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the entrepreneurial field offers insights into the relationship between business and the natural environment; (ii) studies of startup entrepreneurial firms implementing environmental and sustainable strategies provide important data that add to our rapidly evolving body of knowledge about the relationship between corporate behavior and the environment. Copyright 2000 John Wiley & Sons, Ltd. and ERP Environment.
Revised 8 June 2000 Accepted 19 June 2000
e want to maintain Schumpeters gale of creative destruction precisely because we need creativity and evolution (Allenby, 1997, p 110).
INTRODUCTION
One of the challenges facing corporations is how to define their relationship to the natural environment. Management efforts that characterized the 1970s through the 1990s have led to the emergence of the concept of corporate environmental responsibility within the sustainability framework. For the purposes of this paper, environmental management refers to compliance efforts and efficiency
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SUSTAINABLE INNOVATION improvements made to existing products and operations. Sustainability is defined as the innovative and potentially transformative corporate activities that generate new products and processes that challenge existing practice. This paper describes and analyses the case of Walden Paddlers. The case demonstrates that innovative environmental management and sustainability can occur in new firms. It also suggests that the innovations associated with sustainability exploit market inefficiencies and create future products. The literature exploring the motivating forces in business, technological innovation and the environment can be grouped into three general areas: the public policy view (Porter, 1991; Allenby, 1999) views regulation as a driver of innovation; a voluntary standards perspective, in which corporations adopt environmental performance standards to avoid existing or anticipated (Nash and Ehrenfeld, 1997), and a resource-based view, in which ecological considerations are incorporated into strategic management, and efficiency improvements are achieved through pollution prevention and product stewardship (Hart, 1995, 1997; Barney, 1991; Wernerfelt, 1984). Harts concepts of clean technology and sustainability vision argue for new designs and approaches (innovation). Graedel and Allenby (1995) offer industrial ecology as a new discipline that deals with environment technology issues in business. As the papers opening quotation indicates, Allenby (1997) believes that the creativity and speed needed to address environmental concerns will come from the private sector. From an economists view, Reinhardt (1998, 1999) argues that environmental investments should meet the same criteria as any other investments. He concludes that product differentiation and strategic changes that redefine competition in markets are direct ways of integrating environmental concerns into business, in recognition that ecological variables are now being used to competitive advantage (Shrivastava, 2000). Innovation, while present in this assessment, is implicit. From a business ethics perspective Freeman et al. (2000) argue in favor of the precautionary principle as a guide for corporate decision-making on enviCopyright 2000 John Wiley & Sons, Ltd and ERP Environment
ronmental issues. In general, business ethicists see the possibility for change based on a vision of the future that combines business, ethics and the environment (Shrivastava, 1996; Stead and Stead, 1996; Westra and Werhane, 1998). Other scholars stress successful combinations of quality management with environmental management and adapting traditional least cost, differentiation and niche strategies (Shrivastava, 1995, 1996). Hawken (1994), Schmidheiny (1992), Rowledge et al. (1999), Frankel (1998), Hedstrom et al. (1998) and Hawken et al. (1999) emphasize new approaches to commercial activity that focus on resource productivity and a transition to sustainable business strategies. Most of these authors urge businesses to take advantage of environmental efficiency improvements. In contrast, McDonough encourages pursuit of ecoeffectiveness, as opposed to ecoefficiency, implying innovative changes under sustainability principles are preferable to making current practices more efficient (McDonough and Braungart, 1998; McDonough, 2000). Collectively, this extensive literature is based almost exclusively on the study of large established firms (exceptions: Chouihard and Brown, 1997; Mehalik, 2000) and the emphasis is on efficiency and cost savings over innovation. Innovation is mentioned in this literature, but not as a central focus. Nor is there empirical documentation of smaller firms engaged in innovative environmental practices, despite the significant contribution of small and medium-sized firms to innovation more generally. This author is not aware of any published studies of successful new firms using environmental/sustainability principles to guide strategy and practice. Walden Paddlers represents such a case.
