the pace and scale of change reflected in today’s megatrends. Innovations to address a challenge like climate change, for example, will require companies to rethink fundamental business models and value chains. This is not an easy task for those accustomed to business-as-usual. Even with many companies recognizing the challenge, there remains a significant gap between current action and the pace of change needed to minimize climate change risks.

Companies making a compelling case for more action and innovation

So, what about those companies who are acting on megatrends? What lessons can we draw?

For one thing, these companies are looking beyond today’s economic turmoil to trends that will create new market opportunities in the future.

Siemens, for example, restructured earlier this year as part of efforts to focus on core competencies where they see opportunities to lead tomorrow’s markets. CEO Peter Löscher created a fourth “sector” within Siemens — Infrastructure and Cities — to build competitive advantage amid megatrends like demographic change, urbanization, and climate change.

He also sees major opportunities in the demand for clean energy and sustainable solutions. Siemens currently generates nearly €30 billion (US$40 billion) in revenue from such areas and Löscher wants to lead future markets for wind and solar power and next generation electricity grids. “Being good today means you have to be better tomorrow, and even better the day after tomorrow,” Löscher told BusinessWeek last January. “The biggest risk is complacency."

DuPont provides another example. That company has looked at global population trends and recognized the long-term need to provide food and energy to 9 billion people in 2050. Earlier this year, they saw an opportunity to meeting such needs by acquiring Danisco (producer of food ingredients, enzymes and biobased solutions) for US$6 billion. CEO Ellen Kullman announced the deal, noting “the R&D combination of DuPont and Danisco…will enable us to further respond to global megatrends and help provide for the food, energy and protection needs of a growing population.”

There are important insights to draw from these stories. To be proactive and ready to pioneer next practices, companies can:

• Connect megatrends with actionable sustainability risks, opportunities, and strategies. General recognition that a trend will impact the company is not enough. Proactive companies are drawing links between major shifts, like resource constraints and climate change, and specific strategies to position themselves for new markets.
• Take a longer term perspective to avoid blind spots. Companies looking at quarterly or annual time horizons are likely to overlook the value of longer-term sustainability innovations. Many companies may analyze only the near-term need to reduce greenhouse gases, advance clean energy or meet current food demand. Siemens and DuPont are taking a longer-term view of the scale of change, while pursuing near-term innovation opportunities to position themselves to meet both current and future needs.
• Create a compelling vision of change by showing how core competencies and collaboration can meet future needs. Transformation can be more comfortable if you show how current strengths can meet future demand for clean energy, sustainable cities and other needs in a changing climate. Siemens and DuPont are building on areas where they excel, like engineering and biotechnology, to create competitive advantages in tomorrow’s markets.

WRI and private sector partners, like Siemens and DuPont, work together to highlight opportunities for sustainability innovation. WRI’s Next Practice Collaborative is presently developing a toolkit to help companies catalyze more innovation and action. We look forward to sharing updates and getting your input as work moves forward.