Regulation Can Change the Way You Innovate

Following oil spills like the Exxon Valdez, new environmental regulations drove the fastest changes in oil tanker design the industry had ever seen.

A historical analysis of the maritime sector has shown how tough environmental regulations triggered a shift from an internally focused and gradual approach to change, to an approach led by environmental innovation and collaboration.

Oil Tanker Innovation: From Slow and Closed to Fast and Open

For a century up to the 1990’s, tanker design changed little. ‘Bigger’ and ‘faster’ were the long-standing buzz words; innovation was incremental and in-house. Disasters such as the 1989 Exxon Valdez oil spill led to stricter regulations, exposing the industry to reputational damage. Environmental innovation became “the most powerful driver of innovation in the oil tanker industry,” according to researchers.

Zoran Perunović and Jelena Vidić- Perunović, both from the Technical University of Denmark, were interested in how innovation dynamics had evolved in response to these events. They reviewed historical archival data such as media publications, company records, and other official documents.

They found that new environmental regulations, such as requirements for double hulled tankers and new cleaning techniques, left many firms racing to keep up. Ship designers, builders, and operators had to change the way they innovated to stay competitive.

Get Innovations to Market Faster and Cheaper

The industry shifted from an enclosed model, with firms acting alone, to one using collaborative networks based on environmental innovation. A network based model relies on firms working with stakeholders both within and outside the maritime industry to meet the new demands and technical challenges.

Eventually, this new approach paid off in the form of reduced costs and time it took to get new products to market.

3 Key Stages of Sustainable Innovation

A NBS report on Innovation for Sustainability highlights key stages in the development of an innovation strategy. Below, we apply reformulate the stages as steps that can be applied to individual products, product lines, or entire businesses:

1. Operational optimization – “Just do things better.”

Improve the efficiency of existing processes, for example by reducing packaging or using renewable energy.

2. Organizational transformation – “Doing new things.”

Develop new products, services or business models, such as shifting from selling a product to leasing it.

3. Systems building – “Doing new things with others.”

Collaborate with other firms, for instance by using waste materials from a manufacturer as aggregate in construction projects.

Insights for Practitioners

• Involve stakeholders in your innovation process. Open, collaborative innovation has advantages during ‘tough times’ as it increases operational efficiency and enhances R&D effectiveness. Include your employees, customers, suppliers, and perhaps even your competitors in your processes to make your innovations robust.

• Reward collaboration. Put a system in place to incentivize and recognize effective employee collaboration.

• Utilize new and emerging technologies. Scan for inspiration. Read and watch content on topics you wouldn’t normally consider. Get out of the office to attend conferences in seemingly unrelated fields. And don’t wait until regulation mandates your industry to phase out legacy equipment.

Perunović, Z. and Vidić- Perunović, J. 2012. Environmental Regulation and Innovation Dynamics in the Oil Tanker Industry. California Management Review. 55-1: 130-148