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A.L. LARSON academic literature for two centuries, recognizing in particular entrepreneurs ability to control and organize productive processes under conditions of risk and uncertainty (Knight, 1921). Joseph Schumpeter, the father of the theory of modern entrepreneurship, was the first to elaborate on the role of entrepreneurship in the economy and society (1934). His phrase the process of creative destruction describes the activity of entrepreneurs who stimulated fundamental change in society. The entrepreneurial function was the disequilibriating force that defined new frontiers of human endeavor. In Schumpeters view, creative destruction takes place through the discovery of new technologies, products, markets, processes and organizational forms that create clear alternatives to existing products and practices. Schumpeter also considered entrepreneurial the introduction of new combinations, for example, existing technology with new processes or applications, or enhanced products delivered to expanded market segments through a new organizational form. Schumpeters entrepreneurship and the process of creative destruction is indifferent to the particular location of an entrepreneur. He or she could be in a small firm, a mediumsized growing company, a large-scale global corporation or even a non-profit organization. It is even less concerned with whether the triggering actor is an individual, a team or a company. The entrepreneurial force is likely to be an outsider, for example, an individual from outside the industry creating change because of his or her ability to see possibilities to which those within the industry were blind. Alternatively, the outsider can be the firm that creates a product and takes it from one market into a new market, upsetting the balance in the second playing field. This outsider effect can be also created by a foreign company able to build unique and unprecedented alliances with networks of suppliers drawing from them innovations for which domestic competitors were unable to see a need. To Schumpeter these instances of a large genus which comprises innumerable humbler ones were responsible for revolutionary changes in the economy. Such undertakings,
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he argued, were difficult and existed outside the normal and routine tasks understood by most people: Forces will oppose the new ideas, and to overcome that resistance requires aptitudes that are present in only a small fraction of the population and that define the entrepreneurial type as well as the entrepreneurial function (Schumpeter J A. 1950. Capitalism, Socialism, and Democracy, 3rd edn. Harper: New York; 132). The entrepreneurial economy, in Schumpeters perspective, consists of a limited number of individuals and firms able to pursue entrepreneurial opportunities. But what exactly is an entrepreneurial opportunity? According to Schumpeter and others (Kirzner, 1979, 1989; Casson, 1982), to be called entrepreneurial, an activity must entail a discovery of new meansends relationships that generate a different image of the future. Efficiency improvements to existing goods and services do not constitute true entrepreneurial opportunities. Only the introduction of new goods, services, raw materials and organizing modes that allow outputs to be sold above the cost of production earn the term entrepreneurship. Because the entrepreneurial function transforms society with new products, technologies, markets, processes and organizational forms, it represents a significantly different commercial activity from the traditional sector. Under this view, the innovation process is the essence of entrepreneurship. Schumpeter saw the entrepreneurial innovative force in the economy as a constant challenge to the status quo, and separated the entrepreneurial process from business management represented by traditional and routine managerial activity. Schumpeter saw the management of large ongoing concerns focused on internal operations as a force discouraging the creative change that propelled capitalist economies forward. The economy can be conceptualized as consisting of two major sectors: the traditional economy (existing products, services, processes etc) and the entrepreneurial economy (innovation). The traditional sector was
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SUSTAINABLE INNOVATION characterized by incremental improvements to products and services and the protection and defense of established market positions with resources that help maintain stability in consumer taste and preference. Various contemporary scholars of entrepreneurship continue to emphasize opportunity and innovation, as well as the processes and modes of organizing through which entrepreneurs achieve their goals (Venkataraman, 1997; Shane and Venkataraman, 2000; Stevenson and Jarillo, 1990; Aldrich and Zimmer, 1990; Larson and Starr, 1993). Venkataraman (1997) captures the essence of this collective inquiry in three questions: When, why, and how [in the absence of current markets] do opportunities for the creation of goods and services in the future arise in an economy, 2) why, when and how are some are able to discover and exploit these opportunities while others cannot or do not; and last, 3) what are the economic psychological and social consequences of this pursuit of a future market not only for the pursuer, but also for the other stakeholders and for society as a whole (Venkataraman, 1997, pp 120121). If the objective is to understand how opportunities to bring into existence future goods and services are discovered, created and exploited, by whom and with what consequences, one must move beyond the opportunity to examine the nexus of the opportunity and the individual/team (Shane and Venkataraman, 2000); what processes are at work when individuals or teams pursue opportunities in the marketplace? If initial analysis suggests the business is feasible, the next step is to garner resources (capital, materials, skills etc) to test the ideas. Inherent in this process is the incorporation of multiple actors as resources are mobilized. Consequently, studies of entrepreneurial networks in the 1980s and 1990s expanded the definition of the entrepreneurial process to include resource providers such as suppliers, customers, investors and other parties from
