Write a 1-page essay on the reading material from Unit 6.
6.2 Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design LEARNING OBJECTIVES 1. Evaluate and explain the conditions under which sustainability strategies succeed. 2. Discuss health challenges that offer market opportunities. 3. Analyze factors that favor sustainability innovation processes. In our first case we have the opportunity to track Method, an entrepreneurial consumer products company, through two stages in its early growth. The first case presents the company and its unique sustainability strategy, highlighting both the scope of its efforts and unanticipated challenges that arose. Technical notes are provided for background on health threats from exposure to toxic materials in everyday life. The second Method case provides a 2010 update on the company’s activities and distinctive focus on innovation process. It is preceded by a discussion of toxicity issues intended to highlight Method’s ongoing innovative efforts to differentiate itself as a company that is about supply-chain solutions to the chemical hazards increasingly on the minds of consumers and scientists. It was spring 2007, and Method cofounder Adam Lowry was deep in thought over enchiladas at Mercedes, a restaurant a block from his company’s office on Commercial Street in San Francisco. He began to sketch ideas on a piece of paper to sort the issues troubling him. As a company known for environmentally healthy household products with designer brand appeal, Method was eager to develop a biodegradable cleaning cloth. Sourcing polylactic acid (PLA) cloth from China had not been in his plans, but every US PLA manufacturer Lowry had talked to told him it was impossible for them to create the dry floor dusting cloth he wanted. There was also a genetic modification issue. US PLA producers did not screen their corn plant feedstock to determine whether it came from genetically modified organisms (GMOs). However, Lowry wondered, weren’t any bio-based and biodegradable materials a better alternative than oil-based polyester, the material used by the competition? Yet certain major retailers were unwilling to stock products that weren’t certifiably GMO-free. It was hard enough to manage a fast-growing new company, but why did some people seem willing to stop progress while they held out for perfection on the environmental front? The naysayers made Lowry think carefully about what it meant to be true to the environmental philosophy that formed the backbone of his business. He had often said that Method’s business was to change the way business was conducted. But where should the company draw the line?Andrea Larson, Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design, UVA-ENT-0099 (Charlottesville: Darden Business Publishing, University of Virginia, March 26, 2007). All quotations and references in this section, unless otherwise noted, come from this case. As a hot new company that had received widespread publicity for its dedication to environmental values and healthy, clean production, use, and disposal of all its products, Method had set high standards. In a relatively short time, it had created a model for excellence in integrating health and environmental concerns into corporate strategy. From only a germ of an idea in 1999, Method had experienced explosive growth during the intervening years. The company proved that home cleaning products could evolve from toxic substances that had to be locked away from children and hidden in cupboards to nice-smelling, stylishly packaged, biodegradable, benign products that consumers proudly displayed on their countertops. In 2006, Inc. magazine listed Method at number seven of the five hundred fastest and most successfully growing firms in the United States. Method stood out in many ways from the typical entrepreneurial firm. Leveraging only $300,000 in start-up capital, twentysomethings Adam Lowry and Eric Ryan caused small-scale “creative destruction” across a $17 billion industry in the United States by emphasizing the health, environmental, and emotional aspects of the most mundane of products: household cleaners. The company’s differentiating characteristic? Lowry and Ryan assumed from the start that incorporating ecological and human health concerns into corporate strategy was simply good business. By 2007, Method was growing rapidly and was profitable with forty-five employees and annual revenues of more than $50 million. Its products were available in well-known distribution channels (drugstores, department stores, supermarkets, and other retail outlets) in the United States, Canada, Australia, and the United Kingdom. Customers embraced Method’s products, giving the company live feedback on its website, praising the firm and providing tips for the future. They were a loyal crowd and a signal that the time was right for this kind of business model. They even requested T-shirts featuring the Method brand, and the company responded by offering two different shirts: one that said, “Cleans like a mother” and another that simply said, “Method,” both with the company slogan—”People against dirty”—on the back. A baseball cap was also available. Indeed, “People against dirty” was Method’s stated mission. The company website explains it this way: “Dirty means the toxic chemicals that make up many household products, it means polluting our land with nonrecyclable materials, it means testing products on innocent animals.