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whom resources are mobilized. The network organization figures large in entrepreneurship literature, helping explain how firms form, how entrepreneurs mobilize resources and how small to medium-sized companies can be highly innovative. This understanding of entrepreneurship as a process that unfolds through a network of ties is fundamental to its definition. Lone firms or individuals are extremely limited in their ability to sustain innovation and growth over time. Nor is the story one of pure economics. Economic exchange is embedded in network structures influenced strongly by social factors (Granovetter, 1985), allowing the network actors to secure favorable terms of exchange due to their inclusion in the network structure (Burt, 1997). This literature highlights the entrepreneurs dependency on external ties (Lorenzoni and Ornati, 1988; Jarillo, 1988; Larson, 1991; Larson and Starr, 1993) and the use of network relationships for learning, innovation and increased competitiveness (Aldrich and Zimmer, 1990; Larson, 1992; Lane and Bachmann, 1996; Lipparini and Sobrero, 1997; Powell and Brantley, 1992; Powell et al., 1996). The relational logic by which such cooperation is achieved reduces uncertainty by distributing risk, enhancing learning and enabling innovative performance within the firms and across the network (Hakansson and Johnson, 1988; Larson, 1992). Competitiveness emerges as a networkembedded capacity and the coordination among firms, maximizing firm-specific competencies represents a strategic leverage in accomplishing and maintaining a (Porter-style) sustainable competitive advantage (Lipparini and Sobrero, 1994, p 127). Entrepreneurial leadership is about designing, cultivating and refining (including paring back and augmenting) these networks of relationships with other firms and individuals who come to see their own visions and economic aspirations achieved through union with a team of like-minded people and organizations. It includes an ability to manage laterally to control the process by which
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A.L. LARSON information, capital, and other resources are pulled together. When viewed through the entrepreneurship lens, the entrepreneurial leaders creativity includes the producing and managing of a new supply chain that generates innovation. To summarize, at the core of the entrepreneurship literature are the concepts of opportunity, innovation and future products as well as the processes including network formation that unfold at the nexus of the opportunity and the entrepreneur.
RESEARCH DESIGN
Data on the entrepreneur and the network organization were gathered over four years and included publicly available information and other documents from the company. A dozen in-depth interviews of between one and two hours with the entrepreneur were conducted between 1994 and 1999 to document the process through which the organization was built and stabilized as an ongoing concern. Two detailed accounts were written in 1997 and 1999 documenting respectively the start-up virtual corporation model and the environmental strategy the company pursued (Farrow et al., 2000). The advantage of field work lies with the insights into process. In this case the ethnographic information, which can only be gathered through interviews, provides the detail necessary to fully understand the innovation process, while case studies have obvious limits in terms of generalizability, but can be used in conjunction with other research results to suggest patterns. Case studies also can be exemplars for theory development, as will be demonstrated here.
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SUSTAINABLE INNOVATION boat that had the attractive design characteristics of more expensive kayaks? Research on the kayak market indicated participation in the sport was growing at a rapid rate. The industry was fragmented with some 75 firms, most of which were privately held small operations. The top eight to ten firms produced 90% of the units. A study of consumer demographics revealed overlooked segments in the older age groups and among children. Study of the recycled plastics market, still in its infancy, suggested there would be challenges to finding the appropriate mix of plastics, but it appeared no one had made the effort. Distribution strategy through the small number of leading retailers looked possible. An opportunity appeared to exist, based on a Farrows best analysis of incomplete data. Farrow moved quickly. In late 1992 Walden Paddlers was incorporated and the first boats were produced in April the following year. portance of growing secondary materials markets so that waste could be diverted from its path to the landfill and used productively again in new products. By inclination he also had a love for the outdoors that led him, after an uninspiring job with an electronic equipment manufacturer company, to want to work only with environmentally related firms. He was known to be persuasive, open minded and a learner. Farrow was concerned about what he called trash velocity, the speed at which consumer products travel through the market to the landfill. A key part of Walden Paddlers environmental strategy was to slow the velocity of the material cycle by diverting high-velocity trash (in this case, high density polyethelene, c2 HDPE-milk containers, shampoo bottles and so forth) to manufacture durable goods with an expected 10 year life. The processes used to produce Walden Paddlers kayaks made them repairable and recyclable so they lasted for years before becoming the potential feedstocks for future products. In summary, while he knew little about kayaks, Farrow brought skills, environmental knowledge and personal values to the table that were ideal for the pursuit of this opportunity.
THE ENTREPRENEUR
Paul Farrow had an undergraduate degree in finance from Wharton, but claimed to have learned more about business by successfully selling new Toyotas during his college years. His finance background enabled him to work as the budget and planning manager for a small new firm that worked on environmental quality monitoring programs. By the early 1990s he had worked in financial and general management positions with several environmentally related corporations that had experienced rapid growth. During this time, as a financial officer and an executive officer, he grew one firm from $7 million in revenues to $20 million, helped direct a small company turnaround that required significant layoffs and reinvention of the product line and led an environmental equipment division of the firm Groundwater Technology. His involvement in environmental cleanup projects and his exposure to environmental pollution issues in his various positions educated him about the increasing severity of waste disposal problems, related water quality problems and the imCopyright 2000 John Wiley & Sons, Ltd and ERP Environment
THE PROCESS OF ENTREPRENEURSHIP: THE NEXUS OF THE OPPORTUNITY AND THE ENTREPRENEUR
In October 1993 Farrow formalized a mission statement. Walden Paddlers was dedicated to three objectives: (i) to help more people pursue the healthy outdoor pleasures of paddling, so they can enjoy nature and help to preserve it for our children; (ii) to divert waste from the landfills of our towns by making it into high quality, high value, useful, reusable/recyclable products and (iii) to provide a decent living for the companys families and those of its affiliated companies, dealers and suppliers. This mission was consistent with Farrows criteria for work, established earlier in his life: to make something, to connect work to
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A.L. LARSON healthy outdoor exercise, to be independent and to have fun. Now added to this was the vision of being a pioneer in the manufacturing of recycled plastics. Farrow did not view sustainability as a goal but assumed it as a starting point. As a decision guide, Walden Paddlers measured everything it did through the lens of environmental responsibility. The decision guide was the ever-present implicit question applied to all decisions: are we doing this in as environmentally responsible a way as possible? Though Farrow lacked knowledge of specific environmental design tools, the guide afforded a quick and inexpensive means of evaluating decisions and driving innovation. To engage suppliers and customers in the virtual network, the decision guide of environmental responsibility had to benefit each stakeholder. many parts of the work for benefit and efficiency, even as they operated under the common objective of making and selling high quality, popularly priced and environmentally responsible kayaks. A vertically integrated corporation has an array of internal functional areas that can collaborate to combine ecological sustainability and economic advantage. In contrast, most of the Walden networks key functions design, materials sourcing, manufacturing, packaging, distribution, marketing, transportation and sales required strong, concurrent relationships with other companies.
INNOVATION IN ORGANIZING
Walden Paddlers was a virtual corporation with no employees. To avoid overhead, the owners founder Paul Farrow and operations manager Dale Vetter leased themselves and a small core staff from an employee leasing company (Employee Solutions, Inc. of Framingham, MA). To accommodate the seasonal nature of the paddle-sports market, Walden had a year-round team of seven, augmented by an additional ten people from late winter into mid-to-late summer, to perform various tasks including some assembly at its headquarters in Concord, MA. Walden built and managed a network of affiliated companies, each a leader in its area and brought together to make kayaks. The network functioned much like the departments of a large, vertically integrated corporation. The links were made explicit by business contracts, usually in the form of short letters. The strategy of forming a network of collaborative alliances helped the companies involved to realize the advantages of vertically integrated functions while remaining flexible, efficient and innovative (Larson, 1992). The existence of formal and informal contracts among the affiliates allowed them to measure
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SUSTAINABLE INNOVATION The designer As discussions with Hardigg progressed, Farrow also contracted with General Composites of Clifton Park, NY, to design the kayaks. Jeff Allott, the designer at General Composites, was quite interested in developing a design that used recycled resins because he was interested in paddle-sports and the firm wanted to diversify. However, Allott found that all applicable design data for plastic was for virgin resins. In fact, Farrow and Allott were told their product idea was impossible: that a high performance recreational kayak could not be rotationally molded from recycled resins. Undeterred, Farrow, Allott and Hardigg worked together towards their common objective. The rotomolding process required plastics with different specifications than most of the c2 HDPE available from postconsumer sources. Therefore, Hardigg used postindustrial recycled HDPE plastic of rotomoldable grade, which was available as scrap in the market and from Hardiggs other activities, as