…These things are dirty and we’re against that.” Under Lowry and Ryan’s leadership, Method shook up the monolithic and staid cleaning-products markets by delivering high-performance products that appealed to consumers from a price, design, health, and ecological perspective—simultaneously. From the original offering of a clear cleaning spray, Method’s product line had expanded by 2007 to a 125-product line of home solutions including dishwashing liquids and hand and body soaps. The “aircare” line, an array of air fresheners housed in innovatively designed dispensers, extended the product offerings in 2006, and the O-mop was added in 2007. All products were made in alignment with Method’s strategy. They had to be biodegradable; contain no propellants, aerosols, phosphates, or chlorine bleach; and be packaged in minimal and recyclable materials. Method used its product formulation, eye-catching design, and a lean outsourcing network of fifty suppliers to remain nimble and quick to market while building significant brand loyalty. Method sold its products in the United States through several national and regional groceries, but one of the company’s key relationships was with Target, the nation’s number-two mass retailer in 2007. Through Target’s 1,400 stores in 47 states, Method reached consumers across the United States. International sales were expanding, and the firm was regularly in discussion with new distribution channels. An Upstart Innovator in an Industry of Giants The US market for soaps and cleaning products did not seem a likely industry for innovation and environmental consciousness. It was dominated by corporate giants, many of which were integral to its founding. Although the soap and cleaning product industry was fragmented around the edges, with a typical supermarket stocking up to forty brands, market share was dominated by companies such as SC Johnson, Procter & Gamble (P&G), Unilever, and Colgate-Palmolive. To put Method’s position in perspective, its total annual sales were approximately 10 percent of Procter & Gamble’s sales in dish detergent alone ($317.6 million) (2006). P&G’s total annual sales in the category were more than $1 billion. Furthermore, the market for cleaning products was under steady cost pressure from private-label brands, increasing raw materials prices and consumers’ view of these products as commodities. Companies that reported positive numbers in the segment between 2000 and 2006 did so by cutting costs and consolidating operations. Startups such as Seventh Generation and others attempted to penetrate the mass market with “natural” products, but those products were largely relegated to health food stores and chains such as Whole Foods. For Method to have obtained any foothold in this heavily consolidated segment dominated by market giants seemed improbable at best. But for Method founders Lowry and Ryan, the massive scale and cost focus of their competitors offered an opportunity. Method to Their Madness “You have all your domestic experiences in that house or wherever you live,” Ryan explained. And so, “from the furniture you buy to your kitchenware, you put a lot of thought and emotion into what you put in that space. Yet the commodity products that you use to maintain this very important space tend to be uninteresting, ugly, and toxic—and you hide them away.”Andrea Larson, Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design, UVA-ENT-0099 (Charlottesville: Darden Business Publishing, University of Virginia, March 26, 2007). Lowry and Ryan didn’t understand why it had to be that way. They decided to take the opposite approach; if they could create products that were harmless to humans and the natural environment and were attractively designed with interesting colors and aromas, they could disrupt an industry populated with dinosaurs. By differentiating themselves from the competition in a significant and meaningful way, Lowry and Ryan hoped to offer an attractive alternative that also reduced the company’s ecological footprint and had a positive environmental impact. “It’s green clean for the mainstream,” said Lowry, “which wouldn’t happen if it wasn’t cool.”Andrea Larson, Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design, UVA-ENT-0099 (Charlottesville: Darden Business Publishing, University of Virginia, March 26, 2007). To make green cool, Method took a two-pronged approach. First, it formulated new product mixtures that performed as well as leading brands while minimizing environmental and health impacts. Cleaning product manufacturers had been the target of environmental complaints since the 1950s, when the federal government enacted the Federal Water Pollution Control Act in part to address the foaming of streams due to the use of surfactants, chemicals used in soaps and detergents to increase cleaning power. In addition to surfactants, household cleaners often contained phosphates, chemicals used as water softeners and that also acted as plant nutrients, providing an abundant food source for algae. Fast-growing algae resulted in algal blooms, which depleted oxygen levels and starved aquatic life. Water sources contaminated with phosphates were also toxic for animals to drink. Another environmentally problematic compound in cleaning products was chlorine bleach, which when released into the environment could react with other substances to create toxic compounds. According to the Method website, “A major problem with most household cleaners is that they biodegrade slowly, leading to an accumulation of toxins in the environment. The higher the concentration of toxins, the more dangerous they are to humans, animals, and plant life. The key is to create products that biodegrade into their natural components quickly and safely.”Andrea Larson, Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design, UVA-ENT-0099 (Charlottesville: Darden Business Publishing, University of Virginia, March 26, 2007). With a degree in chemical engineering from Stanford University, experience researching “green” plastics, and a stint at a climate-change think tank, Lowry saw these issues as opportunities. Method counted on the competition’s seeing environmental and health issues as “problems.” Doing so allowed Method to seize competitive advantage through designing out human health threats and ecological impacts from the start, while their larger competitors struggled to deal with increasing legislative and public image pressures. Method products sold at a slight premium to compensate for the extra effort