an additive to the postconsumer resin mix. Developing the formula took several months, as the team sought a way to mold recycled resins without their becoming brittle after their second or third exposure to heat. The group relied on computed load and strength requirements, plus informal tests (throwing molded items high in the air to crash down on the pavement) and formal tests in the Hardigg laboratory as it progressed toward acceptable results. Over three months, they developed a formula that worked by making iterative adjustments to the formula and process. The rotomolding process began with a metal mold that opened lengthwise like an envelope and was filled with plastic powder. It was then heated and rotated in an oven, where the plastic powder melted and coated the mold. The mold was removed from the oven after a precise length of time at a set temperature and continued to rotate as the plastic cooled and solidified to form a one piece shape of uniform color. Recycled resins alone had proved too brittle when rotomolded to make a kayak that met strength and durability specifications. Also, because the recyclable plastic contained plasCopyright 2000 John Wiley & Sons, Ltd and ERP Environment
tic of different colors, the kayaks produced with them had to be darker. Virgin plastics, on the other hand, provided toughness and an unlimited choice of colors. To pursue the goal of making kayaks from 100 percent recycled plastic, Farrow and Hardigg turned to the supplier of recycled plastic. The recycled plastic supplier Waldens insistence on improving the performance characteristics of recycled plastic challenged the resin recycler, Clearvue Plastics of Amsterdam, NY. Hardigg and Walden worked with Clearvue to produce a plastic pellet that no one previously had thought technically feasible. To meet the needs of Hardigg and Walden, Clearvue mixed experimental blends. Known for its openness to new ideas, Clearvue also a small struggling startup at the time was a good partner. From Clearvues perspective, Walden offered the prospect of long-term demand for the c2 HDPE it bought and processed. Pushing the technology as much as it could, Walden Paddlers accepted a mix of 50 percent recycled content and 50 percent virgin resins for its first kayak, the Walden Naturalist, first marketed in 19931994. This level of recycled content was important to Walden from a marketing standpoint, because it met the stringent guidelines of the New York Department of Environmental Quality for labeling as recycled. These were the most stringent state guidelines in the country. By using recycled plastics and basing its decision making on environmental responsibility, the Walden network realized lower resin cost, a technologically advanced plastic pellet, no performance penalty, enhanced product market appeal and product differentiation, all achieved through persistence and a small investment of $5000 to $10 000. And Clearvue joined the Walden network. A second manufacturer and its recycled plastics supplier Seeking to make its kayaks even more environmentally responsible, Walden Paddlers
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A.L. LARSON continued to push toward its goal of a 100 percent recycled kayak. For its next product, the Walden Vision kayak, Walden chose thermoforming technology instead of rotomolding. Thermoforming technology molded one-half of the kayak at a time. A heated sheet of plastic was stretched over a mold of a boat half and then sucked into place. With this process brittleness was not an issue, and Walden was able to create kayaks with different colored tops and bottoms that looked like higher priced fiberglass racing kayaks. Walden contracted with Universal Plastics of Chicopee, MA, to produce the Walden Vision. Walden and Universal worked with the Royalite Corporation, a key resin supplier to Universal, to resolve the issue of color and to formulate the recycled resins for the new kayak. Previously, Royalite had separated its resins into only three general color categories: black, uncolored and mixed (varied). Walden asked Universal to supply resins of specific colors. Royalite responded by further separating its resins to produce a broader array of colors, which enabled the firm to expand its offerings to other customers. Walden produced its first kayak made of 100 percent recycled materials in 1995. The Walden network achieved this product breakthrough, thought to be impossible, because the collaborating firms continued to push innovation to make an environmentally responsible product. Each Walden Vision kayak contained resins from about 350 recycled milk containers. As of 1998, it was still the only kayak made of 100 percent postconsumer-recycled content on the market. While recycled content can include materials ranging from factory scrap to production overruns to collected municipal recyclables, only postconsumer recycled content contains exclusively products diverted from the solid waste stream at the end of their life-cycle and beyond the value-added process. By late 1994, with the Walden Vision entering the market, Walden sought to increase the recycled content of the Walden Naturalist. The success of the thermoformed Walden Vision was a wake-up call to Hardigg to push its rotomolding technology to allow for the use of 100 percent recycled resins, or otherCopyright 2000 John Wiley & Sons, Ltd and ERP Environment
wise run the risk of losing Waldens longterm business. Hardigg experimented with the crucial variables in kayak rotomolding: temperature, time, formula, coloring, skin thickness, foam thickness and hull proportions. After molding dozens of test kayaks, Hardigg achieved the goal: a 100 percent recycled kayak that combined high performance, great looks and low cost. The new Walden Naturalist entered the market in 1995. Its design was superior to the original design in several ways. By pursuing development of a 100 percent recycled kayak, Hardigg discovered that it could make the outer skin of the boat thicker and the inner foam layer thinner, producing a tougher, lighter kayak. These changes also improved its performance. With Hardiggs innovations, Walden achieved breakthroughs in product quality and performance and Hardigg insured its long-term relationship with Walden. In fact, Waldens subsequent product models the Spirit, Vista and Scout were all manufactured by Hardigg using rotomolding, and all contained 100 percent recycled plastic with at least 30 percent postconsumer content, exceeding by far the standard set by state guidelines. With no known competitors offering 100 percent recycled kayaks, by 1998 Hardigg and Walden were in a unique position. Hardigg was Waldens primary source for hulls. Its production volume increased between 1993 and 1998. Committed to their evolving partnership, Walden and Hardigg worked together on every new model between 1995 and 1999. Although Walden represented less than 10 percent of Hardiggs business in 1998, Hardigg obtained several other benefits from the relationship. According to Joe Strzegowski, Hardiggs manager of custom products, by showing the recycled kayaks, it generated market interest, but so far no other new customer has specified recycled plastic for its products. However, Hardigg took the initiative by including an option in contracts to blend recycled resins into certain custom products. Doing so saved costs for both Hardigg and its customers and enhanced Hardiggs competitive position. Other benefits
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SUSTAINABLE INNOVATION included higher market visibility, process improvements resulting from its efforts with Walden, reduced lead times obtained by adopting Waldens consumer- and dealerfriendly delivery practices and more effective utilization of plant capacity through seasonal planning and scheduling. Although Hardigg developed a method of using 100 percent recycled resins, the rotomolding process still required that a portion of the blend be a high quality postindustrial, rotomoldable grade HDPE. Walden, concerned about staying true to the meaning of 100 percent recycled content, insisted that Hardigg not use process waste for its postindustrial content that would otherwise be immediately reused as a matter of general operating sense. Rather, Walden convinced Hardigg to use only postindustrial HDPE that barring intervention or reprocessing would end up sent out as waste. Shipping and packaging Shipping is often synonymous with corrugated cardboard boxes, shrink wrap, crates, foam and other such packing supplies. By designing an environmentally responsible shipping system, Walden Paddlers eliminated much of the traditional shipping-material waste stream, while saving money, improving quality and still ensuring that its kayaks arrived safely at their destinations. Walden chose to view shipping as a closedloop logistics system rather than as a system of packaged product delivery. It designed and supplied a fleet of rolling racks that held either five or six kayaks per rack, depending on the model. These racks were filled with boat hulls on the shop floor at either Universal or Hardigg. The racks facilitated quality inspections at Hardigg, allowing inspectors to easily see and measure almost all aspects of the hulls. The racks also eliminated secondary handling of the hulls at both plants, thus reducing costs. The racks were wheeled to the loading dock and onto delivery trucks owned and operated by John Palmer Moving and Storage of Acton, MA. The trucks held 12 to 15 racks maximum per trip, and a truck could be loaded to capacity with the rack system in
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15 minutes. Using conventional packaging, it would have taken 10 minutes to pack each kayak and more than two hours to load a truck with about 100 kayaks, or about 18 hours of total effort. The $8 per kayak cost of conventional packaging was far more than the 25 cent per kayak cost of amortizing the racks. The racks of kayaks were unloaded at Walden, and used in the assembly shop without unpacking, then emptied as the finished boats were shipped out to dealers, and trucked back to Hardigg or Universal. No packing materials were used in this process. The rack system yielded incoming and outgoing transportation cost savings of $50 000 in 1997 alone. A fully loaded delivery truck using the rack system cost $225 per trip, or approximately $3 per kayak. For a typical delivery that used shrink wrap and foam instead of racks, the cost would be approximately $12 to $15 per kayak. Because the rack system was planned, scheduled, efficient and flexible, Walden received discount rates for trucking and labor from Palmer. Since the Palmer driver and truck were scheduled on a weekly plan by season, Palmer was able to minimize down time and optimize its scheduling for other customers, increasing its overall profitability. Walden also negotiated with New England Foam of Windsor, CT, to reduce waste and costs. Initially, it shipped foam foot braces and foam seat pads to Walden in thick cardboard boxes that Walden had to recycle or discard. To avoid unnecessary waste and disposal costs, Dale Vetter of Walden declined to accept the boxes and told the company that if they did not take their boxes back, Walden would have to find another foam supplier. Not wanting to lose a good business partner, New England Foam established a new delivery plan in which it reclaimed the boxes from the previous shipment to Walden when it delivered each new load of foam. It reused the boxes for shipments to Walden until they deteriorated and were recycled. Walden estimated the cost savings to New England Foam related to the reuse of boxes at 10 boxes per week, multiplied by an average of $2 per box, or about $1000 per year. New England Foam could easily extend the practice of reusing
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A.L. LARSON boxes to other customers to expand the savings. Once Walden assembled the kayaks at its facility, using labor leased from Employee Solutions, Inc., it delivered them to dealers using two methods of delivery. For orders in the Northeast region of the United States, Walden used its own truck and trailer for shipments using no packaging. It put kayaks on rolling racks, rolled them onto the trucks, and unloaded them at their final destinations. Walden saved money by avoiding the purchase of shipping materials, and the dealers saved money by eliminating unpacking labor. On these deliveries, Walden saved dealers $10 to $40 per kayak on freight, and $2 to $5 for unpacking labor and disposal. The average saving of $25 per kayak added about 10 percent to dealer gross profits. For destinations outside the Northeast, Walden created a closed-loop system using shipping bags. These durable and attractively colorful bags were made from mill-end runs of polyethylene scrap by the Tony Macedo Company in Manville, Rhode Island. Walden sent kayaks to the dealers in bags. The dealers either sent the bags back to Walden or sold the new ones to customers as storage bags. The bags sent back to Walden were reused, sometimes over a dozen times, before they were ultimately scrapped. Walden and its dealers realized several benefits from using the shipping bags instead of boxes. The traditional box and shrink wrap system would cost the retailer $21 per kayak ($15 for packaging, $2 for labor to unwrap, $2 for packaging disposal and an estimated $2 from damage incurred in unpacking). With the shipping bag system, the retailer purchased a shipping bag, and the first delivery cost $31: $28 for the cost of the bag, $1 for the labor to unwrap the kayak from the bag, and $2 to return the empty bag to Walden to be refilled. However, for every subsequent kayak delivery, the cost of the packaging consisted only of the labor to unwrap the kayak and the cost of returning the shipping bag, or $3 total. Thus, by the second use, the shipping bag system had already saved $4 per kayak delivery. After a dozen kayak deliveries, the shipping bag system saved $188 for the retailer compared to
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the traditional boxes ($2112($31+$3 11)). In addition, kayaks were easily removed from the shipping bags, whereas unpacking kayaks from cardboard and shrink wrap can be difficult. With the bags, Waldens kayaks did not suffer scratches or cuts during unpacking (a common occurrence in the industry); thus they looked better on display.
ANALYSIS OF WALDEN PADDLERSS STRATEGY THROUGH THE LENS OF THE LITERATURE ON ENTREPRENEURSHIP
The Walden study represents a case of Schumpeterian innovation, and thus lends itself to the analytic framework provided by the literature on enterpreneurship. An economic opportunity was identified by an individual with information that enabled him to see possibilities where others might not. The fit between the entrepreneur and the opportunity, central in the theory of entrepreneurship, was good. The individual had the experience and the financial and analytic skills to see the opportunity, analyse its feasibility and mobilize the resources required to successfully pursue the opportunity. The case study points also to the combined necessity of visionary leadership and goal setting at the helm on the one hand and simultaneous careful attention to detail and relationships on the other. Harts (1997) observation about the need for frameworks rings true: A vision of sustainability for an industry or a company is like a road map to the future, showing the way products and services must evolve and what new competencies will be needed to get there. The field data also suggest entrepreneurial leadership includes a capacity to mobilize resources in a network organization. This entails value chain creation and management, being sure that the vision and rules are understood and agreed upon by everyone. This requires informal communications, considerable selling of ideas and continuous learning and adaptability as new information emerges. The multiple challenges would seem to support Schumpeters expectation that only
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SUSTAINABLE INNOVATION a small fraction of the population is able to participate in the entrepreneurial function. In that nexus between opportunity and individual, a process unfolded that encouraged innovation and creativity among stakeholders. Hardigg (manufacturer) and Clearvue Plastics (supplier) worked together to produce a new plastic formulation that worked in the molds. Innovation continued with the second plastics recyclers resolution of the color issue, and manufacturers breakthroughs with production of a high quality/performance, low cost kayak using 100 percent recycled resins. An economically and environmentally superior closed-loop logistics system and packaging system were designed. Furthermore, production of an unprecedented product with new materials through an alternative mode of organization, the virtual corporation or network, offers another example of Schumpeterian innovation. In fact the field findings confirm what others have concluded, that sustainable business entrepreneurs need to consider the entire value chain as a source of opportunity (Mehalik, 2000; Goodman, 2000; Larson and Teisberg, 2000; Reinhardt, 1998). These innovations yielded clear benefits and improved the capabilities and profits of the partners a winwin situation for all. The product designer, Jeff Allott of General Composites, diversified his clientele and became proficient in designing with recycled plastics. The manufacturers, Universal Plastics and especially Hardigg, gained a profitable, long term relationship as well as proficiency with recycled plastics and improved operating insights. Clearvue Plastics and Royalite found a steady customer for their recycled resins. Up through 1997, Clearvue had processed more than 100 tons of material for Walden Paddlers kayaks. Royalite, prompted by Walden to broaden its color offerings, greatly expanded its resin sorting capacities to offer all customers a wider variety of colors. New England Foam realized savings of $1000 annually by reusing its shipping boxes for deliveries to Walden. The virtually waste-free delivery systems created economic benefits for the manufacturers, for Waldens retailers, for Palmer Moving and Storage and for the Tony Macedo Company in addition to
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Walden. And Walden achieved a stronger, lighter, recyclable kayak design with superior performance characteristics using a highly cost-effective material, 100-percent-recycled plastic resins. Their shipping system nearly eliminated the packaging waste stream, and their use of recycled resins created a desirable product differentiation and a positive reputation among retailers and in the marketplace. Since the initial product introduction in 1993, Walden Paddlers has sold over 15 000 kayaks. They were a market leader in popularly priced recreational kayaks, with yearly sales of over 3500 units for 1997, and 5500 units in 1998. The potential for this type of product and process innovation is significant when sustainability principles are applied to business. With so many commercial products and industrial processes at odds with sustainability goals, this arena represents an open frontier for innovation. The health of natural systems on which the economy depends also argues for the rapid evolution of environmentally appropriate technologies as the means by which adequate quality of life is assured. Some describe the movement toward sustainability as an industrial revolution with transformative potential inherent in the innovations that it demands and inspires (for example, McDonough and Braungart, 1998; Hawken et al., 1999). If this is so, we may be on the edge of a new wave of creative destruction with the potential to change fundamentally the competitive dynamics in many markets and industries. In this case, proposed changes to products should be evaluated not against the status quo but against likely future scenarios (Reinhardt, 1998). Those who study the interface between business and the natural environment have confidence that firms can migrate toward a long term stable carrying capacity (Allenby, 1997). Sustainable innovation is key to making progress. Future research should examine more cases to understand the rapidly evolving relationship between sustainable innovation and business. Entrepreneurship is about innovation, regardless of context, hence an entrepreneurial analysis can be applied to large and small firms as well as value chains engaged in
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A.L. LARSON sustainability. Entrepreneurship researchers should be encouraged to study sustainability as a source of change in society and scholars who study environmental issues from a variety of perspectives (strategy, ethics, economics) might benefit from an entrepreneurial analysis of the role of innovation in society and the questions of how and why sustainable innovation takes place.
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ACKNOWLEDGEMENTS
This paper draws from field research from 1994 to 1999, the 1997 case Walden Paddlers (UVA-G-0491), available through dardencases@virginia.edu, and a case study paper, Entrepreneurship, innovation and sustainability strategies: the case of Walden Paddlers, Inc by Paul H. Farrow (farrow@tiac.net), Richard R. Johnson (JohnsonRi@darden.gbus.virginia.edu) and Andrea Larson in Interfaces, Special Issue on Sustainable Business, May June 2000. The author is grateful for comments on an earlier draft from colleagues V. Venkataraman, P. Werhane and J. Liedtka.
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BIOGRAPHY
Andrea L. Larson is Associate Professor of Business Administration at Darden Graduate School of Business Administration, University of Virginia, P.O. Box 6550, Charlottesville, VA 22906-6550, USA. Tel.: +1 804 924-3221. Fax: +1 804 243-7677. E-mail: larsona@darden.gbus.virginia.edu
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